-----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, QodtMgSRKbZKw0lwhSN9jJfk+ym2+ftIDNeLnvyJjFc4HnaKqY29K/jjcha4A8u7 hF0z40pJVjc8ykUPjPPi7g== 0000950152-98-007909.txt : 19980930 0000950152-98-007909.hdr.sgml : 19980930 ACCESSION NUMBER: 0000950152-98-007909 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS HEALTHCARE INC CENTRAL INDEX KEY: 0001004990 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341816187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27602 FILM NUMBER: 98716687 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-K 1 NCS HEALTHCARE FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) ANNUAL REyPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] [X] FOR THE FISCAL YEAR ENDED JUNE 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] [ ] FOR THE TRANSITION PERIOD FROM _________________________ TO ___________________ COMMISSION FILE NUMBER 0-27602 NCS HEALTHCARE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 34-1816187 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification no.) 3201 Enterprise Parkway, Beachwood, Ohio 44122 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (216) 378-6800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.01 per share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of June 30, 1998, the registrant had 13,355,751 shares of Class A Common Stock, par value $.01 per share, and 6,463,244 shares of Class B Common Stock, par value $.01 per share, issued and outstanding. As of that date, the aggregate market value of these shares, which together constitute all of the voting stock of the registrant, held by non-affiliates was $410,828,555 (based upon the closing price of $28.50 per share of Class A Common Stock on the NASDAQ National Market on June 30, 1998). For purposes of this calculation, the registrant deems the 221,912 shares of Class A Common Stock and the 5,079,632 shares of Class B Common Stock held by all of its Directors and executive officers to be the shares of Class A Common Stock and Class B Common Stock held by affiliates. 1 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held in 1998 are incorporated by reference into Part III of this Form 10-K. Except as otherwise stated, the information contained in this Form 10-K is as of June 30, 1998. 2 3 NCS HEALTHCARE, INC. 1998 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PART I ITEM 1. BUSINESS 1 ITEM 2. PROPERTIES 10 ITEM 3. LEGAL PROCEEDINGS 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY 10 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 12 ITEM 6. SELECTED FINANCIAL DATA 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 42 ITEM 11. EXECUTIVE COMPENSATION 42 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 43
3 4 PART I ITEM 1. BUSINESS GENERAL NCS HealthCare, Inc. (the "Company" or "NCS") is a leading independent provider of pharmacy services to long-term care institutions including skilled nursing facilities, assisted living facilities and other institutional health care settings. The Company purchases and dispenses prescription and non-prescription pharmaceuticals and provides client facilities with related management services, automated medical record keeping, drug therapy evaluation and regulatory assistance. The Company also provides a broad array of ancillary health care services to complement its core pharmacy services, including infusion therapy, physical, speech and occupational therapies, nutrition management, mobile diagnostics and other services. The Company is considered to operate principally in one business segment. NCS entered the long-term care pharmacy services industry in 1986 with the acquisition of Modern Pharmacy Consultants, Inc. in Northeastern Ohio. Through June 30, 1998, the Company had completed a total of 49 acquisitions (other than fold-in acquisitions) including 11 acquisitions since the beginning of fiscal 1998. As a result of these acquisitions, the Company has expanded its geographic presence into 34 states serving approximately 248,000 residents. On February 14, 1996, the Company issued 4,476,000 shares of Class A Common Stock at $16.50 per share in connection with its initial public offering. A portion of the net proceeds from the stock issuance were used to repay approximately $27,000,000 of outstanding indebtedness under long and short-term borrowings. The remaining proceeds were used to fund business acquisitions. On October 4, 1996, the Company completed a public offering of 4,235,000 shares of Class A Common Stock at $31.00 per share in connection with a public offering. A portion of the net proceeds were used to repay approximately $7,000,000 of outstanding indebtedness under short-term borrowings. The remaining proceeds were used to fund business acquisitions. On August 13, 1997, the Company issued $100,000,000 of convertible subordinated debentures due 2004. Net proceeds to the Company were approximately $97,250,000 net of underwriting discounts and expenses. The debentures carry an interest rate of 5-3/4 % and are convertible into shares of Class A Common Stock at any time prior to maturity at $32.70 per share. A portion of the proceeds from the debenture offering was used to repay approximately $21,000,000 of outstanding indebtedness under short-term borrowings. The remaining proceeds were used to fund business acquisitions. MARKET OVERVIEW Institutional pharmacies purchase, repackage and distribute pharmaceuticals to residents of long-term care facilities such as skilled nursing facilities, assisted living facilities and other institutional health care settings. Unlike hospitals, most long-term care facilities do not have on-site pharmacies but depend instead on outside sources to provide the necessary products and services. In response to a changing regulatory environment and other factors, the sophistication and breadth of services required by long-term care facilities have increased dramatically in recent years. Today, in addition to providing pharmaceuticals, institutional pharmacies provide consultant pharmacy services, which include monitoring the control, distribution and administration of drugs within the long-term care facility and assisting in compliance with applicable regulations, as well as therapeutic monitoring and drug utilization review services. With the average long-term care facility patient taking six to eight medications per day, high quality, cost-efficient systems for dispensing and monitoring patient drug regimens are critical. Providing these services places the institutional pharmacy in a central role of influencing the effectiveness and cost of care. Based on data from industry sources, the Company estimates that the U.S. market for pharmacy services (including consulting services and related supplies) in long-term care and assisted living facilities will approximate $6 billion for 1998. The Company believes that the market is growing due primarily to three factors. First, the number of long-term care facility residents is rising as a result of demographic trends. According to the U.S. Bureau of the Census, the number of persons over age 75 increased by approximately 30% from 1980 to 1990. In 1990, 6.1% of the population ages 75 to 84 and 24.5% of the population ages 85 or older received care in long-term care facilities. The segment of the population over age 85, which comprises the largest percentage of residents at long-term care facilities, is the fastest growing segment of the population and is expected to increase by more than 40% from 1990 to 2000. The second factor creating growth in the institutional pharmacy market is the increasing number of medications taken per day by long-term care facility residents. This increase is due to (i) advances in medical technology which have resulted in the availability of new drug therapy regimens and (ii) the generally higher acuity levels of residents as a result of both payors' efforts to have care delivered in the lowest cost setting and the generally older, and consequently sicker, population of long-term care facility residents. The third factor is that hospitals are discharging patients earlier due to funding pressures and cost containment efforts. Therefore, an increasing number of patients are now receiving care outside of traditional hospitals into alternative settings such as long-term care facilities. 1 5 In addition, the cost containment pressures in the hospital sector are also beginning to create opportunities for institutional pharmaceutical companies among rural hospitals as evidenced by an increasing trend towards outsourcing pharmaceutical services in this market. Based on data from industry sources, the Company estimates that the U.S. institutional pharmaceutical market for rural hospitals will approximate $3.6 billion for 1998. The Company believes that there are significant consolidation opportunities in the institutional pharmacy market. Prior to the 1970's, pharmacy needs of long-term care facilities were fulfilled by local retail pharmacies. Since then, the pharmacy and information needs of long-term care facilities have grown substantially and regulatory requirements and the reimbursement environment have become more complex. Institutional pharmacy companies, both independent and captive (those owned by an operator of long-term care facilities), are better positioned to meet these changing market demands. As a result, over the past 25 years the proportion of the market served by retail pharmacies has steadily declined, and institutional pharmacies have become the dominant providers of pharmacy services to the long-term care market. Despite this shift, the independent institutional pharmacy market remains highly fragmented. Faced with uncertainties related to health care reform, an increasing need for capital resources and the necessity to provide a wide range of specialized services, a growing number of retail and small institutional pharmacies are seeking to affiliate with, or be acquired by, large institutional pharmacies. There are several factors driving the consolidation among providers of long-term care pharmaceutical services. All of these factors relate to the advantages that large institutional providers have over retail and small institutional providers. Scale Advantages. Larger pharmacies are able to (i) realize advantages associated with size, including purchasing power, service breadth, more sophisticated sales and marketing programs and formulary management capabilities, (ii) achieve efficiencies in administrative functions and (iii) access the capital resources necessary to invest in critical computer systems and automation. Ability to Serve Multi-site Customers and Managed Care Payors. As a result of their ability to serve long-term care customers with several physical locations, larger pharmacies possess a significant competitive advantage over their smaller counterparts. Additionally, the Company believes that there are significant opportunities for full-service institutional pharmacies with a comprehensive range of services and regional coverage to provide a spectrum of health care products and services to managed care payors. Regulatory Expertise and Systems Capabilities. Long-term care facilities are demanding more sophisticated and specialized services from pharmacy providers due, in part, to the implementation in 1990 of the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The OBRA regulations, which were designed to upgrade and standardize care in nursing facilities, mandated strict new standards relating to planning, monitoring and reporting on the progress of patient care to include, among other things, prescription drug therapy. As a result, long-term care administrators increasingly seek experienced pharmacists and specialized providers with computerized information and documentation systems designed to monitor patient care and control the facilities' and payors' costs. Changing Market. The long-term care market is undergoing change as health care reform proposals are considered, cost-containment initiatives are implemented, managed care organizations seek regional coverage and consolidation takes place. Smaller providers are more concerned with, and generally less capable of capitalizing on opportunities created by these changes. BUSINESS STRATEGY NCS's strategy is to capitalize on industry trends and Company expertise to strengthen its position as a leading provider of high quality, integrated pharmacy and related services to institutional clients. The Company intends to implement this strategy by continuing its acquisition and development program, identifying and standardizing "best practices," cross marketing its services across its customer base to generate internal growth, utilizing its proprietary technology to deliver information and providing a broad array of ancillary health care services to complement its core pharmacy services. Acquisition and Development Program. NCS is continuing its acquisition program to capitalize on consolidation opportunities in the institutional pharmacy market. As of June 30, 1998, the Company had completed 49 acquisitions (other than fold-in acquisitions), including 11 acquisitions since the beginning of fiscal 1998. Through consolidation, the Company believes it can achieve substantial economies of scale in areas such as drug purchasing and can create efficiencies by consolidating administrative functions, centralizing formulary management, providing management information systems support and otherwise streamlining operations. In addition, by identifying areas in which acquired companies outperform NCS and standardizing these "best practices" company-wide, the Company strives to provide its customers with the highest quality services possible. In addition, NCS has developed the systems and competencies necessary to open new market locations that have the breadth of services and standards of quality of existing branches. To date, NCS has developed new sites in eight locations, and the Company intends to develop additional sites in markets in which competitive factors and economics make a start-up preferable to an acquisition. 2 6 SERVICES The Company has traditionally provided institutional pharmacy and infusion products and services to long-term care facility residents. In recent years, NCS has developed an array of services which address the needs of long-term care facilities to accommodate higher acuity admissions and manage costs. NCS believes that it is one of the few companies capable of offering customers the depth and breadth of these products and services. For the year ended June 30, 1998, approximately 77% of the Company's revenues were derived from providing pharmacy and consultant pharmacy services to long-term care facilities. An additional 6% of revenues were derived from providing infusion therapy services, 3% were derived from providing other therapy services and the remaining 14% were primarily derived from providing various other products and services, including nutrition management, oxygen and Medicare Part B services. Pharmacy Services. The Company's core business is providing pharmaceutical dispensing services to residents of long-term care facilities and other institutions. The Company purchases, repackages and dispenses prescription and non-prescription medication in accordance with physician orders and delivers such prescriptions at least daily to long-term care facilities for administration to residents by the nursing staffs of these facilities. The Company typically serves facilities within a two hour drive time of its distribution facility and provides 24 hour coverage 365 days per year. As of June 30, 1998, the Company provided its services from 89 sites in 34 states. NCS also provides its services through the management of third party institutional pharmacies. Upon receipt of a doctor's order, the information is entered into the Company's management information system, which automatically reviews the order for patient-specific allergies and potentially adverse interactions with other medications the patient is receiving. Following this analysis, a report on each order is produced for review by a Company pharmacist, who performs a prospective drug utilization analysis of the order and, if appropriate, substitutes generic drugs approved for equivalence by the U.S. Food and Drug Administration ("FDA"). In addition, subject to the prescribing physician's approval, the pharmacist may make therapeutic substitutions based on guidelines established by the Company's Therapeutic Formulary Committee. NCS provides pharmaceuticals to its clients through a unit dose distribution system. The Company divides the pharmaceuticals received in bulk form from its suppliers into unit dose packages for its customers. The unit dose format is designed to reduce errors, improve control over the distribution of pharmaceuticals and save nursing administration time relative to the bulk systems traditionally used by retail pharmacies. At those sites at which Concord DX, the Company's proprietary computer system, has been implemented, the Company utilizes its work flow control to improve efficiencies and uses its bar-coding system to enhance safety. Under this system, a bar code label is applied to each unit dose package. In most cases, this step is executed by the Company. At the request of the Company, certain manufacturers have begun to provide pharmaceuticals which are pre-packaged and bar coded. Through bar coding, information relating to the contents and destination of each unit dose package distributed can be automatically entered into the Concord DX system. This bar code technology enables the Company to monitor pharmaceuticals throughout the production and distribution process, thereby reducing errors, improving pharmacy control and enhancing production efficiency. As an additional service, NCS furnishes its clients with information captured by its computerized medical records and documentation system. This system captures patient care information which is used to create monthly management and quality assurance reports. The Company believes that this system of information management, combined with the unit dose delivery system, improves the efficiency and controls in nursing administration and reduces the likelihood of drug-related adverse consequences. Consultant Pharmacy Services. Federal and state regulations mandate that long-term care facilities improve the quality of patient care by retaining consultant pharmacist services to monitor and report on prescription drug therapy. The OBRA legislation implemented in 1990 seeks to further upgrade and standardize health care by setting forth more stringent standards relating to planning, monitoring and reporting on the progress of prescription drug therapy as well as facility-wide drug usage. Noncompliance with these regulations may result in monetary sanctions as well as the potential loss of the facility's ability to participate in Medicare and Medicaid reimbursement programs. NCS provides consulting services that help clients comply with federal and state regulations applicable to long-term care facilities. The Company's services include: (i) reviewing each patient's drug regimen to assess the appropriateness and efficacy of drug therapies, including a review of the patient's medical records, monitoring drug reactions to other drugs or food, monitoring lab results and recommending alternate therapies or discontinuing unnecessary drugs; (ii) participating on the Pharmacy and Therapeutics, Quality Assurance and other committees of the Company's clients; (iii) inspecting medication carts and storage rooms each month; (iv) monitoring and reporting monthly on facility-wide drug usage and drug administration systems and practices; (v) developing and maintaining the client's pharmaceutical policy and procedure manuals; and (vi) assisting the long-term care facility in complying with state and federal regulations as they pertain to patient care. 3 7 Additionally, NCS offers a specialized line of consulting services which help long-term care facilities enhance care and reduce and contain costs as well as comply with state and federal regulations. Under this service line, the Company provides: (i) data required for OBRA and other regulatory purposes, including reports on psychotropic drug usage (chemical restraints), antibiotic usage (infection control) and other drug usage; (ii) plan of care programs which assess each patient's state of health upon admission and monitor progress and outcomes using data on drug usage as well as dietary, physical therapy and social service inputs; (iii) counseling related to appropriate drug usage and implementation of drug protocols; (iv) on-site educational seminars for the long-term care facilities' staff on topics such as drug information relating to clinical indications, adverse drug reactions, drug protocols and special geriatric considerations in drug therapy, information and training on intravenous drug therapy and updates on OBRA and other regulatory compliance issues; (v) mock regulatory reviews for nursing staffs; and (vi) nurse consultant services and consulting for dietary, social services and medical records. Infusion Therapy. Infusion therapy is the intravenous delivery of medication. The Company's infusion therapy services include pain management, antibiotic therapy and chemotherapy for long-term care residents and home care patients. NCS received Joint Commission on the Accreditation of Healthcare Organizations accreditation at four sites and accreditation with commendation at another site. NCS prepares the product to be administered and delivers the product to the long-term care facility for administration by the nursing staff. Because the proper administration of infusion therapy requires a highly trained nursing staff, the Company provides education and certification programs to its clients in order to assure proper staff training and compliance with regulatory requirements. NCS believes that, by enhancing the ability of client facilities to administer infusion therapies, these programs have led to a greater use of infusion therapies throughout the Company's long-term care facility customer base. Other Therapies. In 1993, the Company began providing physical, speech and occupational therapy services. The Company currently provides these services to residents of 107 long-term care facilities. Nutrition Management. NCS assists long-term care facilities in menu planning, purchasing and managing their dietary operations. Because the food service area is typically one of the principal areas of regulatory violations, this is an area of critical concern to long-term care facility operators. Currently, NCS provides this service to over 300 long-term care facility customers. Other. The Company also provides long-term care facilities with assistance in complying with regulations concerning healthy and sanitary environments. The Company also assists its customers with various regulatory compliance matters and products and services relating to durable medical equipment ("DME"), oxygen, mobile diagnostics and Medicare Part B products and services. Finally, NCS offers specialized educational services that aid facilities in the training of their staffs. These services include surveys to prepare facilities for state reviews and training on appropriate nursing techniques in infusion therapy, wound care management and restorative nursing. FORMULARY MANAGEMENT NCS employs formulary management techniques designed to assist physicians in making the best clinical choice of drug therapy for patients at the lowest cost. Under the Company's formulary programs, NCS pharmacists assist prescribing physicians in designating the use of particular drugs from among therapeutic alternatives (including generic substitutions) and in the use of more cost-effective delivery systems and dose forms. The formulary takes into account such factors as pharmacology, safety and toxicity, efficacy, drug administration, quality of life and other considerations specific to the elderly population of long-term care facilities. The Company's formulary guidelines also provide relative pharmaceutical cost information to residents, their insurers or other payors of the pharmacy bill. Successful implementation of formulary guidelines is dependent upon close interaction between the pharmacist and the prescribing physician. NCS seeks to attract and retain highly trained clinical pharmacists and encourages their active participation in the caring for residents of long-term care facilities, including consultation with the facilities' medical staff and other prescribing physicians, to increase the likelihood that the most efficacious, safe and cost-effective drug therapy is prescribed. The Company's formulary program is directed by the NCS Formulary Committee, which is comprised of eight pharmacists and two additional members. The NCS Formulary Committee is responsible for establishing protocols and procedures for evaluating alternative drug therapies. To facilitate adherence to the Company's formulary guidelines, NCS annually publishes the NCS Formulary Guide, which presents the findings and recommendations of the NCS Formulary Committee as well as reimbursement information. The Company believes that adherence to the NCS formulary guidelines improves drug therapy results, lowers costs for residents and strengthens the Company's purchasing power with pharmaceutical manufacturers. 4 8 ACQUISITION PROGRAM The Company intends to continue to pursue a strategy of growth through acquisitions and from internal growth through sales and marketing efforts to new and existing customers. Between 1986 and June 30, 1998, NCS completed 49 acquisitions (other than fold-in acquisitions), including 11 acquisitions since the beginning of fiscal 1998. The Company believes that through consolidation of other institutional pharmacies it can provide a broad array of high quality pharmacy and related services in a cost effective manner. Acquisition and effective integration can result in efficiencies in service delivery, management, marketing, information systems and administrative functions, substantial increases in purchasing leverage, particularly with respect to drug purchases, the ability to provide a broad range of ancillary services complementary to the Company's core pharmacy services and the geographic scope necessary to service multi-facility customers and market to managed care payors. NCS targets acquisition candidates with strong management, a demonstrated capacity for growth and opportunities to realize efficiencies through consolidation and integration. The Company's philosophy is to create an environment that maintains the importance of the entrepreneur in such key areas as dispensing, consulting, marketing and customer service while consolidating formulary management, purchasing, administration and information systems. Central to the Company's integration strategy is implementation of NCS's proprietary information systems, which improve communications between the Company's sites and permit comparison of results, facilitating the identification of "best practices." NCS further targets acquisition candidates with management who intend to continue to participate in the operation of the business but believe that there are more substantial opportunities in being involved in a larger organization. The Company generally includes equity in NCS as a component of the purchase price for an acquired company in order to align the interests of the acquired company's management with those of NCS. The Company typically values acquisition candidates based on number of beds served, business mix, quality of management and whether the target is a regional hub or a "fold-in." Through its acquisition program, the Company seeks to expand its presence into new geographical areas and to achieve efficiencies through consolidation in existing markets. The Company has traditionally targeted candidates that the Company believes will increase its ability to provide high quality core pharmacy and ancillary services to multi-facility and managed care providers. The Company continues to examine opportunities to acquire institutional pharmacies and independent ancillary service providers in both new and existing geographical markets. MANAGEMENT INFORMATION SYSTEMS An integral part of NCS's services mix is its proprietary management information system called "Concord DX", which has extensive capabilities designed to improve operating efficiencies and controls both internally and at the customer level. In conjunction with the unit dose distribution system and using a bar-coding label system on each unit dose package, Concord DX is able to monitor pharmaceuticals within NCS throughout the production and distribution process. At the customer level, Concord DX automatically screens prescription orders received from physicians for patient-specific allergies and potentially adverse reactions given other medications the patient may be receiving. Concord DX is also used to create individual patient medical records and monthly management and quality assurance reports for NCS's customers. To date, Concord DX has been implemented in 40% of NCS's customer base. In 1997, the Company acquired Rescot Systems Group, Inc. ("Rescot"). For the past 10 years, Rescot has developed one of the premier pharmacy systems used for managing patient and pharmacy data. Rescot has been instrumental in the design and implementation of Concord DX. In addition to these internal capabilities, NCS has added a suite of software applications named ASTRAL designed to address customers' needs. Each of the Astral applications meets one of three goals: (1) improve the profitability of the nursing home, (2) enhance the quality of care delivered, or (3) improve the nursing home's ability to conform to regulatory requirements. NCS's current ASTRAL modules are as follows: NCS ON-LINE is the core product in ASTRAL. It improves profitability by dramatically reducing nursing time associated with ordering medicines and printing pharmacy reports. NCS On-Line provides a real time connection to NCS for ordering, reviewing med sheets and generating reports. Patient care is enhanced by reducing the amount of nursing time associated with clerical functions. PROVIEW improves a nursing home's profitability by enhancing the facility's ability to make economic admission decisions. ProView analyzes the costs and revenues associated with a resident prior to admission. In the coming era of Prospective Pay, it is a valuable tool for ensuring that a customer prospectively evaluates all financial aspects related to admitting a resident. OSCAR is an on-line survey tool which compares a facility's state surveys over time and across regions. By using 5 9 OSCAR, a nursing facility can quickly gain perspective as to how they are performing relative to their history and their state, regional or national competitors. NCS updates this quarterly and it has improved their customers' ability to conform to regulations. SURVEY ADVANTAGE anticipates possible enforcement remedies, tracks informal and formal appeals and creates management reports to analyze survey and enforcement status. In addition, it replaces manuals and printed regulations while offering an extensive search capability for finding regulations related to a word, phrase or tag number. LIVEWELL is a clinical documentation and pharmacy ordering system designed for the assisted living market. It enhances care by electronically documenting the medical records and ordering functions. In addition to the innovations currently being used by NCS customers, the Company believes that the integration of other information systems within the nursing home is a critical future customer need. The Company believes that access to both clinical and financial information is a key factor in improving care and managing costs. The Company believes that the ASTRAL system will facilitate a unified NCS culture through improved site-to-site communication and will enhance the Company's ability to deliver high quality, standardized services throughout its geographic market. SALES AND MARKETING In marketing to existing customers, NCS has organized the selling efforts of each formerly independent location into a single sales force consisting of 49 field service representatives, eight sales managers. All field sales representatives are trained in each of the Company's products and services and sell these services throughout their respective geographic territories. A typical territory consists of approximately 250 long-term care facilities, and the salesperson follows an eight week call cycle. These individuals are paid base salaries with commissions comprising up to 75% of a successful salesperson's compensation. The Company believes that long-term care facilities change institutional pharmacies fairly infrequently, but when a change is made, it is generally the result of a competitor's ability to offer better service or a broader array of products and services. PURCHASING NCS purchases pharmaceuticals primarily through a national wholesale distributor, with whom it has negotiated a prime vendor contract, and directly from certain pharmaceutical manufacturers. The Company also is a member of industry buying groups that contract with manufacturers for volume-based discounted prices which are passed through to the Company by its wholesale distributor. The Company has numerous sources of supply available to it and has not experienced any difficulty in obtaining pharmaceuticals or other products and supplies used in the conduct of its business. CUSTOMERS At June 30, 1998, NCS had contracts to provide services to approximately 248,000 residents in 34 states. These contracts, as is typical in the industry, are generally for a period of one year but can be terminated by either party for any reason upon thirty days written notice. Over the past year, NCS has expanded its customer base to also include rural hospitals and at June 30, 1998, NCS had contracts to manage hospital pharmacies in nineteen states. As of June 30, 1998, no individual customer or market group represents more than 5% of the total sales of the Company's institutional pharmacy business. COMPETITION Competition among providers of pharmacy services to long-term care facilities is intense, both regionally and nationally. The Company believes that it is one of the top three independent institutional pharmacies in the Country. Institutional pharmacies compete principally on the basis of service levels and service breadth. In its program of acquiring institutional pharmacy providers, NCS competes with several other companies with similar acquisition strategies, some of which may have greater resources than the Company. REIMBURSEMENT AND BILLING As is generally the case for long-term care facility services, NCS receives payments through reimbursement from Medicaid and Medicare programs and directly from individual residents (private pay), private third-party insurers and long-term care facilities. For the fiscal year ended June 30, 1998, the Company's payor mix was approximately 37% Medicaid, 4% Medicare, 18% private pay, 13% third-party insurance and other and 28% long-term care facilities, including amounts for which the long-term care facility receives reimbursement under Medicare Part A. Medicare and Medicaid are highly regulated. The failure of NCS and/or its client institutions to comply with applicable reimbursement regulations could adversely affect the Company's business. Private Pay. For those residents who are not covered by government-sponsored programs or private insurance, NCS generally bills the patient or the patient's insurer or other responsible party on a monthly basis. Depending upon local market practices, NCS may alternatively bill private residents through the long-term care facility. Pricing for private pay residents is 6 10 based on prevailing regional market rates or "usual and customary" charges. Medicaid. The Medicaid program is a federal-state cooperative program designed to enable states to provide medical assistance to aged, blind or disabled individuals, or to members of families with dependent children whose income and resources are insufficient to meet the costs of necessary medical services. State participation in the Medicaid program is voluntary. To become eligible to receive federal funds, a state must submit a Medicaid "state plan" to the Secretary of HHS for approval. The federal Medicaid statute specifies a variety of requirements which the state plan must meet, including requirements relating to eligibility, coverage of services, payment and administration. For residents eligible for Medicaid, the Company bills the individual state Medicaid program or, in certain circumstances state designated managed care or other similar organizations. Medicaid programs are funded jointly by the federal government and individual states and are administered by the states. The reimbursement rates for pharmacy services under Medicaid are determined on a state-by-state basis subject to review by the Health Care Financing Administration and applicable federal law. Federal regulations and the regulations of certain states establish "upper limits" for reimbursement for prescription drugs under Medicaid. In most states pharmacy services are priced at the lower of "usual and customary" charges or cost (which generally is defined as a function of average wholesale price and may include a profit percentage) plus a dispensing fee. In addition, most states establish a fixed dispensing fee which is adjusted to reflect associated costs on an annual or less frequent basis. State Medicaid programs generally have long-established programs for reimbursement which have been revised and refined over time and have not had a material adverse effect on the pricing policies or receivables collection for long-term care facility pharmacy services. Any future changes in such reimbursement programs or in regulations relating thereto, such as reductions in the allowable reimbursement levels or the timing of processing of payments, could adversely affect the Company's business. The annual increase in the federal share would vary from state to state based on a variety of factors. Such provisions, if ultimately signed into law, could adversely affect the Company's business. Medicare. The Medicare program is a federally funded and administered health insurance program for individuals age 65 and over or for certain individuals who are disabled. The Medicare program consists of two parts: Medicare Part A, which covers, among other things, inpatient hospital, skilled long-term care facility, home health care and certain other types of health care services; and Medicare Part B, which covers physicians' services, outpatient services and certain items and services provided by medical suppliers. Medicare Part B also covers a limited number of specifically designated prescription drugs. Medicare Part A requires long-term care facilities to submit all of their costs for patient care, including pharmaceutical costs, in a unified bill. Thus, fees for pharmaceuticals provided to Medicare Part A patients are paid to the Company by the long-term care facility on a monthly basis. Pricing is consistent with that of private pay residents or is set between private pay rates and Medicaid minimums. Medicare Part A has a cost-sharing arrangement under which beneficiaries must pay a portion of their costs. These non-covered co-payments are billed by the facility directly to residents or the state Medicaid plan, as the case may be. Medicare Part B provides benefits covering, among other things, outpatient treatment, physicians' services, durable medical equipment ("DME"), orthotics, prosthetic devices and medical supplies. Products and services covered for Medicare Part B eligible residents in the long-term care facility include, but are not limited to, enteral feeding products, ostomy supplies, urological products, orthotics, prosthetics, surgical dressings, tracheostomy care supplies and a limited number of other medical supplies. All claims for DME, prosthetics, orthotics, prosthetic devices, including enteral therapy and medical supplies ("DMEPOS") are submitted to and paid by four regional carriers known as Durable Medical Equipment Regional Carriers ("DMERCs"). The DMERCs establish coverage guidelines, allowable utilization frequencies and billing procedures for DMEPOS. Payment is based on a fee schedule, which varies depending on the state in which the patient receiving the items resides. Payments for Medicare Part B products to eligible suppliers, which include long-term care facilities and suppliers such as NCS, are made on a per-item basis directly to the supplier. In order to receive Medicare Part B reimbursement payments, suppliers must meet certain conditions set by the federal government. NCS, as an eligible supplier, either bills Medicare directly for Part B covered products for each patient or, alternatively, assists the long-term care facility in meeting Medicare Part B eligibility requirements and prepares bills on behalf of the facility. For Part B services, such as physical, speech and occupational therapy, long-term care facilities bill Medicare for reimbursement of the amounts paid to NCS for these services. Medicare limits such reimbursement to the reasonable amount that would have been paid if provider employees had furnished the services. To date, Medicare has published "salary equivalency guidelines" for physical and respiratory therapy services. Medicare does not currently have salary equivalency guidelines for other therapy services, but may disallow payment for rates that substantially exceed rates paid for such services by other providers in the same area. Moreover, Medicare is likely to issue salary equivalency guidelines for occupational and speech therapy services in the near future. Medicare Part B also has an annual deductible as well as a co-payment obligation on behalf of the patient, and the portion not covered by Medicare is billed directly to the patient or appropriate secondary payor. Third-Party Insurance. Third-party insurance includes funding for residents covered by private plans, veterans' benefits, workers' compensation and other programs. The resident's individual insurance plan is billed monthly and rates are consistent with those for other private pay residents. Long-Term Care Facilities. In addition to occasional private patient billings and those related to drugs for Medicare eligible residents, long-term care facilities are billed directly for consulting services, certain over-the-counter medications and bulk house supplies. 7 11 GOVERNMENT REGULATION Institutional pharmacies, as well as the long-term care facilities they service, are subject to extensive federal, state and local laws and regulations. These laws and regulations cover required qualifications, day-to-day operations, reimbursement and the documentation of activities. NCS continuously monitors the effects of regulatory activity on its operations. Licensure, Certification and Regulation. States generally require that companies operating a pharmacy within that state be licensed by the state board of pharmacy. The Company currently has pharmacy licenses in each of the states in which it operates a pharmacy. In addition, the Company's pharmacies are registered with the appropriate state and federal authorities pursuant to statutes governing the regulation of controlled substances. Long-term care facilities are also separately required to be licensed in the states in which they operate and, if serving Medicare or Medicaid patients, must be certified to ensure compliance with applicable program participation requirements. Long-term care facilities are also subject to the long-term care facility reforms of OBRA, which impose strict compliance standards relating to the quality of care for long-term care operations, including vastly increased documentation and reporting requirements. In addition, pharmacists, nurses and other health professionals who provide services on the Company's behalf are in most cases required to obtain and maintain professional licenses and are subject to state regulation regarding professional standards of conduct. Federal and State Laws Affecting The Repackaging, Labeling and Interstate Shipping of Drugs. Federal and state laws impose certain repackaging, labeling and package insert requirements on pharmacies that repackage drugs for distribution beyond the regular practice of dispensing or selling drugs directly to patients at retail. A drug repackager must register with the FDA. The Company believes that it holds all required registrations and licenses and that its repackaging operations are in compliance with applicable state and federal requirements. Medicare and Medicaid. For an extensive period of time, the long-term care facility pharmacy business has operated under regulatory and cost containment pressures from state and federal legislation primarily affecting Medicaid and, to a lesser extent, Medicare. The Medicare program establishes certain requirements for participation of providers and suppliers in the Medicare program. Pharmacies are not subject to such certification requirements. Skilled long-term care facilities and suppliers of DMEPOS, however, are subject to specified standards. Failure to comply with these requirements and standards may adversely affect an entity's ability to participate in the Medicare program and receive reimbursement for services provided to Medicare beneficiaries. See "--Reimbursement and Billing." Federal law and regulations contain a variety of requirements relating to the furnishing of prescription drugs under Medicaid. First, states are given broad authority, subject to certain standards, to limit or to specify conditions as to the coverage of particular drugs. Second, federal Medicaid law establishes standards affecting pharmacy practice. These standards include general requirements relating to patient counseling and drug utilization review and more specific requirements for long-term care facilities relating to drug regimen reviews for Medicaid patients in such facilities. Recent regulations clarify that, under federal law, a pharmacy is not required to meet the general standards for drugs dispensed to long-term care facility residents if the long-term care facility complies with the drug regimen review requirements. However, the regulations indicate that states may nevertheless require pharmacies to comply with the general standards, regardless of whether the long-term care facility satisfies the drug regimen review requirement, and the states in which the Company operates currently require its pharmacies to comply therewith. Third, federal regulations impose certain requirements relating to reimbursement for prescription drugs furnished to Medicaid residents. See "--Reimbursement and Billing--Medicaid." In addition to requirements imposed by federal law, states have substantial discretion to determine administrative, coverage, eligibility and payment policies under their state Medicaid programs which may affect the Company's operations. For example, some states have enacted "freedom of choice" requirements which prohibit a long-term care facility from requiring its residents to purchase pharmacy or other ancillary medical services or supplies from particular providers that deal with the long-term care facility. Such limitations may increase the competition which the Company faces in providing services to long-term care facility patients. Prospective Payment System. The Balanced Budget Act of 1997 (BBA), enacted on August 5, 1997, mandated the implementation of a prospective payment system (PPS) for skilled nursing facilities (SNFs) providing care for Medicare Part A patients, effective for all SNFs whose cost reporting period begins on or after July 1, 1998. Under the new PPS, SNFs will receive a single per diem payment for all Medicare Part A covered SNF services. These payment rates will encompass all costs of furnishing covered skilled nursing services (routine, ancillary and capital- 8 12 related costs) other than the costs of approved educational activities. Covered SNF services include: 1) all items and services provided under Part A; and 2) all items and services (except those specifically excluded by statute) which were previously provided under Part B to SNF residents during a Part A stay. PPS will incorporate payment for pharmacy within the nursing component (as a non-therapy ancillary) of the federal per diem and adjust costs by the nursing index. Referral Restrictions. The Company is subject to federal and state laws which govern financial and other arrangements between health care providers. These laws include the federal anti-kickback statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid. Many states have enacted similar statutes which are not necessarily limited to items and services for which payment is made by Medicare or Medicaid. Violations of these laws may result in fines, imprisonment and exclusion from the Medicare and Medicaid programs or other state-funded programs. Federal and state court decisions interpreting these statutes are limited, but have generally construed the statutes broadly. Recent Federal legislation has increased the enforcement and penalties for violation of these statutes. Federal regulations establish "Safe Harbors," which give immunity from criminal or civil penalties to parties in good faith compliance. While the failure to satisfy all the criteria for a specific Safe Harbor does not necessarily mean that an arrangement violates the federal statute, the arrangement is subject to review by the HHS Office of Inspector General ("OIG"), which is charged with administering the federal anti-kickback statute. Beginning January 1, 1997, the Secretary of Health and Human Services began issuing written advisory opinions regarding the applicability of certain aspects of the anti-kickback statute to specific arrangements or proposed arrangements. Advisory opinions will be binding as to the Secretary and the party requesting the opinion. The OIG has issued "Fraud Alerts" identifying certain questionable arrangements and practices which it believes may implicate the federal anti-kickback statute. The OIG has issued a Fraud Alert providing its views on certain joint venture and contractual arrangements between health care providers. The OIG has recently issued a Fraud Alert concerning prescription drug marketing practices that could potentially violate the federal anti-kickback statute. Pharmaceutical marketing activities may implicate the federal anti-kickback statute because drugs are often reimbursed under the Medicaid program. According to the Fraud Alert, examples of practices that may implicate the statute include certain arrangements under which remuneration is made to pharmacists to recommend the use of a particular pharmaceutical product. In addition, a number of states have recently undertaken enforcement actions against pharmaceutical manufacturers involving pharmaceutical marketing programs, including programs containing incentives to pharmacists to dispense one particular product rather than another. These enforcement actions arise under state consumer protection laws which generally prohibit false advertising, deceptive trade practices and the like. Further, a number of the states involved in these enforcement actions have requested that the FDA exercise greater regulatory oversight in the area of pharmaceutical promotional activities by pharmacists. It is not possible to determine whether the FDA will act in this regard or what effect, if any, FDA involvement would have on the Company's operations. The Company believes its contract arrangements with other health care providers, its pharmaceutical suppliers and its pharmacy practices are in compliance with these laws. There can be no assurance that such laws will not, however, be interpreted in the future in a manner inconsistent with the Company's interpretation and application. Environmental Matters. In operating its facilities, NCS makes every effort to comply with environmental laws. No major difficulties have been encountered in effecting compliance. In addition, no material capital expenditures for environmental control facilities are expected. While the Company cannot predict the effect which any future legislation, regulations or interpretations may have upon its operations, it does not anticipate any changes that would have a material adverse impact on its operations. General. In the ordinary course of its business, the Company is subject to inspections, audits, inquiries and similar actions by governmental authorities responsible for enforcing the laws and regulations to which the Company is subject. In January 1997, governmental authorities requested information from the Company in connection with an audit and investigation of the circumstances surrounding the apparent drug-related homicide of a non-management employee of one of the Company's pharmacies. The information provided relates to the Company's inventory and the possible theft of controlled substances from this pharmacy. The Company has cooperated fully with the investigation. In addition, the Company has conducted an internal review which identified inadequacies in record keeping and inventory control at this pharmacy. In a meeting with governmental authorities in August 1997, the Company discussed its findings and those of the government and documented corrective measures taken by the Company. In September 1998, the Company was advised that a matter had been referred to the United States Attorney for possible legal action involving certain alleged unspecified violations of federal law and invited to contact the responsible U.S. Attorney in an effort to resolve the matter. The Company has not been informed of the nature of the alleged violations in question or the amount of potentential monetary penalties that may be sought. In January 1998, government authorities sought and obtained various documents and records from a Herrin, Illinois pharmacy operated by a wholly-owned subsidary of the Company. The Company was not informed of the purpose of the inquiry, and no other operating unit of the company has been contacted. The Company intends to cooperate fully with the government's inquiry. EMPLOYEES As of June 30, 1998, the Company had approximately 3,900 full-time employees. None of the employees are represented by a union. The Company considers relations with its employees to be good. 9 13 ITEM 2. PROPERTIES The Company presently maintains its executive offices in approximately 10,500 square feet of space in Beachwood, Ohio pursuant to a lease expiring in 2000 with an unaffiliated third party. NCS currently considers this space to be sufficient for its corporate headquarters operations. As of June 30, 1998, the Company leased or owned 106 properties in 34 states with a total square footage of 771,000 square feet ranging in size from approximately 500 square feet to approximately 35,000 square feet. The terms of the leases relating to these properties vary in length remaining, from one month to ten years and, in some cases, include options to extend. For information concerning the Company's rental obligations, see Note 5 (Operating Leases) of the Notes to Consolidated Financial Statements, which is set forth at Item 8 of this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the conduct of its business. The Company does not expect that any such proceedings will have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY* The name, age and positions of each of the Company's executive officers are as follows:
NAME AGE POSITION - ---- --- -------- Jon H. Outcalt 62 Chairman of the Board of Directors Kevin B. Shaw 41 President, Chief Executive Officer and Director Phyllis K. Wilson 57 Executive Vice President and Director Jeffrey R. Steinhilber 41 Executive Vice President and Chief Operating Officer Gerald D. Stethem 34 Chief Financial Officer William B. Byrum 54 Vice President - Corporate Development Marvin R. Richardson 41 Senior Vice President - Sales and Marketing Patrick Morris 38 Senior Vice President Thomas Bryant Mangum 47 Vice President - Materials and Procurement A. Malachi Mixon III 58 Director Richard L. Osborne 60 Director Boake A. Sells 61 Director
*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K. Jon H. Outcalt, Chairman of the Board, is a founding principal of NCS and has served as Chairman of the Board since 1986. He was a Senior Vice President of Alliance Capital Management L.P., a global investment management company, from 1975 to December 1995. Mr. Outcalt serves on the Board of Directors of Myers Industries, Inc., a manufacturer of plastic and rubber parts for the automotive and other industries, and Ohio Savings Financial Corporation, a savings and loan holding company. He is a graduate of Trinity College (B.A.) and the Wharton Graduate School of Business (M.B.A.). Kevin B. Shaw, President, Chief Executive Officer and a Director of the Company, is a founding principal of NCS and has served as President, Secretary and a Director of the Company since 1986 and as Chief Executive Officer since December 1995. Prior to joining the Company, he was employed by McKinsey & Company and Owens Corning Fiberglas. Mr. Shaw is a graduate of Harvard College (B.A.) and Stanford Graduate School of Business (M.B.A.). Phyllis K. Wilson, R.PH., Executive Vice President and a Director of the Company since November, 1993, is the founder of NCS's Columbus, Ohio operation. From 1989 to June 1995, she was responsible for corporate development and oversaw the Company's Ohio and Michigan operations. She is past President of the Ohio State Board of Pharmacy and served on the Board from 1977 to 1985. Ms. Wilson is a founding member of the American Society of Consultant Pharmacists and is a graduate of Ohio State University with a B.S. in Pharmacy. 10 14 Jeffrey R. Steinhilber, Executive Vice President and Chief Operating Officer, joined NCS in August 1994 and served as Chief Financial Officer of the Company until February 1998, at which time he was named Chief Operating Officer. From 1988 to July 1994, Mr. Steinhilber was the Chief Financial Officer of Austin Powder Company, a manufacturer of explosives for mining and construction. He is a graduate of Duke University (B.A.) and Northwestern Graduate School of Business (M.B.A.). Gerald D. Stethem, Chief Financial Officer, joined NCS in November, 1994 and served as Controller of the Company until February 1998, at which time he was named Chief Financial Officer. He was previously with Ernst & Young LLP an auditing and accounting firm, where he served as a Manager in the firm's Entrepreneurial Services Group. He is a graduate of Ohio State University with a B.A. in Accounting. William B. Byrum, Vice President--Corporate Development of the Company, joined the Company in September 1995. From April 1993 to September 1995, Mr. Byrum was President and Chief Executive Officer of Corinthian Healthcare Systems, Inc., an institutional pharmacy, prior to its acquisition by the Company. From 1991 to April 1993, he was Vice President of Development (Acquisitions) for Hook-SupeRx, Inc. Prior to 1991, Mr. Byrum was Vice President, Store Operations at the Hook Drug Division of Hook-SupeRx, Inc., serving in various management positions. Mr. Byrum is a graduate of Purdue University with a B.S. in Pharmacy. Marvin R. Richardson, Senior Vice President - Sales and Marketing for the Company since March 1997, joined NCS in June 1995 as a Regional Vice President. From 1991 to 1995, Mr. Richardson was the founder and President of Quality Health Care of Indiana, an institutional pharmacy, prior to its acquisition by the Company. He is a graduate of Purdue University with a B.S. in Pharmacy. Patrick Morris, Senior Vice President of the Company, joined the Company in February 1997. Mr. Morris was with the law firm of Calfee, Halter & Griswold LLP, Cleveland, Ohio from 1985 to February 1997, and was a partner in such firm from 1993 to February 1997. Mr. Morris is a graduate of Trinity College (B.A.) and Case Western Reserve University School of Law (J.D.). Thomas Bryant Mangum, Vice President-Materials and Procurement, joined the Company in June 1998. From November 1996 to June 1998, Mr. Mangum was Senior Director of Pharmacy for Tenet HealthCare System, an owner and manager of acute care hospitals. From November 1995 to November 1996, he was Vice President of Pharmacy Services for Premier, Inc., a group purchasing organization for acute care hospitals, where he had responsibility for pharmaceutical contract negotiations. From 1990 to November 1995, Mr. Mangum was Associate Vice President of Pharmacy and Nutrition Services for SunHealth, a group purchasing organization for acute care hospitals. He is a graduate of University of North Carolina Pharmacy School and currently serves on the Pharmacy School Board. A. Malachi Mixon III, a Director of the Company since December 1994, has been the Chief Executive Officer and a Director of Invacare Corporation since 1979 and, since 1983, its Chairman of the Board. Mr. Mixon also served as President of Invacare Corporation from 1979 to 1996. Invacare Corporation is a leading worldwide manufacturer and distributor of home health care products. He serves as a Director of Lamson & Sessions Co., a supplier of engineered thermoplastic products, and Sherwin-Williams Company, a producer and distributor of coatings and related products, and is Chairman of the Board of Trustees of The Cleveland Clinic Foundation, one of the world's leading health care institutions. Mr. Mixon is a graduate of Harvard College (B.A.) and the Harvard Graduate School of Business (M.B.A.). Richard L. Osborne, a Director of the Company since 1986, has served as the Executive Dean of the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio, since 1971. Mr. Osborne serves on the Board of Directors of Myers Industries, Inc., a manufacturer of plastic and rubber parts for the automotive and other industries, New Horizons Worldwide, Inc., a provider of computer training services, and Ohio Savings Financial Corporation, a savings and loan holding company. He is a graduate of Bowling Green State University (B.S.) and Case Western Reserve University (M.S.). Boake A. Sells, a Director of the Company since November 1993, has been a self-employed private investor since June 1992. He was Chairman of the Board, President and Chief Executive Officer of Revco D.S., Inc. from September 1987 to June 1992, and was formerly President and Chief Operating Officer of Dayton Hudson Corporation and President and Chief Operating Officer of Cole National Corporation. Mr. Sells is a Director of Harrah's Entertainment, Inc., a leading casino gaming company. He is a graduate of University of Iowa (B.A.) and Harvard Graduate School of Business (M.B.A.). 11 15 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Class A Common Stock is traded on the Nasdaq National Market under the symbol NCSS. The following table sets forth, for the two fiscal years ended June 30, 1998, the high and low sale prices per share for the Class A Common Stock, as reported on the Nasdaq National Market. These prices do not include retail markups, markdowns or commissions.
HIGH LOW ---- --- 1997 First Quarter $34.88 $23.25 Second Quarter 35.00 26.00 Third Quarter 35.25 22.25 Fourth Quarter 30.50 19.25 1998 First Quarter $29.13 $22.38 Second Quarter 27.50 22.25 Third Quarter 33.50 24.13 Fourth Quarter 32.88 27.00
On September 25, 1998, the last sale price of the Class A Common Stock as reported by Nasdaq was $19.00 per share. As of September 25, 1998, there were approximately 266 holders of record of the Class A Common Stock. The Company has never declared or paid cash dividends on its Class A Common Stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying any dividends in the foreseeable future. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors after taking into account various factors, including the Company's financial condition, results of operations, current and anticipated cash needs and plans for expansion. The following information is furnished as to all equity securities of the Company sold during the fourth fiscal quarter that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). (a) On May 1, 1998 the Company issued 54,000 shares of its Class A Common Stock to two stockholders in connection with the merger of JK Medical Services, Inc. Exemption from registration is claimed under Section 4(2) of the Securities Act. (b) On May 15, 1998 the Company issued 20,450 shares of its Class B Common Stock to seven stockholders in connection with the merger of MedStar Pharmacy, Inc. The Class B Common Stock is convertible into Class A Common Stock without additional consideration by the holder thereof on a share-for-share basis. Exemption from registration is claimed under Section 4(2) of the Securities Act. (c) On May 21, 1998 the Company issued 128,691 shares of its Class A Common Stock to one stockholder in connection with the conversion of a Promissory Note. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act. 12 16 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30, ------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Revenues $ 48,205 $ 65,602 $ 113,281 $ 275,040 $ 509,064 Cost of revenues 34,288 46,570 82,415 205,536 380,217 -------- -------- ------- ----------- --------- Gross profit 13,917 19,032 30,866 69,504 128,847 Selling, general and administrative expenses 10,531 14,539 22,236 51,153 93,895 Nonrecurring charges (1) - - 2,811 - 8,862
--------- -------- --------- ------------ --------- Operating income 3,386 4,493 5,819 18,351 26,090 Interest expense (income), net 525 1,089 1,611 (1,576) 5,745 --------- ---------- -------- ----------- -------- Income before income taxes 2,861 3,404 4,208 19,927 20,345 Income tax expense 1,327 1,536 1,852 8,655 9,014 --------- -------- -------- --------- --------- Net income $ 1,534 $ 1,868 $ 2,356 $ 11,272 $ 11,331 ========= ======== ======== ========= ========= Net income per share - basic $ 0.28 $ 0.32 $ 0.28 $ 0.70 $ 0.59 ========= ======== ======== ========= ========= Net income per share - diluted $ 0.24 $ 0.28 $ 0.26 $ 0.69 $ 0.58 ========= ======== ======== ========= ========= Weighted average common shares outstanding - basic 5,478 5,818 8,462 15,991 19,100 ========= ======== ======== ========= ========= Weighted average common shares outstanding - diluted 6,424 6,764 8,995 16,843 19,372 ========= ======== ======== ========= =========
YEAR ENDED JUNE 30, ------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents $ 384 $ 286 $ 21,460 $ 8,160 $ 21,186 Working capital 5,920 10,616 48,336 53,164 149,362 Total assets 15,556 38,595 110,668 321,030 623,790 Line of credit - - - 10,285 147,800 Long-term debt, excluding current portion 4,608 18,505 1,961 8,043 3,879 Convertible subordinated debentures - 1,900 6,549 4,813 102,753 Stockholders' equity 4,173 8,117 91,100 253,226 287,334
(1) For 1996, represents a non recurring charge in connection with the termination of certain compensation arrangements with the prior owners of certain acquired businesses. For 1998, represents a nonrecurring charge related to restructuring and other nonrecurring expenses in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 13 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's Statements of Income, expressed as a percentage of total revenues.
YEAR ENDED JUNE 30, ------------------- 1996 1997 1998 ---- ---- ---- Revenues 100.0% 100.0% 100.0% Cost of revenues 72.8 74.7 74.7 ----- ----- ----- Gross margin 27.2 25.3 25.3 Selling, general and administrative expenses 19.6 18.6 18.5 Nonrecurring charges 2.5 -- 1.7 ----- ----- ----- Operating income 5.1 6.7 5.1 Interest expense (income), net 1.4 (0.6) 1.1 ----- ----- ----- Income before income taxes 3.7 7.3 4.0 Income tax expense 1.6 3.2 1.8 ----- ----- ----- Net income 2.1% 4.1% 2.2% ===== ===== =====
YEARS ENDED JUNE 30, 1998 AND 1997 Revenues for the year ended June 30, 1998 increased 85.1% to $509.1 million from $275.0 million for the year ended June 30, 1997. The increase in revenues over the prior fiscal year is primarily attributed to two factors: the Company's acquisition program and internal growth. Of the $234.1 increase for the year ended June 30, 1998, $69.2 million was due to the acquisitions of Cheshire LTC Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in September 1997, Marco & Company, LLC in December 1997, MedStar Pharmacy, Inc. in January 1998, Medical Pharmacy, Robcin Enterprises, Inc. and Greenwood Pharmacy and Managed Pharmacy Services, affiliates of Eckerd Corporation in February 1998, Apple Institutional Services in March 1998 and the institutional pharmacy assets of Walgreens Co. in June 1998. In addition, $87.8 million of the increase is attributable to revenues for the fiscal year ended June 30, 1998 including a full period of operations for fiscal 1997 acquisitions. These fiscal 1997 acquisitions include Advanced Rx Services, Inc. in July 1996, IPAC Pharmacy, Inc., Medical Arts Pharmacy, Northside Pharmacy Inc., Med-Equip, Thrifty Medical Supply, Inc. and Thrifty Medical of Tulsa L.L.C. in August 1996, Hudson Pharmacy of Wichita, Inc. in September 1996, Spectrum Health Services, Inc. in October 1996, Clinical Health Systems in November 1996, Rescot Systems Group, Inc., W.P. Malone, Inc., Long Term Care Pharmacy Services and Eakles Drug Store, Inc. in January 1997, Pharmacare, Advanced Pharmaceutical Services, Inc. and Dahlin Pharmacy, Inc. in February 1997, Stoll Services, Inc., Cooper Hall Pharmacy, Inc., Hammer Incorporated, Daven Drug, and Medi-Centre Pharmacy in March 1997, Vangard Labs, Inc. in April 1997, Long Term Care, Inc. in May 1997 and Look Drug Store, Inc. and HLF Adult Home Pharmacy in June 1997. Internal growth accounted for $77.1 million of the increase as the Company's existing operations continued to grow through marketing efforts to new and existing clients, increased drug utilization of long-term care facility residents, and the growth and integration of new and existing products and services. The total number of beds serviced by the Company as of June 30, 1998 increased 63% to 248,000 beds, from 152,000 beds at June 30, 1997. Cost of revenues for the year ended June 30, 1998 increased $174.7 million or 85.0% to $380.2 million from $205.5 million for the year ended June 30, 1997. Cost of revenues as a percentage of revenues were 74.7% for the years ended June 30, 1998 and June 30, 1997. The Company's leverage associated with purchasing pharmaceuticals, formulary management program and the leveraging of production costs positively impacted gross margins during the year ended June 30, 1998. However, these improvements were offset by the lower margins of companies acquired during the year ended June 30, 1998. At the time of acquisition, the gross margins of the acquired companies are typically lower than the Company as a whole; however, the Company is typically able to increase the gross margins of the acquired companies through more advantageous purchasing terms and the use of formulary management. Selling, general and administrative expenses for the year ended June 30, 1998 increased $42.7 million or 83.4% to $93.9 million from $51.2 million for the year ended June 30, 1997. Selling, general and administrative expenses as a percentage of revenues decreased from 18.6% for the year ended June 30, 1997 to 18.4% for the year ended June 30, 1998. The percentage decrease for the year ended June 30, 1998 is a result of creating operational efficiencies with acquisitions and the ability to leverage overhead expenses over a larger revenue base. At the time of acquisition, the selling, general and administrative expenses of the acquired companies are typically higher than the Company as a whole. The Company has been successful at 14 18 \creating operational efficiencies with acquisitions as selling, general and administrative expenses as a percentage of revenues has decreased six quarters in a row. The increase in selling, general, and administrative expenses in absolute dollars is mainly attributable to expenses associated with the operations of businesses acquired during the current and prior fiscal year. Excluding the nonrecurring charge described below, operating income for the year ended June 30, 1998 increased $16.6 million or 90.5% to $35.0 million from $18.4 million for the year ended June 30, 1997. This improvement is primarily attributable to increased sales volume generated during the year from acquisitions and internal growth. Excluding the nonrecurring charge described below, operating income as percentage of sales for the year ended June 30, 1998 increased slightly to 6.9% from 6.7% for the year ended June 30, 1997. During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring charge of $8.9 million ($5.3 million net of tax) related to restructuring and other nonrecurring expenses in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. As a result of the plans described below, the Company expects to remove $1.5 million from its cost structure in fiscal 1999. These savings are predominantly due to reduced wage-related costs, reduced carrying costs of fixed assets, reduced rent charges and other miscellaneous savings. The components of the nonrecurring charge are described below. During the fourth quarter of fiscal 1998, the Company adopted a formal plan of restructuring to consolidate certain pharmacy sites in similar geographies. The plan will combine pharmacies in close proximity in order to improve operating efficiencies. As a result of the exit plan, 17 pharmacy sites will be consolidated into either a new or existing location. The Company recorded nonrecurring charges of $5.3 million related to the site consolidations during the year ended June 30, 1998, which consists of $0.5 million related to employee severance costs in relation to the termination of 149 employees, $0.7 million related to lease termination costs and $4.1 million related to asset impairments and other miscellaneous costs. As of June 30, 1998, five site consolidations had been completed with the remainder expected to be completed by the end of fiscal 1999. Approximately $0.9 million of the nonrecurring charge relates to the buyout of existing employment agreements with the prior owners of certain acquired businesses. In June 1998 the Company entered into a new $150 million revolving credit facility and a $50 million bridge facility (June 1998 facilities) that replaced the existing $135 million revolving credit facility. The June 1998 facilities were replaced in July 1998 by a $245 million revolving credit facility. Approximately $1.3 million of the nonrecurring charge relates to the write-off of deferred financing fees on the $135 million revolving credit facility and certain financing fees associated with the June 1998 facilities. The remaining $1.4 million of the nonrecurring charge primarily relates to additional acquisition related expenses. Details of the nonrecurring charge are as follows:
Restructuring Reserve Description Cash/Non-Cash Charge Activity At /30/98 ----------- ------------- ------ -------- --------- (In Millions) Site Consolidations Severance packages cash $ .5 $ -- $ .5 Lease terminations cash .7 -- .7 Asset impairments non-cash 3.5 (3.5) -- Other cash .6 (.4) .2 Buyout of employment agreements cash .9 (.2) .7 Write-off financing fees non-cash 1.3 (1.3) -- Other Cash 1.0 (.8) .2 Non-cash .4 (.4) -- ------ ------- ------ Total $ 8.9 $ (6.6) $ 2.3 ====== ======= ======
The Company had net interest expense of $5.7 million for the year ended June 30, 1998, compared to net interest income of $1.6 million during the year ended June 30, 1997. The increase in expense in due to increased borrowings on the line of credit and the issuance of $100 million of convertible subordinated debentures in August 1997. These funds were used primarily for acquisitions. The net interest income position in fiscal 1997 is primarily attributable to the reduction of long-term debt with funds from the Company's initial public offering completed on February 14, 1996 and interest income earned on funds from a secondary public offering completed by the Company on October 4, 1996. YEARS ENDED JUNE 30, 1997 AND 1996 Revenues for the year ended June 30, 1997 increased 142.7% to $275.0 million from $113.3 million for the year ended 15 19 June 30, 1996. The increase in revenues over the prior fiscal year is primarily attributable to two factors: the Company's acquisition program and internal growth. Of the $161.7 million increase in revenues for the year ended June 30, 1997, $107.7 million was due to the acquisitions of Advanced Rx Services, Inc. in July 1996, IPAC Pharmacy, Inc., Medical Arts Pharmacy, Northside Pharmacy Inc., Med-Equip, Thrifty Medical Supply, Inc. and Thrifty Medical of Tulsa L.L.C. in August 1996, Hudson Pharmacy of Wichita, Inc. in September 1996, Spectrum Health Services, Inc. in October 1996, Clinical Health Systems in November 1996, Rescot Systems Group, Inc., W.P. Malone, Inc., Long Term Care Pharmacy Services and Eakles Drug Store, Inc. in January 1997, Pharmacare, Advanced Pharmaceutical Services, Inc. and Dahlin Pharmacy, Inc. in February 1997, Stoll Services, Inc., Cooper Hall Pharmacy, Inc., Hammer Incorporated, Daven Drug, and Medi-Centre Pharmacy in March 1997, Vanguard Labs, Inc. in April 1997, Long Term Care, Inc. in May 1997 and Look Drug Store, Inc. and HLF Adult Home Pharmacy in June 1997. In addition, $34.9 million of the increase in revenues is attributable to revenues for the fiscal year ended June 30, 1997 including a full period of operations for fiscal 1996 acquisitions. These fiscal 1996 acquisitions include Corinthian Healthcare Systems, Inc., acquired in September 1995, The Apothecary, Inc. acquired in November 1995, DeMoss Rexall Drugs, Inc., acquired in December 1995, Care Plus Pharmacy acquired in April 1996, Uni-Care Health Services Inc. and Uni-Care Health Services of Maine acquired in May 1996, and Family Care Nursing Home Service, Inc. and Care Unlimited, Inc. acquired in June 1996. Internal growth accounted for $19.1 million of the increase in revenues as the Company's existing operations continued to grow through marketing efforts to new and existing clients, increased drug utilization of long-term care facility residents, and the growth and integration of new and existing products and services. The total number of beds serviced by the Company as of June 30, 1997 increased 141.3% to 152,000 beds, from 63,000 beds at June 30, 1996. Cost of revenues for the year ended June 30, 1997 increased $123.1 million or 149.4% to $205.5 million from $82.4 million for the year ended June 30, 1996. Cost of revenues as a percentage of revenues for the year ended June 30, 1997 increased to 74.7% from 72.8% for the year ended June 30, 1996. The increase in cost of revenues as a percentage of revenues was primarily the result of two factors; acquisitions and a change in the State of Pennsylvania Medicaid reimbursement rates. First, at the time of acquisition, the gross margins of the acquired companies are typically lower than the Company as a whole. This is the result of several factors, including less advantageous purchasing terms, lack of formulary management and higher production costs. Second, during the second quarter of fiscal 1996, the State of Pennsylvania changed the reimbursement methodology under the State Medicaid program which resulted in a lower reimbursement percentage for Company's sites located in Pennsylvania. Selling, general and administrative expenses for the year ended June 30, 1997 increased $28.9 million or 130.2% to $51.1 million from $22.2 million for the year ended June 30, 1996. Selling, general and administrative expenses as a percentage of revenues for the year ended June 30, 1997 decreased to 18.6% from 19.6% for the year ended June 30, 1996. The percentage decrease for the year ended June 30, 1997 is the result of operational efficiencies and continuing efforts to leverage corporate overhead over a larger revenue base. The increase in selling, general, and administrative expenses in absolute dollars is mainly attributable to expenses associated with the operations of businesses acquired during fiscal year ended June 30, 1997. A nonrecurring charge of $2.8 million for the year ended June 30, 1996 represents special compensation resulting from the termination of compensation and performance incentive arrangements with the prior owners of certain acquired businesses. Operating income for the year ended June 30, 1997 increased $12.5 million or 215.4% to $18.4 million from $5.8 million for the year ended June 30, 1996. Excluding the one-time, nonrecurring charge described above, operating income for the year ended June 30, 1997 increased $9.7 million or 112.6% from $8.6 million for the year ended June 30, 1996. This improvement is attributable to increased sales volume generated during the year from acquisitions and internal growth. Operating income as percentage of sales for the year ended June 30, 1997 decreased slightly to 6.7% from 7.6% for the year ended June 30, 1996, excluding the one-time nonrecurring charge. The Company had net interest income of $1.6 million for the year ended June 30, 1997, compared to net interest expense of $1.6 million during the year ended June 30, 1996. This change is primarily attributable to the reduction of long-term debt with funds from the Company's initial public offering completed on February 14, 1996 and interest income earned on funds from a secondary public offering completed by the Company on October 4, 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by (used in) operating activities was $(2.1) million, $8.3 million and $(14.8) million in fiscal 1996, 1997 and 1998, respectively. Cash provided by operating activities decreased in 1998 due to increases in trade accounts receivable and inventories primarily associated with internal sales growth. These cash flow decreases were partially offset by increases in trade accounts payable and accrued expenses. Cash provided by operating activities increased during fiscal 1997 due to increased profitability and an increase in trade accounts payable and accrued expenses. The increase in accrued expenses resulted primarily from an increase in accrued expenses associated with new acquisitions and the timing of payment of certain accruals. These cash 16 20 flow increases were offset by increases in trade accounts receivable and inventory. Net cash used in investing activities increased from $26.8 million in fiscal 1996 to $150.0 million in fiscal 1997 to $202.8 million in fiscal 1998. The increase is primarily the result of acquisitions, as well as an increase in capital expenditures. The Company made capital expenditures of $4.7 million in fiscal 1996, $9.9 million in fiscal 1997 and $24.0 million in fiscal 1998. Significant capital expenditures during the year ended June 30, 1998 included computer and information systems equipment, computer software, furniture and fixtures at new facilities in Pinellas Park, Florida and Van Nuys, California, leasehold improvements, medication carts and delivery vehicles. The Company continues to invest in converting all sites to a common operating system. Net cash provided by financing activities increased from $50.0 million in fiscal 1996 to $128.4 million in fiscal 1997 to $230.7 million in fiscal 1998. The increase in fiscal 1998 is primarily the result of funds received from an offering of convertible subordinated debentures completed by the Company on August 7, 1997 and an increase in funds borrowed under its revolving credit facility. These funds were primarily utilized for acquisitions in fiscal 1998. The increase during fiscal 1997 is primarily the result of funds received from a secondary public offering completed by the Company on October 4, 1996. In August 1997, the Company issued $100 million of convertible subordinated debentures due 2004. The debentures carry an interest rate of 5-3/4%. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. The Company's ability to make payments of principal and interest on the debentures will depend on its ability to receive distributions of cash from its subsidiaries. Each of the Company's wholly-owned subsidiaries has guaranteed the Company's payment obligations under the debentures, so long as such subsidiary is member of an affiliated group (within the meaning of sections 279(g) of the Internal Revenue Code of 1986, as amended) which includes the Company. The satisfaction by the Company's subsidiaries of their contractual guarantees, as well as the payment of dividends and certain loans and advances to the Company by such subsidiaries, may be subject to certain statutory or contractual restrictions, are contingent upon the earnings of such subsidiaries and are subject to various business considerations. The Company expects to meet future financing needs principally through the use of its revolving credit facility. In June 1998, the Company entered into a four-year, $150 million revolving credit facility (new credit facility) with a bank, which replaced the existing $135 million revolving credit facility. Under the new credit facility, the Company also has available a $10 million swing line revolving facility (swing line). Also in June 1998, the Company entered into a $50 million bridge facility agreement (bridge facility) due December 31 1998. The new credit facility contains certain debt covenants including Interest Coverage Ratio and minimum consolidated net worth. As of June 30, 1998 the Company had $94 million outstanding under the new credit facility, $50 million outstanding under the bridge facility and $3.8 million outstanding under the swing line. Effective July 13, 1998, the new credit facility was amended increasing the total commitment from $150 million to $245 million and was syndicated to a consortium of 11 banks. This credit facility bears interest at a variable rate based upon the Eurodollar rate plus a spread of 37.5 to 162.5 basis points, dependent upon the Company's Interest Coverage Ratio. Also effective July 13, 1998, the bridge facility was paid with funds under the amended credit facility and was terminated. The Company believes that its cash and available sources of capital, including funds available under the its revolving credit facility, are sufficient to meet its normal operating requirements. The Company's effective tax rates were 44.0%, 43.4% and 44.3% for the years ended June 30, 1996, 1997 and 1998, respectively. The tax rates differ from the federal statutory rate primarily as a result of state and local income taxes and the non-deductibility of certain acquisition costs. YEAR 2000 COMPLIANCE Computer systems in use after the beginning of the year 2000 will need to accept four-digit entries in the date code field in order to distinguish 21st century dates from 20th century dates. Consequently, many companies face significant uncertainties because of the need to upgrade or replace their currently installed computer systems to comply with such "Year 2000" requirements. Various systems could be affected ranging from complex information technology (IT) computer systems to non-IT devices such as an individual machine's programmable logic controller. The Company has reviewed all internal systems and believes its currently installed information systems are Year 2000 compliant. However, there can be no assurance that coding errors or other defects will not be discovered in the future. The total cost of the systems review has been immaterial to the financial results of the Company. Future costs related to Year 2000 issues are also expected to be immaterial to the financial results of the Company. The Company is currently determining the extent to which it may be impacted by any third parties' failure to remediate their own Year 2000 issues The Company has initiated formal communications with all significant customers, suppliers, payors and other third parties to determine the extent, if any, to which the Company's interface systems could be impacted by those third-parties' failure to remediate their own Year 2000 issues. The Company will continue these communications throughout fiscal 1999. Although the Company currently does not anticipate any material adverse impact on its operations as a result of Year 2000 issues of third parties, at this stage of the review no assurance can be given that the failure by one or more third parties to become Year 2000 compliant will not have a material adverse impact on its operations. Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. Nevertheless, since it is not possible to anticipate all possible future outcomes, especially when third parties are involved, there could be circumstances in which the Company's operations could be interrupted. In addition, disruptions in the economy in general resulting from Year 2000 issues could also adversely impact the Company. The Company has contingency plans for certain critical applications and are working on plans for others. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in or incorporated by reference into this Annual Report on Form 10-K, including, but not limited to, those regarding the Company's financial position, business strategy and other plans and objectives for future operations and any other statements that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected effects on its business or operations. Among the factors that could cause actual results to differ materially from the Company's expectations include the availability and cost of attractive acquisition candidates, continuation of various trends in the long-term care market (including the trend toward consolidation), competition among providers of long-term care pharmacy services, the availability of capital for acquisitions and capital requirements, changes in regulatory requirements and reform of the health care delivery system and other factors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Report of Independent Auditors 18 Consolidated Balance Sheets at June 30, 1997 and 1998 19 Consolidated Statements of Income for each of the three years in the period ended June 30, 1998 21 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 1998 22 Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1998 24 Notes to Consolidated Financial Statements 25 17 21 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders NCS HealthCare, Inc. We have audited the accompanying consolidated balance sheets of NCS HealthCare, Inc. and subsidiaries as of June 30, 1997 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NCS HealthCare, Inc. and subsidiaries at June 30, 1997 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP August 6, 1998 Cleveland, Ohio 18 22 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) ASSETS
JUNE 30, -------- 1997 1998 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 8,160 $ 21,186 Trade accounts receivable, less allowance for doubtful accounts of $13,275 and $18,427 as of June 30, 1997 and 1998 70,476 142,325 Inventories 22,281 43,784 Deferred income taxes 5,582 10,458 Prepaid expenses and other current assets 988 3,766 -------- -------- Total current assets 107,487 221,519 PROPERTY, PLANT AND EQUIPMENT Land 78 129 Buildings 1,606 2,090 Machinery, equipment and vehicles 17,937 27,498 Computer equipment 10,133 22,340 Furniture, fixtures and leasehold improvements 11,074 17,502 -------- -------- 40,828 69,559 Less accumulated depreciation and amortization 17,519 25,966 -------- -------- 23,309 43,593 Goodwill, less accumulated amortization of $5,119 and $12,317 as of June 30, 1997 and 1998 180,723 340,209 Other assets, less accumulated amortization of $888 and $2,117 as of June 30, 1997 and 1998 9,511 18,469 -------- -------- TOTAL ASSETS $321,030 $623,790 ======== ========
See accompanying notes 19 23 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, -------- 1997 1998 ---- ---- CURRENT LIABILITIES Line of credit $ 10,285 $ -- Trade accounts payable 15,054 34,131 Accrued compensation and related expenses 12,332 17,360 Other accrued expenses 15,249 19,118 Current portion of long-term debt 1,403 1,548 -------- -------- Total current liabilities 54,323 72,157 Line of credit -- 147,800 Long-term debt, excluding current portion 8,043 3,879 Convertible subordinated debentures 4,813 102,753 Deferred income taxes -- 9,127 Other long-term liabilities 625 740 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value per share; 1,000,000 shares authorized; none issued -- -- Common stock, $.01 par value per share: Class A -- 50,000,000 shares authorized; 11,313,638 and 13,334,639 shares issued and outstanding at June 30, 1997 and 1998,respectively 113 133 Class B -- 20,000,000 shares authorized; 6,742,742 and 6,463,244 shares issued and outstanding at June 30, 1997 and 1998,respectively 67 65 Paid-in capital 235,703 258,462 Retained earnings 17,343 28,674 -------- -------- 253,226 287,334 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $321,030 $623,790 ======== ========
See accompanying notes 20 24 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, ------------------- 1996 1997 1998 ---- ---- ---- Revenues $ 113,281 $ 275,040 $ 509,064 Cost of revenues 82,415 205,536 380,217 --------- --------- --------- Gross profit 30,866 69,504 128,847 Selling, general and administrative expenses 22,236 51,153 93,895 Nonrecurring charges 2,811 -- 8,862 --------- --------- --------- Operating income 5,819 18,351 26,090 Interest expense (2,282) (1,143) (8,199) Interest income 671 2,719 2,454 --------- --------- --------- Income before income taxes 4,208 19,927 20,345 Income tax expense 1,852 8,655 9,014 --------- --------- --------- Net income $ 2,356 $ 11,272 $ 11,331 ========= ========= ========= Earnings per share data: Earnings per common share - basic $ 0.28 $ 0.70 $ 0.59 ========= ========= ========= Earnings per common share - diluted $ 0.26 $ 0.69 $ 0.58 ========= ========= ========= Weighted average number of common shares outstanding - basic 8,462 15,991 19,100 ========= ========= ========= Weighted average number of common shares outstanding - diluted 8,995 16,843 19,372 ========= ========= =========
See accompanying notes 21 25 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE INFORMATION)
CLASS A CLASS B COMMON COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS EQUITY ----- ----- ------- -------- ------ Balance at June 30, 1995 $ 1 $ 60 $ 4,341 $ 3,715 $ 8,117 Issuance of 7,467 shares of Class A Common Stock -- -- 57 -- 57 Exercise of stock options (890,333 shares of Class B Common Stock) -- 9 3,366 -- 3,375 Conversion of 263,167 shares of Class B Common Stock to 263,167 shares of Class A Common Stock 3 (3) -- -- -- Issuance of 4,476,000 shares of Class A Common Stock 45 -- 67,039 -- 67,084 Issuance of 124,088 shares of Class A Common Stock for purchases of businesses 1 -- 1,835 -- 1,836 Conversion of convertible subordinated debentures (682,309 shares of Class A Common Stock) 6 -- 8,269 -- 8,275 Net income -- -- -- 2,356 2,356 -------- -------- -------- -------- -------- Balance at June 30, 1996 56 66 84,907 6,071 91,100 Issuance of 4,235,000 shares of Class A Common Stock 42 -- 123,584 -- 123,626 Issuance of 1,099,369 shares of Class A Common Stock and 385,722 shares of Class B Common Stock for business combinations 11 3 25,478 -- 25,492
22 26
CLASS A CLASS B COMMON COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS EQUITY ----- ----- ------- -------- ------ Conversion of 246,208 shares of Class B Common Stock to 246,208 shares of Class A Common Stock 2 (2) -- -- -- Conversion of convertible subordinated debentures (172,569 shares of Class A Common Stock) 2 -- 1,734 -- 1,736 Net income -- -- -- 11,272 11,272 -------- -------- -------- -------- -------- Balance at June 30, 1997 113 67 235,703 17,343 253,226 Exercise of stock options (2,637 shares of Class A Common Stock) -- -- 20 -- 20 Issuance of 796,608 shares of Class A Common Stock and 563,879 shares of Class B Common Stock for business combinations 8 6 16,798 -- 16,812 Conversion of 843,377 shares of Class B Common Stock to 843,377 shares of Class A Common Stock 8 (8) -- -- -- Conversion of convertible subordinated debentures and notes payable (378,379 shares of Class A Common Stock) 4 -- 5,941 -- 5,945 Net income -- -- -- 11,331 11,331 -------- -------- -------- -------- -------- Balance at June 30, 1998 $ 133 $ 65 $258,462 $ 28,674 $287,334 ======== ======== ======== ======== ========
See accompanying notes 23 27 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ------------------- 1996 1997 1998 ---- ---- ---- OPERATING ACTIVITIES Net income $ 2,356 $ 11,272 $ 11,331 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Non-cash portion of nonrecurring charges 2,811 -- 5,229 Depreciation and amortization 3,217 8,885 16,454 Provision for doubtful accounts 841 1,325 2,279 Deferred income taxes 11 1,147 47 Changes in assets and liabilities, net of effects of assets and liabilities acquired: Trade accounts receivable (8,834) (22,932) (55,086) Inventories 109 (3,796) (12,098) Trade accounts payable (2,069) 2,447 18,040 Accrued expenses (239) 9,762 1,543 Prepaid expenses and other (260) 162 (2,585) --------- --------- --------- Net cash provided by (used in) operating activities (2,057) 8,272 (14,846) INVESTING ACTIVITIES Capital expenditures for property, plant and equipment (4,701) (9,893) (24,019) Proceeds from sales of assets 40 247 1,183 Purchases of businesses (19,983) (137,080) (171,083) Other (2,172) (3,237) (8,872) --------- --------- --------- Net cash used in investing activities (26,816) (149,963) (202,791) FINANCING ACTIVITIES Proceeds from issuance of long-term debt -- 159 13 Repayment of long-term debt (3,398) (5,679) (4,135) Borrowings on line-of-credit 31,400 34,236 169,299 Payments on line-of-credit (48,900) (23,951) (31,784) Proceeds from convertible subordinated debentures 5,000 -- 97,250 Proceeds from issuance of common stock and exercise of stock options 68,878 123,626 20 Other (2,933) -- -- --------- --------- --------- Net cash provided by financing activities 50,047 128,391 230,663 --------- --------- --------- Net (decrease) increase in cash and cash equivalents 21,174 (13,300) 13,026 Cash and cash equivalents at beginning of period 286 21,460 8,160 --------- --------- --------- Cash and cash equivalents at end of period $ 21,460 $ 8,160 $ 21,186 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 2,282 $ 1,116 $ 5,076 ========= ========= ========= Income taxes $ 1,724 $ 6,925 $ 8,533 ========= ========= =========
See accompanying notes 24 28 NCS HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998 (IN THOUSANDS, EXCEPT SHARE INFORMATION) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS NCS HealthCare, Inc. (the Company) operates in one primary business segment providing a broad range of health care services primarily to long-term care institutions including skilled nursing facilities, assisted living facilities and other institutional health care settings. The Company purchases and dispenses prescription and non-prescription pharmaceuticals and provides client facilities with related management services, automated medical record keeping, drug therapy evaluation and regulatory assistance. The Company also provides a broad array of ancillary health care services to complement its core pharmacy services, including infusion therapy, physical, speech and occupational therapies, nutrition management and mobile diagnostics. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenue is recognized when products or services are provided to the customer. A significant portion of the Company's revenues from sales of pharmaceutical and related products are reimbursable from Medicaid and Medicare programs. The Company monitors its receivables from these and other third-party payor programs and reports such revenues at the net realizable amount expected to be received from third-party payors. Revenue from Medicaid and Medicare programs accounted for 37% and 4%, respectively, of the Company's net patient service revenue for the year ended June 30, 1998. Movement of the allowance for doubtful accounts is as follows:
Balance at Provision Write-offs Balance Beginning for Doubtful Net of at End of Period Accounts Acquisitions Recoveries of Period --------- ------------ ------------ ---------- --------- Fiscal year Ended June 30, 1998 $13,275 $2,279 $6,354 $(3,481) $18,427 1997 3,629 1,325 9,846 (1,525) 13,275 1996 1,478 841 1,635 (325) 3,629
CASH EQUIVALENTS The Company considers all investments in highly liquid instruments with original maturities of three months or less at the date purchased to be cash equivalents. Investments in cash equivalents are carried at cost which approximates market value. INVENTORIES Inventories for all business units consist primarily of purchased pharmaceuticals and medical supplies and are stated at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method for 8% of the June 30, 1998 net inventory balance and by using the first-in, first-out (FIFO) method for the remaining 92%. If the FIFO inventory valuation method had been used, inventories would have been $627 and $619 higher at June 30, 1997 and 1998, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation on property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets which are as follows: Buildings 30 years Machinery, equipment and vehicles 5 - 10 years Computer equipment 3 - 5 years Furniture, fixtures and leasehold improvements 3 - 10 years
Depreciation expense was $2,197, $4,347 and $7,813 for the years ended June 30, 1996, 1997 and 1998, respectively. GOODWILL, INTANGIBLES AND OTHER ASSETS Intangible assets consist primarily of goodwill. Costs in excess of the fair value of net assets acquired in purchase transactions are classified as goodwill and amortized using the straight-line method over periods up to 40 years. The carrying value of goodwill is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill may not be recoverable, the carrying value of goodwill will be reduced by the estimated shortfall of cash flows on a discounted basis. Debt issuance costs as of June 30, 1998 are included in other assets and are amortized using the affective interest rate method over the life of the related debt. 25 29 INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This accounting standard requires that the liability method be used in accounting for income taxes. Under this accounting method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that apply in the periods in which the deferred tax asset or liability is expected to be realized or settled. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed in Note 9, the alternative fair value accounting provided under FASB Statement No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128) which replaces the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. All share and per share information included in the accompanying financial statements have been restated to conform to the requirements of SFAS No. 128. Basic earnings per share are computed based on the weighted average number of shares of Class A and Class B shares outstanding during the period. Diluted earnings per share include the dilutive effect of stock options and subordinated convertible debentures. Stock options granted within a twelve-month period preceding the Company's initial public offering in February, 1996 are included in the calculation of earnings per share as if they were outstanding for all periods presented prior to the Company's initial public offering, using the treasury stock method (at the initial public offering price of $16.50 per share). On December 13, 1995, the Board of Directors approved an amendment to the Company's Certificate of Incorporation to effect a corporate recapitalization, including a 46-for-1 stock split of the Class A Common Stock and Class B Common Stock. All share and per share information included in the accompanying financial statements have been retroactively adjusted to give effect to the stock split. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of all financial instruments of the Company approximates the amounts presented on the consolidated balance sheet. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". This statement establishes standards for the reporting of financial information about reportable segments in annual and interim financial statements. SFAS No. 131 also requires disclosure of revenues from each group of products and services, geographic areas and major customers. Currently, the Company does not expect the adoption of SFAS No. 131 to have a significant impact on the Company's reporting and disclosures. In April 1998, the Accounting Standards Executive Committee (AcSEC) issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities." This SOP is effective for fiscal 2000 and requires that start-up costs and organization costs be expensed as incurred and that such costs capitalized previously be expensed as a cumulative effect of change in accounting principle. The Company has not completed its evaluation of the impact SOP 98-5 will have on its fiscal 2000 financial statements. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from these estimates. 26 30 2. LINE OF CREDIT In June 1998, the Company entered into a four-year, $150 million revolving credit facility (new credit facility) with a bank, which replaced the existing $135 million revolving credit facility. Under the new credit facility, the Company also has available a $10 million swing line revolving facility (swing line). Also in June 1998, the Company entered into a $50 million bridge facility agreement (bridge facility) due December 31, 1998. The new credit facility and bridge facility bear interest at a variable rate 7.152% and 7.652%, respectively, at June 30, 1998, based upon the Eurodollar rate plus a spread of 37.5 to 162.5 basis points, dependent upon the Company's Interest Coverage Ratio The swing line bears interest at a money market rate (7.625% at June 30, 1998). The new credit facility contains certain debt covenants including Interest Coverage Ratio and minimum consolidated net worth. As of June 30, 1998 the Company had $94,000 outstanding under the new credit facility, $50,000 outstanding under the bridge facility and $3,800 outstanding under the swing line. Effective July 13, 1998, the new credit facility was amended increasing the total commitment from $150 million to $245 million and was syndicated to a consortium of 11 banks. Also effective July 13, 1998, the bridge facility was paid with funds under the amended credit facility and was terminated. 27 31 3. LONG-TERM DEBT Long-term debt consists of the following:
JUNE 30, -------- 1997 1998 ---- ---- Notes payable to former owners of acquired companies maturing through July, 2001, at interest rates ranging from 5% to 8% $7,552 $3,666 2% note payable to Pennsylvania Industrial Development Authority due in monthly installments through June, 2010, and secured through an interest in a building of the Company 582 543 Collateralized lease obligations with interest ranging from 6% to 16% due monthly through February, 2002 557 685 Other 755 533 ------ ------ Total long-term debt 9,446 5,427 Less current portion 1,403 1,548 ------ ------ Long-term debt, excluding current portion $8,043 $3,879 ====== ======
The aggregate maturities of the long-term debt for each of the five years subsequent to June 30, 1998 are as follows:
FISCAL YEAR ENDING JUNE 30, AMOUNT - -------------------- ------ 1999 $1,548 2000 3,116 2001 149 2002 61 2003 58 Thereafter 495 ------ $5,427 ======
28 32 4. INCOME TAX EXPENSE Income tax expense (benefit) for each of the three years ended June 30, 1998 consists of:
1996 1997 1998 ---- ---- ---- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ------- -------- ----- ------- -------- ----- ------- -------- ----- Federal $ 1,439 $ 8 $ 1,447 $ 5,614 $ 887 $ 6,501 $ 6,792 $ 55 $ 6,847 State and local 402 3 405 1,894 260 2,154 2,175 (8) 2,167 ------- ------- ------- ------- ------- ------- ------- ------- ------- $ 1,841 $ 11 $ 1,852 $ 7,508 $ 1,147 $ 8,655 $ 8,967 $ 47 $ 9,014 ======= ======= ======= ======= ======= ======= ======= ======= =======
Reconciliations of income taxes at the United States Federal statutory rate to the effective income tax rate for the three years ended June 30, 1998 are as follows:
1996 1997 1998 ---- ---- ---- Income taxes at the United States statutory rate $ 1,473 $ 6,974 $ 7,121 State and local income taxes 221 1,231 1,414 Goodwill amortization 203 521 604 Tax exempt interest (81) (13) -- Other -- net 36 (58) (125) ------- ------- ------- $ 1,852 $ 8,655 $ 9,014 ======= ======= =======
29 33 The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets are as follows:
JUNE 30, -------- 1997 1998 ---- ---- Deferred tax assets (liabilities): Allowance for doubtful accounts $4,537 $ 6,872 Accrued expenses and other 2,137 7,205 Depreciable assets and other (134) (551) Intangibles (958) (12,195) ------ --------- Net deferred tax assets $5,582 $ 1,331 ====== =========
30 34 5. OPERATING LEASES The Company is obligated under operating leases primarily for office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of June 30, 1998 are as follows:
FISCAL YEAR ENDING JUNE 30, AMOUNT - -------------------- ------ 1999 $ 4,443 2000 3,983 2001 2,807 2002 2,302 2003 1,562 Thereafter 2,940 ------ $18,037 ======
Total rent expense under all operating leases for the years ended June 30, 1996, 1997 and 1998 was $1,196, $2,338 and $6,577, respectively. 31 35 6. PROFIT-SHARING PLAN The Company maintains a profit sharing plan with an Internal Revenue Code Section 401(k) feature covering substantially all of its employees. Under the terms of the plan, the Company will match up to 20% of the first 10% of eligible employee contributions. The Company's aggregate contributions to the plan and related expense were $192, $437 and $740 for the years ended June 30, 1996, 1997 and 1998, respectively. 32 36 7. RELATED PARTY TRANSACTIONS The Company leases 14 of its facilities from entities affiliated with former owners of certain businesses acquired, who are employees of the Company. The buildings are used for operations of the Company. Rent expense of $559, $1,004 and $1,128 was incurred under these leasing arrangements in the years ended June 30, 1996, 1997 and 1998, respectively. 33 37 8. STOCKHOLDER'S EQUITY On February 14, 1996, the Company issued 4,476,000 shares of Class A Common Stock at $16.50 per share in connection with an initial public offering. A portion of the net proceeds from the stock issuance were used to repay approximately $27,000 of outstanding indebtedness under long and short-term borrowings. On October 4, 1996, the Company completed a public offering of 4,235,000 shares of Class A Common Stock at $31 per share. The offering raised approximately $123,600 (net of underwriting discounts and expenses). A portion of the net proceeds from the stock issuance was used to repay approximately $7,000 of outstanding indebtedness under short-term borrowings. Holders of Class A Common Stock and holders of Class B Common Stock are entitled to one and ten votes, respectively, in corporate matters requiring approval of the shareholders of the Company. No dividend may be declared or paid on the Class B Common Stock unless a dividend of equal or greater amount is declared or paid on the Class A Common Stock. During fiscal 1995, the Company issued $1,900 of 8% convertible subordinated debentures (1995 debentures) due 1997. The 1995 debentures were converted into 188,952 shares of Class A Common Stock during fiscal 1996. During fiscal 1996, the Company issued $7,000 of 8% and $925 of 7% convertible subordinated debentures due 1998 and $5,000 of 10% convertible subordinated debentures due 1996 (collectively, 1996 debentures). During fiscal 1996, $6,375 of the 1996 debentures were converted into 493,357 shares of Class A Common Stock. During fiscal 1997, $1,736 of the 1996 debentures were converted into 172,569 shares of Class A Common Stock. During fiscal 1998, $2,061 of the 1996 debentures were converted into 204,880 shares of Class A Common Stock. The remaining $2,753 of the 1996 debentures were converted into 273,833 shares of Class A Common Stock during July 1998. On August 13, 1997, the Company issued $100,000 of convertible subordinated debentures (1998 debentures) due 2004. Net proceeds to the Company were approximately $97,250, net of underwriting discounts and expenses. The debentures carry an interest rate of 5 3/4% and are convertible into shares of Class A Common Stock at any time prior to maturity at $32.70 per share. A portion of the proceeds from the debenture offering was used to repay approximately $21,000 of outstanding indebtedness under short-term borrowings. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. Each of the Company's wholly-owned subsidiaries has unconditionally guaranteed, jointly and severally, the Company's payment obligations under the 1998 debentures. Accordingly, summarized financial information regarding the guarantor subsidiaries has not been presented because management of the Company believes that such information would not be meaningful to investors. During fiscal 1998, notes payable due to former owners of $3,884 were exchanged for 173,499 shares of Class A Common Stock. 34 38 9. STOCK OPTIONS During the period from 1987 through 1995, the Company granted stock options to certain directors and key employees which provide for the purchase of 1,054,890 common shares in the aggregate, at exercise prices ranging from $0.71 to $6.19 per share, which represented fair market values on the dates the grants were made. For options granted in 1987 with a tax-offset cash bonus feature, the Company recognized compensation expense of $175 for the year ended June 30, 1996. During fiscal 1995, the Company adopted an Employee Stock Purchase and Option Plan. Under the terms and provision of this plan, the Company authorized 100,000 shares of Class A Common Stock and granted options to certain key employees for the purchase of a total of 18,978 common shares at exercise prices ranging from $6.19 to $7.33 per share, which prices represented fair market values on the dates the grants were made. In January 1996, the Company adopted a Long Term Incentive Plan (the Plan) to provide up to 700,000 shares of Class A Common Stock for awards of incentive and nonqualified stock options to officers and key employees of the Company. During fiscal 1996 the Company granted 56,500 nonqualified stock options and 27,540 incentive stock options, all at $16.50 per share, the price at the initial public offering. The nonqualified stock options have a term of five years and become exercisable in thirds on February 1, 1998, 1999 and 2000. The incentive stock options have a term of six years and become exercisable in fifths of each year on February 1, 1997, 1998, 1999, 2000 and 2001. During fiscal 1997 the Company granted 301,250 nonqualified stock options at an exercise price of $20.00 per share, the market value of the stock on the date of the grant. These nonqualified stock options have a term of five years and become exercisable in thirds on April 1, 1999, 2000 and 2001. The Company's stock option activity and related information for the years ended June 30 is summarized as follows:
1996 1997 1998 ---- ---- ---- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE (000'S) PRICE (000'S) PRICE (000'S) PRICE ------- ----- ------- ----- ------- ----- Outstanding at beginning of year 176,077 $ 5.24 267,575 $ 8.84 566,825 $14.74 Granted 91,498 15.75 301,250 20.00 -- -- Exercised -- -- -- -- (2,637) 7.49 Forfeited -- -- (2,000) 16.50 (29,000) 19.64 --------- ------ ------- -------- ------- ------ Outstanding at end of year 267,575 $ 8.84 566,825 $ 14.74 535,188 $14.64 ========= ====== ======= ======== ======= ====== Exercisable at end of year 97,110 141,658 185,804 ========= ======= =======
The weighted average fair value of options granted during fiscal 1996 and 1997 was $7.59 and $8.89 per share, respectively. Exercise prices for options outstanding as of June 30, 1997 ranged from $7.33 to $20.00 for the options granted in fiscal 1996 and 1997, and from $4.09 to $6.19 for the options granted during the period from 1987 through 1995. The weighted-average remaining contractual life of those options is 3.6 years for the options granted during the fiscal years 1996 and 1997, and 4.6 years for the options granted during the fiscal years 1987 through 1995. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 6.00%; a dividend yield of 0.00%; a volatility factor of the expected market price of the Company's Class A Common Stock of .482; and a weighted-average expected option life of 4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially 35 39 affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information for the three years ended June 30, 1998 is as follows (in thousands except for earnings per share information):
1996 1997 1998 ---- ---- ---- Net income $ 2,325 $11,120 $10,876 Earnings per share - basic $ 0.27 $ 0.70 $ 0.57 Earnings per share - diluted $ 0.26 $ 0.68 $ 0.56
36 40 10. ACQUISITIONS During fiscal 1996, the Company acquired Corinthian Healthcare Systems, Inc. located in Indiana, The Apothecary, Inc. in Scranton, Pennsylvania, Demoss Rexall Drugs, Inc. in Evansville, Indiana, Valu Pharmacy, Inc. (d/b/a/ Care Plus Pharmacy) in Decatur, Illinois, Uni-Care Health Services, Inc. in Londonderry, New Hampshire and Uni-Care Health Services of Maine, in Wells, Maine, Family Care Nursing Home Service, Inc. and Care Unlimited, Inc. in Herrin, Illinois. Significant acquisitions completed by the Company during fiscal 1997 include Advanced Rx Services, Inc. in Northfield, New Jersey, IPAC Pharmacy, Inc. in Portland, Oregon, Medical Arts Pharmacy in Grand Rapids, Michigan, Northside Pharmacy, Inc. and Thrifty Medical Supply, Inc. in Oklahoma City, Oklahoma, Thrifty Medical of Tulsa L.L.C. in Tulsa, Oklahoma, Hudson Pharmacy of Wichita, Inc. in Wichita, Kansas, Spectrum Health Services, Inc. in Tampa, Florida, Clinical Health Systems in Vancouver, Washington, Rescot Systems Group, Inc. in Philadelphia, Pennsylvania, W.P. Malone, Inc. in Arkadelphia, Arkansas, Long Term Care Pharmacy Services in East Greenwich, Rhode Island, Eakles Drug Store, Inc. in Hagerstown, Maryland, Pharmacare in Glendale, California, Advanced Pharmaceutical Services, Inc. in Tujunga, California, Dahlin Pharmacy, Inc. in Paramount, California, Stoll Services, Inc. in Modesto, California, Cooper Hall Pharmacy, Inc. in Mount Pleasant, South Carolina, Hammer Incorporated in Des Moines, Iowa, Daven Drug in Los Angeles, California, Medi-Centre Pharmacy in Lansing, Michigan, Vangard Labs, Inc. in Glasgow, Kentucky, Long Term Care, Inc. in Williston, Vermont, Look Drug Store, Inc. in Kaukauna, Wisconsin and HLF Adult Home Pharmacy in Rochester, New York. Significant acquisitions completed by the Company during fiscal 1998 include Cheshire LTC Pharmacy, Inc. in Cheshire, Connecticut, PharmaSource Healthcare, Inc. in Norcross, Georgia, Marco & Company, LLC in Billings, Montana, MedStar Pharmacy, Inc. in Benson, North Carolina, Greenwood Pharmacy and Managed Pharmacy Services, affiliates of Eckerd Corporation based in Sharon, Pennsylvania, Medical Pharmacy in Bakersfield, California, Robcin Enterprises, Inc. in Independence, Missouri, Apple Institutional Services in Salisbury, Maryland and the institutional pharmacy assets of Walgreen Co., an Illinois corporation. The Look Drug Store, Inc., HLF Adult Home Pharmacy, Cheshire LTC Pharmacy, Inc. and MedStar Pharmacy, Inc. acquisitions were accounted for as pooling of interests transactions, however the impact of these transactions on the Company's historical financial statements is not material; consequently, prior period financial statements have not been restated for these transactions. All other acquisitions have been accounted for as purchase transactions. The following table summarizes the aggregate purchase price for all businesses acquired:
YEAR ENDED JUNE 30, ------------------- 1996 1997 1998 ---- ---- ---- Cash $ 19,983 $137,080 $171,083 Convertible debentures 7,925 -- -- Debt -- 3,804 959 Class A Common Stock 1,836 25,492 16,812 -------- -------- -------- Total $ 29,744 $166,376 $188,854 ======== ======== ========
The results of operations of all businesses acquired have been included in the consolidated financial statements of the Company from the dates of the respective acquisitions. All of the businesses acquired provide substantially similar services as the existing company. Unaudited pro forma data as though the Company had completed its secondary public offering and had purchased all businesses at the beginning of each of the fiscal years ended June 30, 1997 and 1998 are set forth below:
1997 1998* ---- ----- Revenues $ 527,040 $ 608,186 Net income $ 9,993 $ 10,433 Earnings per share - basic $ 0.52 $ 0.53 Earnings per share - diluted $ 0.51 $ 0.52
* Includes a one time nonrecurring charge of $8,862 ($5,317 net of tax). (See Note 11) The pro forma information does not intend to be indicative of operating results which would have occurred had the 37 41 acquisitions been made at the beginning of the respective periods or of results which may occur in the future. The primary pro forma adjustments reflect amortization of goodwill acquired and interest costs. The pro forma information does not give effect to any potential synergies anticipated by the Company as a result of the acquisitions such as improvements in gross margin attributable to the Company's purchasing leverage and increased operating efficiencies. 38 42 11. NONRECURRING CHARGES During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring charge of $8,900 ($5,300 net of tax) related to restructuring and other nonrecurring expenses in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. The components of the 1998 nonrecurring charge are described below. During the fourth quarter of fiscal 1998, the Company adopted a formal plan of restructuring to consolidate certain pharmacy sites in similar geographies. The plan will combine pharmacies in close proximity in order to improve operating efficiencies. As a result of the exit plan, 17 pharmacy sites will be consolidated into either a new or existing location. The Company recorded nonrecurring charges of $5,300 related to the site consolidations which consists of $500 related to employee severance costs in relation to the termination of 149 employees, $700 related to lease termination costs and $4,100 related to asset impairments and other miscellaneous costs. As of June 30, 1998, five site consolidations had been completed with the remainder expected to be completed by the end of fiscal 1999. Approximately $900 of the nonrecurring charge relates to the buyout of existing employment agreements with the prior owners of certain acquired businesses. In June, 1998 the Company's new credit facility and bridge facility replaced the existing $135 million revolving credit facility. The new credit facility and bridge facility were replaced in July 1998 by a $245 million revolving credit facility (see Note 2). Approximately $1,300 of the nonrecurring charge relates to the write-off of deferred financing fees on the $135 million revolving credit facility and certain financing fees associated with the bridge facility. The remaining $1,400 of the 1998 nonrecurring charge primarily relates to additional acquisition related expenses. Details of the nonrecurring charge are as follows:
Nonrecurring Reserve Description Cash/Non-Cash Charge Activity At June 30, 1998 ----------- ------------- ------ -------- ---------- Site Consolidations Severance packages cash $ 500 $ -- $ 500 Lease terminations cash 700 -- 700 Asset impairments non-cash 3,500 (3,500) -- Other cash 600 (400) 200 Buyout of employment agreements cash 900 (200) 700 Write-off financing fees non-cash 1,300 (1,300) -- Other Cash 1,000 (800) 200 Non-cash 400 (400) -- -------- --------- -------- Total $ 8,900 $ (6,600) $ 2,300 ======== ========= ========
Effective September 30, 1995, the Company terminated certain compensation arrangements with the prior owners of certain acquired businesses which resulted in a special compensation expense and a related increase in debt of $2,811. 39 43 12. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1996 1997 1998 ---- ---- ---- Numerator: Numerator for basic earnings per share - net income $ 2,356 $11,272 $11,331 Effect of dilutive securities: Convertible debentures -- 280 -- ------- ------- ------- Numerator for diluted earnings per share $ 2,356 $11,552 $11,331 ======= ======= ======= Denominator: Denominator for basic earnings per share - weighted average common shares 8,462 15,991 19,100 Effect of dilutive securities: Stock options 533 207 272 Convertible debentures -- 645 -- ------- ------- ------- Dilutive potential common shares 533 852 272 ------- ------- ------- Denominator for diluted earnings per share 8,995 16,843 19,372 ======= ======= ======= Basic earnings per share $ 0.28 $ 0.70 $ 0.59 ======= ======= ======= Diluted earnings per share $ 0.26 $ 0.69 $ 0.58 ======= ======= =======
The Company has $102,753 of convertible subordinated debentures outstanding at June 30, 1998 that are convertible into 3,331,937 shares of Class A Common Stock that were not included in the computation of diluted earnings per share as their effect would be antidilutive. The Company had $6,549 of convertible subordinated debentures outstanding at June 30, 1996 that were convertible into 651,284 shares of Class A Common Stock that were not included in the computation of diluted earnings per share as their effect would be antidilutive. 40 44 13. QUARTERLY DATA (UNAUDITED) Selected quarterly data for the years ended June 30, 1997 and 1998:
YEAR ENDED JUNE 30, 1997 ------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- ----- Revenues $ 43,042 $ 59,323 $ 78,539 $ 94,136 $ 275,040 Gross profit 11,188 15,031 19,672 23,613 69,504 Operating income 3,534 3,856 4,954 6,007 18,351 Net income $ 1,910 $ 2,889 $ 3,091 $ 3,382 $ 11,272 Earnings per share - basic $ 0.15 $ 0.17 $ 0.18 $ 0.19 $ 0.70 Earnings per share - diluted $ 0.15 $ 0.17 $ 0.18 $ 0.19 $ 0.69
YEAR ENDED JUNE 30, 1998 ------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- ----- Revenues $ 103,711 $ 114,508 $ 137,669 $ 153,177 $ 509,064 Gross profit 26,226 29,039 34,857 38,725 128,847 Nonrecurring charge (b) -- -- -- 8,862 8,862 Operating income 6,873 7,810 9,467 1,940 26,090 Net income (loss) $ 3,632 $ 4,022 $ 4,365 $ (689) $ 11,331 Earnings per share - basic (a) $ 0.20 $ 0.21 $ 0.22 $ (0.03) $ 0.59 Earnings per share - diluted (a) $ 0.20 $ 0.21 $ 0.22 $ (0.03) $ 0.58
(a) Earnings per share is calculated independently for each quarter and the sum of the quarters may not necessarily be equal to the full year earnings per share amount. (b) A nonrecurring charge of $8,862 before taxes and $5,317 after taxes, or $0.28 per basic share and $0.72 per diluted share, was recorded during the fourth quarter of 1998 related to restructuring and other nonrecurring expenses in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. For the year ended June 30, 1998, net income, excluding this nonrecurring charge, was $16,648 or $0.87 per basic share and $0.86 per diluted share. 41 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information regarding Directors appearing under the caption "Election of Directors" in the Company's Definitive Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held in 1998 (the "1998 Proxy Statement") is incorporated herein by reference, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this item as to the executive officers of the Company is included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation S-K is set forth in the 1998 Proxy Statement under the heading "Section 16(a) Beneficial Ownership Reporting Compliance," which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to "Executive Compensation" in the 1998 Proxy Statement, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to "Stock Ownership of Principal Holders and Management" in the 1998 Proxy Statement, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS To the extent applicable the information required by this item is incorporated herein by reference to "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" in the 1998 Proxy Statement, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. 42 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Form 10-K: 1. Financial Statements The 1998 Consolidated Financial Statements of NCS HealthCare, Inc. are included in Part II, Item 8. 2. Financial Statement Schedules. All financial statement schedules for the Company and its subsidiaries have been included in the consolidated financial statements or the related footnotes, or they are either inapplicable or not required. 3. Exhibits See the Index to Exhibits at page E-1 of this Form 10-K. (b) Reports on Form 8-K 1. On April 10, 1998, the Company filed a Current Report on Form 8-K relating to the execution of a definitive agreement to acquire the long-term care pharmacy assets of Walgreen Co. 2. On June 1, 1998, the Company filed a Current Report on Form 8-K relating to the acquisition of certain assets of the Extended Care Division of Walgreens Advance Care, Inc., a wholly-owned subsidiary of Walgreen Co. 43 47 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. NCS HEALTHCARE, INC. By: /s/ Jon H. Outcalt Jon H. Outcalt Chairman of the Board of Directors Date: September 28, 1998 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Signature Title Jon H. Outcalt /s/ Jon H. Outcalt Chairman of the Board of Directors Kevin B. Shaw /s/ Kevin B. Shaw President, Chief Executive Officer and Director (Principal Executive Officer) Gerald D. Stethem /s/ Gerald D. Stethem Chief Financial Officer (Principal Financial and Accounting Officer) Phyllis K. Wilson /s/ Phyllis K. Wilson Director A. Malachi Mixon III /s/ A. Malachi Mixon III Director Boake A. Sells /s/ Boake A. Sells Director Richard L. Osborne /s/ Richard L. Osborne Director Date: September 28, 1998 44 48 INDEX OF EXHIBITS
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 2.1 Asset Purchase Agreement, dated as of July 31, 1996, by and among the Company, NCS HealthCare of Oregon, Inc., IPAC Pharmacy, Inc. and Prestige Care, Inc. (A) 2.2 Agreement of Merger, dated August 13, 1996, by and among the Company, Northside Pharmacy, Inc., Willis V. Smith, The Willis Vernon Smith Unitrust, dated as of August 8, 1996, Charles Oliver and NCS HealthCare of Oklahoma, Inc. (B) 2.3 Asset Purchase Agreement, dated August 13, 1996, by an among NCS HealthCare of Oklahoma, Inc., an Oklahoma corporation, Med-Equip Homecare Equipment Service, Inc., an Oklahoma corporation, Gail Benjamin, Willis V. Smith and John Tarr (B) 2.4 Asset Purchase Agreement, dated August 13, 1996, by and among Thrifty Medical of Tulsa, L.L.C., an Oklahoma limited liability company, Willis V. Smith, Charles Oliver and NCS HealthCare of Oklahoma, Inc., an Oklahoma corporation (B) 2.5 Stock Purchase Agreement, dated August 13, 1996, by and among the Willis Vernon Smith Unitrust Dated August 8, 1996, Charles Oliver, Willis V. Smith and the Registrant (B) 2.6 Asset Purchase Agreement, dated December 29, 1997, by and (C) among the Company, NCS HealthCare of New York, Inc., Thrift Drug, Inc., Fay's Incorporated and Eckerd Corporation 2.7 Asset Purchase Agreement, dated April 10, 1998, among the (D) Company, NCS Acqusisiton Sub, Inc., Walgreens Advance Care, Inc. and Walgreen Co. 3.1 Amended and Restated Certificate of Incorporation of the Company (E) 3.2 Amended By-Laws of the Company (E) 4.1 Specimen certificate of the Company's Class A Common Stock (E) 4.2 Specimen certificate of the Company's Class B Common Stock (E) 4.3 Form of 5-3/4% Convertible Subordinated Debentures due 2004 (F) 4.4 Indenture, dated August 13, 1997, between the Company and National City Bank, as Trustee (F) * 10.1 Deferred Compensation Agreement, dated as of January 1, 1994, by and between Modern Pharmacy Consultants, Inc. and Phyllis K. Wilson (E) * 10.2 1996 Long Term Incentive Plan (E) * 10.3 Aberdeen Group, Inc. 1995 Amended and Restated Employee Stock Purchase and Option Plan (E) * 10.4 Amended and Restated Stock Option Agreement, dated as of December 3, 1993, by and between Aberdeen Group, Inc. and Richard L. Osborne (E) * 10.5 Amended and Restated Stock Option Agreement, dated as of December 29, 1994, by and between Aberdeen Group, Inc. and Jeffrey R. Steinhilber (E) 10.6 Lease Agreement, dated as of July 16, 1990, by and among Crow-O'Brien-Woodhouse I Limited Partnership, Aberdeen Group, Inc. and Van Cleef Properties, Inc. (E)
E-1 49
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.7 Lease Agreement, dated as of January 1, 1996, by and between PR Realty and Nursing Center Services, Inc. (E) 10.8 Industrial Lease Agreement dated as of May 28, 1993 by and between Industrial Developments International, Inc. and Corinthian Pharmaceutical Systems, Inc. (E) 10.9 Lease Agreement, dated as of January 17, 1995, by and among Calvin Hunsicker, Brenda Hunsicker and Aberdeen Group, Inc. (E) 10.10 Form of Indemnity Agreement by and between the Company and each of its Directors and Executive Officers (E) *10.11 Employment and Noncompetition Agreement, dated as of September 1, 1996, by and between Aberdeen Group, Inc. and William B. Bryum (E) 10.12 Credit Agreement, dated as of June 1, 1998, among the Company, the lending institutions named therein and KeyBank National Association, as the Swing Line Lender, Letter of Credit Issuer and Administrative Agent. 10.13 Letter Agreement, dated June 1, 1998, between the Company and KeyBank National Association regarding Capital Markets Bridge Facility 10.14 Amendment No. 1, dated as of July 13, 1998, to the Credit Agreement, dated as of June 1, 1998, among the Company, the lending institutions named therein and KeyBank National Association, as the Swing Line Lender, Letter of Credit Issuer and Administrative Agent 21.1 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule (including restated schedules for adoption of SFAS No. 128)
* Management contract or compensatory plan or arrangement identified pursuant to Item 14(c) of this Form 10-K. (A) Incorporated herein by reference to the appropriate exhibit to the Company's Current Report on Form 8-K, dated August 1, 1996. (B) Incorporated herein by reference to the appropriate exhibit to the Company's Current Report on Form 8-K, dated August 15, 1996. (C) Incorporated herein by reference to the appropriate exhibit to the Company's Current Report on Form 8-K, dated January 30, 1998. (D) Incorporated herein by reference to the appropriate exhibit to the Company's Current Report on Form 8-K, dated June 1, 1998. (E) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-1 declared effective on February 13, 1996 (Reg. No. 33-80455). (F) Incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-3, as amended (Reg. No. 333-35551). E-2 EX-10.12 2 EXHIBIT 10.12 1 EXHIBIT 10.12 ================================================================================ CREDIT AGREEMENT DATED AS OF JUNE 1, 1998 AMONG NCS HEALTHCARE, INC. AS BORROWER THE LENDING INSTITUTIONS NAMED THEREIN AS LENDERS KEYBANK NATIONAL ASSOCIATION AS SWING LINE LENDER, LETTER OF CREDIT ISSUER AND AS ADMINISTRATIVE AGENT ================================================================================ 2 TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS AND TERMS..................................................................................1 1.1. CERTAIN DEFINED TERMS.....................................................................................1 1.2. COMPUTATION OF TIME PERIODS..............................................................................16 1.3. ACCOUNTING TERMS.........................................................................................16 1.4. TERMS GENERALLY..........................................................................................16 SECTION 2. AMOUNT AND TERMS OF LOANS.............................................................................17 2.1. COMMITMENTS FOR LOANS....................................................................................17 2.2. MINIMUM BORROWING AMOUNTS, ETC.; PRO RATA BORROWINGS.....................................................17 2.3. NOTICE OF BORROWING......................................................................................18 2.4. DISBURSEMENT OF FUNDS....................................................................................19 2.5. REFUNDING OF, OR PARTICIPATION IN, SWING LINE REVOLVING LOANS............................................19 2.6. NOTES....................................................................................................21 2.7. CONVERSIONS OF GENERAL REVOLVING LOANS...................................................................21 2.8. INTEREST.................................................................................................22 2.9. INTEREST PERIODS.........................................................................................24 2.10. INCREASED COSTS, ILLEGALITY, ETC........................................................................24 2.11. COMPENSATION............................................................................................26 2.12. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS........................................................26 SECTION 3. LETTERS OF CREDIT.....................................................................................27 3.1. LETTERS OF CREDIT........................................................................................27 3.2. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE...........................................................28 3.3. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS.............................................................28 3.4. LETTER OF CREDIT PARTICIPATIONS..........................................................................29 3.5. INCREASED COSTS..........................................................................................31 3.6. GUARANTY OF SUBSIDIARY LETTER OF CREDIT OBLIGATIONS......................................................31 SECTION 4. FEES; COMMITMENTS.....................................................................................32 4.1. FEES.....................................................................................................32 4.2. VOLUNTARY REDUCTION OF COMMITMENTS.......................................................................34 4.3. MANDATORY TERMINATION/ADJUSTMENTS OF COMMITMENTS, ETC....................................................34 4.4. EXTENSION OF MATURITY DATE...............................................................................35 SECTION 5. PAYMENTS..............................................................................................35 5.1. VOLUNTARY PREPAYMENTS....................................................................................35 5.2. MANDATORY PREPAYMENTS....................................................................................36 5.3. METHOD AND PLACE OF PAYMENT..............................................................................37 5.4. NET PAYMENTS.............................................................................................38 SECTION 6. CONDITIONS PRECEDENT..................................................................................38 6.1. CONDITIONS PRECEDENT AT CLOSING DATE.....................................................................38 6.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS................................................................40 SECTION 7. REPRESENTATIONS AND WARRANTIES........................................................................40 7.1. CORPORATE STATUS, ETC....................................................................................40 7.2. SUBSIDIARIES.............................................................................................40 7.3. CORPORATE POWER AND AUTHORITY, ETC.......................................................................40 7.4. NO VIOLATION.............................................................................................41 7.5. GOVERNMENTAL APPROVALS...................................................................................41 7.6. LITIGATION...............................................................................................41 7.7. USE OF PROCEEDS; MARGIN REGULATIONS......................................................................41 7.8. FINANCIAL STATEMENTS, ETC................................................................................41 7.9. NO MATERIAL ADVERSE CHANGE...............................................................................42 7.10. TAX RETURNS AND PAYMENTS................................................................................42 7.11. TITLE TO PROPERTIES, ETC................................................................................42 7.12. LAWFUL OPERATIONS, ETC..................................................................................42 7.13. ENVIRONMENTAL MATTERS...................................................................................43 7.14. COMPLIANCE WITH ERISA...................................................................................43
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7.15. INTELLECTUAL PROPERTY, ETC..............................................................................44 7.16. INVESTMENT COMPANY......................................................................................44 7.17. BURDENSOME CONTRACTS; LABOR RELATIONS...................................................................44 7.18. EXISTING INDEBTEDNESS...................................................................................44 7.19. YEAR 2000 PROBLEM.......................................................................................44 7.20. TRUE AND COMPLETE DISCLOSURE............................................................................44 SECTION 8. AFFIRMATIVE COVENANTS.................................................................................45 8.1. REPORTING REQUIREMENTS...................................................................................45 8.2. BOOKS, RECORDS AND INSPECTIONS...........................................................................47 8.3. INSURANCE................................................................................................48 8.4. PAYMENT OF TAXES AND CLAIMS..............................................................................48 8.5. CORPORATE FRANCHISES.....................................................................................48 8.6. GOOD REPAIR..............................................................................................48 8.7. COMPLIANCE WITH STATUTES, ETC............................................................................48 8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS.......................................................................49 8.9. FISCAL YEARS, FISCAL QUARTERS............................................................................49 8.10. CERTAIN SUBSIDIARIES TO JOIN IN SUBSIDIARY GUARANTY.....................................................49 8.11. PLEDGE OF ADDITIONAL STOCK; RELEASE OF COLLATERAL.......................................................50 8.12. MOST FAVORED COVENANT STATUS............................................................................50 8.13. SENIOR DEBT.............................................................................................51 SECTION 9. NEGATIVE COVENANTS....................................................................................51 9.1. CHANGES IN BUSINESS......................................................................................51 9.2. CONSOLIDATION, MERGER, ACQUISITIONS, AND SALE OF ASSETS, ETC.............................................51 9.3. LIENS....................................................................................................53 9.4. INDEBTEDNESS.............................................................................................54 9.5. ADVANCES, INVESTMENTS, LOANS AND GUARANTY OBLIGATIONS....................................................55 9.6. TOTAL INDEBTEDNESS/CAPITAL RATIO.........................................................................57 9.7. TOTAL SENIOR INDEBTEDNESS/CAPITAL RATIO..................................................................57 9.8. INTEREST COVERAGE RATIO..................................................................................57 9.9. MINIMUM CONSOLIDATED NET WORTH...........................................................................57 9.10. PREPAYMENTS AND REFINANCINGS OF SUBORDINATED DEBT, ETC..................................................57 9.11. TRANSACTIONS WITH AFFILIATES............................................................................57 9.12. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS............................................................58 9.13. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS..........................................................58 9.14. PLAN TERMINATIONS, MINIMUM FUNDING, ETC.................................................................58 SECTION 10. EVENTS OF DEFAULT....................................................................................58 10.1. EVENTS OF DEFAULT.......................................................................................58 10.2. ACCELERATION, ETC.......................................................................................60 10.3. APPLICATION OF LIQUIDATION PROCEEDS.....................................................................60 SECTION 11. THE ADMINISTRATIVE AGENT.............................................................................61 11.1. APPOINTMENT.............................................................................................61 11.2. DELEGATION OF DUTIES....................................................................................61 11.3. EXCULPATORY PROVISIONS..................................................................................61 11.4. RELIANCE BY ADMINISTRATIVE AGENT........................................................................62 11.5. NOTICE OF DEFAULT.......................................................................................62 11.6. NON-RELIANCE............................................................................................62 11.7. INDEMNIFICATION.........................................................................................63 11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY.........................................................63 11.9. SUCCESSOR ADMINISTRATIVE AGENT..........................................................................63 11.10. OTHER AGENTS...........................................................................................63 SECTION 12. MISCELLANEOUS........................................................................................64 12.1. PAYMENT OF EXPENSES ETC.................................................................................64 12.2. RIGHT OF SETOFF.........................................................................................65
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12.3. NOTICES.................................................................................................65 12.4. BENEFIT OF AGREEMENT....................................................................................65 12.5. NO WAIVER: REMEDIES CUMULATIVE..........................................................................67 12.6. PAYMENTS PRO RATA.......................................................................................67 12.7. CALCULATIONS: COMPUTATIONS..............................................................................67 12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL..................................67 12.9. COUNTERPARTS............................................................................................68 12.10. EFFECTIVENESS..........................................................................................68 12.11. HEADINGS DESCRIPTIVE...................................................................................68 12.12. AMENDMENT OR WAIVER....................................................................................68 12.13. SURVIVAL OF INDEMNITIES................................................................................69 12.14. DOMICILE OF LOANS......................................................................................69 12.15. CONFIDENTIALITY........................................................................................69 12.16. LENDER REGISTER........................................................................................69 12.17. LIMITATIONS ON LIABILITY OF THE LETTER OF CREDIT ISSUERS...............................................70 12.18. GENERAL LIMITATION OF LIABILITY........................................................................70 12.19. NO DUTY................................................................................................70 12.20. LENDERS AND AGENT NOT FIDUCIARY TO BORROWER, ETC.......................................................70 12.21. MARGIN STOCK...........................................................................................70 12.22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............................................................71
iii 5 ANNEX I - INFORMATION AS TO LENDERS ANNEX II - INFORMATION AS TO SUBSIDIARIES ANNEX III - DESCRIPTION OF EXISTING INDEBTEDNESS ANNEX IV - DESCRIPTION OF EXISTING LIENS ANNEX V - DESCRIPTION OF EXISTING ADVANCES, LOANS, INVESTMENTS AND GUARANTEES ANNEX VI - DESCRIPTION OF LETTERS OF CREDIT DEEMED ISSUED UNDER THE CREDIT AGREEMENT EXHIBIT A-1 - FORM OF GENERAL REVOLVING NOTE EXHIBIT A-2 - FORM OF SWING LINE REVOLVING NOTE EXHIBIT B-1 - FORM OF NOTICE OF BORROWING EXHIBIT B-2 - FORM OF NOTICE OF CONVERSION EXHIBIT B-3 - FORM OF LETTER OF CREDIT REQUEST EXHIBIT C-1 - FORM OF SUBSIDIARY GUARANTY EXHIBIT C-2 - FORM OF PLEDGE AGREEMENT EXHIBIT D - FORM OF OPINION OF SPECIAL COUNSEL TO THE BORROWER EXHIBIT E - FORM OF ASSIGNMENT AGREEMENT EXHIBIT F - FORM OF SECTION 5.4(b)(ii) CERTIFICATE iv 6 CREDIT AGREEMENT, dated as of June 1, 1998, among the following: (i) NCS HEALTHCARE, INC., a Delaware corporation (herein, together with its successors and assigns, the "BORROWER"); (ii) the lending institutions listed in Annex I hereto (each a "LENDER" and collectively, the "LENDERS"); and (iii) KEYBANK NATIONAL ASSOCIATION, a national banking association, as the Lender (the "SWING LINE LENDER") under the Swing Line Revolving Facility referred to herein, and as administrative agent (the "ADMINISTRATIVE AGENT"): PRELIMINARY STATEMENTS: (1) Unless otherwise defined herein, all capitalized terms used herein and defined in section 1 are used herein as so defined. (2) The Borrower has applied to the Lenders for credit facilities in order to refinance certain indebtedness of the Borrower, to finance Acquisitions and in order to provide working capital and funds for other lawful purposes. (3) The Borrower has requested that the credit facilities be secured by the Pledge Agreement, covering only the stock presently owned by the Borrower in its directly owned Wholly-Owned Subsidiaries, subject to the right of the Borrower, as provided herein, to obtain the release of all Collateral covered by the Pledge Agreement. (4) Subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the credit facilities provided for herein. (5) Contemporaneously herewith, the Borrower is entering into a letter agreement, entitled "U.S.$50,000,000 Capital Markets Bridge Facility for NCS HealthCare, Inc.", dated as of the date hereof (as from time to time in effect, the "BRIDGE FACILITY AGREEMENT"). The obligations of the Borrower under the Bridge Facility Agreement will be entitled to the benefits of the Subsidiary Guaranty and the Security Documents on a PARRI PASSU basis with the Obligations hereunder. NOW, THEREFORE, it is agreed: SECTION 1. DEFINITIONS AND TERMS. 1.1. CERTAIN DEFINED TERMS. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires: "ACQUISITION" shall mean and include (i) any acquisition on a going concern basis (whether by purchase, lease or otherwise) of any facility and/or business operated by any person who is not a Subsidiary of the Borrower, and (ii) acquisitions of a majority of the outstanding equity or other similar interests in any such person (whether by merger, stock purchase or otherwise). 7 "ADMINISTRATIVE AGENT" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Administrative Agent appointed pursuant to section 11.9. "AFFILIATE" shall mean, with respect to any person, any other person directly or indirectly controlling, controlled by, or under direct or indirect common control with such person. A person shall be deemed to control a second person if such first person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors or managers of such second person or (ii) to direct or cause the direction of the management and policies of such second person, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, (x) a director, officer or employee of a person shall not, solely by reason of such status, be considered an Affiliate of such person; and (y) neither the Administrative Agent nor any Lender shall in any event be considered an Affiliate of the Borrower or any other Credit Party or any of their respective Subsidiaries. "AGREEMENT" shall mean this Credit Agreement, as the same may be from time to time further modified, amended and/or supplemented. "APPLICABLE EURODOLLAR MARGIN" shall have the meaning provided in section 2.8(g). "APPLICABLE FACILITY FEE RATE" shall have the meaning provided in section 4.1(a). "APPLICABLE LENDING OFFICE" shall mean, with respect to each Lender, (i) such Lender's Domestic Lending Office in the case of Borrowings consisting of Prime Rate Loans (or, in the case of any Borrowings of Swing Line Revolving Loans consisting of Money Market Rate Loans), and (ii) such Lender's Eurodollar Lending Office in the case of Borrowings consisting of Eurodollar Loans. "ASSET SALE" shall mean the sale, transfer or other disposition (including by means of mergers, consolidations, and liquidations of a corporation, partnership or limited liability company of the interests therein of the Borrower or any Subsidiary) by the Borrower or any Subsidiary to any person other than the Borrower or any Subsidiary of any of their respective assets, PROVIDED that the term Asset Sale specifically excludes sales, transfers or other dispositions of obsolete or excess furniture, fixtures, equipment or other property, tangible or intangible, in each case made in the ordinary course of business. "ASSIGNMENT AGREEMENT" shall mean an Assignment Agreement substantially in the form of Exhibit E hereto. "AUTHORIZED OFFICER" shall mean any officer or employee of the Borrower designated as such in writing to the Administrative Agent by the Chief Financial Officer, the Secretary or an Assistant Secretary of the Borrower. "BANKRUPTCY CODE" shall have the meaning provided in section 10.1(h). "BORROWER" shall have the meaning provided in the first paragraph of this Agreement. "BORROWING" shall mean the incurrence of General Revolving Loans or Swing Line Revolving Loans, as the case may be, consisting of one Type of Loan, by the Borrower from all of the Lenders having Commitments in respect thereof on a PRO RATA basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period. "BRIDGE FACILITY AGREEMENT" shall have the meaning provided in the Preliminary Statements of this Agreement. "BUSINESS DAY" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the city in which the Payment Office is located a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) 2 8 with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "CAPITAL LEASE" as applied to any person shall mean any lease of any property (whether real, personal or mixed) by that person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that person. "CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations under Capital Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities identified as "capital lease obligations" (or any similar words) on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP. "CASH EQUIVALENTS" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (PROVIDED that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) U.S. dollar denominated time deposits, certificates of deposit, money market deposits and bankers' acceptances of (x) any Lender or (y) any bank whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof (any such bank, an "APPROVED BANK"), in each case with maturities of not more than two years from the date of acquisition, (iii) repurchase obligations with a term not more than 30 days for underlying securities of the types described in clause (i) entered into with any Lender or Approved Bank, (iv) commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured and unsupported debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within 270 days after the date of acquisition, PROVIDED that the aggregate principal amount of commercial paper so acquired which is issued by any single issuer shall not exceed $40,000,000, (v) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or A by Moody's, (vi) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (i) through (v) above, and (vii) investments in money market funds utilized by a Lender or an Approved Bank in conjunction with "sweep" accounts maintained for commercial customers. "CASH PROCEEDS" shall mean, with respect to any Asset Sale, the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower and/or any Subsidiary from such Asset Sale. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. ss. 9601 ET SEQ. "CHANGE OF CONTROL" shall mean and include any of the following: (i) during any period of two consecutive calendar years, individuals who at the beginning of such period constituted the Borrower's Board of Directors (together with any new directors whose election by the Borrower's Board of Directors, or whose nomination for election by the Borrower's shareholders, was (prior to the date of the proxy or consent solicitation), approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors then in office, 3 9 (ii) any person or group (as such term is defined in section 13(d)(3) of the 1934 Act), other than (x) the Borrower, (y) any trustee or other fiduciary holding securities under an employee benefit plan of the Borrower and/or any of its Subsidiaries, and/or (z) the Current Holder Group, shall acquire, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 and 13d-5 of the 1934 Act) of more than 30%, on a fully diluted basis, of the voting interest in the Borrower's capital stock, (iii) the Current Holder Group shall, for any reason, cease to have, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 and 13d-5 of the 1934 Act) of at least 30%, on a fully diluted basis, of the voting interest in the Borrower's capital stock, (iv) the full time active employment of Kevin B. Shaw as chief executive officer of the Borrower shall be voluntarily terminated by the Borrower or Mr. Shaw (other than by reason of death or disability), unless a successor acceptable to the Required Lenders shall have been appointed or elected and actually taken office within six months following any such termination, in which case the name of such successor shall be substituted for the name of the person he or she replaces for purposes of this clause (iv), (v) the shareholders of the Borrower approve (A) a merger or consolidation of the Borrower with any other person, other than a merger or consolidation which would result in the voting securities of the Borrower outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted or exchanged for voting securities of the surviving or resulting entity) more than 75% of the combined voting power of the voting securities of the Borrower or such surviving or resulting entity outstanding after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Borrower (or similar transaction), other than any such transaction in which no person or group (as hereinabove defined) not excepted from the provisions of clause (ii) above acquires more than 30% of the combined voting power, on a fully diluted basis, of the Borrower's then outstanding voting securities, (vi) the shareholders of the Borrower approve a plan of complete liquidation of the Borrower or an agreement or agreements for the sale or disposition by the Borrower of all or substantially all of the Borrower's assets, and/or (vii) any "Change of Control" or similar term as defined in any other agreement or instrument evidencing or governing Indebtedness of the Borrower or any Subsidiary. As used herein, the term "CURRENT HOLDER GROUP" shall mean the members of the Board of Directors and the executive officers of the Borrower as of the Effective Date, their spouses, children, parents and siblings, the trustee of any trust created for the benefit of any such member of the Board of Directors, officer or family member, the executor or administrator (in his or her capacity as such) of the estate of any such member of the Board of Directors, officer or family member, and any person who receives Class B Common Stock of the Borrower under the last will and testament of, or under the laws of descent and distribution from, any such member of the Board of Directors, officer or family member. "CLOSING DATE" shall mean the date, on or after the Effective Date, upon which the conditions specified in section 6.1 are satisfied. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the Effective Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "COLLATERAL" shall mean any collateral covered by any Security Document. "COLLATERAL AGENT" shall mean the Administrative Agent acting as Collateral Agent for the Lenders 4 10 pursuant to the Security Documents. "COMMITMENT" shall mean with respect to each Lender its General Revolving Commitment or its Swing Line Revolving Commitment, or both, as the case may be. "CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events amounts expended or capitalized under Capital Leases but excluding any amount representing capitalized interest) by the Borrower and its Subsidiaries during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. "CONSOLIDATED EBIT" shall mean, for any period, (A) Consolidated Net Income for such period; PLUS (B) the sum of the amounts for such period included in determining such Consolidated Net Income of (i) Total Interest Expense, (ii) Total Income Tax Expense, (iii) amortization or write-off of deferred financing costs, and (iv) extraordinary (and other one-time) non-cash losses and charges; LESS (C) gains on sales of assets (excluding sales in the ordinary course of business) and other extraordinary gains and other one-time non-cash gains; all as determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP; PROVIDED that Consolidated EBIT for any period shall include the appropriate financial items for any person or business which has been acquired by the Borrower for any portion of such period prior to the date of acquisition which are covered by audited financial statements of such person or business unit (or unaudited financial statements, if such unaudited financial statements are included in other audited consolidated or combined financial statements) which have been delivered to the Administrative Agent, except that if any portion of such period is not so covered by such audited (or unaudited, as aforesaid) financial statements, the most recent corresponding period which is so covered by audited (or unaudited, as aforesaid) financial statements so delivered shall be used. "CONSOLIDATED NET INCOME" shall mean for any period, the net income (or loss), without deduction for minority interests, of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, PROVIDED that there shall be excluded therefrom (i) the income, (or loss) of any entity (other than Subsidiaries of the Borrower) in which the Borrower or any of its Subsidiaries has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries during such period, (ii) the income (or loss) of any entity accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or on which its assets are acquired by the Borrower or any of its Subsidiaries, and (iii) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary. "CONSOLIDATED NET WORTH" shall mean at any time for the determination thereof all amounts which, in conformity with GAAP, would be included under the caption "total stockholders' equity" (or any like caption) on a consolidated balance sheet of the Borrower as at such date, PROVIDED that in no event shall Consolidated Net Worth include any amounts in respect of Redeemable Stock. "CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004" shall mean the $100,000,000 aggregate principal amount of the Borrower's Convertible Subordinated Debentures due 2004, issued by the Borrower prior to the date hereof. "CREDIT DOCUMENTS" shall mean this Agreement, the Notes, the Subsidiary Guaranty and any Letter of 5 11 Credit Document. "CREDIT EVENT" shall mean the making of any Loans and/or the issuance of any Letter of Credit. "CREDIT PARTY" shall mean the Borrower and each of its Subsidiaries which is a party to any Credit Document. "DEFAULT" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "DEFAULTING LENDER" shall mean any Lender with, respect to which a Lender Default is in effect. "DESIGNATED HEDGE AGREEMENT" shall mean any Hedge Agreement to which the Borrower or any of its Subsidiaries is a party which, pursuant to a written instrument signed by the Required Lenders, has been designated as a Designated Hedge Agreement so that the Borrower's or Subsidiaries's counterparty's credit exposure thereunder will be entitled to share in the benefits of the Subsidiary Guaranty and the Security Documents to the extent such Subsidiary Guaranty or Security Documents provide guarantees or collateral for creditors of the Borrower or any Subsidiary under Designated Hedge Agreements. The Required Lenders may impose as a condition to any designation of a Designated Hedge Agreement a requirement that the counterparty enter into an intercreditor or similar agreement with the Administrative Agent under which recoveries from the Borrower and its Subsidiaries with respect to such Designated Hedge Agreement will be shared in a manner consistent with the provisions of section 10.3 hereof. "DOLLARS", "U.S. DOLLARS", "DOLLARS" and the sign "$" each means lawful money of the United States. "DOMESTIC LENDING OFFICE" shall mean, with respect to any Lender, the office of such Lender specified as its Domestic Lending Office in Annex I or in the Assignment Agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EFFECTIVE DATE" shall have the meaning provided in section 12.10. "ELIGIBLE TRANSFEREE" shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D), in each case which (i) is not disapproved in writing by the Borrower in a notice given to a requesting Lender and the Administrative Agent, specifying the reasons for such disapproval, within five Business Days following the giving of notice to the Borrower of the identity of any proposed transferee (any such disapproval by the Borrower must be reasonable, it being understood that increased costs under section 2.10 hereof shall be deemed a reasonable basis for disapproval), PROVIDED that the Borrower shall not be entitled to exercise the foregoing right of disapproval if and so long as any Event of Default shall have occurred and be continuing, and PROVIDED, FURTHER, that for purposes of transfers by the initial Lender prior to the Syndication Date, those financial institutions which the Administrative Agent has identified to the Borrower prior to the Effective Date as potential Lenders hereunder and which the Borrower indicated at such time were acceptable to it, shall be considered Eligible Transferees; and (ii) is not a direct competitor of the Borrower or engaged in the same or similar principal lines of business as the Borrower and its Subsidiaries considered as a whole, and is not an Affiliate of any such competitor of the Borrower and its Subsidiaries considered as a whole. "ENVIRONMENTAL CLAIMS" shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such law (hereafter "CLAIMS"), 6 12 including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the storage, treatment or Release (as defined in CERCLA) of any Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "ENVIRONMENTAL LAW" shall mean any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as amended, and any binding and enforceable judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment issued to or rendered against the Borrower or any of its Subsidiaries relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3803 ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 ET SEQ., the Hazardous Material Transportation Act, 49 U.S.C. ss. 1801 ET SEQ. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651 ET SEQ. (to the extent it regulates occupational exposure to Hazardous Materials); and any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the Effective Date and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA AFFILIATE" shall mean each person (as defined in section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the Borrower would be deemed to be a "single employer" (i) within the meaning of section 414(b),(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary of the Borrower being or having been a general partner of such person. "EURODOLLAR LENDING OFFICE" shall mean, with respect to any Lender, the office of such Lender specified as its Eurodollar Lending Office in Annex I or in the Assignment Agreement pursuant to which it became a Lender, or such other office or offices for Eurodollar Loans of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "EURODOLLAR LOANS" shall mean each Loan bearing interest at the rates provided in section 2.8(a)(ii). "EURODOLLAR RATE" shall mean with respect to each Interest Period for a Eurodollar Loan, (A) either (i) the rate per annum for deposits in Dollars of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan for which an interest rate is then being determined for a maturity most nearly comparable to such Interest Period which appears on page 3750 of the Dow Jones Telerate Screen as of 11:00 A.M. (local time at the Notice Office) on the date which is two Business Days prior to the commencement of such Interest Period, or (ii) if such a rate does not appear on such page, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Dollars are offered to each of the Reference Banks by prime banks in the London interbank Eurodollar market for deposits of amounts in Dollars in same day funds comparable to the outstanding principal amount of the Eurodollar Loan for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period, in each case divided (and rounded upward to the nearest whole multiple of 1/16th of 1%) by (B) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves and without benefit of credits for proration, exceptions or offsets which may be available from time to time) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). 7 13 "EVENT OF DEFAULT" shall have the meaning provided in section 10.1. "EXISTING INDEBTEDNESS" shall have the meaning provided in section 7.18. "EXISTING INDEBTEDNESS AGREEMENTS" shall have the meaning provided in section 7.18. "EXISTING LETTER OF CREDIT" shall have the meaning provided in section 3.1(d). "FACILITY" shall mean the General Revolving Facility or the Swing Line Revolving Facility, as applicable. "FACILITY FEE" shall have the meaning provided in section 4.1(a). "FACING FEE" shall have the meaning provided in section 4.1(c). "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent. "FEES" shall mean all amounts payable pursuant to, or referred to in, section 4.1. "FOREIGN SUBSIDIARY" shall mean any Subsidiary (i) which is not incorporated in the United States and substantially all of whose assets and properties are located, or substantially all of whose business is carried on, outside the United States, or (ii) substantially all of whose assets consist of Subsidiaries that are Foreign Subsidiaries as defined in clause (i) of this definition. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time; it being understood and agreed that determinations in accordance with GAAP for purposes of section 9, including defined terms as used therein, are subject (to the extent provided therein) to sections 1.3 and 12.7(a). "GENERAL REVOLVING COMMITMENT" shall mean, with respect to each Lender, the amount, if any, set forth opposite such Lender's name in Annex I as its "General Revolving Commitment" as the same may be reduced from time to time pursuant to section 4.2, 4.3 and/or 10.2 or adjusted from time to time as a result of assignments to or from such Lender pursuant to section 12.4. "GENERAL REVOLVING FACILITY" shall mean the facility evidenced by the Total General Revolving Commitment. "GENERAL REVOLVING FACILITY PERCENTAGE" shall mean at any time for any Lender with a General Revolving Commitment, the percentage obtained by dividing such Lender's General Revolving Commitment by the Total General Revolving Commitment, PROVIDED, that if the Total General Revolving Commitment has been terminated, the General Revolving Facility Percentage for each Lender with a General Revolving Commitment shall be determined by dividing such Lender's General Revolving Commitment immediately prior to such termination by the Total General Revolving Commitment immediately prior to such termination. "GENERAL REVOLVING LOAN" shall have the meaning provided in section 2.1(a). "GENERAL REVOLVING NOTE" shall have the meaning provided in section 2.6(a)(i). 8 14 "GUARANTY OBLIGATIONS" shall mean as to any person (without duplication) any obligation of such person guaranteeing any Indebtedness ("PRIMARY INDEBTEDNESS") of any other person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such person, whether or not contingent, (a) to purchase any such primary Indebtedness or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary Indebtedness or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary Indebtedness of the ability of the primary obligor to make payment of such primary Indebtedness, or (d) otherwise to assure or hold harmless the owner of such primary Indebtedness against loss in respect thereof, PROVIDED, HOWEVER, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary Indebtedness in respect of which such Guaranty Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder) as determined by such person in good faith. "HEDGE AGREEMENT" shall mean (i) any interest rate swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect against fluctuations in interest rates, and (ii) any currency swap agreement, forward currency purchase agreement or similar agreement or arrangement designed to protect against fluctuations in currency exchange rates. "HAZARDOUS MATERIALS" shall mean (i) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; and (ii) any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "restricted hazardous materials", "extremely hazardous wastes", "restrictive hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or "pollutants", or words of similar meaning and regulatory effect, under any applicable Environmental Law. "INDEBTEDNESS" of any person shall mean without duplication: (i) all indebtedness of such person for borrowed money; (ii) all bonds, notes, debentures and similar debt securities of such person; (iii) the deferred purchase price of capital assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such person; (iv) the face amount of all letters of credit issued for the account of such person and, without duplication, all drafts drawn thereunder; (v) all Indebtedness of a second person secured by any Lien on any property owned by such first person, whether or not such Indebtedness has been assumed, up to the greater of (A) the portion of such Indebtedness equivalent to the fair value of such property, and (B) if such Indebtedness has been assumed by such first person, the amount thereof so assumed; (vi) all Capitalized Lease Obligations of such person; (vii) the present value, determined on the basis of the implicit interest rate, of all basic rental obligations under all "synthetic" leases (I.E. leases accounted for by the lessee as operating leases under which the lessee is the "owner" of the leased property for Federal income tax purposes); (viii) all obligations of such person to pay a specified purchase price for goods or services 9 15 whether or not delivered or accepted, I.E., take-or-pay and similar obligations; (ix) all net obligations of such person under Hedge Agreements; (x) the full outstanding balance of trade receivables, notes or other instruments sold with full or limited recourse, other than solely for purposes of collection of delinquent accounts; (xi) the stated value, or liquidation value if higher, of all Redeemable Stock of such person; and (xii) all Guaranty Obligations of such person, PROVIDED that neither trade payables and accrued expenses, in each case arising in the ordinary course of business, nor obligations in respect of insurance policies or performance or surety bonds which themselves are not guarantees of Indebtedness (nor drafts, acceptances or similar instruments evidencing the same nor obligations in respect of letters of credit supporting the payment of the same), shall constitute Indebtedness. "INTEREST COVERAGE RATIO" shall mean, for any Testing Period, the ratio of (i) Consolidated EBIT to (ii) Total Interest Expense, in each case on a consolidated basis for the Borrower and its Subsidiaries for such Testing Period. "INTEREST PERIOD" with respect to any Eurodollar Loan shall mean the interest period applicable thereto, as determined pursuant to section 2.9. "KEYBANK" shall mean KeyBank National Association, a national banking association, together with its successors and assigns. "LEASEHOLDS" of any person means all the right, title and interest of such person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "LENDER" shall have the meaning provided in the first paragraph of this Agreement. "LENDER DEFAULT" shall mean (i) the refusal (which has not been retracted) of a Lender in violation of the requirements of this Agreement to make available its portion of any incurrence of Loans or to fund its portion of any unreimbursed payment under section 3.4(c) or (ii) a Lender having notified the Administrative Agent and/or the Borrower that it does not intend to comply with the obligations under section 2.1 and/or section 3.4(c), in the case of either (i) or (ii) as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority. "LENDER REGISTER" shall have the meaning provided in section 12.16. "LETTER OF CREDIT" shall have the meaning provided in section 3.1(a). "LETTER OF CREDIT DOCUMENTS" shall have the meaning specified in section 3.2(a). "LETTER OF CREDIT FEE" shall have the meaning provided in section 4.1(b). "LETTER OF CREDIT ISSUER" shall mean (i) in respect of each Existing Letter of Credit, the Lender that has issued same as of the Effective Date; and (ii) in respect of any other Letter of Credit, (1) KeyBank, and/or (2) such other Lender that is requested, and agrees, to so act by the Borrower, and is approved by the Administrative Agent. Unless otherwise agreed between the Borrower and KeyBank, KeyBank will be the only Letter of Credit Issuer. "LETTER OF CREDIT OUTSTANDINGS" shall mean, at any time, the sum, without duplication, of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings. 10 16 "LETTER OF CREDIT REQUEST" shall have the meaning provided in section 3.2(a). "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "LOAN" shall have the meaning provided in section 2.1. "MARGIN STOCK" shall have the meaning provided in Regulation U. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of, when used with reference to the Borrower or any of its Subsidiaries, the Borrower and its Subsidiaries, taken as a whole, or when used with reference to any other person, such person and its Subsidiaries, taken as a whole, as the case may be. "MATERIAL SUBSIDIARY" shall mean, at any time, with reference to any person, any Subsidiary of such person that (x) has assets at such time comprising 5% or more of the consolidated assets of such person and its Subsidiaries or (y) had net income in the most recently ended fiscal year of such person comprising 5% or more of the consolidated net income of such person and its Subsidiaries for such fiscal year. "MATURITY DATE" shall mean May 31, 2002, unless earlier terminated, or extended in accordance with section 4.4. "MINIMUM BORROWING AMOUNT" shall mean (i) for General Revolving Loans which are (A) Prime Rate Loans, $3,000,000, with minimum increments thereafter of $1,000,000 and (B) Eurodollar Loans, $3,000,000, with minimum increments thereafter of $1,000,000; and (ii) for Swing Line Revolving Loans, $250,000, with minimum increments thereafter of $100,000. "MONEY MARKET RATE LOAN" shall mean each Swing Line Revolving Loan bearing interest at a rate provided in section 2.8(b)(ii). "MOODY'S" shall mean Moody's Investors Service, Inc. and its successors. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan, as defined in section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the preceding three plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" shall mean an employee benefit plan, other than a Multiemployer Plan, to which the Borrower or any ERISA Affiliate, and one or more employers other than the Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or an ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan. "NET CASH PROCEEDS" shall mean, with respect to any Asset Sale, the Cash Proceeds resulting therefrom net of (i) reasonable and customary expenses of sale incurred in connection with such Asset Sale, and other reasonable and customary fees and expenses incurred, and all state, and local taxes paid or reasonably estimated to be payable by such person, as a consequence of such Asset Sale and the payment of principal, premium and interest of Indebtedness secured by the asset which is the subject of the Asset Sale and required to be, and which is, repaid under the terms thereof as a result of such Asset Sale, (ii) amounts of any distributions payable to holders of minority interests in the relevant person or in the relevant property or assets and (iii) incremental income taxes paid or payable as a result thereof. "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended. 11 17 "NON-DEFAULTING LENDER" shall mean each Lender other than a Defaulting Lender. "NOTE" shall mean a General Revolving Note or a Swing Line Revolving Note, as the case may be. "NOTICE OF BORROWING" shall have the meaning provided in section 2.3(a). "NOTICE OF CONVERSION" shall have the meaning provided in section 2.7. "NOTICE OFFICE" shall mean the principal office of the Administrative Agent. Such office is presently at Key Center, 127 Public Square, Cleveland, Ohio 44114, Attention: Large Corporate Group (facsimile: (216) 689-4981). If the Administrative Agent changes its principal office, or a successor Administrative Agent is appointed as provided herein, the Notice Office will be such other principal office, located in a city in the United States Eastern Time Zone, as the Administrative Agent may designate to the Borrower. "OBLIGATIONS" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing by the Borrower or any other Credit Party to the Administrative Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document. "PARTICIPANT" shall have the meaning provided in section 3.4(a). "PAYMENT OFFICE" shall mean the principal office of the Administrative Agent. Such office is presently at Key Center, 127 Public Square, Cleveland, Ohio 44114, Attention: Large Corporate Group (telephone: (216) 689-4448; facsimile: (216) 689-4981). If the Administrative Agent changes its principal office, or a successor Administrative Agent is appointed as provided herein, the Payment Office will be such other principal office, located in a city in the United States Eastern Time Zone, as the Administrative Agent may designate to the Borrower. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to section 4002 of ERISA, or any successor thereto. "PERMITTED LIENS" shall mean Liens described in section 9.3. "PERSON" shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" shall mean any multiemployer or single-employer plan as defined in section 4001 of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute by) the Borrower or a Subsidiary of the Borrower or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which the Borrower, or a Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "PLEDGE AGREEMENT" shall have the meaning provided in section 6.1(c). "PRIME RATE" shall mean, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the greater of (i) the rate of interest established by KeyBank in Cleveland, Ohio, from time to time, as its prime rate, whether or not publicly announced, which interest rate may or may not be the lowest rate charged by it for commercial loans or other extensions of credit; and (ii) the Federal Funds Effective Rate in effect from time to time PLUS 1/2 of 1% per annum. "PRIME RATE LOAN" shall mean each Loan bearing interest at the rate provided in section 2.8(a)(i) or 2.8(b)(i). 12 18 "PROHIBITED TRANSACTION" shall mean a transaction with respect to a Plan that is prohibited under section 4975 of the Code or section 406 of ERISA and not exempt under section 4975 of the Code or section 408 of ERISA. "QUOTED RATE" shall have the meaning provided in section 2.3(b). "RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C.ss. 6901 ET SEQ. "REAL PROPERTY" of any person shall mean all of the right, title and interest of such person in and to land, improvements and fixtures, including Leaseholds. "REDEEMABLE STOCK" shall mean, with respect to any corporation, any capital stock of such corporation, and with respect to any person which is not a corporation, any equity interests of such person which are similar to capital stock, in any such case which (i) is by its terms subject to mandatory redemption, in whole or in part, pursuant to a sinking fund, scheduled redemption or similar provisions, at any time prior to the Maturity Date; or (ii) otherwise is required to be repurchased or retired on a scheduled date or dates, upon the occurrence of any event or circumstance, at the option of the holder or holders thereof, or otherwise, at any time prior to the Maturity Date, other than any such repurchase or retirement occasioned by a "change of control" or similar event. "REFERENCE BANKS" shall mean (i) KeyBank, and (ii) any other Lender or Lenders selected as a Reference Bank by the Administrative Agent and the Required Lenders, PROVIDED, that if any of such Reference Banks is no longer a Lender, such other Lender or Lenders as may be selected by the Administrative Agent acting on instructions from the Required Lenders. "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "REGULATION U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "REPORTABLE EVENT" shall mean an event described in section 4043 of ERISA or the regulations thereunder with respect to a Plan, other than those events as to which the notice requirement is waived under subsections .22, .23, .25, .27, .28, .30, .31, .32, .34, .35, .63, .64, .65 or .67 of PBGC Regulation section 4043. "REQUIRED LENDERS" shall mean Non-Defaulting Lenders whose outstanding General Revolving Loans and Unutilized General Revolving Commitments constitute at least 66+2/3% of the sum of the total outstanding General Revolving Loans and Unutilized General Revolving Commitments of Non-Defaulting Lenders (PROVIDED that, for purposes hereof, neither the Borrower, nor any of its Affiliates, shall be included in (i) the Lenders holding such amount of the General Revolving Loans or having such amount of the Unutilized General Revolving Commitments, or (ii) determining the aggregate unpaid principal amount of the General Revolving Loans or Unutilized General Revolving Commitments). "SALE AND LEASE-BACK TRANSACTION" shall mean any arrangement with any person providing for the leasing by the Borrower or any Subsidiary of the Borrower of any property (except for temporary leases for a term, including any renewal thereof, of not more than one year and except for leases between the Borrower and a Subsidiary or between Subsidiaries), which property has been or is to be sold or transferred by the Borrower or such Subsidiary to such person. "S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., and its successors. "SEC" shall mean the United States Securities and Exchange Commission. "SEC REGULATION D" shall mean Regulation D as promulgated under the Securities Act of 1933, as 13 19 amended, as the same may be in effect from time to time. "SECTION 5.4(B)(ii) CERTIFICATE" shall have the meaning provided in section 5.4(b)(ii). "SECURITY DOCUMENTS" shall mean the Pledge Agreement and each other document pursuant to which any Lien or security interest is granted by any Credit Party to the Collateral Agent as security for any of the Obligations. "STATED AMOUNT" of each Letter of Credit shall mean the maximum available to be drawn thereunder (regardless of whether any conditions or other requirements for drawing could then be met, but taking into account any drawings which have already been made thereunder). "SUBSIDIARY" of any person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to "Subsidiary" shall mean a Subsidiary of the Borrower. "SUBSIDIARY GUARANTOR" shall mean any Subsidiary which is a party to the Subsidiary Guaranty. "SUBSIDIARY GUARANTY" shall have the meaning provided in section 6.1(c). "SUBORDINATED INDEBTEDNESS" shall mean (i) the Convertible Subordinated Debentures due 2004, and (ii) any other Indebtedness which has been subordinated to the Obligations in such manner and to such extent as the Administrative Agent (acting on instructions from the Required Lenders) may require. "SWING LINE LENDER" shall have the meaning provided in the introductory paragraph of this Agreement. "SWING LINE REVOLVING COMMITMENT" shall mean, with respect to the Swing Line Lender, the amount set forth opposite the Swing Line Lender's name in Annex I as its "Swing Line Revolving Commitment" as the same may be reduced from time to time pursuant to section 4.2, 4.3 and/or 10.2 or adjusted from time to time as a result of assignments to or from the Swing Line Lender pursuant to section 12.4. "SWING LINE REVOLVING FACILITY" shall mean the facility evidenced by the Swing Line Revolving Commitment. "SWING LINE REVOLVING LOAN" shall have the meaning provided in section 2.1(b). "SWING LINE REVOLVING NOTE" shall have the meaning provided in section 2.6(a)(ii). "SYNDICATION DATE" shall mean the earlier of (i) the date which is 60 days after the Closing Date, and (ii) the date which the Administrative Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication by the initial Lender hereunder of portions of its General Revolving Commitments to new Lenders has been completed. "TESTING PERIOD" shall mean for determination a single period consisting of the four consecutive fiscal quarters of the Borrower then last ended (whether or not such quarters are all within the same fiscal year), EXCEPT that if a particular provision of this Agreement indicates that a Testing Period shall be of a different specified duration, such Testing Period shall consist of the particular fiscal quarter or quarters of the Borrower then last ended (whether or not such quarters are all within the same fiscal year) which are so indicated in such provision. "TOTAL COMMITMENT" shall mean the sum of the Commitments of the Lenders. 14 20 "TOTAL GENERAL REVOLVING COMMITMENT" shall mean the sum of the General Revolving Commitments of the Lenders. "TOTAL INCOME TAX EXPENSE" shall mean, for any period, all provisions for taxes based on the net income of the Borrower or any of its Subsidiaries (including, without limitation, any additions to such taxes, and any penalties and interest with respect thereto), and all franchise taxes of the Borrower and its Subsidiaries, all as determined for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. "TOTAL INDEBTEDNESS" shall mean the sum (without duplication) of the following, for the Borrower and/or any of its Subsidiaries, all as determined on a consolidated basis of: (i) all indebtedness for borrowed money, (ii) all bonds, notes, debentures and similar debt securities, (iii) the deferred purchase price of capital assets or services which in accordance with GAAP would be shown on the liability side of a consolidated balance sheet of the Borrower and its Subsidiaries, (iv) all Indebtedness of a second person secured by any Lien on any property owned by such first person, whether or not such Indebtedness has been assumed, up to the greater of (A) the portion of such Indebtedness equivalent to the fair value of such property, and (B) if such Indebtedness has been assumed by such first person, the amount thereof so assumed, (v) all Capitalized Lease Obligations, (vi) the present value, determined on the basis of the implicit interest rate, of all basic rental obligations under all "synthetic" leases (i.e. leases accounted for by the lessee as operating leases under which the lessee is the "owner" of the leased property for Federal income tax purposes, (vii) the full outstanding balance of trade receivables sold with full or limited recourse, other than solely for purposes of collection of delinquent accounts, PROVIDED that if the structure of any receivables sales program provides for "over-collateralization", the outstanding balance of the trade receivables attributable to the "over-collateralization" may be excluded, and (viii) the stated value, or liquidation value if higher, of all Redeemable Stock of such person, PROVIDED that neither trade payables and accrued expenses, in each case arising in the ordinary course of business, nor obligations in respect of insurance policies or performance or surety bonds which themselves are not guarantees of Indebtedness, shall be included. "TOTAL INTEREST EXPENSE" shall mean, for any period, total interest expense (including that which is capitalized and that which is attributable to Capital Leases, in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Hedge Agreements, but excluding, however, any amortization of deferred financing costs, all as determined in accordance with GAAP. "TOTAL SENIOR INDEBTEDNESS" shall mean at any time (i) Total Indebtedness at such time, LESS (ii) the sum of the then outstanding principal amount of (x) the Convertible Subordinated Debentures due 2004, PLUS any other Subordinated Indebtedness of the Borrower. "TYPE" shall mean any type of Loan determined with respect to the interest option applicable thereto, I.E., a Prime Rate Loan, Eurodollar Loan or Money Market Rate Loan. 15 21 "UCC" shall mean the Uniform Commercial Code. "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "UNITED STATES" and "U.S." each means United States of America. "UNPAID DRAWING" shall have the meaning provided in section 3.3(a). "UNUTILIZED GENERAL REVOLVING COMMITMENT" for any Lender at any time shall mean the excess of (i) such Lender's General Revolving Commitment at such time over (ii) the sum of the principal amount of General Revolving Loans made by such Lender and outstanding at such time and (y) such Lender's General Revolving Facility Percentage of Letter of Credit Outstandings at such time. "UNUTILIZED SWING LINE REVOLVING COMMITMENT" for the Swing Line Lender at any time shall mean the excess of (i) the Swing Line Revolving Commitment at such time over (ii) the principal amount of Swing Line Revolving Loans outstanding at such time. "UNUTILIZED TOTAL GENERAL REVOLVING COMMITMENT" shall mean, at any time, the excess of (i) the Total General Revolving Commitment at such time over (ii) the sum of (x) the aggregate principal amount of all General Revolving Loans then outstanding plus (y) the aggregate Letter of Credit Outstandings at such time. "VALUE" shall mean, with respect to a Sale and Lease-Back Transaction, as of any particular time, the amount equal to the greater of (i) the net proceeds of the sale or transfer of the property leased pursuant to such Sale and Lease-Back Transaction or (ii) the fair value in the opinion of the Borrower, acting in good faith, of such property at the time of entering into such Sale and Lease-Back Transaction. "WHOLLY-OWNED SUBSIDIARY" shall mean each Subsidiary of the Borrower at least 95% of whose capital stock, equity interests and partnership interests, other than director's qualifying shares or similar interests, are owned directly or indirectly by the Borrower. "WRITTEN", "WRITTEN" or "IN WRITING" shall mean any form of written communication or a communication by means of telex, facsimile transmission, telegraph or cable. 1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". 1.3. ACCOUNTING TERMS. Except as otherwise specifically provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; PROVIDED that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Effective Date in GAAP or in the application thereof to such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purposes), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance with the requirements of this Agreement. 1.4. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural 16 22 forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to sections, Annexes and Exhibits shall be construed to refer to sections of, and Annexes and Exhibits to, this Agreement, and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all real property, tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and interests in any of the foregoing. SECTION 2. AMOUNT AND TERMS OF LOANS. 2.1. COMMITMENTS FOR LOANS. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make a loan or loans (each a "LOAN" and, collectively, the "LOANS") to the Borrower, and the Borrower shall be entitled to obtain Loans from the Lenders, which Loans shall be drawn, to the extent such Lender has a Commitment under a Facility for the Borrower, under the applicable Facility, as set forth below: (a) GENERAL REVOLVING FACILITY. Loans to the Borrower under the General Revolving Facility (each a "GENERAL REVOLVING LOAN" and, collectively, the "GENERAL REVOLVING LOANS") (i) may be made at any time and from time to time on and after the Closing Date and prior to the Maturity Date; (ii) shall be made only in U.S. Dollars; (iii) except as otherwise provided, may, at the option of the Borrower, be incurred and maintained as, or converted into, General Revolving Loans which are either Prime Rate Loans or Eurodollar Loans, PROVIDED that all General Revolving Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of General Revolving Loans of the same Type; (iv) may be repaid or prepaid and reborrowed in accordance with the provisions hereof; (v) may only be made if after giving effect thereto the Unutilized Total General Revolving Commitment exceeds the outstanding Swing Line Revolving Loans; and (vi) shall not exceed for any Lender at any time outstanding that aggregate principal amount which, when added to the product at such time of (A) such Lender's General Revolving Facility Percentage, TIMES (B) the aggregate Letter of Credit Outstandings, equals the General Revolving Commitment of such Lender at such time. (b) SWING LINE REVOLVING FACILITY. Loans to the Borrower under the Swing Line Revolving Facility (each a "SWING LINE REVOLVING LOAN" and, collectively, the "SWING LINE REVOLVING LOANS") (i) may be made at any time and from time to time on and after the Closing Date and prior to the Maturity Date; (ii) shall be made only in U.S. Dollars; (iii) shall have a maturity of 30 days or less; (iv) shall only be made by the Swing Line Lender; (v) except as otherwise provided, may, at the option of the Borrower, be incurred as Swing Line Revolving Loans which are either Prime Rate Loans or Money Market Rate Loans, PROVIDED that all Swing Line Revolving Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Swing Line Revolving Loans of the same Type; (vi) may be repaid or prepaid and reborrowed in accordance with the provisions hereof; (vii) may only be made if after giving effect thereto the Unutilized Total General Revolving Commitment exceeds the outstanding Swing Line Revolving Loans; and (viii) shall not exceed for the Swing Line Lender at any time outstanding the Swing Line Revolving Commitment at such time. 2.2. MINIMUM BORROWING AMOUNTS, ETC.; PRO RATA BORROWINGS. (a) The aggregate principal amount of each Borrowing by the Borrower shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred by the Borrower on any day, PROVIDED that (i) if there are two or more Borrowings on a single day under the same Facility which consist of Eurodollar Loans, each such Borrowing shall have a different 17 23 initial Interest Period, and (ii) at no time shall there be more than 15 Borrowings under the General Revolving Facility which are Eurodollar Loans outstanding hereunder. (b) All Borrowings under a Facility shall be made by the Lenders PRO RATA on the basis of their respective Commitments under such Facility. It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its Commitment hereunder. 2.3. NOTICE OF BORROWING. (a) Whenever the Borrower desires to incur Loans, it shall give the Administrative Agent at its Notice Office, (A) in the case of any Borrowing under the General Revolving Facility of Eurodollar Loans to be made hereunder, prior to 11:00 A.M. (local time at its Notice Office), at least three Business Days' prior written or telephonic notice thereof (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent), (B) in the case of any Borrowing under the General Revolving Facility of Prime Rate Loans to be made hereunder, prior to 11:00 A.M. (local time at its Notice Office) on the proposed date thereof written or telephonic notice thereof (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent), or (C) in the case of any Borrowing under the Swing Line Revolving Facility of any Loans to be made hereunder, prior to 2:00 P.M. (local time at its Notice Office) on the proposed date thereof (which shall in the case of any Money Market Rate Loans be within such period as the Administrative Agent shall have specified for the Quoted Rate for such Money Market Rate Loans) written or telephonic notice thereof (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent). Each such notice (each such notice, a "NOTICE OF BORROWING") shall (if requested by the Administrative Agent to be confirmed in writing), be substantially in the form of Exhibit B-1, and in any event shall be irrevocable and shall specify: (i) the Facility under which the Borrowing is to be incurred; (ii) the aggregate principal amount of the Loans to be made pursuant to such Borrowing; (iii) the date of the Borrowing (which shall be a Business Day); (iv) whether the Borrowing shall consist of Prime Rate Loans, Eurodollar Loans or Money Market Rate Loans; (v) if the Borrowing consists of Swing Line Revolving Loans, the maturity date thereof (which shall not be more than 30 days), and if such Swing Line Revolving Loans are Money Market Rate Loans, the Quoted Rate therefor; and (vi) if the requested Borrowing consists of Eurodollar Loans, the Interest Period to be initially applicable thereto. If the Borrower fails to specify in a Notice of Borrowing the maturity date of any Swing Line Revolving Loans, such maturity date shall be deemed to be 30 days. The Administrative Agent shall promptly give each Lender which has a Commitment under any applicable Facility written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing under the applicable Facility, of such Lender's proportionate share thereof and of the other matters covered by the Notice of Borrowing relating thereto. (b) Whenever the Borrower proposes to submit a Notice of Borrowing with respect to Swing Line Revolving Loans which will be Money Market Rate Loans, it will prior to submitting such Notice of Borrowing notify the Administrative Agent of its intention and request the Administrative Agent to quote a fixed or floating interest rate (the "QUOTED RATE") to be applicable thereto prior to the proposed maturity thereof. The Administrative Agent will immediately so notify the Swing Line Lender, and if the Swing Line Lender is agreeable to a particular interest rate for the proposed maturity of such Money Market Rate Loans if such Loans are made on or prior to a specified date, the Administrative Agent shall quote such interest rate to the Borrower as the Quoted Rate applicable to such proposed Money Market Rate Loans if made on or before such specified date for a maturity as so proposed by the Borrower. The Swing Line Lender contemplates that any Quoted Rate will be a rate of interest which reflects a margin corresponding to (or greater than) the Applicable Eurodollar Margin in effect at the time of quotation of 18 24 any Quoted Rate, over the then prevailing Federal Funds Effective Rate, or a commercial paper, call money, overnite repurchase or other commonly quoted interest rate, in each case as selected by the Swing Line Lender. Nothing herein shall permit or obligate any Lender other than the Swing Line Lender to approve or agree to a Quoted Rate. (c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent may act prior to receipt of written confirmation without liability upon the basis of such telephonic notice believed by the Administrative Agent in good faith to be from an Authorized Officer of the Borrower entitled to give telephonic notices under this Agreement on behalf of the Borrower. In each such case, the Administrative Agent's record of the terms of such telephonic notice shall be conclusive absent manifest error. 2.4. DISBURSEMENT OF FUNDS. (a) No later than (x) 2:00 P.M. (local time at the Payment Office) on the date specified in each Notice of Borrowing relating to General Revolving Loans, or (y) 2:30 P.M. (local time at the Payment Office) on the date specified in each Notice of Borrowing relating to Swing Line Revolving Loans, each Lender with a Commitment under the Facility under which any Borrowing pursuant to such Notice of Borrowing is to be made will make available its PRO RATA share, if any, of each Borrowing under such Facility requested to be made on such date in the manner provided below. All amounts shall be made available to the Administrative Agent in U.S. dollars and immediately available funds at the Payment Office and the Administrative Agent promptly will make available to the Borrower by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available same to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with section 2.8, for the respective Loans (but without any requirement to pay any amounts in respect thereof pursuant to section 2.11). (b) Nothing herein and no subsequent termination of the Commitments pursuant to section 4.2 or 4.3 shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder and in existence from time to time or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. 2.5. REFUNDING OF, OR PARTICIPATION IN, SWING LINE REVOLVING LOANS. (a) If any Event of Default exists, the Swing Line Lender may, in its sole and absolute discretion, direct that the Swing Line Revolving Loans owing to it be refunded by delivering a notice to such effect to the Administrative Agent, specifying the aggregate principal amount thereof (a "NOTICE OF SWING LINE REFUNDING"). Promptly upon receipt of a Notice of Swing Line Refunding, the Administrative Agent shall give notice of the contents thereof to the Lenders with General Revolving Commitments and, unless an Event of Default specified in section 10.1(h) in respect of the Borrower has occurred, the Borrower. Each such Notice of Swing Line Refunding shall be deemed to constitute delivery by the Borrower of a Notice of Borrowing requesting General Revolving Loans consisting of Prime Rate Loans in the amount of the Swing Line Revolving Loans to which it relates. Each Lender with a General Revolving Commitment (including the Swing Line Lender, in its capacity as a Lender) hereby unconditionally agrees (notwithstanding that any of the conditions specified in section 6.2 hereof or elsewhere in this Agreement shall not have been satisfied, 19 25 but subject to the provisions of paragraph (b) below) to make a General Revolving Loan to the Borrower in an amount equal to such Lender's General Revolving Facility Percentage of the aggregate amount of the Swing Line Revolving Loans to which such Notice of Swing Line Refunding relates. Each such Lender shall make the amount of such General Revolving Loan available to the Administrative Agent in immediately available funds at the Payment Office not later than 2:00 P.M. (local time at the Payment Office), if such notice is received by such Lender prior to 11:00 A.M. (local time at its Domestic Lending Office), or not later than 2:00 P.M. (local time at the Payment Office) on the next Business Day, if such notice is received by such Lender after such time. The proceeds of such General Revolving Loans shall be made immediately available to the Swing Line Lender and applied by it to repay the principal amount of the Swing Line Revolving Loans to which such Notice of Swing Line Refunding related. The Borrower irrevocably and unconditionally agrees that, notwithstanding anything to the contrary contained in this Agreement, General Revolving Loans made as herein provided in response to a Notice of Swing Line Refunding shall constitute General Revolving Loans hereunder consisting of Prime Rate Loans. (b) If prior to the time a General Revolving Loan would otherwise have been made as provided above as a consequence of a Notice of Swing Line Refunding, any of the events specified in section 10.1(h) shall have occurred in respect of the Borrower or one or more of the Lenders with General Revolving Commitments shall determine that it is legally prohibited from making a General Revolving Loan under such circumstances, each Lender (other than the Swing Line Lender), or each Lender (other than the Swing Line Lender) so prohibited, as the case may be, shall, on the date such General Revolving Loan would have been made by it (the "PURCHASE DATE"), purchase an undivided participating interest in the outstanding Swing Line Revolving Loans to which such Notice of Swing Line Refunding related, in an amount (the "SWING LINE PARTICIPATION AMOUNT") equal to such Lender's General Revolving Facility Percentage of such Swing Line Revolving Loans. On the Purchase Date, each such Lender or each such Lender so prohibited, as the case may be, shall pay to the Swing Line Lender, in immediately available funds, such Lender's Swing Line Participation Amount, and promptly upon receipt thereof the Swing Line Lender shall, if requested by such other Lender, deliver to such Lender a participation certificate, dated the date of the Swing Line Lender's receipt of the funds from, and evidencing such Lender's participating interest in such Swing Line Revolving Loans and its Swing Line Participation Amount in respect thereof. If any amount required to be paid by a Lender to the Swing Line Lender pursuant to the above provisions in respect of any Swing Line Participation Amount is not paid on the date such payment is due, such Lender shall pay to the Swing Line Lender on demand interest on the amount not so paid at the overnight Federal Funds Effective Rate from the due date until such amount is paid in full. (c) Whenever, at any time after the Swing Line Lender has received from any other Lender such Lender's Swing Line Participation Amount, the Swing Line Lender receives any payment from or on behalf of the Borrower on account of the related Swing Line Revolving Loans, the Swing Line Lender will promptly distribute to such Lender its General Revolving Facility Percentage of such payment on account of its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); PROVIDED, HOWEVER, that in the event such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender. (d) Each Lender's obligation to make General Revolving Loans and/or to purchase participations in connection with a Notice of Swing Line Refunding (which shall in all events be within such Lender's Unutilized General Revolving Commitment, taking into account all outstanding participations in connection with Swing Line Refundings) shall be subject to the conditions that: (i) such Lender shall have received a Notice of Swing Line Refunding complying with the provisions hereof, and (ii) at the time the Swing Line Revolving Loans which are the subject of such Notice of Swing Line Refunding were made, the Swing Line Lender had no actual written notice from another Lender that an Event of Default had occurred and was continuing), 20 26 but otherwise shall be absolute and unconditional, shall be solely for the benefit of the Swing Line Lender, and shall not be affected by any circumstance, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against any other Lender, any Credit Party, or any other person, or any Credit Party may have against any Lender or other person, as the case may be, for any reason whatsoever; (B) the occurrence or continuance of a Default or Event of Default; (C) any event or circumstance involving a Material Adverse Effect upon the Borrower; (D) any breach of any Credit Document by any party thereto; or (E) any other circumstance, happening or event, whether or not similar to any of the foregoing. 2.6. NOTES. (a) The Borrower's obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced (i) if General Revolving Loans, by a promissory note substantially in the form of Exhibit A-1 with blanks appropriately completed in conformity herewith (each a "GENERAL REVOLVING NOTE" and, collectively, the "GENERAL REVOLVING NOTES"), and (ii) if Swing Line Revolving Loans, by a promissory note substantially in the form of Exhibit A-2 with blanks appropriately completed in conformity herewith (the "SWING LINE REVOLVING NOTE"). (b) The General Revolving Note issued to a Lender with a General Revolving Commitment shall: (i) be executed by the Borrower; (ii) be payable to the order of such Lender and be dated on or prior to the date the first Loan evidenced thereby is made; (iii) be in a stated principal amount equal to the General Revolving Commitment of such Lender and be payable in the principal amount of General Revolving Loans evidenced thereby; (iv) mature on the Maturity Date; (v) bear interest as provided in section 2.8 in respect of the Prime Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby; (vi) be subject to mandatory prepayment as provided in section 5.2: and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The Swing Line Revolving Note issued to the Swing Line Lender shall: (i) be executed by the Borrower; (ii) be payable to the order of such Lender and be dated on or prior to the date the first Loan evidenced thereby is made; (iii) be in a stated principal amount equal to the Swing Line Revolving Commitment of such Lender and be payable in the principal amount of Swing Line Revolving Loans evidenced thereby; (iv) mature as to any Swing Line Revolving Loan evidenced thereby on the maturity date, not later than the 30th day following the date such Swing Line Revolving Loan was made, specified in the applicable Notice of Borrowing; (v) bear interest as provided in section 2.8 in respect of the Prime Rate Loans or Money Market Rate Loans, as the case may be, evidenced thereby; (vi) be subject to mandatory prepayment as provided in section 5.2; and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (d) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of any Note, endorse on the reverse side thereof or the grid attached thereto the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation shall not affect the Borrower's obligations in respect of such Loans. 2.7. CONVERSIONS OF GENERAL REVOLVING LOANS. The Borrower shall have the option to convert on any Business Day all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of the outstanding Loans comprising a Borrowing under the General Revolving Facility into a Borrowing or Borrowings under the same Facility of the other Type of Loan which can be made pursuant to such Facility, PROVIDED that: (i) no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto; (ii) any conversion of Eurodollar Loans into Prime Rate Loans shall be made on, and only on, the last day of an Interest Period for such Eurodollar Loans; (iii) Prime Rate Loans may only be converted into Eurodollar Loans if no Default under section 10.1(a) or Event of Default is in existence on the date of the conversion unless the Required Lenders otherwise agree; and (iv) Borrowings of Eurodollar Loans resulting from this section 2.7 shall conform to the requirements of section 2.2. Each such conversion shall be effected by the Borrower giving the Administrative Agent at its Notice Office, prior to 11:00 A.M. (local time at such Notice Office), at least three Business Days' (or prior to 11:00 A.M. (local time at such Notice Office) same Business Day's, in the case of a conversion into Prime Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing if so requested by the Administrative Agent) (each a "NOTICE OF CONVERSION"), substantially in 21 27 the form of Exhibit B-2, specifying the Loans to be so converted, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans. For the avoidance of doubt, the prepayment or repayment of any Loans out of the proceeds of other Loans by the Borrower is not considered a conversion of Loans into other Loans. 2.8. INTEREST. (a) The unpaid principal amount of each General Revolving Loan which is (i) a Prime Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a fluctuating rate per annum which shall at all times be equal to the Prime Rate in effect from time to time; and (ii) a Eurodollar Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Applicable Eurodollar Margin (as defined below) for such General Revolving Loan PLUS the relevant Eurodollar Rate. (b) The unpaid principal amount of each Swing Line Revolving Loan which is (i) a Prime Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a fluctuating rate per annum which shall at all times be equal to the Prime Rate in effect from time to time; and (ii) a Money Market Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall be equal to the Quoted Rate therefor. (c) Notwithstanding the above provisions, if a Default under section 10.1(a) is in existence, or an Event of Default is in existence and the Administrative Agent or any Lender shall have notified the Borrower thereof in writing, all outstanding amounts of principal and, to the extent permitted by law, all overdue interest, in respect of each Loan shall bear interest, payable on demand, at a rate per annum equal to 2% per annum above the interest rate otherwise applicable thereto. If any amount (other than the principal of and interest on the Loans) payable by the Borrower under the Credit Documents is not paid when due, such amount shall bear interest, payable on demand, at a rate per annum equal to the Prime Rate in effect from time to time PLUS 2% per annum. (d) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any prepayment or repayment thereof and shall be payable: (i) in the case of any Swing Line Revolving Loan, (A) in advance on a nonrefundable basis, if so agreed by the Borrower, or (B) in all other cases, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand; and (ii) in the case of any General Revolving Loan, (A) which is a Prime Rate Loan, quarterly in arrears on the last Business Day of March, June, September and December, (B) which is a Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on the dates which are successively three months after the commencement of such Interest Period, and (C) in respect of each Loan, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with section 12.7(b). (f) Each Reference Bank agrees to furnish the Administrative Agent timely information for the purpose of determining the Eurodollar Rate for any Borrowing consisting of Eurodollar Loans. If any one or more of the Reference Banks shall not timely furnish such information, the Administrative Agent shall determine the Eurodollar Rate on the basis of timely information furnished by the remaining Reference Banks. The Administrative Agent upon determining the interest rate for any Borrowing shall promptly notify the Borrower and the Lenders thereof. (g) As used herein, the term "APPLICABLE EURODOLLAR MARGIN", as applied to any Loan which is a Eurodollar Loan, means the particular rate per annum determined by the Administrative Agent in accordance with the Pricing Grid Table which appears below, based on the Borrower's Interest Coverage Ratio for its most recent 22 28 Testing Period which consists of a single fiscal quarter, and the following provisions: (i) Initially, until changed hereunder in accordance with the following provisions, the Applicable Eurodollar Margin will be 150 basis points per annum. (ii) Commencing with the fiscal quarter of the Borrower ended on or nearest to June 30, 1998, and continuing for each fiscal quarter thereafter, the Administrative Agent will determine the Applicable Eurodollar Margin for any Loan in accordance with the Pricing Grid Table, based on the Borrower's Interest Coverage Ratio for its most recent Testing Period which consists of a single fiscal quarter. Changes in the Applicable Eurodollar Margin based upon changes in such ratio shall become effective on the first day of the month following the receipt by the Administrative Agent pursuant to section 8.1(b) of the quarterly financial statements of the Borrower, accompanied by the certificate and calculations referred to in section 8.1(c), demonstrating the computation of such ratio, based upon the ratio in effect at the end of the Testing Period which is covered by such quarterly financial statements, PROVIDED, HOWEVER, that if any such quarterly financial statements, or the related certificate referred to in section 8.1(c), are not timely delivered, the Administrative Agent may determine the Applicable Eurodollar Margin based upon a good faith estimate by the Borrower of its Interest Coverage Ratio for its most recent Testing Period which consists of a single fiscal quarter, PROVIDED, FURTHER, that if upon delivery of such delinquent quarterly financial statements and related certificate, such financial statements indicate that such good faith estimate was incorrect and, as a result thereof, the Applicable Eurodollar Margin for any Loans was too low at such determination, the Applicable Eurodollar Margin for such Loans shall be increased, as appropriate, with retroactive effect to the date of the change made on the basis of such determination, and the Borrower will immediately pay to the Administrative Agent, for the account of the Lenders having Commitments in respect of the Facility under which such Loans were incurred all additional interest due by reason of such increased Applicable Eurodollar Margin. (iii) Any changes in the Applicable Eurodollar Margin shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent will promptly provide notice of such determinations to the Borrower and the Lenders. Any such determination by the Administrative Agent pursuant to this section 2.8(g) shall be conclusive and binding absent manifest error. PRICING GRID TABLE (EXPRESSED IN BASIS POINTS)
==================================================================================================================== APPLICABLE APPLICABLE INTEREST COVERAGE RATIO EURODOLLAR FACILITY FOR A TESTING PERIOD MARGIN FEE RATE CONSISTING OF A SINGLE FISCAL QUARTER - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 5.00 to 1.00 37.50 12.50 - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 4.00 to 1.00 and [less than] 5.00 to 1.00 62.50 12.50 - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 3.50 to 1.00 and [less than] 4.00 to 1.00 102.50 17.50 - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 3.00 to 1.00 and [less than] 3.50 to 1.00 125.00 25.00 - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 2.50 to 1.00 and [less than] 3.00 to 1.00 137.50 37.50 - -------------------------------------------------------------------------------------------------------------------- [greater than or equal to] 2.25 to 1.00 and [less than] 2.50 to 1.00 150.00 50.00 ====================================================================================================================
23 29
==================================================================================================================== APPLICABLE APPLICABLE INTEREST COVERAGE RATIO EURODOLLAR FACILITY FOR A TESTING PERIOD MARGIN FEE RATE CONSISTING OF A SINGLE FISCAL QUARTER - -------------------------------------------------------------------------------------------------------------------- [less than] 2.25 to 1.00 162.50 50.00 ====================================================================================================================
2.9. INTEREST PERIODS. (a) At the time the Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 11:00 A.M. (local time at the applicable Notice Office) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Administrative Agent written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Prime Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, PROVIDED that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) subject to the foregoing clauses (i) through (iii), (A) only a one month Interest Period shall be available to be selected prior to the Syndication Date; and (B) all General Revolving Loans which constitute Eurodollar Loans and are outstanding during said period shall have been incurred or converted into one or more Borrowings, with all such Borrowings to have an Interest Period which commences and ends on the same date; (v) no Interest Period for any Loan may be selected which would end after the Maturity Date; and (vi) no Interest Period may be elected at any time when a Default under section 10.1(a) or an Event of Default is then in existence unless the Required Lenders otherwise agree. (b) If upon the expiration of any Interest Period the Borrower has failed to (or may not) elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing to Prime Rate Loans effective as of the expiration date of such current Interest Period. 2.10. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x) in the case of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below, any Lender, shall have determined on a reasonable basis (which determination shall, absent manifest error, be final and conclusive and binding upon all 24 30 parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder in an amount which such Lender deems material with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Effective Date in any applicable law, governmental rule, regulation, guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves includable in the Eurodollar Rate pursuant to the definition thereof) and/or (y) other circumstances adversely affecting the interbank Eurodollar market or the position of such Lender in such market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any change since the Effective Date in any law, governmental rule, regulation, guideline or order, or the interpretation or application thereof, or would conflict with any thereof not having the force of law but with which such Lender customarily complies or has become impracticable as a result of a contingency occurring after the Effective Date which materially adversely affects the interbank Eurodollar market; THEN, and in any such event, such Lender (or the Administrative Agent in the case of clause (i) above) shall (x) on or promptly following such date or time and (y) within 10 Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other applicable Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred or converted shall be deemed rescinded by the Borrower or, in the case of a Notice of Borrowing, shall, at the option of the Borrower, be deemed converted into a Notice of Borrowing for Prime Rate Loans to be made on the date of Borrowing contained in such Notice of Borrowing, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender shall determine) as shall be required to compensate such Lender, for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, which basis must be reasonable, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in section 2.10(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan is affected by the circumstances described in section 2.10(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected pursuant to section 2.10(a)(iii) the Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to section 2.10(a)(ii) or (iii), cancel said Borrowing, convert the related Notice of Borrowing into one requesting a Borrowing of Prime Rate Loans or require the affected Lender to make its requested Loan as a Prime Rate Loan, or (ii) if the affected Eurodollar Loan is then outstanding, upon at least one Business Day's notice to the Administrative Agent, require the affected Lender to convert each such Eurodollar Loan into a Prime Rate Loan, PROVIDED that if more than one Lender is affected at any time, then all affected 25 31 Lenders must be treated the same pursuant to this section 2.10(b). (c) If any Lender shall have determined that after the Effective Date, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged by law with the interpretation or administration thereof, or compliance by such Lender or its parent corporation with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, in each case made subsequent to the Effective Date, has or would have the effect of reducing by an amount reasonably deemed by such Lender to be material the rate of return on such Lender's or its parent corporation's capital or assets as a consequence of such Lender's commitments or obligations hereunder to a level below that which such Lender or its parent corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's or its parent corporation's policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its parent corporation for such reduction. Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this section 2.10(c), will give prompt written notice thereof to the Borrower, which notice shall set forth, in reasonable detail, the basis of the calculation of such additional amounts, which basis must be reasonable, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this section 2.10(c) upon the subsequent receipt of such notice. (d) Notwithstanding anything in this Agreement to the contrary, (i) no Lender shall be entitled to compensation or payment or reimbursement of other amounts under section 2.10 or 3.5 for any amounts incurred or accruing more than 90 days prior to the giving of notice to the Borrower of additional costs or other amounts of the nature described in such sections, and (ii) no Lender shall demand compensation for any reduction referred to in section 2.10(c) or payment or reimbursement of other amounts under section 3.5 if it shall not at the time be the general policy or practice of such Lender to demand such compensation, payment or reimbursement in similar circumstances under comparable provisions of other credit agreements. 2.11. COMPENSATION. The Borrower shall compensate each applicable Lender, upon its written request (which request shall set forth the detailed basis for requesting and the method of calculating such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans or Money Market Rate Loans) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of Eurodollar Loans or Money Market Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to section 2.10(a)); (ii) if any repayment, prepayment or conversion of any of its Eurodollar Loans or Money Market Rate Loans occurs on a date which is not the last day of an Interest Period applicable thereto (in the case of Eurodollar Loans) or the maturity date thereof (in the case of any Money Market Rate Loans), as the case may be; (iii) if any prepayment of any of its Eurodollar Loans or Money Market Rate Loans, as the case may be, is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans or Money Market Rate Loans when required by the terms of this Agreement or (y) an election made pursuant to section 2.10(b). 2.12. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS. (a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of section 2.10(a)(ii) or (iii), 2.10(c) or 3.5 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another Applicable Lending Office for any Loans or Commitment affected by such event, PROVIDED that such designation is made on such terms that such Lender and its Applicable Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such section. 26 32 (b) If any Lender requests any compensation, reimbursement or other payment under section 2.10(a)(ii) or (iii), 2.10(c) or 3.5 with respect to such Lender, or if any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with the restrictions contained in section 12.4(b)), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), and (iii) in the case of any such assignment resulting from a claim for compensation, reimbursement or other payments required to be made under section 2.10(a)(ii) or (iii), 2.10(c) or 3.5 with respect to such Lender, such assignment will result in a reduction in such compensation, reimbursement or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. (c) Nothing in this section 2.12 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in section 2.10 or 3.5. SECTION 3. LETTERS OF CREDIT. 3.1. LETTERS OF CREDIT. (a) Subject to and upon the terms and conditions herein set forth, the Borrower may request a Letter of Credit Issuer at any time and from time to time on or after the Closing Date and prior to the date that is 15 Business Days prior to the Maturity Date to issue, for the account of the Borrower or any of its Subsidiaries and in support of (i) trade obligations of the Borrower and its Subsidiaries incurred in the ordinary course of business, and/or (ii) worker compensation, liability insurance, releases of contract retention obligations, contract performance guarantee requirements and other bonding obligations of the Borrower or any such Subsidiary incurred in the ordinary course of its business, and such other standby obligations of the Borrower and its Subsidiaries that are acceptable to the Letter of Credit Issuer, and subject to and upon the terms and conditions herein set forth, such Letter of Credit Issuer agrees to issue from time to time, irrevocable documentary or standby letters of credit denominated in Dollars in such form as may be approved by such Letter of Credit Issuer and the Administrative Agent (each such letter of credit (and each Existing Letter of Credit described in section 3.1(d)), a "LETTER OF CREDIT" and collectively, the "LETTERS OF CREDIT"). (b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings at such time, would exceed either (x) $15,000,000 or (y) when added to the aggregate principal amount of all General Revolving Loans then outstanding, plus the portion of the Total General Revolving Commitment reserved for possible refunding of outstanding Swing Line Revolving Loans, an amount equal to the Total General Revolving Commitment at such time; (ii) no individual Letter of Credit (other than any Existing Letter of Credit) shall be issued which has an initial Stated Amount less than $100,000 unless such lesser Stated Amount is acceptable to the Letter of Credit Issuer; and (iii) each Letter of Credit shall have an expiry date (including any renewal periods) occurring not later than the earlier of (A) one year from the date of issuance thereof, unless a longer period is approved by the relevant Letter of Credit Issuer and Lenders (other than any Defaulting Lender) holding a majority of the Total General Revolving Commitment, and (B) 15 Business Days prior to the Maturity Date, in each case on terms acceptable to the Administrative Agent and the relevant Letter of Credit Issuer. (c) Notwithstanding the foregoing, in the event a Lender Default exists, no Letter of Credit Issuer shall be required to issue any Letter of Credit unless either (i) such Letter of Credit Issuer has entered into arrangements satisfactory to it and the Borrower to eliminate such Letter of Credit Issuer's risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender's or Lenders' General Revolving Facility Percentage of the Letter of Credit Outstandings; or (ii) 27 33 the issuance of such Letter of Credit, taking into account the potential failure of the Defaulting Lender or Lenders to risk participate therein, will not cause the Letter of Credit Issuer to incur aggregate credit exposure hereunder with respect to General Revolving Loans and Letter of Credit Outstandings in excess of its General Revolving Commitment, and the Borrower has undertaken, for the benefit of such Letter of Credit Issuer, pursuant to an instrument satisfactory in form and substance to such Letter of Credit Issuer, not to thereafter incur Loans or Letter of Credit Outstandings hereunder which would cause the Letter of Credit Issuer to incur aggregate credit exposure hereunder with respect to Loans and Letter of Credit Outstandings in excess of its Commitment. (d) Annex VI hereto contains a description of all letters of credit outstanding on, and to continue in effect after, the Closing Date. Each such letter of credit issued by a bank that is or becomes a Lender under this Agreement on the Effective Date (each, an "EXISTING LETTER OF CREDIT") shall constitute a "Letter of Credit" for all purposes of this Agreement, issued, for purposes of section 3.4(a), on the Closing Date, and the Borrower, the Administrative Agent and the applicable Lenders hereby agree that, from and after such date, the terms of this Agreement shall apply to such Letters of Credit, superseding any other agreement theretofore applicable to them to the extent inconsistent with the terms hereof. 3.2. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE. (a) Whenever it desires that a Letter of Credit be issued, the Borrower shall give the Administrative Agent and the Letter of Credit Issuer written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent) which, if in the form of written notice shall be substantially in the form of Exhibit B-3, or transmit by electronic communication (if arrangements for doing so have been approved by the Letter of Credit Issuer), prior to 11:00 A.M. (local time at its Notice Office) at least three Business Days (or such shorter period as may be acceptable to the relevant Letter of Credit Issuer) prior to the proposed date of issuance (which shall be a Business Day) (each a "LETTER OF CREDIT REQUEST"), which Letter of Credit Request shall include such supporting documents that such Letter of Credit Issuer customarily requires in connection therewith (including, in the case of a Letter of Credit for an account party other than the Borrower, an application for, and if applicable a reimbursement agreement with respect to, such Letter of Credit). Any such documents executed in connection with the issuance of a Letter of Credit, including the Letter of Credit itself, are herein referred to as "LETTER OF CREDIT DOCUMENTS". In the event of any inconsistency between any of the terms or provisions of any Letter of Credit Document and the terms and provisions of this Agreement respecting Letters of Credit, the terms and provisions of this Agreement shall control. The Administrative Agent shall promptly notify each Lender of each Letter of Credit Request. (b) Each Letter of Credit Issuer shall, on the date of each issuance of a Letter of Credit by it, give the Administrative Agent, each applicable Lender and the Borrower written notice of the issuance of such Letter of Credit, accompanied by a copy to the Administrative Agent of the Letter of Credit or Letters of Credit issued by it. Each Letter of Credit Issuer shall provide to the Administrative Agent a quarterly (or monthly if requested by any applicable Lender) summary describing each Letter of Credit issued by such Letter of Credit Issuer and then outstanding and an identification for the relevant period of the daily aggregate Letter of Credit Outstandings represented by Letters of Credit issued by such Letter of Credit Issuer. 3.3. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The Borrower hereby agrees to reimburse (or cause any Subsidiary for whose account a Letter of Credit was issued to reimburse) each Letter of Credit Issuer, by making payment directly to such Letter of Credit Issuer in immediately available funds at the payment office of such Letter of Credit Issuer, for any payment or disbursement made by such Letter of Credit Issuer under any Letter of Credit (each such amount so paid or disbursed until reimbursed, an "UNPAID DRAWING") immediately after, and in any event on the date on which, such Letter of Credit Issuer notifies the Borrower (or any such Subsidiary for whose account such Letter of Credit was issued) of such payment or disbursement (which notice to the Borrower (or such Subsidiary) shall be delivered reasonably promptly after any such payment or disbursement), such payment to be made in Dollars, with interest on the amount so paid or disbursed by such Letter of Credit Issuer, to the extent not reimbursed prior to 1:00 P.M. (local time at the payment office of the Letter of Credit Issuer) on the date of such payment or disbursement, from and including the date paid or disbursed to but not including the date such Letter of Credit Issuer is reimbursed therefor at a rate per annum which shall be the rate then applicable to General Revolving Loans which are Prime Rate Loans (plus an additional 3% per annum if not reimbursed by the third Business Day 28 34 after the date of such payment or disbursement), any such interest also to be payable on demand. (b) The Borrower's obligation under this section 3.3 to reimburse, or cause a Subsidiary to reimburse, each Letter of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against such Letter of Credit Issuer, the Administrative Agent, any other Letter of Credit Issuer or any Lender, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such drawing, PROVIDED, HOWEVER, that the Borrower shall not be obligated to reimburse, or cause a Subsidiary to reimburse, a Letter of Credit Issuer for any wrongful payment made by such Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Letter of Credit Issuer. 3.4. LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance by a Letter of Credit Issuer of any Letter of Credit (and on the Closing Date with respect to any Existing Letter of Credit), such Letter of Credit Issuer shall be deemed to have sold and transferred to each Lender with a General Revolving Commitment, and each such Lender (each a "PARTICIPANT") shall be deemed irrevocably and unconditionally to have purchased and received from such Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's General Revolving Facility Percentage, in such Letter of Credit, each substitute letter of credit, each drawing made thereunder, the obligations of the Borrower under this Agreement with respect thereto (although Letter of Credit Fees shall be payable directly to the Administrative Agent for the account of the Lenders as provided in section 4.1(b) and the Participants shall have no right to receive any portion of any fees of the nature contemplated by section 4.1(c)), the obligations of any Subsidiary of the Borrower under any Letter of Credit Documents pertaining thereto, and any security for, or guaranty pertaining to, any of the foregoing. Upon any change in the Commitments of the Lenders pursuant to section 12.4(b), it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this section 3.4 to reflect the new General Revolving Facility Percentages of the assigning and assignee Lender. (b) In determining whether to pay under any Letter of Credit, a Letter of Credit Issuer shall not have any obligation relative to the Participants other than to determine that any documents required to be delivered under such Letter of Credit have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by a Letter of Credit Issuer under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Letter of Credit Issuer any resulting liability. (c) In the event that a Letter of Credit Issuer makes any payment under any Letter of Credit and the Borrower shall not have reimbursed (or caused any applicable Subsidiary to reimburse) such amount in full to such Letter of Credit Issuer pursuant to section 3.3(a), such Letter of Credit Issuer shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to the Administrative Agent for the account of such Letter of Credit Issuer, the amount of such Participant's General Revolving Facility Percentage of such payment in U.S. Dollars and in same day funds, PROVIDED, HOWEVER, that no Participant shall be obligated to pay to the Administrative Agent its General Revolving Facility Percentage of such unreimbursed amount for any wrongful payment made by such Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Letter of Credit Issuer. If the Administrative Agent so notifies any Participant required to fund a payment under a Letter of Credit prior to 11:00 A.M. (local time at its Notice Office) on any Business Day, such Participant shall make available to the Administrative Agent for the account of the relevant Letter of Credit Issuer such Participant's General Revolving Facility Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its General Revolving Facility Percentage of the amount of such payment available to the Administrative Agent for the account of the relevant Letter of Credit Issuer, such Participant agrees to pay to the Administrative Agent for the account of such Letter of Credit Issuer, forthwith on demand such amount, together 29 35 with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the account of such Letter of Credit Issuer at the Federal Funds Effective Rate. The failure of any Participant to make available to the Administrative Agent for the account of the relevant Letter of Credit Issuer its General Revolving Facility Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to the Administrative Agent for the account of such Letter of Credit Issuer its General Revolving Facility Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Administrative Agent for the account of such Letter of Credit Issuer such other Participant's General Revolving Facility Percentage of any such payment. (d) Whenever a Letter of Credit Issuer receives a payment of a reimbursement obligation as to which the Administrative Agent has received for the account of such Letter of Credit Issuer any payments from the Participants pursuant to section 3.4(c) above, such Letter of Credit Issuer shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Participant which has paid its General Revolving Facility Percentage thereof, in U.S. dollars and in same day funds, an amount equal to such Participant's General Revolving Facility Percentage of the principal amount thereof and interest thereon accruing after the purchase of the respective participations, as and to the extent so received. (e) The obligations of the Participants to make payments to the Administrative Agent for the account of each Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, set-off defense or other right which the Borrower (or any Subsidiary) may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any person for whom any such transferee may be acting), the Administrative Agent, any Letter of Credit Issuer, any Lender, or other person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower (or any Subsidiary) and the beneficiary named in any such Letter of Credit), other than any claim which the Borrower (or any Subsidiary which is the account party with respect to a Letter of Credit) may have against any applicable Letter of Credit Issuer for gross negligence or wilful misconduct of such Letter of Credit Issuer in making payment under any applicable Letter of Credit; (iii) any draft, certificate or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents: or (v) the occurrence of any Default or Event of Default. (f) To the extent the Letter of Credit Issuer is not indemnified by the Borrower, the Participants will reimburse and indemnify the Letter of Credit Issuer, in proportion to their respective General Revolving Facility Percentages, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Letter of Credit Issuer in performing its respective duties in any way related to or arising out of its issuance of Letters of Credit, PROVIDED that no Participants shall be liable for any portion of such liabilities, 30 36 obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements resulting from the Letter of Credit Issuer's gross negligence or willful misconduct. 3.5. INCREASED COSTS. If after the Effective Date, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Letter of Credit Issuer or any Lender with any request or directive (whether or not having the force of law) by any such authority, central bank or comparable agency (in each case made subsequent to the Effective Date) shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by such Letter of Credit Issuer or such Lender's participation therein, or (ii) shall impose on such Letter of Credit Issuer or any Lender any other conditions affecting this Agreement, any Letter of Credit or such Lender's participation therein; and the result of any of the foregoing is to increase the cost to such Letter of Credit Issuer or such Lender of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Letter of Credit Issuer or such Lender hereunder (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges), then, upon demand to the Borrower by such Letter of Credit Issuer or such Lender (a copy of which notice shall be sent by such Letter of Credit Issuer or such Lender to the Administrative Agent), the Borrower shall pay to such Letter of Credit Issuer or such Lender such additional amount or amounts as will compensate any such Letter of Credit Issuer or such Lender for such increased cost or reduction. A certificate submitted to the Borrower by any Letter of Credit Issuer or any Lender, as the case may be (a copy of which certificate shall be sent by such Letter of Credit Issuer or such Lender to the Administrative Agent), setting forth, in reasonable detail, the basis for the determination of such additional amount or amounts necessary to compensate any Letter of Credit Issuer or such Lender as aforesaid shall be conclusive and binding on the Borrower absent manifest error, although the failure to deliver any such certificate shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this section 3.5. Reference is hereby made to the provisions of section 2.10(d) for certain limitations upon the rights of a Letter of Credit Issuer or Lender under this section. 3.6. GUARANTY OF SUBSIDIARY LETTER OF CREDIT OBLIGATIONS. (a) The Borrower hereby unconditionally guarantees, for the benefit of the Administrative Agent and the Lenders, the full and punctual payment of the Obligations of each Subsidiary under each Letter of Credit Document to which such Subsidiary is now or hereafter becomes a party (such Obligations being subject to certain limitations as provided in section 3.3(b) hereof). Upon failure by any such Subsidiary to pay punctually any such amount, the Borrower shall forthwith on demand by the Administrative Agent pay the amount not so paid at the place and in the currency and otherwise in the manner specified in this Agreement or any applicable Letter of Credit Document. (b) As a separate, additional and continuing obligation, the Borrower unconditionally and irrevocably undertakes and agrees, for the benefit of the Administrative Agent and the Lenders, that, should any amounts not be recoverable from the Borrower under section 3.6(a) for any reason whatsoever (including, without limitation, by reason of any provision of any Credit Document or any other agreement or instrument executed in connection therewith being or becoming void, unenforceable, or otherwise invalid under any applicable law) then, notwithstanding any notice or knowledge thereof by any Lender, the Administrative Agent, any of their respective Affiliates, or any other person, at any time, the Borrower as sole, original and independent obligor, upon demand by the Administrative Agent, will make payment to the Administrative Agent, for the account of the Lenders and the Administrative Agent, of all such obligations not so recoverable by way of full indemnity, in such currency and otherwise in such manner as is provided in the Credit Documents. (c) The obligations of the Borrower under this section shall be unconditional and absolute and, without limiting the generality of the foregoing shall not be released, discharged or otherwise affected by the occurrence, one or more times, of any of the following: (i) any extension, renewal, settlement, compromise, waiver or release in respect to any obligation of any Subsidiary under any Letter of Credit Document, by operation of law or otherwise; 31 37 (ii) any modification or amendment of or supplement to this Agreement, any Note or any other Credit Document; (iii) any release, non-perfection or invalidity of any direct or indirect security for any obligation of the Borrower under this Agreement, any Note or any other Credit Document or of any Subsidiary under any Letter of Credit Document; (iv) any change in the corporate existence, structure or ownership of any Subsidiary or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Subsidiary or its assets or any resulting release or discharge of any obligation of any Subsidiary contained in any Letter of Credit Document; (v) the existence of any claim, set-off or other rights which the Borrower may have at any time against any Subsidiary, the Administrative Agent, any Lender or any other person, whether in connection herewith or any unrelated transactions; (vi) any invalidity or unenforceability relating to or against any Subsidiary for any reason of any Letter of Credit Document, or any provision of applicable law or regulation purporting to prohibit the payment by any Subsidiary of any Obligations in respect of any Letter of Credit; or (vii) any other act or omission to act or delay of any kind by any Subsidiary, the Administrative Agent, any Lender or any other person or any other circumstance whatsoever which might, but for the provisions of this section, constitute a legal or equitable discharge of the Borrower's obligations under this section. (d) The Borrower's obligations under this section shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Borrower under the Credit Documents and by any Subsidiary under the Letter of Credit Documents shall have been paid in full. If at any time any payment of any of the Obligations of any Subsidiary in respect of any Letter of Credit Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Subsidiary, the Borrower's obligations under this section with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. (e) The Borrower irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any person against any Subsidiary or any other person, or against any collateral or guaranty of any other person. (f) Until the indefeasible payment in full of all of the Obligations and the termination of the Commitments of the Lenders hereunder, the Borrower shall have no rights, by operation of law or otherwise, upon making any payment under this section to be subrogated to the rights of the payee against any Subsidiary with respect to such payment or otherwise to be reimbursed, indemnified or exonerated by any Subsidiary in respect thereof. (g) In the event that acceleration of the time for payment of any amount payable by any Subsidiary under any Letter of Credit Document is stayed upon insolvency, bankruptcy or reorganization of such Subsidiary, all such amounts otherwise subject to acceleration under the terms of any applicable Letter of Credit Document shall nonetheless be payable by the Borrower under this section forthwith on demand by the Administrative Agent. SECTION 4. FEES; COMMITMENTS. 4.1. FEES. (a) The Borrower agrees to pay to the Administrative Agent a Facility Fee ("FACILITY FEE") 32 38 for the account of each Non-Defaulting Lender which has a General Revolving Commitment for the period from and including the Effective Date to but not including the date the Total General Revolving Commitment has been terminated, on the average daily amount of the Total General Revolving Commitment, whether used or unused, at the Applicable Facility Fee Rate, payable quarterly in arrears on the last Business Day of each March, June, September and December and the date the Total General Revolving Commitment is terminated. As used herein, the term "APPLICABLE FACILITY FEE RATE" means the particular rate per annum determined by the Administrative Agent in accordance with the Pricing Grid Table which appears in section 2.8(g) hereof, based on the Borrower's Interest Coverage Ratio for its most recent Testing Period which consists of a single fiscal quarter, and the following provisions: (i) Initially, until changed hereunder in accordance with the following provisions, the Applicable Facility Fee Rate will be 50 basis points per annum. (ii) Commencing with the fiscal quarter of the Borrower ended on or nearest to June 30, 1998, and continuing for each fiscal quarter thereafter, the Administrative Agent will determine the Applicable Facility Fee Rate in accordance with the Pricing Grid Table, based on the Borrower's Interest Coverage Ratio for its most recent Testing Period which consists of a single fiscal quarter. Changes in the Applicable Facility Fee Rate shall be made and effective as of the same date as is provided in section 2.8(g) in the case of the determination or re-determination of the Applicable Eurodollar Margin. If any such change in the Applicable Facility Fee Rate is retroactive to a date in a period for which the Facility Fee has already been paid, the Borrower will immediately pay to the Administrative Agent for the account of the Lenders all additional Facility Fee due by reason of such increased Applicable Facility Fee Rate. (iii) Any changes in the Applicable Facility Fee Rate shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent will promptly provide notice of such determinations to the Borrower and the Lenders. Any such determination by the Administrative Agent pursuant to this section 4.1(a) shall be conclusive and binding absent manifest error. (b) The Borrower agrees to pay to the Administrative Agent, for the account of each Non-Defaulting Lender, PRO RATA on the basis of its General Revolving Facility Percentage, a fee in respect of each Letter of Credit (the "LETTER OF CREDIT FEE"), computed for each day at the rate per annum equal to the Applicable Eurodollar Margin then in effect on the Stated Amount of all Letters of Credit outstanding on such day. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December and on the date on which the Total Commitment is terminated. (c) The Borrower agrees to pay directly to each Letter of Credit Issuer a fee in respect of each Letter of Credit issued by it (a "FACING FEE") computed at such rate as may be agreed between such Letter of Credit Issuer and the Borrower on the average daily Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December and on the date on which the Total General Revolving Commitment is terminated. (d) The Borrower agrees to pay directly to each Letter of Credit Issuer upon each drawing under, and/or amendment, extension, renewal or transfer of, a Letter of Credit issued by it such amount as shall at the time of such drawing, amendment, extension, renewal or transfer be the administrative charge which such Letter of Credit Issuer is customarily charging for drawings under or amendments, extensions, renewals or transfers of, letters of credit issued by it. (e) The Borrower shall pay to the Administrative Agent on the Effective Date and thereafter for its own account and/or for distribution to the Lenders such fees as heretofore agreed by the Borrower and the Administrative Agent. (f) All computations of Fees shall be made in accordance with section 12.7(b). 33 39 4.2. VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least three Business Days prior written notice (or telephonic notice confirmed in writing) to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, without premium or penalty, to: (a) terminate the Total Commitment, PROVIDED that (i) all outstanding Loans are contemporaneously prepaid in accordance with section 5.1, and (ii) either (A) no Letters of Credit remain outstanding, or (B) the Borrower shall contemporaneously either (x) cause all outstanding Letters of Credit to be surrendered for cancellation (any such Letters of Credit to be replaced by letters of credit issued by other financial institutions acceptable to the Required Lenders), or (y) the Borrower shall pay to the Administrative Agent an amount in cash and/or Cash Equivalents equal to 100% of the Letter of Credit Outstandings and the Administrative Agent shall hold such payment as security for the reimbursement obligations of the Borrower hereunder in respect of Letters of Credit pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent and the Borrower (which shall permit certain investments in Cash Equivalents satisfactory to the Administrative Agent and the Borrower until the proceeds are applied to the secured obligations); (b) terminate the Swing Line Revolving Commitment, PROVIDED that all outstanding Swing Line Revolving Loans are contemporaneously prepaid in accordance with section 5.1; (c) partially and permanently reduce the Unutilized Total General Revolving Commitment, PROVIDED that (i) any such reduction shall apply to proportionately and permanently reduce the General Revolving Commitment of each of the Lenders; (ii) any partial reduction of the Unutilized Total General Revolving Commitment pursuant to this section 4.2(b) shall be in the amount of at least $3,000,000 (or, if greater, in integral multiples of $1,000,000); and (iii) after giving effect to any such partial reduction of the Unutilized Total General Revolving Commitment, the Total General Revolving Commitment then in effect shall exceed the Swing Line Revolving Commitment then in effect by at least $10,000,000; and/or (d) partially and permanently reduce the Unutilized Swing Line Revolving Commitment, PROVIDED that any partial reduction of the Unutilized Swing Line Revolving Commitment pursuant to this section 4.2(b) shall be in the amount of at least $250,000 (or, if greater, in integral multiples of $100,000). 4.3. MANDATORY TERMINATION/ADJUSTMENTS OF COMMITMENTS, ETC. (a) The Total Commitment (and the Commitment of each Lender) shall terminate on June 17, 1997, unless the Closing Date has occurred on or prior to such date. (b) The Total Commitment (and the Commitment of each Lender) shall terminate on the earlier of (x) the Maturity Date and (y) the date on which a Change of Control occurs. (c) The Total General Revolving Commitment shall be permanently reduced, without premium or penalty, at the time that any mandatory prepayment of General Revolving Loans would be made pursuant to section 5.2(d) if General Revolving Loans were then outstanding in the full amount of the Total General Revolving Commitment, in an amount at least equal to the required prepayment of principal of General Revolving Loans which would be required to be made in such circumstance. Any such reduction shall apply to proportionately and permanently reduce the General Revolving Commitment of each of the affected Lenders, and any partial reduction of the Total General Revolving Commitment pursuant to this section 4.3(c) shall be in the amount of at least $1,000,000 (or, if greater, in integral multiples of $1,000,000). The Borrower will provide at least three (or such lesser number as the Administrative Agent may permit in the exercise of reasonable discretion) Business Days' prior written notice (or telephonic notice confirmed in writing) to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), of any reduction of the Total General Revolving Commitment pursuant to this section 4.3(c), specifying the date and amount of the reduction. 34 40 4.4. EXTENSION OF MATURITY DATE. At any time after August 1, 1998 and during the 30 day period following delivery by the Borrower pursuant to section 8.1(a) of its consolidated financial statements for its fiscal year then most recently ended, and annually thereafter during the 30 day period following delivery by the Borrower of its consolidated financial statements pursuant to section 8.1(a), the Borrower may request the Administrative Agent to determine if all of the Lenders are then willing to extend the Maturity Date for a single additional year. If the Borrower so requests, the Administrative Agent will so advise the Lenders. If all of the Lenders in their sole discretion are all willing to so extend the Maturity Date, after taking into account such considerations as any Lender may deem relevant, the Borrower, the other Borrowers, the Administrative Agent and all of the Lenders (including each Letter of Credit Issuer) shall execute and deliver a definitive written instrument so extending the Maturity Date. No such extension of the Maturity Date shall be valid or effective for any purpose unless such definitive written instrument is so signed and delivered within 60 days following the giving by the Administrative Agent of notice to the Lenders that the Borrower has requested such an extension. SECTION 5. PAYMENTS. 5.1. VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay Loans, in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (a) the Borrower shall give the Administrative Agent at the Notice Office written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent) of its intent to prepay the Loans, the amount of such prepayment and (in the case of Eurodollar Loans or Money Market Rate Loans) the specific Borrowing(s) pursuant to which made, which notice shall be received by the Administrative Agent by (x) 11:00 A.M. (local time at the Notice Office) three Business Days prior to the date of such prepayment, in the case of any prepayment of Eurodollar Loans, (y) 11:00 A.M. (local time at the Notice Office) on the date of such prepayment, in the case of any prepayment of General Revolving Loans which are Prime Rate Loans, or (z) 2:00 P.M. (local time at the Notice Office) on the date of such prepayment, in the case of any prepayment of Swing Line Revolving Loans, and which notice shall promptly be transmitted by the Administrative Agent to each of the affected Lenders; (b) in the case of prepayment of any Borrowings under the General Revolving Facility, each partial prepayment of any such Borrowing shall be in an aggregate principal of at least $3,000,000 or an integral multiple of $1,000,000 in excess thereof, in the case of Prime Rate Loans and at least $3,000,000 or an integral multiple of $1,000,000 in excess thereof, in the case of Eurodollar Loans; (c) in the case of prepayment of any Borrowings under the Swing Line Revolving Facility, each partial prepayment of any such Borrowing shall be in an aggregate principal of at least $250,000 or an integral multiple of $100,000 in excess thereof; (d) no partial prepayment of any Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; (e) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied PRO RATA among such Loans; and 35 41 (f) each prepayment of Eurodollar Loans or Money Market Rate Loans pursuant to this section 5.1 on any date other than the last day of the Interest period applicable thereto, in the case of Eurodollar Loans, or the maturity date thereof, in the case of Money Market Rate Loans, as the case may be, shall be accompanied by any amounts payable in respect thereof under section 2.11. 5.2. MANDATORY PREPAYMENTS. The Loans shall be subject to mandatory prepayment in accordance with the following provisions: (a) IF GENERAL REVOLVING LOANS AND LETTER OF CREDIT OUTSTANDINGS EXCEED TOTAL GENERAL REVOLVING COMMITMENT. If on any date (after giving effect to any other payments on such date) the sum of (i) the aggregate outstanding principal amount of General Revolving Loans PLUS (ii) the aggregate amount of Letter of Credit Outstandings, exceeds the Total General Revolving Commitment as then in effect, the Borrower shall prepay on such date that principal amount of General Revolving Loans and, after General Revolving Loans have been paid in full, Unpaid Drawings, in an aggregate amount at least equal to such excess. If, after giving effect to the prepayment of General Revolving Loans and Unpaid Drawings, the aggregate amount of Letter of Credit Outstandings exceeds the Total General Revolving Commitment as then in effect, the Borrower shall pay to the Administrative Agent an amount in cash and/or Cash Equivalents equal to such excess and the Administrative Agent shall hold such payment as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent and the Borrower (which shall permit certain investments in Cash Equivalents satisfactory to the Administrative Agent and the Borrower until the proceeds are applied to the secured obligations). (b) IF SWING LINE LOANS EXCEED UNUTILIZED TOTAL GENERAL REVOLVING COMMITMENT. If on any date (after giving effect to any other payments on such date) the aggregate outstanding principal amount of Swing Line Revolving Loans exceeds the Unutilized Total General Revolving Commitment as then in effect, the Borrower shall prepay on such date that principal amount of Swing Line Revolving Loans in an aggregate amount at least equal to such excess. (c) IF SWING LINE REVOLVING LOANS EXCEED SWING LINE REVOLVING COMMITMENT. If on any date (after giving effect to any other payments on such date) the aggregate outstanding principal amount of Swing Line Revolving Loans exceeds the Swing Line Revolving Commitment as then in effect, the Borrower shall prepay on such date Swing Line Revolving Loans in an aggregate principal amount at least equal to such excess. (d) CERTAIN PROCEEDS OF ASSET SALES. If during any fiscal year of the Borrower, the Borrower and its Subsidiaries have received cumulative Cash Proceeds during such fiscal year from one or more Asset Sales in an aggregate amount exceeding 10% of the Borrower's Consolidated Net Worth at the beginning of such fiscal year, not later than the third Business Day following the date of receipt of any Cash Proceeds in excess of such amount, an amount at least equal to 100% of the Net Cash Proceeds then received in excess of such amount from any Asset Sale shall be applied as a mandatory prepayment of principal of, FIRST, the outstanding loans, if any, under the Bridge Facility Agreement, and, SECOND, the then outstanding General Revolving Loans; PROVIDED that if no Default under section 10.1(a) or Event of Default shall have occurred and be continuing and the making of such prepayment of General Revolving Loans at such time would result in an obligation on the part of the Borrower to make a breakage payment in respect thereof under section 2.11 (which has not been waived by the Required Lenders), the Borrower may upon notice to the Administrative Agent (a copy of which notice the Administrative Agent shall promptly transmit to each affected Lender) postpone making such prepayment for a period of up to 30 days, or such shorter period as will result in no such breakage payment being payable; and PROVIDED, FURTHER, that (i) if no Default under section 10.1(a) or Event of Default shall have occurred and be continuing, (ii) the Borrower and its Subsidiaries have scheduled Consolidated Capital Expenditures during the following six months, and (iii) the Borrower notifies the Administrative Agent of the amount and nature thereof and of its intention to reinvest all or a portion of such Net Cash Proceeds in such 36 42 Consolidated Capital Expenditures during such six month period, then no such prepayment of General Revolving Loans shall be required to the extent the Borrower so indicates that such reinvestment will take place. If at the end of any such six month period any portion of such Net Cash Proceeds has not been so reinvested, such remaining amount shall be immediately applied as a mandatory prepayment of principal of the then outstanding General Revolving Loans. If the Borrower has postponed the date of making any mandatory prepayment in accordance with the first PROVISO to the first sentence of this section 5.2(d), during the period of such postponement the Borrower will not incur additional Loans or request additional Letters of Credit which would cause (x) the sum of the outstanding General Revolving Loans, plus the Letter of Credit Outstandings, plus the portion of the Total Unutilized General Revolving Commitment reserved for refunding of outstanding Swing Line Revolving Loans, to be greater than (y) the amount to which the Total General Revolving Commitment will be permanently reduced pursuant to section 4.3(c) as a consequence of the events giving rise to such mandatory prepayment. (e) CHANGE OF CONTROL. On the date on which a Change of Control occurs, notwithstanding anything to the contrary contained in this Agreement, no further Borrowings shall be made and the then outstanding principal amount of all Loans, if any, shall become due and payable and shall be prepaid in full, and the Borrower shall contemporaneously either (i) cause all outstanding Letters of Credit to be surrendered for cancellation (any such Letters of Credit to be replaced by letters of credit issued by other financial institutions), or (ii) the Borrower shall pay to the Administrative Agent an amount in cash and/or Cash Equivalents equal to 100% of the Letter of Credit Outstandings and the Administrative Agent shall hold such payment as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent and the Borrower (which shall permit certain investments in Cash Equivalents satisfactory to the Administrative Agent and the Borrower until the proceeds are applied to the secured obligations). (f) PARTICULAR LOANS TO BE PREPAID. With respect to each prepayment of Loans required by this section 5.2, the Borrower shall designate the Types of Loans which are to be prepaid and the specific Borrowing(s) pursuant to which such prepayment is to be made, PROVIDED that (i) the Borrower shall first so designate all Loans that are Prime Rate Loans and Eurodollar Loans with Interest Periods ending on the date of prepayment prior to designating any other Eurodollar Loans for prepayment, (ii) if the outstanding principal amount of Eurodollar Loans made pursuant to a Borrowing is reduced below the applicable Minimum Borrowing Amount as a result of any such prepayment, then all the Loans outstanding pursuant to such Borrowing shall be converted into Prime Rate Loans, and (iii) each prepayment of any Loans made pursuant to a Borrowing shall be applied PRO RATA among such Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under section 2.11. Any prepayment of Eurodollar Loans or Money Market Rate Loans pursuant to this section 5.2 shall in all events be accompanied by such compensation as is required by section 2.11. 5.3. METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Administrative Agent for the ratable (based on its PRO RATA share) account of the Lenders entitled thereto, not later than 11:00 A.M. (local time at the Payment Office) on the date when due and shall be made in immediately available funds and in lawful money of the United States of America at the Payment Office, it being understood that written notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 11:00 A.M. (local time at the Payment Office) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 37 43 5.4. NET PAYMENTS. (a) All payments made by the Borrower hereunder, under any Note or any other Credit Document, will be made without setoff, counterclaim or other defense. Except as provided for in section 5.4(c), all such payments will be made free and clear of, and without deduction or withholding for, any present or future United States withholding taxes. The Borrower will furnish to the Administrative Agent within 45 days after the date of any withholding or deduction on account of United States withholding taxes certified copies of tax receipts, or other evidence satisfactory to each affected Lender, evidencing payment thereof by the Borrower. (b) Each Lender that is not a United States person (as such term is defined in section 7701(a)(30) of the Code) for Federal income tax purposes agrees to provide to the Borrower and the Administrative Agent on or prior to the Effective Date, or in the cases of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to section 12.4 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer and such Lender is in compliance with the provisions of this section 5.4(b)), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement, any Note or any other Credit Document, or (ii) if the Lender is not a "bank" within the meaning of section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit F (any such certificate, a "SECTION 5.4(B)(II) CERTIFICATE") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement, any Note or any other Credit Document. In addition, each Lender agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 5.4(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement, any Note or any other Credit Document, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this section 5.4(b). (c) Notwithstanding anything to the contrary contained in section 5.4(a), the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or other similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in section 7701(a)(30) of the Code) for United States federal income tax purposes and which has not provided to the Borrower such forms that establish a complete exemption from such deduction or withholding. SECTION 6. CONDITIONS PRECEDENT. 6.1. CONDITIONS PRECEDENT AT CLOSING DATE. The obligation of the Lenders to make Loans, and of any Letter of Credit Issuer to issue Letters of Credit, is subject to the satisfaction of each of the following conditions on the Closing Date: (a) EFFECTIVENESS; NOTES. On or prior to the Closing Date, (i) the Effective Date shall have occurred and (ii) there shall have been delivered to the Administrative Agent for the account of each Lender the appropriate Note or Notes executed by the Borrower, in each case, in the amount, maturity and as otherwise provided herein. (b) FEES, ETC. The Borrower shall have paid or caused to be paid all fees required to be paid by it on or prior to such date pursuant to section 4.1 hereof and all reasonable fees and expenses of the Administrative Agent and of special counsel to the Administrative Agent which have been invoiced on or prior to such date in connection with the preparation, execution and delivery of this Agreement and the 38 44 other Credit Documents and the consummation of the transactions contemplated hereby and thereby. (c) OTHER CREDIT DOCUMENTS, ETC. The Credit Parties named therein shall have duly executed and delivered and there shall be in full force and effect, and original counterparts shall have been delivered to the Administrative Agent, in sufficient quantities for the Administrative Agent and the Lenders, of, (i) the Subsidiary Guaranty (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "SUBSIDIARY GUARANTY"), substantially in the form attached hereto as Exhibit C-1, and (ii) the Pledge Agreement (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "PLEDGE AGREEMENT"), substantially in the form attached hereto as Exhibit C-2. Certificates for the shares of stock pledged under the Pledge Agreement, duly indorsed in blank, or accompanied by stock powers duly signed in blank, shall have been delivered to the Collateral Agent. (d) CORPORATE RESOLUTIONS AND APPROVALS. The Administrative Agent shall have received, in sufficient quantity for the Administrative Agent and the Lenders, certified copies of the resolutions of the Board of Directors of the Borrower and each other Credit Party, approving the Credit Documents to which the Borrower or any such other Credit Party, as the case may be, is or may become a party, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the execution, delivery and performance by the Borrower or any such other Credit Party of the Credit Documents to which it is or may become a party. (e) INCUMBENCY CERTIFICATES. The Administrative Agent shall have received, in sufficient quantity for the Administrative Agent and the Lenders, a certificate of the Secretary or an Assistant Secretary of the Borrower and of each other Credit Party, certifying the names and true signatures of the officers of the Borrower or such other Credit Party, as the case may be, authorized to sign the Credit Documents to which the Borrower or such other Credit Party is a party and any other documents to which the Borrower or any such other Credit Party is a party which may be executed and delivered in connection herewith. (f) OPINION OF COUNSEL. On the Closing Date, the Administrative Agent shall have received an opinion, addressed to the Administrative Agent and each of the Lenders and dated on or prior to the Closing Date, from Calfee, Halter & Griswold LLP, special counsel to the Borrower, substantially in the form of Exhibit D hereto and covering such other matters incident to the transactions contemplated hereby as the Administrative Agent may reasonably request, such opinion to be in form and substance satisfactory to the Administrative Agent. (g) EXISTING CREDIT FACILITY. The Borrower shall have (i) terminated the commitments of the lenders under its Credit Agreement, dated as of August 1, 1997, among the Borrower, the financial institutions party thereto, and KeyBank, as administrative agent thereunder, (ii) prepaid all borrowings thereunder, (iii) arranged for all letters of credit issued thereunder to be Existing Letters of Credit hereunder or replaced or supported until replaced by Letters of Credit issued hereunder, and (iv) obtained the release of all collateral securing such Credit Agreement. (h) BRIDGE FACILITY AGREEMENT. The Borrower shall have entered into the Bridge Facility Agreement, such Agreement shall be in full force and effect, and such Agreement shall provide for the irrevocable undertaking of the lender thereunder to apply of all amounts collected (by setoff or otherwise) in connection with the enforcement thereof as provided in section 10.3 hereof. (i) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and all documents incidental to the transactions contemplated hereby shall be satisfactory in substance and form to the Administrative Agent and the Lenders and the Administrative Agent and its special counsel and the Lenders shall have received all such counterpart originals or certified or other copies of such documents as the Administrative Agent or its special counsel or any Lender may reasonably request. 39 45 6.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligations of the Lenders to make each Loan and/or of a Letter of Credit Issuer to issue each Letter of Credit is subject, at the time thereof, to the satisfaction of the following conditions: (a) NOTICE OF BORROWING, ETC. The Administrative Agent shall have received a Notice of Borrowing meeting the requirements of section 2.3 with respect to the incurrence of Loans or a Letter of Credit Request meeting the requirement of section 3.2 with respect to the issuance of a Letter of Credit. (b) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of each Credit Event and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties of the Credit Parties contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Credit Event, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties shall have been true and correct in all material respects as of the date when made. The acceptance of the benefits of each Credit Event shall constitute a representation and warranty by the Borrower to each of the Lenders that all of the applicable conditions specified in section 6.1 and/or 6.2, as the case may be, exist as of that time. All of the certificates, legal opinions and other documents and papers referred to in this section 6, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders, and the Administrative Agent will promptly distribute to the Lenders their respective Notes and the copies of such other certificates, legal opinions and documents. SECTION 7. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter into this Agreement and to make the Loans, and/or to issue and/or to participate in the Letters of Credit provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and each Credit Event: 7.1. CORPORATE STATUS, ETC. Each of the Borrower and its Subsidiaries (i) is a duly organized or formed and validly existing corporation, partnership or limited liability company, as the case may be, (ii) is in good standing under the laws of the jurisdiction of its formation (except as to approximately six Subsidiaries, which are in the process of filing annual reports in their jurisdictions of formation, and which will be in good standing within 30 days after the date hereof), (iii) has the corporate, partnership or limited liability company power and authority, as applicable, to own its property and assets and to transact the business in which it is engaged and presently proposes to engage, and (iv) has duly qualified and is authorized to do business in all jurisdictions where it is required to be so qualified except where the failure to be so qualified would not have a Material Adverse Effect. 7.2. SUBSIDIARIES. Annex II hereto lists, as of the date hereof, each Subsidiary of the Borrower (and the direct and indirect ownership interest of the Borrower therein). 7.3. CORPORATE POWER AND AUTHORITY, ETC. Each Credit Party has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is party and has taken all necessary corporate or other organizational action to authorize the execution, delivery and performance of the Credit Documents to which it is party. Each Credit Party has duly executed and delivered each Credit Document to which it is party and each Credit Document to which it is party constitutes the legal, valid and binding agreement or obligation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws 40 46 generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.4. NO VIOLATION. Neither the execution, delivery and performance by any Credit Party of the Credit Documents to which it is party nor compliance with the terms and provisions thereof (i) will contravene any provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to such Credit Party or its properties and assets, (ii) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (other than any Lien created by any Security Document) upon any of the property or assets of such Credit Party pursuant to the terms of any promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or loan agreement, or any other material agreement or instrument, to which such Credit Party is a party or by which it or any of its property or assets are bound or to which it may be subject, or (iii) will violate any provision of the certificate or articles of incorporation, code of regulations or by-laws, or other charter documents of such Credit Party. 7.5. GOVERNMENTAL APPROVALS. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required as a condition to (i) the execution, delivery and performance by any Credit Party of any Credit Document to which it is a party, or (ii) the legality, validity, binding effect or enforceability of any Credit Document to which any Credit Party is a party, other than any filings and recordings which may be required in connection with the perfection of any Liens created by the Security Documents. 7.6. LITIGATION. There are no actions, suits or proceedings pending or, to, the knowledge of the Borrower, threatened with respect to the Borrower or any of its Subsidiaries (i) that have, or could reasonably be expected to have, a Material Adverse Effect, or (ii) which question the validity or enforceability of any of the Credit Documents, or of any action to be taken by any Credit Party pursuant to any of the Credit Documents to which it is a party. 7.7. USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of all Loans shall be utilized (i) to retire the Indebtedness referred to in section 6.1(g), (ii) to finance Acquisitions, and (iii) for general corporate purposes not inconsistent with the requirements of this Agreement. (b) No part of the proceeds of any Credit Event will be used directly or indirectly to purchase or carry Margin Stock, or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, in violation of any of the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. At no time would more than 25% of the value of the assets of the Borrower or of the Borrower and its consolidated Subsidiaries that are subject to any "arrangement" (as such term is used in section 221.2(g) of such Regulation U) hereunder be represented by Margin Stock. 7.8. FINANCIAL STATEMENTS, ETC. (a) The Borrower has furnished to the Lenders and the Administrative Agent complete and correct copies of (i) the audited consolidated balance sheets of the Borrower and its consolidated subsidiaries as of June 30, 1997, and June 30, 1996, and the related audited consolidated statements of income, stockholders' equity, and cash flows for the fiscal years then ended, accompanied by the unqualified report thereon of the Borrower's independent accountants; and (ii) the unaudited condensed consolidated balance sheets of the Borrower and its consolidated subsidiaries as of March 31, 1998, and the related unaudited condensed consolidated statements of income and of cash flows of the Borrower and its consolidated subsidiaries for the fiscal quarter or quarters then ended, as contained in the Form 10-Q Quarterly Report of the Borrower filed with the SEC. All such financial statements have been prepared in accordance with GAAP, consistently applied (except as stated therein), and fairly present the financial position of the Borrower and its consolidated subsidiaries as of the respective dates indicated and the consolidated results of their operations and cash flows for the respective periods indicated, subject in the case of any such financial statements which are unaudited, to the absence of 41 47 footnotes and to normal audit adjustments which the Borrower reasonably believes will not involve a Material Adverse Effect. (b) The Borrower has received consideration which is the reasonable equivalent value of the obligations and liabilities that the Borrower has incurred to the Administrative Agent and the Lenders. The Borrower now has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is now solvent and able to pay its debts as they mature and the Borrower, as of the Closing Date, owns property having a value, both at fair valuation and at present fair salable value, greater than the amount required to pay the Borrower's debts; and the Borrower is not entering into the Credit Documents with the intent to hinder, delay or defraud its creditors. (c) The Borrower has delivered or caused to be delivered to the Lenders prior to the execution and delivery of this Agreement (i) a copy of the Borrower's Report on Form 10-K as filed (without Exhibits) with the SEC for its fiscal year ended June 30, 1997, which contains a general description of the business and affairs of the Borrower and its Subsidiaries, and (ii) financial projections prepared by management of the Borrower for the Borrower and its Subsidiaries for the fiscal year ended June 30, 1999 (the "FINANCIAL PROJECTIONS"). The Financial Projections were prepared on behalf of the Borrower in good faith after taking into account the existing and historical levels of business activity of the Borrower and its Subsidiaries, trends known to the Borrower, including general economic trends, and all other information, assumptions and estimates considered by management of the Borrower and its Subsidiaries to be pertinent thereto. The Financial Projections were considered by management of the Borrower, as of such date of preparation, to be realistically achievable; provided, that no representation or warranty is made as to the impact of future general economic conditions or as to whether the Borrower's projected consolidated results as set forth in the Financial Projections will actually be realized. No facts are known to the Borrower at the date hereof which, if reflected in the Financial Projections, would result in a material adverse change in the assets, liabilities, results of operations or cash flows reflected therein. 7.9. NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been no change in the condition, business or affairs of the Borrower and its Subsidiaries taken as a whole, or their properties and assets considered as an entirety, except for changes, none of which, individually or in the aggregate, has had or could reasonably be expected to have, a Material Adverse Effect. 7.10. TAX RETURNS AND PAYMENTS. Each of the Borrower and each of its Subsidiaries has filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, other than those not yet delinquent and except for those contested in good faith. The Borrower and each of its Subsidiaries has established on its books such charges, accruals and reserves in respect of taxes, assessments, fees and other governmental charges for all fiscal periods as are required by GAAP. The Borrower knows of no proposed assessment for additional federal, foreign or state taxes for any period, or of any basis therefor, which, individually or in the aggregate, taking into account such charges, accruals and reserves in respect thereof as the Borrower and its Subsidiaries have made, could reasonably be expected to have a Material Adverse Effect. 7.11. TITLE TO PROPERTIES, ETC. The Borrower and each of its Subsidiaries has good and marketable title, in the case of real property, and good title (or valid leasehold interests, in the case of any leased property), in the case of all other property, to all of its properties and assets free and clear of Liens other than Liens permitted by section 9.3. The interests of the Borrower and each of its Subsidiaries in the properties reflected in the most recent balance sheet referred to in section 7.8, taken as a whole, were sufficient, in the judgment of the Borrower, as of the date of such balance sheet for purposes of the ownership and operation of the businesses conducted by the Borrower and such Subsidiaries. 7.12. LAWFUL OPERATIONS, ETC. The Borrower and each of its Subsidiaries (i) holds all necessary federal, state and local governmental licenses, registrations, certifications, permits and authorizations necessary to conduct its business, and 42 48 (ii) is in full compliance with all material requirements imposed by law, regulation or rule, whether federal, state or local, which are applicable to it, its operations, or its properties and assets, including without limitation, applicable requirements of the United States Food and Drug Administration, federal and state Medicaid and Medicare requirements, Environmental Laws and zoning ordinances, except for any failure to obtain and maintain in effect, or noncompliance, which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.13. ENVIRONMENTAL MATTERS. (a) The Borrower and each of its Subsidiaries is in compliance with all Environmental Laws governing its business except to the extent that any such failure to comply (together with any resulting penalties, fines or forfeitures) would not reasonably be expected to have a Material Adverse Effect. All licenses, permits, registrations or approvals required for the business of the Borrower and each of its Subsidiaries, as conducted as of the Closing Date, under any Environmental Law have been secured and the Borrower and each of its Subsidiaries is in substantial compliance therewith, except for such licenses, permits, registrations or approvals the failure to secure or to comply therewith is not reasonably likely to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received written notice, or otherwise knows, that it is in any respect in noncompliance with, breach of or default under any applicable writ, order, judgment, injunction, or decree to which the Borrower or such Subsidiary is a party or which would affect the ability of the Borrower or such Subsidiary to operate any real property and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute noncompliance, breach of or default thereunder, except in each such case, such noncompliance, breaches or defaults as would not reasonably be expected to, in the aggregate, have a Material Adverse Effect. There are as of the Closing Date no Environmental Claims pending or, to the best knowledge of the Borrower, threatened wherein an unfavorable decision, ruling or finding would reasonably be expected to have a Material Adverse Effect. There are no facts, circumstances, conditions or occurrences on any Real Property now or at any time owned, leased or operated by the Borrower or any of its Subsidiaries or on any property adjacent to any such Real Property, which are known by the Borrower or as to which the Borrower or any such Subsidiary has received written notice, that could reasonably be expected (i) to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property of the Borrower or any of its Subsidiaries, or (ii) to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property under any Environmental Law, except in each such case, such Environmental Claims or restrictions that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. (b) Hazardous Materials have not at any time been (i) generated, used, treated or stored on, or transported to or from, any Real Property of the Borrower or any of its Subsidiaries or (ii) released on any such Real Property, in each case where such occurrence or event is not in compliance with Environmental Laws and is reasonably likely to have a Material Adverse Effect. 7.14. COMPLIANCE WITH ERISA. Compliance by the Borrower with the provisions hereof and Credit Events contemplated hereby will not involve any prohibited transaction within the meaning of ERISA or section 4975 of the Code. At and as of the Effective Date, the Borrower and each of its Subsidiaries: (i) has fulfilled all obligations under minimum funding standards of ERISA and the Code with respect to each Plan that is not a Multiemployer Plan or a Multiple Employer Plan, (ii) has satisfied all respective contribution obligations in respect of each Multiemployer Plan and each Multiple Employer Plan, (iii) is in compliance in all material respects with all other applicable provisions of ERISA and the Code with respect to each Plan, each Multiemployer Plan and each Multiple Employer Plan, and (iv) has not incurred any material liability under the Title IV of ERISA to the PBGC with respect to any Plan, any Multiemployer Plan, any Multiple Employer Plan, or any trust established thereunder. 43 49 No Plan or trust created thereunder has been terminated, and there have been no Reportable Events, with respect to any Plan or trust created thereunder or with respect to any Multiemployer Plan or Multiple Employer Plan, which termination or Reportable Event will or could result in the termination of such Plan, Multiemployer Plan or Multi Employer Plan and give rise to a material liability of the Borrower or any ERISA Affiliate in respect thereof. 7.15. INTELLECTUAL PROPERTY, ETC. The Borrower and each of its Subsidiaries has obtained or has the right to use all material patents, trademarks, servicemarks, trade names, copyrights, licenses and other rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others, EXCEPT for such patents, trademarks, servicemarks, trade names, copyrights, licenses and rights, the loss of which, and such conflicts, which in any such case individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. 7.16. INVESTMENT COMPANY ACT, ETC. Neither the Borrower nor any of its Subsidiaries is subject to regulation with respect to the creation or incurrence of Indebtedness under the Investment Company Act of 1940, as amended, the Interstate Commerce Act, as amended, the Federal Power Act, as amended, the Public Utility Holding Company Act of 1935, as amended, or any applicable state public utility law. 7.17. BURDENSOME CONTRACTS; LABOR RELATIONS. Neither the Borrower nor any of its Subsidiaries (i) is subject to any burdensome contract, agreement, corporate restriction, judgment, decree or order, (ii) is a party to any labor dispute affecting any bargaining unit or other group of employees generally, (iii) is subject to any material strike, slow down, workout or other concerted interruptions of operations by employees of the Borrower or any Subsidiary, whether or not relating to any labor contracts, (iv) is subject to any significant pending or, to the knowledge of the Borrower, threatened, unfair labor practice complaint, before the National Labor Relations Board, and (v) is subject to any significant pending or, to the knowledge of the Borrower, threatened, grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement, (vi) is subject to any significant pending or, to the knowledge of the Borrower, threatened, significant strike, labor dispute, slowdown or stoppage, or (vii) is, to the knowledge of the Borrower, involved or subject to any union representation organizing or certification matter with respect to the employees of the Borrower or any of its Subsidiaries, EXCEPT (with respect to any matter specified in any of the above clauses), for such matters as, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.18. EXISTING INDEBTEDNESS. Annex III sets forth a true and complete list, as of the date or dates set forth therein, of all Indebtedness (other than Capitalized Lease Obligations) of the Borrower and each of its Subsidiaries, on a consolidated basis, which (i) has an outstanding principal amount of at least $1,000,000, or (ii) is secured by any Lien on any property of the Borrower or any Subsidiary, and which will be outstanding on the Closing Date after giving effect to any Borrowing hereunder on the Closing Date, other than the Indebtedness created under the Credit Documents (all existing Indebtedness of the Borrower and its Subsidiaries, whether or not in a principal amount meeting such threshold or otherwise not required to be so listed on Annex III, herein the "EXISTING INDEBTEDNESS"). The Borrower has provided to the Administrative Agent prior to the date of execution hereof true and complete copies of all agreements and instruments governing the Indebtedness listed on Annex III (the "EXISTING INDEBTEDNESS AGREEMENTS"). 7.19. YEAR 2000 PROBLEM. The Borrower and its Subsidiaries have reviewed the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Based on such review and program, the Borrower reasonably believes that the "Year 2000 Problem" is not reasonably likely to have a Material Adverse Effect. 7.20. TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Subsidiaries in writing 44 50 to the Administrative Agent or any Lender specifically for purposes of this Agreement, other than the Financial Projections (as to which representations are made only as provided in section 7.8), is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such person in writing to any Lender specifically for purposes of this Agreement will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided, except that any such future information consisting of financial projections prepared by management of the Borrower is only represented herein as being based on good faith estimates and assumptions believed by such persons to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ materially from the projected results. As of the Effective Date, there is no fact known to the Borrower or any of its Subsidiaries which has, or could reasonably be expected to have, a Material Adverse Effect which has not theretofore been disclosed in writing to the Lenders. SECTION 8. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees that so long as this Agreement is in effect and until such time as the Total Commitment has been terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations hereunder, have been paid in full: 8.1. REPORTING REQUIREMENTS. The Borrower will furnish to each Lender and the Administrative Agent: (a) ANNUAL FINANCIAL STATEMENTS. Promptly and in any event within 100 days after the close of each fiscal year of the Borrower, the consolidated and consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated and consolidating statements of income, of stockholder's equity and of cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year, all in reasonable detail and accompanied by the opinion with respect to such consolidated financial statements of independent public accountants of recognized national standing selected by the Borrower, which opinion shall be unqualified and shall (i) state that such accountants audited such consolidated financial statements in accordance with generally accepted auditing standards, that such accountants believe that such audit provides a reasonable basis for their opinion, and that in their opinion such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Borrower and its consolidated subsidiaries as at the end of such fiscal year and the consolidated results of their operations and cash flows for such fiscal year in conformity with generally accepted accounting principles, or (ii) contain such statements as are customarily included in unqualified reports of independent accountants in conformity with the recommendations and requirements of the American Institute of Certified Public Accountants (or any successor organization). (b) QUARTERLY FINANCIAL STATEMENTS. Promptly and in any event within 55 days after the close of each of the quarterly accounting periods in each fiscal year of the Borrower, the unaudited condensed consolidated and consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such quarterly period and the related unaudited condensed consolidated and consolidating statements of income and of cash flows for such quarterly period, and setting forth, in the case of such unaudited consolidated statements of income and of cash flows, comparative figures for the related periods in the prior fiscal year, and which consolidated financial statements shall be certified on behalf of the Borrower by the Chief Financial Officer or other Authorized Officer of the Borrower, subject to changes resulting from normal year-end audit adjustments. (c) OFFICER'S COMPLIANCE CERTIFICATES. At the time of the delivery of the financial statements provided for in sections 8.1(a) and (b), a certificate on behalf of the Borrower of the Chief 45 51 Financial Officer or other Authorized Officer of the Borrower to the effect that, to the best knowledge of the Borrower, no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate shall set forth the calculations required to (i) determine the Borrower's Interest Coverage Ratio for the most recent Testing Period consisting of a single fiscal quarter, and (ii) establish compliance with the provisions of sections 9.6, 9.7, 9.8 and 9.9. (d) BUDGET. Not later than 90 days after the commencement of any fiscal year of the Borrower and its Subsidiaries, a consolidated budget in reasonable detail for each of the four fiscal quarters of such fiscal year, and (if and to the extent prepared by management of the Borrower) for any subsequent fiscal years, as customarily prepared by management for its internal use, setting forth, with appropriate discussion, the forecasted balance sheet, income statement, operating cash flows and capital expenditures of the Borrower and its Subsidiaries for the period covered thereby, and the principal assumptions upon which forecasts and budget are based. (e) NOTICE OF DEFAULT, LITIGATION OR CERTAIN MATTERS INVOLVING MAJOR CUSTOMERS OR SUPPLIERS OR LEGAL REQUIREMENTS. Promptly, and in any event within three Business Days, in the case of clause (i) below, or five Business Days, in the case of clause (ii), (iii) or (iv) below, after the Borrower obtains actual knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto, (ii) any litigation or governmental or regulatory investigation or proceeding pending against or involving the Borrower or any of its Material Subsidiaries which (A) involves any federal or state "anti-kickback" laws or regulations, or possible loss of any material governmental license, certification, license or authorization, or (B) the Borrower reasonably expects to have a Material Adverse Effect or a material adverse effect on the ability of the Borrower to perform its obligations hereunder or under any other Credit Document, (iii) any significant adverse change (in the Borrower's reasonable judgment) in the Borrower's or any Subsidiary's relationship with, or any significant event or circumstance which is in the Borrower's reasonable judgment likely to adversely affect the Borrower's or any Subsidiary's relationship with, (A) any customer (or related group of customers) representing more than 10% of the Borrower's consolidated revenues during its most recent fiscal year, or (B) any supplier which is significant to the Borrower and its Subsidiaries considered as an entirety, and (iv) any significant change in the reimbursement or other provisions of the Medicaid or Medicare programs which the Borrower reasonably expects to have a Material Adverse Effect. (f) AUDITORS' INTERNAL CONTROL COMMENT LETTERS, ETC. Promptly upon receipt thereof, a copy of each letter or memorandum commenting on internal accounting controls which is submitted to the Borrower by its independent accountants in connection with any annual audit made by them of the books of the Borrower. (g) ERISA. Promptly, and in any event within 10 days after the Borrower obtains actual knowledge of the occurrence of any of the following, the Borrower will deliver to each of the Lenders a certificate on behalf of the Borrower of an Authorized Officer of the Borrower setting forth the full details as to such occurrence and the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: 46 52 (i) that a Reportable Event has occurred with respect to any Plan; (ii) the institution of any steps by the Borrower, any ERISA Affiliate, the PBGC or any other person to terminate any Plan; (iii) the institution of any steps by the Borrower or any ERISA Affiliate to withdraw from any Plan; (iv) the institution of any steps by the Borrower or any Subsidiary to withdraw from any Multiemployer Plan or Multiple Employer Plan, if such withdrawal could result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) in excess of $1,000,000; (v) a non-exempt "prohibited transaction" within the meaning of section 406 of ERISA in connection with any Plan; (vi) that a Plan has an Unfunded Current Liability exceeding $1,000,000; (vii) any material increase in the contingent liability of the Borrower or any Subsidiary with respect to any post-retirement welfare liability; or (viii) the taking of any action by, or the threatening of the taking of any action by, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any of the foregoing. (h) ENVIRONMENTAL MATTERS. Promptly upon, and in any event within 10 Business Days after, an officer of the Borrower obtains actual knowledge thereof, notice of any of the following environmental matters which involves any reasonable likelihood (in the Borrower's reasonable judgment) of resulting in a Material Adverse Effect: (i) any pending or threatened (in writing) Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property owned or operated by the Borrower or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any Real Property owned or operated by the Borrower or any of its Subsidiaries that (A) results in noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or (B) would reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries that could reasonably be expected to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability by the Borrower or any of its Subsidiaries of such Real Property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency. All such notices shall describe in reasonable detail the nature of the Environmental Claim and the Borrower's or such Subsidiary's response thereto. (i) SEC REPORTS AND REGISTRATION STATEMENTS. Promptly upon transmission thereof or other filing with the SEC, copies of all registration statements (other than the exhibits thereto and any registration statement on Form S-8 or its equivalent) and annual, quarterly or current reports that the Borrower or any of its Subsidiaries files with the SEC. (j) OTHER INFORMATION. With reasonable promptness, such other information or documents (financial or otherwise) relating to the Borrower or any of its Subsidiaries as any Lender (through the Administrative Agent) may reasonably request from time to time. 8.2. BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will cause each of its Subsidiaries to, 47 53 (i) keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower or such Subsidiaries, as the case may be, in accordance with GAAP, in the case of the Borrower, or which are reconcilable to GAAP, in the case of any Subsidiary; and (ii) permit, upon at least five Business Days' notice to the Chief Financial Officer or any other Authorized Officer of the Borrower, officers and designated representatives of the Administrative Agent or any of the Lenders to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in whomsoever's possession (but only to the extent the Borrower or such Subsidiary has the right to do so to the extent in the possession of another person), and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants and independent actuaries (the Borrower having been offered an opportunity to be present by telephone or in person for any discussions with such independent accountants or independent actuaries), if any, all at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or any of the Lenders may request. 8.3. INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, (a) maintain insurance coverage by such insurers and in such forms and amounts and against such risks as are generally consistent with the insurance coverage maintained by the Borrower and its Subsidiaries at the date hereof, and (b) forthwith upon the Administrative Agent's written request, furnish to the Administrative Agent such information about such insurance as the Administrative Agent may from time to time reasonably request, which information shall be prepared in form and detail satisfactory to the Administrative Agent and certified by an Authorized Officer of the Borrower. 8.4. PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries; PROVIDED that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP; and PROVIDED, FURTHER, that the Borrower will not be considered to be in default of any of the provisions of this sentence if the Borrower or any Subsidiary fails to pay any such amount which, individually or in the aggregate, is immaterial to the Borrower and its Subsidiaries considered as an entirety. 8.5. CORPORATE FRANCHISES. The Borrower will do, and will cause each of its Subsidiaries to do, or cause to be done, all things necessary to preserve and keep in full force and effect its corporate or other organizational existence, rights, authority and franchises, PROVIDED that nothing in this section 8.5 shall be deemed to prohibit (i) any transaction permitted by section 9.2; (ii) the termination of existence of any Subsidiary if the Borrower determines that such termination is in its best interest; or (iii) the loss of any rights, authorities or franchises if the loss thereof, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 8.6. GOOD REPAIR. The Borrower will, and will cause each of its Subsidiaries to, ensure that its material properties and equipment used or useful in its business in whomsoever's possession they may be, are kept in good repair, working order and condition, normal wear and tear excepted, and that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements, thereto, to the extent and in the manner customary for companies in similar businesses. 8.7. COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause each of its Subsidiaries to, comply, in all material respects, with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, other than those (i) being contested in good faith by appropriate proceedings, as to which adequate reserves are established to the extent required under GAAP, and (ii) the noncompliance with which would not have, and which would not be reasonably expected to have, a Material Adverse Effect or a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document. 48 54 8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limitation of the covenants contained in section 8.7 hereof: (a) The Borrower will, and will cause each of its Subsidiaries to, (i) comply, in all material respects, with all Environmental Laws applicable to the ownership, lease or use of all Real Property now or hereafter owned, leased or operated by the Borrower or any of its Subsidiaries, and promptly pay or cause to be paid all costs and expenses incurred in connection with such compliance, except for such noncompliance as would not have, and which would not be reasonably expected to have, a Material Adverse Effect or a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document; and (ii) keep or cause to be kept all such Real Property free and clear of any Liens imposed pursuant to such Environmental Laws which are not permitted under section 9.3. (b) Without limitation of the foregoing, if the Borrower or any of its Subsidiaries shall generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of, Hazardous Materials on any Real Property now or hereafter owned, leased or operated by the Borrower or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property, any such action shall be effected only in the ordinary course of business and in any event in compliance, in all material respects, with all Environmental Laws applicable thereto, except for such noncompliance as would not have, and which would not be reasonably expected to have, a Material Adverse Effect or a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document. (c) If required to do so under any applicable order of any governmental agency, the Borrower will undertake, and cause each of its Subsidiaries to undertake, any clean up, removal, remedial or other action necessary to remove and clean up any Hazardous Materials from any Real Property owned, leased or operated by the Borrower or any of its Subsidiaries in accordance with, in all material respects, the requirements of all applicable Environmental Laws and in accordance with, in all material respects, such orders of all governmental authorities, except (i) to the extent that the Borrower or such Subsidiary is contesting such order in good faith and by appropriate proceedings and for which adequate reserves have been established to the extent required by GAAP, or (ii) for such noncompliance as would not have, and which would not be reasonably expected to have, a Material Adverse Effect or a material adverse effect on the ability of the Borrower to perform its obligations under any Credit Document. 8.9. FISCAL YEARS, FISCAL QUARTERS. The Borrower will, for consolidated financial reporting purposes, continue to use June 30 as the end of its fiscal year and September 30, December 31, March 31 and June 30 as the end of its fiscal quarters. If the Borrower shall change any of its Subsidiaries' fiscal years or fiscal quarters (other than the fiscal year or fiscal quarters of a person which becomes a Subsidiary, made at the time such person becomes a Subsidiary, to conform to the Borrower's fiscal year and fiscal quarters or to conform to the fiscal year or fiscal quarters which the Borrower generally utilizes for its Subsidiaries), the Borrower will promptly, and in any event within 30 days following any such change, deliver a notice to the Administrative Agent and the Lenders describing such change and any material accounting entries made in connection therewith and stating whether such change will have any impact upon any financial computations to be made hereunder, and if any such impact is foreseen, describing in reasonable detail the nature and extent of such impact. If the Required Lenders determine that any such change will have any impact upon any financial computations to be made hereunder which is adverse to the Lenders, the Borrower will, if so requested by the Administrative Agent, enter into an amendment to this Agreement, in form and substance satisfactory to the Administrative Agent and the Required Lenders, modifying any of the financial covenants or related provisions hereof in such manner as the Required Lenders determine is necessary to eliminate such adverse effect. 8.10. CERTAIN SUBSIDIARIES TO JOIN IN SUBSIDIARY GUARANTY. (a) In the event that at any time after the Closing Date 49 55 (x) the Borrower has any Subsidiary (other than a Foreign Subsidiary as to which section 8.10(b) applies) which is not a party to the Subsidiary Guaranty, or (y) an Event of Default shall have occurred and be continuing and the Borrower has any Subsidiary which is not a party to the Subsidiary Guaranty, the Borrower will notify the Administrative Agent in writing of such event, identifying the Subsidiary in question and referring specifically to the rights of the Administrative Agent and the Lenders under this section. The Borrower will, within 30 days following request therefor from the Administrative Agent (who may give such request on its own initiative or upon request by the Required Lenders), cause such Subsidiary to deliver to the Administrative Agent, in sufficient quantities for the Lenders, (i) a joinder supplement, satisfactory in form and substance to the Administrative Agent and the Required Lenders, duly executed by such Subsidiary, pursuant to which such Subsidiary joins in the Subsidiary Guaranty as a guarantor thereunder, and (ii) if such Subsidiary is a corporation, resolutions of the Board of Directors of such Subsidiary, certified by the Secretary or an Assistant Secretary of such Subsidiary as duly adopted and in full force and effect, authorizing the execution and delivery of such joinder supplement, or if such Subsidiary is not a corporation, such other evidence of the authority of such Subsidiary to execute such joinder supplement as the Administrative Agent may reasonably request. (b) Notwithstanding the foregoing provisions of this section 8.10 or the provisions of section 8.11, the Borrower shall not, unless an Event of Default shall have occurred and be continuing, be required to cause a Foreign Subsidiary to join in the Subsidiary Guaranty or to cause the stock of any Foreign Subsidiary to be pledged pursuant to the Pledge Agreement if (i) to do so would subject the Borrower to liability for additional United States income taxes by virtue of section 956 of the Code in an amount the Borrower considers material, and (ii) the Borrower provides the Administrative Agent, within the 30-day period referred to in section 8.10(a) or section 8.11(a), as applicable, with documentation, including computations prepared by the Borrower's internal tax officer, its independent accountants or tax counsel, acceptable to the Required Lenders, in support thereof. 8.11. PLEDGE OF ADDITIONAL STOCK; RELEASE OF COLLATERAL. (a) In the event that at any time after the Closing Date the Borrower has any direct or indirect Subsidiary the stock in which owned by the Borrower or another Subsidiary is not at the time pledged to the Collateral Agent pursuant to the Pledge Agreement, the Borrower may, but shall not be obligated to, elect to (i) cause such stock to be so pledged by delivering the certificates therefor to the Collateral Agent, duly indorsed in blank or accompanied by separate stock powers duly executed in blank, (ii) deliver or cause to be delivered to the Collateral Agent an amendment or supplement to the Pledge Agreement signed by the pledging Credit Party providing for such pledge, in sufficient quantities for the Lenders, and (ii) if such pledging Credit Party is not already a Credit Party, resolutions of the Board of Directors of such pledging Credit Party, certified by the Secretary or an Assistant Secretary of such pledging Credit Party as duly adopted and in full force and effect, authorizing the execution and delivery of such amendment or supplement, or if such pledging Credit Party is not a corporation, such other evidence of the authority of such pledging Credit Party to execute such amendment or supplement as the Collateral Agent may reasonably request. (b) If no default under section 10.1(a) or Event of Default shall have occurred and be continuing, the Borrower shall be entitled to obtain a complete release of all Collateral covered by the Pledge Agreement and a termination of the Pledge Agreement upon written notice to the Administrative Agent, and the Administrative Agent and the Collateral Agent shall in such circumstances take all such reasonable actions as may be necessary to effect such release and termination. 8.12. MOST FAVORED COVENANT STATUS. Should the Borrower at any time after June 1, 1998, issue any unsecured Indebtedness, or guarantee any secured or unsecured Indebtedness, denominated in U.S. dollars or any other currency, for money borrowed or represented by bonds, notes, debentures or similar securities in an aggregate amount exceeding $5,000,000, to any lender or group of lenders acting in concert with one another, or one or more institutional investors, pursuant to a loan agreement, credit agreement, note purchase agreement, indenture, guaranty or other similar instrument, which agreement, indenture, guaranty or instrument, includes affirmative or negative financial covenants (or any events of default or other type of restriction which would have the practical effect of any 50 56 affirmative or negative financial covenant, including, without limitation, any "put" or mandatory prepayment of such Indebtedness upon the occurrence of specified financial ratios or other specified financial measurements) which are applicable to the Borrower and/or any of its Subsidiaries, other than those set forth herein or in any of the other Credit Documents, the Borrower shall promptly so notify the Administrative Agent and the Lenders and, if the Administrative Agent shall so request by written notice to the Borrower (after a determination has been made by the Required Lenders that any of the above-referenced documents or instruments contain any such provisions, which either individually or in the aggregate, are more favorable to the applicable creditors of the Borrower than any of the particular provisions set forth herein), the Borrower, the Administrative Agent and the Required Lenders shall promptly amend this Agreement to incorporate some or all of such provisions, in the discretion of the Administrative Agent and the Required Lenders, into this Agreement and, to the extent necessary and reasonably desirable to the Administrative Agent and the Required Lenders, into any of the other Credit Documents, all at the election of the Administrative Agent and the Required Lenders. If after any such provisions have been so incorporated into any of the Credit Documents, the entire amount of the other Indebtedness from which such provisions were incorporated is repaid, redeemed, prepaid or otherwise retired, the Lenders will promptly upon request of the Borrower cause the Credit Documents to be amended so as to eliminate such provisions which had been previously incorporated therein. 8.13. SENIOR DEBT. The Borrower will at all times ensure that (a) the claims of the Lenders in respect of the Obligations of the Borrower will not be subordinate to, and will in all respects at least rank PARI PASSU with, the claims of every other senior unsecured creditor of the Borrower, and (b) any Indebtedness subordinated in any manner to the claims of any other senior unsecured creditor of the Borrower will be subordinated in like manner to such claims of the Lenders. SECTION 9. NEGATIVE COVENANTS. The Borrower hereby covenants and agrees that on the Effective Date and thereafter for so long as this Agreement is in effect and until such time as the Total Commitment has been terminated, no Notes remain outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder are paid in full: 9.1. CHANGES IN BUSINESS. Neither the Borrower nor any of its Subsidiaries will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Borrower and its Subsidiaries, would be substantially changed from the general nature of the business engaged in by the Borrower and its Subsidiaries on the date hereof. 9.2. CONSOLIDATION, MERGER, ACQUISITIONS, AND SALE OF ASSETS, ETC. The Borrower will not, and will not permit any Subsidiary to, (1) wind up, liquidate or dissolve its affairs, (2) enter into any transaction of merger or consolidation, (3) make or otherwise effect any Acquisition, (4) sell or otherwise dispose of any of its property or assets otherwise than in the ordinary course of business, or otherwise make or effect any Asset Sale, or (5) agree to do any of the foregoing at any future time, EXCEPT that the following shall be permitted: (a) CAPITAL EXPENDITURES: Consolidated Capital Expenditures; (b) PERMITTED INVESTMENTS: the investments permitted pursuant to section 9.5; (c) CERTAIN INTERCOMPANY MERGERS, ETC.: if no Default or Event of Default shall have occurred and be continuing or would result therefrom, (i) the merger, consolidation or amalgamation of any Wholly-Owned Subsidiary with or into the Borrower or another Wholly-Owned Subsidiary, so long as in any merger, consolidation or amalgamation involving the Borrower it is the surviving or continuing or resulting corporation, or the liquidation or dissolution of any Subsidiary, or (ii) the transfer or other disposition of any property by the Borrower to any Wholly-Owned Subsidiary or by any Wholly-Owned Subsidiary to the Borrower or any other Wholly-Owned Subsidiary of the Borrower; 51 57 (d) ACQUISITIONS: if no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower or any Subsidiary may make Acquisitions, PROVIDED that (i) no Acquisition may be consummated which is actively opposed by the Board of Directors (or similar governing body) of the selling person or the person whose equity interests are to be acquired, UNLESS all of the Lenders consent to such transaction, and (ii) at least three Business Days prior to the date of any such Acquisition which involves consideration (including the amount of any assumed Indebtedness and (without duplication) any outstanding Indebtedness of any person which becomes a Subsidiary as a result of such Permitted Acquisition) of $20,000,000 or more, the Borrower shall have delivered to the Administrative Agent an officer's certificate executed on behalf of the Borrower by an Authorized Officer of the Borrower, which certificate shall (A) contain the date such Acquisition is scheduled to be consummated, (B) contain the estimated purchase price of such Acquisition, (C) contain a description of the property and/or assets acquired in connection with such Permitted Acquisition, (D) demonstrate that at the time of making any such Acquisition the covenants contained in sections 9.6, 9.7 and 9.8 shall be complied with on a PRO FORMA basis as if the properties and/or assets so acquired had been owned by the Borrower, and the Indebtedness assumed and/or incurred to acquire and/or finance same has been outstanding, for the 12 month period immediately preceding such Acquisition (without giving effect to any credit for unobtained or unrealized gains or any adjustments to overhead in connection with any such Acquisition), and (E) if requested by the Administrative Agent, attach thereto a true and correct copy of the then proposed purchase agreement, merger agreement or similar agreement, partnership agreement and/or other contract entered into in connection with such Acquisition, and the most recent financial statements for the person or business unit which is the subject of such Acquisition; (e) PERMITTED DISPOSITIONS: if no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower or any of its Subsidiaries may (i) sell any property, land or building (including any related receivables or other intangible assets) to any person which is not a Subsidiary of the Borrower, or (ii) sell the entire capital stock (or other equity interests) and Indebtedness of any Subsidiary owned by the Borrower or any other Subsidiary to any person which is not a Subsidiary of the Borrower, or (iii) permit any Subsidiary to be merged or consolidated with a person which is not an Affiliate of the Borrower, or (iv) consummate any other Asset Sale with a person who is not a Subsidiary of the Borrower; PROVIDED that (A) the consideration for such transaction represents fair value (as determined by management of the Borrower), and at least 75% of such consideration consists of cash, (B) in the case of any such transaction involving consideration in excess of $10,000,000, at least five Business Days prior to the date of completion of such transaction the Borrower shall have delivered to the Administrative Agent an officer's certificate executed on behalf of the Borrower by an Authorized Officer of the Borrower, which certificate shall contain a description of the proposed transaction, the date such transaction is scheduled to be consummated, the estimated purchase price or other consideration for such transaction, financial information pertaining to compliance with the preceding clause (A), and which shall (if requested by the Administrative Agent) include a certified copy of the draft or definitive documentation pertaining thereto, and (C) contemporaneously therewith, the Borrower prepays Loans as and to the extent contemplated by section 5.2(d); (f) CONTRIBUTIONS TO JOINT VENTURES, ETC.: if no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower or any of its Subsidiaries may contribute assets to joint ventures and other persons in accordance with section 9.5(p); and (g) LEASES: the Borrower or any of its Subsidiaries may enter into leases of property or assets not constituting Permitted Acquisitions in the ordinary course of business not otherwise in violation of this Agreement. To the extent (i) any Collateral is sold, transferred or disposed of as permitted by this section 9.2, or (ii) the Required Lenders (or all of the Lenders if required by section 13.12) waive the provisions of this section 9.2 with respect to the sale, transfer or other disposition of any Collateral, (a) such Collateral shall be sold, transferred or disposed of free and clear of the Liens created by the respective Security Documents; (b) if such Collateral includes 52 58 all of the capital stock of a Subsidiary which is a party to the Subsidiary Guaranty or other Security Document, such capital stock shall be released from the Pledge Agreement and such Subsidiary shall be released from the Subsidiary Guaranty; and (c) the Administrative Agent and the Collateral Agent shall be authorized to take actions deemed appropriate by them in order to effectuate the foregoing. 9.3. LIENS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Subsidiary whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with or without recourse to the Borrower or any of its Subsidiaries, other than for purposes of collection of delinquent accounts in the ordinary course of business) or assign any right to receive income, or file or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute, EXCEPT that the foregoing restrictions shall not apply to: (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Borrower) have been established; (b) Liens in respect of property or assets imposed by law which were incurred in the ordinary course of business, such as carriers', warehousemen's, materialmen's and mechanics' Liens and other similar Liens arising in the ordinary course of business, which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or any Subsidiary; (c) Liens created by this Agreement or the other Credit Documents; (d) Liens (i) in existence on the Closing Date which are listed, and the Indebtedness secured thereby and the property subject thereto on the Closing Date described, in Annex IV, or (ii) arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any such Liens, PROVIDED that the principal amount of such Indebtedness is not increased and such Indebtedness is not secured by any additional assets; (e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under section 10.1(g); (f) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; and mechanic's Liens, carrier's Liens, and other Liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return-of-money bonds and other similar obligations, incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money), whether pursuant to statutory requirements, common law or consensual arrangements; (g) Leases or subleases granted to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries and any interest or title of a lessor under any lease not in violation of this Agreement; (h) easements, rights-of-way, zoning or deed restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries considered as an entirety; (i) Liens arising from financing statements regarding property subject to leases not in 53 59 violation of the requirements of this Agreement, PROVIDED that such Liens are only in respect of the property subject to, and secure only, the respective lease (and any other lease with the same or an affiliated lessor); and (j) Liens which (i) are placed upon equipment or machinery used in the ordinary course of business of the Borrower or any Subsidiary at the time of (or within 180 days after) the acquisition thereof by the Borrower or any such Subsidiary to secure Indebtedness incurred to pay or finance all or a portion of the purchase price thereof, PROVIDED that the Lien encumbering the equipment or machinery so acquired does not encumber any other asset of the Borrower or any such Subsidiary; or (ii) are existing on property or other assets at the time acquired by the Borrower or any Subsidiary or on assets of a person at the time such person first becomes a Subsidiary of the Borrower; PROVIDED that (A) any such Liens were not created at the time of or in contemplation of the acquisition of such assets or person by the Borrower or any of its Subsidiaries; (B) in the case of any such acquisition of a person, any such Lien attaches only to the property and assets of such person; and (C) in the case of any such acquisition of property or assets by the Borrower or any Subsidiary, any such Lien attaches only to the property and assets so acquired and not to any other property or assets of the Borrower or any Subsidiary; PROVIDED that (1) the Indebtedness secured by any such Lien does not exceed 100% of the fair market value of the property and assets to which such Lien attaches, determined at the time of the acquisition of such property or asset or the time at which such person becomes a Subsidiary of the Borrower (except in the circumstances described in clause (ii) above to the extent such Liens constituted customary purchase money Liens at the time of incurrence and were entered into in the ordinary course of business), and (2) the Indebtedness secured thereby is permitted by section 9.4(c); and 9.4. INDEBTEDNESS. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness of the Borrower or any of its Subsidiaries, EXCEPT: (a) Indebtedness incurred under this Agreement and the other Credit Documents; and Indebtedness incurred under the Bridge Facility Agreement not in excess of $50,000,000 aggregate principal amount outstanding at any time, PROVIDED that (x) the scheduled maturity of the Indebtedness under the Bridge Facility Agreement shall not be later than December 31, 1998, and (y) in the event the Total General Revolving Commitment hereunder is at any time increased above $150,000,000, the foregoing amount shall be automatically reduced by the amount of such increase; (b) Indebtedness of the Borrower or any Subsidiary in respect of Capital Leases; PROVIDED that (i) the aggregate Capitalized Lease Obligations of the Borrower and its Subsidiaries, plus the aggregate outstanding principal amount of Indebtedness permitted under clause (c) below, shall not exceed $20,000,000 in the aggregate at any time outstanding, and (ii) at the time of any incurrence thereof after the date hereof, and after giving effect thereto, no Event of Default shall have occurred and be continuing or would result therefrom; (c) Indebtedness of the Borrower or any Subsidiary subject to Liens permitted by section 9.3(j), including and any guaranty by the Borrower of any such Indebtedness; PROVIDED that (i) the aggregate principal amount of such Indebtedness shall not exceed $5,000,000 in the aggregate at any time outstanding, and (ii) at the time of any incurrence thereof after the date hereof, and after giving effect thereto, no Event of Default shall have occurred and be continuing or would result therefrom; (d) the Subordinated Indebtedness evidenced by the Convertible Subordinated Debentures 54 60 due 2004 in the aggregate principal amount of $100,000,000; (e) any refinancing, extension, renewal or refunding of any Subordinated Indebtedness permitted by the foregoing clause (d) not involving an increase in the principal amount thereof, a reduction of more than 10% in the remaining weighted average life to maturity thereof (computed in accordance with standard financial practice), or any changes in the terms of subordination applicable thereto which is adverse to the interests of the Lenders; (f) the subordinated guaranties of Subsidiaries of the Borrower with respect to the Subordinated Indebtedness referred to in clauses (d) and (e) above, PROVIDED the terms of such subordination are substantially the same as contained in the subordinated guaranties originally issued in support of the Convertible Subordinated Debentures due 2004; (g) Existing Indebtedness, to the extent not otherwise permitted pursuant to the foregoing clauses; and any refinancing, extension, renewal or refunding of any such Existing Indebtedness not involving an increase in the principal amount thereof or a reduction of more than 10% in the remaining weighted average life to maturity thereof (computed in accordance with standard financial practice); (h) Indebtedness of the Borrower or any Subsidiary under Hedge Agreements entered into in the ordinary course of business; (i) Indebtedness of the Borrower to any of its Subsidiaries, and Indebtedness of any of the Borrower's Subsidiaries to the Borrower or to another Subsidiary of the Borrower, in each case to the extent permitted under section 9.5; (j) Guaranty Obligations permitted under section 9.5; and (k) additional unsecured Indebtedness of the Borrower not in excess of $35,000,000 aggregate principal amount outstanding at any time, to the extent not otherwise permitted pursuant to the foregoing clauses, PROVIDED that at the time of incurrence thereof, and after giving effect thereto, (i) the Borrower will be in compliance with sections 9.6, 9.7 and 9.8, (ii) no Event of Default shall have occurred and be continuing or would result therefrom, and (iii) not more than $25,000,000 aggregate principal amount of the Indebtedness permitted by this clause (k) outstanding at any time shall consist of money borrowed from banks or other financial institutions. . 9.5. ADVANCES, INVESTMENTS, LOANS AND GUARANTY OBLIGATIONS. The Borrower will not, and will not permit any of its Subsidiaries to, (1) lend money or make advances to any person, (2) purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, or other investment in, any person, (3) create, acquire or hold any Subsidiary, (4) be or become a party to any joint venture or partnership, or (5) be or become obligated under any Guaranty Obligations (other than those created in favor of the Lenders pursuant to the Credit Documents), EXCEPT: (a) the Borrower or any of its Subsidiaries may invest in cash and Cash Equivalents; (b) any endorsement of a check or other medium of payment for deposit or collection, or any similar transaction in the normal course of business; (c) the Borrower and its Subsidiaries may acquire and hold receivables owing to them in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (d) investments acquired by the Borrower or any of its Subsidiaries (i) in exchange for any other investment held by the Borrower or any such Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other investment, or (ii) as a 55 61 result of a foreclosure by the Borrower or any of its Subsidiaries with respect to any secured investment or other transfer of title with respect to any secured investment in default; (e) loans and advances to employees for business-related travel expenses, moving expenses, costs of replacement homes and other similar expenses, in each case incurred in the ordinary course of business, shall be permitted; (f) the Borrower may make Acquisitions in accordance with section 9.2(d); (g) investments in the capital of any Wholly-Owned Subsidiary which is not a Foreign Subsidiary; (h) to the extent not permitted by the foregoing clauses, existing investments in any Subsidiaries (and any increases thereof attributable to increases in retained earnings); (i) to the extent not permitted by the foregoing clauses, the existing loans, advances, investments and guarantees described on Annex V hereto; (j) any unsecured guaranty by the Borrower of any Indebtedness of a Subsidiary permitted by section 9.4, and any guaranty by any Subsidiary described in section 9.4; (k) investments of the Borrower and its Subsidiaries in Hedge Agreements; (l) loans and advances by any Subsidiary of the Borrower to the Borrower, PROVIDED that the Indebtedness represented thereby constitutes Subordinated Indebtedness; (m) loans and advances by the Borrower or by any Subsidiary of the Borrower to, or other investments in, any Subsidiary of the Borrower which is (i) a Subsidiary Guarantor, (ii) a Wholly-Owned Subsidiary, and (iii) not a Foreign Subsidiary; (n) loans and advances by any Subsidiary of the Borrower which is not a Subsidiary Guarantor to, or other investments by any such Subsidiary in, any other Subsidiary of the Borrower which is a Wholly-Owned Subsidiary; (o) Guaranty Obligations, not otherwise permitted by the foregoing clauses, of (i) the Borrower or any Subsidiary in respect of leases of the Borrower or any Subsidiary the entry into which is not prohibited by this Agreement, (ii) the Borrower or any Subsidiary in respect of any other person (other than in respect of (x) Indebtedness for borrowed money or represented by bonds, notes, debentures or similar securities, or (y) Indebtedness constituting Capital Leases) arising as a matter of applicable law because the Borrower or such Subsidiary is or is deemed to be a general partner of such other person, or (iii) the Borrower or any Subsidiary in respect of any other person (other than in respect of (x) Indebtedness for borrowed money or represented by bonds, notes, debentures or similar securities, or (y) Indebtedness constituting Capital Leases) arising in the ordinary course of business; (p) any other loans, advances, investments (whether in the form of cash or contribution of property, and if in the form of a contribution of property, such property shall be valued for purposes of this clause (p) at the fair value thereof as reasonably determined by the Borrower) and Guaranty Obligations, including, without limitation, in or to or for the benefit of, Subsidiaries, joint ventures, or other persons, not otherwise permitted by the foregoing clauses, made after March 31, 1997 (such loans, advances and investments, collectively, "BASKET INVESTMENTS", and such Guaranty Obligations, collectively "BASKET GUARANTEES") described below: (i) if no Event of Default shall have occurred and be continuing, or would result therefrom, (A) Basket Investments of up to an aggregate amount not in excess of 15% of the Borrower's Consolidated Net Worth as of the end of its most recently completed fiscal year prior thereto 56 62 for which financial statements have been delivered hereunder, taking into account the repayment of any loans or advances comprising such Basket Investments, and (B) additional Basket Investments made out of the proceeds of the issue and sale of the Convertible Subordinated Debentures due 2004, or the identifiable cash or Cash Equivalents in which such proceeds have been temporarily invested, shall be permitted to be made, in each case in persons whose principal business is related or complementary to, the businesses of the Borrower and its Subsidiaries, and (ii) if no Event of Default shall have occurred and be continuing, or would result therefrom, Basket Guarantees covering up to $15,000,000 aggregate principal amount of Indebtedness outstanding at any time, shall be permitted to be incurred. 9.6. TOTAL INDEBTEDNESS/CAPITAL RATIO. The Borrower will not at any time permit the ratio, expressed as a percentage, of (i) the amount of Total Indebtedness at such time to (ii) the sum of such amount of Total Indebtedness, PLUS its Consolidated Net Worth as of the end of its most recently completed fiscal quarter, to exceed 55.00%. 9.7. TOTAL SENIOR INDEBTEDNESS/CAPITAL RATIO. The Borrower will not at any time permit the ratio, expressed as a percentage, of (i) the amount of Total Senior Indebtedness at such time to (ii) the sum of the amount of Total Indebtedness at such time, PLUS its Consolidated Net Worth as of the end of the most recently completed fiscal quarter, to exceed 35.00%. 9.8. INTEREST COVERAGE RATIO. The Borrower will not permit its Interest Coverage Ratio to be (i) less than 2.00 to 1.00, for any Testing Period consisting of two consecutive fiscal quarters (whether or not in the same fiscal year) which ends on or prior to December 31, 1998, or (ii) less than 2.50 to 1.00 for any Testing Period consisting of two consecutive fiscal quarters (whether or not in the same fiscal year) which ends thereafter. 9.9. MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit its Consolidated Net Worth at any time to be less than $265,000,000, EXCEPT that (i) effective as of the end of the Borrower's fiscal quarter ended March 31, 1998, and as of the end of each fiscal quarter thereafter, the foregoing amount (as it may from time to time be increased as herein provided), shall be increased by 50% of the consolidated net income of the Borrower and its Subsidiaries for the fiscal quarter ended on such date, if any, without deduction for minority interests, as determined in conformity with GAAP (there being no reduction in the case of any such consolidated net income which reflects a deficit), and (ii) the foregoing amount (as it may from time to time be increased as herein provided), shall be increased by (A) an amount equal to 100% of the cash proceeds (net of underwriting discounts and commissions and other customary fees and costs associated therewith) from any sale or issuance of equity by the Borrower after the Closing Date (other than any sale or issuance to management or employees pursuant to employee benefit plans of general application), plus (B) the principal amount of any Indebtedness which after the Effective Date is converted or exchanged into equity securities of the Borrower. 9.10. PREPAYMENTS AND REFINANCINGS OF SUBORDINATED DEBT, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, make (or give any notice in respect thereof) any voluntary or optional payment or prepayment or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) or exchange of, or refinance or refund, any Subordinated Indebtedness of the Borrower; PROVIDED that the Borrower may refinance or refund any such Subordinated Indebtedness in accordance with the applicable requirements of section 9.4 hereof. 9.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction or series of transactions with any Affiliate (other than, in the case of the Borrower, any Subsidiary, and in the case of a Subsidiary, the Borrower or another Subsidiary) other than in the ordinary course of business of and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would obtain in a comparable arm's-length transaction with a person other than an Affiliate, EXCEPT (i) loans, advances and investments permitted by section 9.5, (ii) sales of goods to an Affiliate for use or distribution outside the United States which in the good faith judgment of the Borrower complies with any applicable legal requirements of the Code, or (iii) agreements and transactions with and payments to officers, directors and shareholders which are either (A) entered into in the 57 63 ordinary course of business and not prohibited by any of the provisions of this Agreement, or (B) entered into outside the ordinary course of business, approved by the directors or shareholders of the Borrower, and not prohibited by any of the provisions of this Agreement. 9.12. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist or become effective, any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or suffer to exist any Lien upon any of its property or assets as security for Indebtedness, or (b) the ability of any such Subsidiary to pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or a Subsidiary of the Borrower, or to make loans or advances to the Borrower or any of the Borrower's other Subsidiaries, or transfer any of its property or assets to the Borrower or any of the Borrower's other Subsidiaries, EXCEPT for such restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest, (iv) customary provisions restricting assignment of any licensing agreement entered into in the ordinary course of business, (v) customary provisions restricting the transfer of assets subject to Liens permitted under section 9.3(j), (vi) restrictions contained in the Existing Indebtedness Agreements as in effect on the Effective Date and customary restrictions affecting only a Subsidiary of the Borrower under any agreement or instrument governing any of the Indebtedness of a Subsidiary permitted pursuant to 9.4, (vii) any document relating to Indebtedness secured by a Lien permitted by section 9.3, insofar as the provisions thereof limit grants of junior liens on the assets securing such Indebtedness, and (viii) any operating lease or Capital Lease, insofar as the provisions thereof limit grants of a security interest in, or other assignments of, the related leasehold interest to any other person. 9.13. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. The Borrower will not, nor will it permit any Subsidiary to, enter into any Sale and Lease-Back Transaction involving any individual property (or related group of properties as part of the same Sale and Lease-Back Transaction) having a Value over $2,000,000 unless either (a) the Borrower or such Subsidiary would be entitled to incur Indebtedness secured by a Lien on such property pursuant to section 9.4(c), or (b) the Borrower shall prepay Loans, and to the extent Loans are not so prepaid, shall voluntarily permanently reduce the Unutilized Total Commitment, by an amount at least equal to the Value of such Sale and Lease-Back Transaction. 9.14. PLAN TERMINATIONS, MINIMUM FUNDING, ETC. The Borrower will not, and will not permit any ERISA Affiliate to, (i) terminate any Plan or plans so as to result in liability of the Borrower or any ERISA Affiliate to the PBGC in excess of $2,000,000 in the aggregate, (ii) permit to exist one or more events or conditions which reasonably present a material risk of the termination by the PBGC of any Plan or Plans with respect to which the Borrower or any ERISA Affiliate would, in the event of such termination, incur liability to the PBGC in excess of $2,000,000 in the aggregate, or (iii) fail to comply with the minimum funding standards of ERISA and the Code with respect to any Plan. SECTION 10. EVENTS OF DEFAULT. 10.1. EVENTS OF DEFAULT. Upon the occurrence of any of the following specified events (each an "EVENT OF DEFAULT"): (a) PAYMENTS: the Borrower shall (i) default in the payment when due of any principal of the General Revolving Loans; (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any principal of the Swing Line Revolving Loans; (iii) default, and such default shall continue for three or more Business Days, in the payment when due of any reimbursement obligation in respect of any Unpaid Drawing; or (iv) default, and such default shall continue for five or more Business Days, in the payment when due of any interest on the Loans or any Fees or any other 58 64 amounts owing hereunder or under any other Credit Document; or (b) REPRESENTATIONS, ETC.: any representation, warranty or statement made by the Borrower herein or in any other Credit Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or (c) CERTAIN NEGATIVE COVENANTS: the Borrower shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in sections 9.6 through 9.9, inclusive, or section 9.13, of this Agreement; or (ii) default, and such default shall continue for five or more Business Days after the Borrower shall first have obtained actual knowledge thereof or the Administrative Agent or any Lender shall have notified the Borrower thereof in writing, whichever shall first occur, in the due performance or observance by it of any other term, covenant or agreement contained in sections 9.2 through 9.5, inclusive, of this Agreement; or (d) OTHER COVENANTS: the Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in this Agreement or any other Credit Document, other than those referred to in section 10.1(a) or (b) or (c) above, and such default shall continue unremedied for a period of at least 30 days after notice by the Administrative Agent or the Required Lenders; or (e) DEFAULT UNDER OTHER AGREEMENTS: the Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) owed to any Lender, or having an unpaid principal amount of $1,000,000 or greater, and such default shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto (and all grace periods applicable to such observance, performance or condition shall have expired), or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or shall be required to be prepaid (other than by a regularly scheduled required prepayment or redemption, prior to the stated maturity thereof); or (f) OTHER CREDIT DOCUMENTS: the Subsidiary Guaranty or any Security Document (once executed and delivered) shall cease for any reason (other than termination in accordance with its terms) to be in full force and effect; or any Credit Party shall default in any payment obligation thereunder; or any Credit Party shall default in any material respect in the due performance and observance of any other obligation thereunder and such default shall continue unremedied for a period of at least 30 days after notice by the Administrative Agent or the Required Lenders; or any Credit Party shall (or seek to) disaffirm or otherwise limit its obligations thereunder otherwise than in strict compliance with the terms thereof; or (g) JUDGMENTS: one or more judgments or decrees shall be entered against the Borrower and/or any of its Subsidiaries involving a liability (exclusive of the amount thereof covered by insurance as to which the carrier has adequate claims paying ability and has not reserved its rights) of $5,000,000 or more in the aggregate for all such judgments and decrees for the Borrower and its Subsidiaries) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (h) BANKRUPTCY, ETC.: the Borrower or any of its Material Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE"); or an involuntary case is commenced against the Borrower or any of its Material Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the 59 65 Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Material Subsidiaries; or the Borrower or any of its Material Subsidiaries commences (including by way of applying for or consenting to the appointment of, or the taking of possession by, a rehabilitator, receiver, custodian, trustee, conservator or liquidator (collectively, a "CONSERVATOR") of itself or all or any substantial portion of its property) any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Material Subsidiaries; or any such proceeding is commenced against the Borrower or any of its Material Subsidiaries to the extent such proceeding is consented by such person or remains undismissed for a period of 60 days; or the Borrower or any of its Material Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Material Subsidiaries suffers any appointment of any conservator or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Borrower or any of its Material Subsidiaries makes a general assignment for the benefit of creditors; or any corporate (or similar organizational) action is taken by the Borrower or any of its Material Subsidiaries for the purpose of effecting any of the foregoing; or (i) ERISA: (i) any of the events described in clauses (i) through (viii) of section 8.1(g) shall have occurred; or (ii) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (iii) any such event or events or any such lien, security interest or liability, individually, and/or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect. 10.2. ACCELERATION, ETC. Upon the occurrence of any Event of Default, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower (PROVIDED that, if an Event of Default specified in section 10.1(h) shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans, all Unpaid Drawings and all obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; and (iv) direct the Borrower to pay (and the Borrower hereby agrees that on receipt of such notice or upon the occurrence of an Event of Default with respect to the Borrower under section 10.1(h), it will pay) to the Administrative Agent an amount of cash equal to the aggregate Stated Amount of all Letters of Credit then outstanding (such amount to be held as security after the Borrower's reimbursement obligations in respect thereof). 10.3. APPLICATION OF LIQUIDATION PROCEEDS. All monies received by the Administrative Agent or any Lender from the exercise of remedies hereunder or under the other Credit Documents or under any other documents relating to this Agreement shall, unless otherwise required by the terms of the other Credit Documents or by applicable law, be applied as follows: (i) FIRST, to the payment of all expenses (to the extent not paid by the Borrower) incurred by the Administrative Agent and the Lenders in connection with the exercise of such remedies, including, without limitation, all reasonable costs and expenses of collection, attorneys' fees, court costs and any foreclosure expenses; (ii) SECOND, to the payment PRO RATA of interest then accrued on the outstanding Loans and the outstanding loans under the Bridge Facility Agreement; 60 66 (iii) THIRD, to the payment PRO RATA of any fees then accrued and payable to the Administrative Agent, any Letter of Credit Issuer or any Lender under this Agreement in respect of the Loans or the Letter of Credit Outstandings; (iv) FOURTH, to the payment PRO RATA of (A) the principal balance then owing on the outstanding Loans, (B) the principal balance then owing on the loans outstanding under the Bridge Facility Agreement, (C) the amounts then due under Designated Hedge Agreements to creditors of the Borrower or any Subsidiary thereunder, subject to confirmation by the Administrative Agent of any calculations of termination or other payment amounts being made in accordance with normal industry practice, and (D) the Stated Amount of the Letter of Credit Outstandings (to be held and applied by the Administrative Agent as security for the reimbursement obligations in respect thereof); (v) FIFTH, to the payment to the Lenders of any amounts then accrued and unpaid under sections 2.10, 2.11 and 3.5 hereof, and if such proceeds are insufficient to pay such amounts in full, to the payment of such amounts PRO RATA; (vi) SIXTH, to the payment PRO RATA of all other amounts owed by the Borrower to the Administrative Agent, to any Letter of Credit Issuer or any Lender under this Agreement or any other Credit Document, to the lender under the Bridge Facility Agreement, and to any counterparties under any Designated Hedge Agreements of the Borrower and its Subsidiaries, and if such proceeds are insufficient to pay such amounts in full, to the payment of such amounts PRO RATA; and (vii) FINALLY, any remaining surplus after all of the Obligations have been paid in full, to the Borrower or to whomsoever shall be lawfully entitled thereto. SECTION 11. THE ADMINISTRATIVE AGENT. 11.1. APPOINTMENT. Each Lender hereby irrevocably designates and appoints KeyBank as Administrative Agent to act as specified herein and in the other Credit Documents, and each such Lender hereby irrevocably authorizes KeyBank as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such upon the express conditions contained in this section 11. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this section 11 are solely for the benefit of the Administrative Agent, and the Lenders, and the Borrower and its Subsidiaries shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrower or any of its Subsidiaries. 11.2. DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by section 11.3. 11.3. EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted 61 67 to be taken by it or such person under or in connection with this Agreement (except for its or such person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or of its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Credit Document or for any failure of the Borrower or any Subsidiary of the Borrower or any of their respective officers to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default. 11.4. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile transmission, telex or teletype message, statement, order or other document or conversation believed by it, in good faith, to be genuine and correct and to have been signed, sent or made by the proper person or persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower or any of its Subsidiaries), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders (or all of the Lenders, as to any matter which, pursuant to section 12.12, can only be effectuated with the consent of all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. 11.5. NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders, PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 11.6. NON-RELIANCE. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent, or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower and its Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender 62 68 also represents that it will, independently and without reliance upon the Administrative Agent, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower and its Subsidiaries. The Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other conditions, prospects or creditworthiness of the Borrower or any of its Subsidiaries which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 11.7. INDEMNIFICATION. The Lenders agree to indemnify the Administrative Agent in its capacity as such ratably according to their respective General Revolving Loans and Unutilized General Revolving Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent in its capacity as such in any way relating to or arising out of this Agreement or any other Credit Document, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower, PROVIDED that no Lender shall be liable to the Administrative Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the Administrative Agent's gross negligence or willful misconduct. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this section 11.7 shall survive the payment of all Obligations. 11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, its Subsidiaries and their Affiliates as though not acting as Administrative Agent hereunder. With respect to the Loans made by it and all Obligations owing to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 11.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as the Administrative Agent upon 20 days' notice to the Lenders and the Borrower. The Required Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders subject to prior approval by the Borrower (such approval not to be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall include such successor agent effective upon its appointment, and the resigning Administrative Agent's rights, powers and duties as the Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After the retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 11.10. OTHER AGENTS. Any Lender identified herein as a Co-Agent, Syndication Agent, Documentation Agent, Managing Agent, Manager or any other corresponding title, other than "Administrative Agent" and "Collateral Agent", shall have no right, power, obligation, liability, responsibility or duty under this Agreement or any other Credit Document except those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on any Lender so identified in deciding to enter into this Agreement or in taking or not taking any action hereunder. 63 69 SECTION 12. MISCELLANEOUS. 12.1. PAYMENT OF EXPENSES ETC. (a) The Borrower will, whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of Jones, Day, Reavis & Pogue, special counsel to the Administrative Agent), and of the Administrative Agent and each of the Lenders in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent and for each of the Lenders and any allocated costs of internal counsel for any of the Lenders). (b) In the event of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of the Borrower or any of its Subsidiaries, the Borrower will pay all costs of collection and defense, including reasonable attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes. (c) The Borrower will pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes. (d) The Borrower will indemnify each Lender, its officers, directors, employees, representatives and agents (collectively, the "INDEMNITEES") from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses reasonably incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of (i) any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated in any Credit Document, other than any such investigation, litigation or proceeding arising out of transactions solely between any of the Lenders or the Administrative Agent, transactions solely involving the assignment by a Lender of all or a portion of its Loans and Commitment, or the granting of participations therein, as provided in this Agreement, or arising solely out of any examination of a Lender by any regulatory authority having jurisdiction over it, or (ii) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned, leased or at any time operated by the Borrower or any of its Subsidiaries, the release, generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by the Borrower or any of its Subsidiaries, if the Borrower or any such Subsidiary could have or is alleged to have any responsibility in respect thereof, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against the Borrower or any of its Subsidiaries, in respect of any Real Property owned, leased or at any time operated by the Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the person to be indemnified or of any other Indemnitee who is such person or an Affiliate of such person). To the extent that the undertaking to indemnify, pay or hold harmless any person set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under 64 70 applicable law. 12.2. RIGHT OF SETOFF. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations and liabilities of the Borrower to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations the Borrower purchased by such Lender pursuant to section 12.4(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 12.3. NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the Borrower, at Suite 220, 3201 Enterprise Parkway, Beachwood, Ohio 44122, attention: Chief Financial Officer (facsimile: (216) 464-8376); if to any Lender at its address specified for such Lender on Annex I hereto; if to the Administrative Agent, at its Notice Office; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 12.4. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, PROVIDED that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all the Lenders, and, PROVIDED, FURTHER, that any assignment by a Lender of its rights and obligations hereunder shall be effected in accordance with section 12.4(b). Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to (x) another Lender that is not a Defaulting Lender or to an Affiliate of such Lender which is a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D), and (y) one or more Eligible Transferees, PROVIDED that in the case of any such participation, (i) the participant shall not have any rights under this Agreement or any of the other Credit Documents, including rights of consent, approval or waiver (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto), (ii) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iv) such Lender shall remain the holder of any Note for all purposes of this Agreement and (v) the Borrower, the Administrative Agent, and the other Lenders shall continue to deal solely and directly with the selling Lender in connection with such Lender's rights and obligations under this Agreement, and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of sections 2.10 and 2.11 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold, and, PROVIDED, FURTHER, that no Lender shall transfer, grant or sell any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (w) extend the final scheduled maturity of the Loans in which such participant is participating (it being understood that any waiver of the making of, or the application of any amortization payment or other prepayment or the method of any application of any prepayment to the amortization of the Loans shall not constitute an extension of the final maturity date thereof), or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant's participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of any mandatory prepayment or a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any 65 71 Commitment), (x) release any Credit Party from its obligations under the Subsidiary Guaranty except strictly in accordance with the terms hereof or thereof, (y) release all or substantially all of the Collateral except strictly in accordance with the terms hereof, or (z) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. (b) Notwithstanding the foregoing, (x) any Lender may assign all or a fixed portion of its Loans and/or Commitments, and its rights and obligations hereunder, which assignment does not have to be PRO RATA among the Facilities, to another Lender that is not a Defaulting Lender, or to an Affiliate of any Lender (including itself) which is not a Defaulting Lender and which is a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D), and (y) any Lender may assign all, or if less than all, a PRO RATA fixed portion, equal to at least $10,000,000 in the case of General Revolving Loans and/or General Revolving Commitments, in the aggregate for the assigning Lender or assigning Lenders, of its Loans and/or Commitments and its rights and obligations hereunder, which assignment does not have to be PRO RATA among the Facilities, to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment Agreement, PROVIDED that (i) assignments by the Swing Line Lender of its Swing Line Revolving Commitment and its Swing Line Revolving Loans may only be made if all of its Swing Line Revolving Commitment and all of its Swing Line Revolving Loans are assigned to a single assignee and only if the assignee thereof is or becomes a Lender with a General Revolving Commitment of at least $20,000,000, (ii) in the case of any assignment of a portion of the General Revolving Loans and/or General Revolving Commitments of a Lender, such Lender shall retain a minimum fixed portion thereof equal to at least $10,000,000, (iii) at the time of any such assignment Annex I shall be deemed modified to reflect the Commitments of such new Lender and of the existing Lenders, (iv) upon surrender of the old Notes, new Notes will be issued, at the Borrower's expense, to such new Lender and to the assigning Lender, such new Notes to be in conformity with the requirements of section 2.6 (with appropriate modifications) to the extent needed to reflect the revised Commitments, (v) in the case of clause (y) only, the consent of the Administrative Agent and each Letter of Credit Issuer shall be required in connection with any such assignment (which consent shall not be unreasonably withheld or delayed), and (vi) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $2,500 and, PROVIDED, FURTHER, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Lender Register maintained by it as provided herein. To the extent of any assignment pursuant to this section 12.4(b) the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments. At the time of each assignment pursuant to this section 12.4(b) to a person which is not already a Lender hereunder and which is not a United States person (as such term is defined in section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable a Section 5.4(b)(ii) Certificate) described in section 5.4(b). To the extent that an assignment of all or any portion of a Lender's Commitment and related outstanding Obligations pursuant to this section 12.4(b) would, at the time of such assignment, result in increased costs under section 2.10 from those being charged by the respective assigning Lender prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to any other increased costs of the type described above resulting from changes after the date of the respective assignment). Nothing in this section 12.4(b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. (c) Notwithstanding any other provisions of this section 12.4, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any State. (d) Each Lender initially party to this Agreement hereby represents, and each person that became a Lender pursuant to an assignment permitted by this section 12.4 will, upon its becoming party to this Agreement, represent that it is a commercial lender, other financial institution or other "accredited" investor (as defined in SEC Regulation D) which makes or acquires loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, PROVIDED that subject to the preceding sections 66 72 12.4(a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control. 12.5. NO WAIVER: REMEDIES CUMULATIVE. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand. 12.6. PAYMENTS PRO RATA. (a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived in writing its right to receive its PRO RATA share thereof) PRO RATA based upon their respective shares, if any, of the Obligations with respect to which such payment was received. As to any such payment received by the Administrative Agent prior to 1:00 P.M. (local time at the Payment Office) in funds which are immediately available on such day, the Administrative Agent will use all reasonable efforts to distribute such payment in immediately available funds on the same day to the Lenders as aforesaid. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, PROVIDED that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding sections 12.6(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Lenders which are not Defaulting Lenders, as opposed to Defaulting Lenders. 12.7. CALCULATIONS: COMPUTATIONS. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders); PROVIDED, that if at any time the computations determining compliance with section 9 utilize accounting principles different from those utilized in the financial statements furnished to the Lenders, such computations shall set forth in reasonable detail a description of the differences and the effect upon such computations. (b) All computations of interest on Loans hereunder and all computations of Facility Fees, Letter of Credit Fees and other Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days. 12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF OHIO. TO THE FULLEST EXTENT 67 73 PERMITTED BY LAW, THE BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF OHIO GOVERNS THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the Courts of the State of Ohio, or of the United States for the Northern District of Ohio, and, by execution and delivery of this Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Borrower hereby further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address for notices pursuant to section 12.3, such service to become effective 30 days after such mailing or at such earlier time as may be provided under applicable law. Nothing herein shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction. (b) The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in section 12.8(a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby. 12.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same agreement. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. 12.10. EFFECTIVENESS. This Agreement shall become effective on the date (the "EFFECTIVE DATE") on which the Borrower and each of the Lenders shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent at the Notice Office of the Administrative Agent or, in the case of the Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing), written telex or facsimile transmission notice (actually received) at such office that the same has been signed and mailed to it. 12.11. HEADINGS DESCRIPTIVE. The headings of the several sections and other portions of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12. AMENDMENT OR WAIVER. Neither this Agreement nor any terms hereof or thereof may be changed, waived, discharged or terminated UNLESS such change, waiver, discharge or termination is in writing signed by the Borrower and the Required Lenders, PROVIDED that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) affected thereby, (i) extend any interim or final maturity date provided for herein (including any extension of any interim or final maturity date to be effected in accordance with section 4.4 hereof) applicable to a Loan or a Commitment (it being understood that any waiver of the making of, or application of any prepayment of or the method of application of any mandatory prepayment of the Loans shall not constitute an extension of such final maturity thereof), reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or Fees thereon, or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of any mandatory prepayment or a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any Commitment of any Lender), (ii) release the Borrower from any obligations as a guarantor of its Subsidiaries' 68 74 obligations under any Credit Document, (iii) release any Credit Party from the Subsidiary Guaranty, except in connection with a transaction permitted by section 9.2(e), (iv) release all or substantially all of the Collateral, except strictly in accordance with the provisions of section 8.11(b), (v) change the definition of the term "Change of Control" or any of the provisions of section 5.2(e) which are applicable upon a Change of Control, (vi) amend, modify or waive any provision of this section 12.12, or section 11.7, 12.1, 12.4, 12.6 or 12.7(b), or any other provision of any of the Credit Documents pursuant to which the consent or approval of all Lenders is by the terms of such provision explicitly required, (vii) reduce the percentage specified in, or otherwise modify, the definition of Required Lenders, or (viii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. No provision of section 3 or 11 may be amended without the consent of (x) any Letter of Credit Issuer adversely affected thereby or (y) the Administrative Agent, respectively. 12.13. SURVIVAL OF INDEMNITIES. All indemnities set forth herein including, without limitation, in section 2.10, 2.11, 3.5, 11.7 or 12.1 shall survive the execution and delivery of this Agreement and the making and repayment of Loans. 12.14. DOMICILE OF LOANS. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, PROVIDED that the Borrower shall not be responsible for costs arising under section 2.10 resulting from any such transfer (other than a transfer pursuant to section 2.12) to the extent not otherwise applicable to such Lender prior to such transfer. 12.15. CONFIDENTIALITY. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by any BONA FIDE transferee or participant in connection with the contemplated transfer of any Loans or Commitment or participation therein (PROVIDED that each such prospective transferee and/or participant shall execute an agreement for the benefit of the Borrower with such prospective transferor Lender and/or participant containing provisions substantially identical to those contained in this section 12.15), and to its auditors, attorneys or as required or requested by any governmental agency or representative thereof or pursuant to legal process, PROVIDED that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information, and PROVIDED, FURTHER that in no event shall any Lender be obligated or required to return any materials furnished by or on behalf of the Borrower or any of its Subsidiaries. The Borrower hereby agrees that the failure of a Lender to comply with the provisions of this section 12.15 shall not relieve the Borrower of any of the obligations to such Lender under this Agreement and the other Credit Documents. 12.16. LENDER REGISTER. The Borrower hereby designates the Administrative Agent to serve as its agent, solely for purposes of this section 12.16, to retain a copy of each Assignment Agreement delivered to and accepted by it and to maintain a register (the "LENDER REGISTER") on or in which it will record the names and addresses of the Lenders, and the Commitments from time to time of each of the Lenders, the Loans made to the Borrower by each of the Lenders and each repayment and prepayment in respect of the principal amount of such Loans of each such Lender. Failure to make any such recordation, or (absent manifest error) any error in such recordation, shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of any Commitment of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitment shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Commitment and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitment and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to section 12.4(b). The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under 69 75 this section 12.16, except to the extent the same result solely from the Administrative Agent's negligence or willful misconduct. The Lender Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 12.17. LIMITATIONS ON LIABILITY OF THE LETTER OF CREDIT ISSUERS. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letters of Credit. Neither any Letter of Credit Issuer nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by a Letter of Credit Issuer against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, EXCEPT that the Borrower (or a Subsidiary which is the account party in respect of the Letter of Credit in question) shall have a claim against a Letter of Credit Issuer, and a Letter of Credit Issuer shall be liable to the Borrower (or such Subsidiary), to the extent of any direct, but not consequential, damages suffered by the Borrower (or such Subsidiary) which the Borrower (or such Subsidiary) proves were caused by (i) such Letter of Credit Issuer's willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit or (ii) such Letter of Credit Issuer's willful failure to make lawful payment under any Letter of Credit after the presentation to it of documentation strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, a Letter of Credit Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation. 12.18. GENERAL LIMITATION OF LIABILITY. No claim may be made by the Borrower, any Lender, the Administrative Agent, any Letter of Credit Issuer or any other person against the Administrative Agent, any Letter of Credit Issuer, or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any damages other than actual compensatory damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any of the other Credit Documents, or any act, omission or event occurring in connection therewith; and each of the Borrower, each Lender, the Administrative Agent and each Letter of Credit Issuer hereby, to the fullest extent permitted under applicable law, waives, releases and agrees not to sue or counterclaim upon any such claim for any special, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor. 12.19. NO DUTY. All attorneys, accountants, appraisers, consultants and other professional persons (including the firms or other entities on behalf of which any such person may act) retained by the Administrative Agent or any Lender with respect to the transactions contemplated by the Credit Documents shall have the right to act exclusively in the interest of the Administrative Agent or such Lender, as the case may be, and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Borrower, to any of its Subsidiaries, or to any other person, with respect to any matters within the scope of such representation or related to their activities in connection with such representation. 12.20. LENDERS AND AGENT NOT FIDUCIARY TO BORROWER, ETC. The relationship among the Borrower and its Subsidiaries, on the one hand, and the Administrative Agent, each Letter of Credit Issuer and the Lenders, on the other hand, is solely that of debtor and creditor, and the Administrative Agent, each Letter of Credit Issuer and the Lenders have no fiduciary or other special relationship with the Borrower and its Subsidiaries, and no term or provision of any Credit Document, no course of dealing, no written or oral communication, or other action, shall be construed so as to deem such relationship to be other than that of debtor and creditor. 12.21. MARGIN STOCK. The Lenders are not relying on any direct or indirect security of any Margin Stock in extending the credit facilities provided for herein and this Agreement shall be construed in a manner consistent with such intention. 70 76 12.22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties herein shall survive the making of Loans and the issuance of Letters of Credit hereunder, the execution and delivery of this Agreement, the Notes and the other documents the forms of which are attached as Exhibits hereto, the issue and delivery of the Notes, any disposition thereof by any holder thereof, and any investigation made by the Administrative Agent or any Lender or any other holder of any of the Notes or on its behalf. All statements contained in any certificate or other document delivered to the Administrative Agent or any Lender or any holder of any Notes by or on behalf of the Borrower or of its Subsidiaries pursuant hereto or otherwise specifically for use in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower hereunder, made as of the respective dates specified therein or, if no date is specified, as of the respective dates furnished to the Administrative Agent or any Lender. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. NCS HEALTHCARE, INC. By:/s/ Gerald D. Stethem ----------------------------------------- Chief Financial Officer KEYBANK NATIONAL ASSOCIATION, individually as a Lender, the Swing Line Lender, and as Administrative Agent By:/s/ Thomas J. Purcell ----------------------------------------- Vice President 71 EX-10.13 3 EXHIBIT 10.13 1 EXHIBIT 10.13 KEYBANK NATIONAL ASSOCIATION KEY CENTER 127 PUBLIC SQUARE CLEVELAND, OHIO 44114 Dated as of June 1, 1998 NCS HealthCare, Inc. 3201 Enterprise Parkway Suite 220 Beachwood, Ohio 44122 Attention: Jeffrey R. Steinhilber Senior Vice President and Chief Financial Officer --------------------------- Re: U.S. $50,000,000 Capital Markets Bridge Facility for NCS HealthCare, Inc. ------------------------------------------------ Ladies and Gentlemen: KeyBank National Association, a national banking association (the "LENDER"), hereby establishes pursuant to this letter ("THIS AGREEMENT") a committed single draw, non-revolving capital markets bridge credit facility in favor of NCS HealthCare, Inc. (herein, together with its successors and assigns, the "BORROWER"), upon and subject to the terms and conditions contained in this Agreement. Certain terms used herein are defined in section 6 hereof. 1. AMOUNTS AND TERMS OF THE LOANS. 1.1. THE LOANS. The Lender agrees, on the terms and conditions hereinafter set forth, to make one or more loans (each a "LOAN" and collectively, the "LOANS") to the Borrower, all of which Loans shall be made on a single occasion (the "CLOSING DATE"), which shall be a Business Day during the period from the date hereof until December 31, 1998 (such date, or the earlier date of termination of the Commitment pursuant to section 1.11 or 5.2, being the "TERMINATION DATE"). The Loans made hereunder on the Closing Date shall be in an aggregate amount not to exceed $50,000,000, as such amount may be reduced pursuant to section 1.11 (the "COMMITMENT"). Each Loan shall be in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. No additional Loans shall be made after the Closing Date, and the amount of any unused Commitment remaining after Loans are made on the Closing Date shall be automatically terminated. 1.2. MAKING THE LOANS ON THE CLOSING DATE. (a) The Borrower shall give the Lender notice, not later than 11:00 A.M. (Cleveland, Ohio time) on the third Business Day prior to the proposed Closing Date, a. specifying the proposed Closing Date, b. specifying the amount and Type of each proposed Loan to be made on the Closing Date, c. selecting the interest rate for each such Loan pursuant to section 1.6 and, d. if any such Loan is to be a Eurodollar Loan, selecting the initial Interest Period for such Loan. More than one Loan may be made on the Closing Date as a Eurodollar Loan, but each such Eurodollar Loan so made shall have a single Interest Period applicable thereto and no two Eurodollar Loans made on the Closing Date shall have the same Interest Period. No more than three Eurodollar Loans may be outstanding hereunder at any time. Not later than 11:00 A.M. (Cleveland, Ohio time) on the Closing Date and upon fulfillment of the applicable conditions set forth in section 2, the Lender will make the requested Loan or Loans available to the Borrower in same day funds at the Lender's principal office in Cleveland, Ohio. 2 (b) Anything in section 1.2 (a) above to the contrary notwithstanding, the Borrower may not select a Eurodollar Rate for any Loan if the principal amount of such Loan is less than $5,000,000. (c) The notice from the Borrower to the Lender requesting a Loan or Loans on the Closing Date shall be irrevocable and binding on the Borrower. 1.3. FEES. The Borrower agrees to pay to the Lender an upfront fee to the Lender on the date this Agreement becomes effective in the amount separately agreed upon by the parties hereto. The Borrower agrees to pay to the Lender an activation fee in connection with the initial Loan made hereunder in accordance with a separate letter between the Borrower and the Lender. 1.4. NOTE. (a) The Borrower's obligation to pay the principal of, and interest on, the Loans made to it by the Lender shall be evidenced by a promissory note substantially in the form of Exhibit A hereto with blanks appropriately completed in conformity herewith (the "NOTE"). (b) The Note issued to the Lender shall be entitled to the benefits of this Agreement as well as the Subsidiary Guaranty and the Pledge Agreement referred to in the Credit Agreement. (c). The Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of the Note, endorse on the reverse side thereof or the grid attached thereto the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation shall not affect the Borrower's obligations in respect of such Loans. 1.5. CONVERSIONS OF LOANS. The Borrower shall have the option to Convert on any Business Day all, or a portion equal to $5,000,000 or a multiple of $1,000,000 in excess thereof, of the outstanding principal amount of any outstanding Loan into a Loan or Loans of the other Type of Loan which can be made pursuant to this Agreement, PROVIDED that: a. no partial conversion of a Eurodollar Loan shall reduce the outstanding principal amount of such Eurodollar Loan to less than $5,000,000; b. any conversion of a Eurodollar Loan into a Prime Rate Loan shall be made on, and only on, the last day of an Interest Period for such Eurodollar Loan; c. a Prime Rate Loan may not be converted into a Eurodollar Loan if a Default or Event of Default has occurred and is in existence on the date of the Conversion unless the Lender otherwise agrees; and d. a Eurodollar Loan resulting from a Conversion under this section 1.5 shall conform to the requirements of sections 1.1 and 1.2. Each such Conversion shall be effected by the Borrower giving the Lender written notice thereof, prior to 11:00 A.M. (local time) at least three Business Days prior to the Conversion, specifying the Loan or Loans to be so converted, the Type of Loan or Loans to be converted into and, if to be converted into a Eurodollar Loan, the Interest Period to be initially applicable thereto. 1.6. INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full, at the following rates per annum: (a) PRIME RATE LOANS. During such periods as such Loan is a Prime Rate Loan, a fluctuating rate per annum equal at all times to the Prime Rate in effect from time to time, payable quarterly in arrears on the last Business day of each March, June, September and December and on the date such Prime Rate Loan shall be Converted (as hereinafter defined) or paid in full; PROVIDED that any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable on demand, at a fluctuating rate per annum equal at all times to 3% per annum above the Prime Rate in effect from time to time. (b) EURODOLLAR LOANS. During such periods as such Loan is a Eurodollar Loan, a rate per annum equal at all times during the Interest Period for such Loan to the sum of the Eurodollar Rate for such Interest Period PLUS (i) from the date hereof to September 30, 1998, an additional 200 basis points per annum and (ii) from and after such date, an additional 262.50 basis points per annum, payable on the last 2 3 day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period; PROVIDED that any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable on demand, at a fluctuating rate per annum equal at all times to 3% per annum above the Prime Rate in effect from time to time. 1.7. PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The Borrower may, upon at least three Business Days' notice to the Lender stating the proposed date and principal amount of the prepayment, and if such notice is given the Borrower shall, without premium or penalty, prepay the outstanding principal amount of any Loan, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid, PROVIDED that in the case of any partial prepayment of a Loan the principal amount prepaid shall be at least $1,000,000, or an integral multiple of $1,000,000 in excess thereof, and PROVIDED, FURTHER, that in the case of prepayment of any Eurodollar Loan on any date other than the last day of the Interest Period applicable thereto, such prepayment shall be accompanied by such breakage compensation as is provided for in section 1.10. (b) MANDATORY PREPAYMENTS. The Loans shall be subject to mandatory prepayment, without premium or penalty, in accordance with the following provisions: (i) CERTAIN PROCEEDS OF ASSET SALES AND DEBT OR EQUITY OFFERINGS. If the Borrower and its Subsidiaries have received after the date hereof Net Cash Proceeds from any Asset Sale or from any public offering, Rule 144A offering or private placement with one or more institutional investors of any debt or equity securities (exclusive of any syndicated credit facilities), not later than the third Business Day following the date of receipt of any such Net Cash Proceeds an amount, conforming to the requirements of section 1.7(a) as to the amount of any partial prepayment of Loans, at least equal to such Net Cash proceeds so received shall be applied as a mandatory prepayment of principal of the then outstanding Loans. (ii) LOANS EXCEED COMMITMENT. If the outstanding Loans at any time exceed the Commitment hereunder as then in effect, the Borrower will immediately prepay Loans in an amount, conforming to the requirements of section 1.7(a) as to the amount of any partial prepayment of Loans, at least sufficient to eliminate such excess. (iii) CHANGE OF CONTROL. On the date on which a Change of Control occurs, notwithstanding anything to the contrary contained in this Agreement, no further borrowings shall be made under this Agreement and the then outstanding principal amount of all Loans, if any, shall become due and payable and shall be prepaid in full. (iv) PARTICULAR LOANS TO BE PREPAID. With respect to each prepayment of Loans required by this section 1.7(b), the Borrower shall designate the Types of Loans which are to be prepaid and the specific Loan(s) to which such prepayment is to be applied, PROVIDED that (A) the Borrower shall first so designate all Loans that are Prime Rate Loans and Eurodollar Loans with Interest Periods ending on the date of prepayment prior to designating any other Eurodollar Loans for prepayment, and (B) if the outstanding principal amount of a Eurodollar Loan is reduced below $1,000,000 as a result of any such prepayment, then such Loan shall be Converted into a Prime Rate Loan. In the absence of a designation by the Borrower as described in the preceding sentence, the Lender shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs. Any prepayment of Loans pursuant to this section 1.7(b) shall be accompanied by payment of interest accrued to the date of prepayment on the amount prepaid and, in the case of any prepayment of a Eurodollar Loan, shall in all events be accompanied by such breakage compensation as is contemplated by section 1.10. 1.8. INTEREST PERIODS. (a) At the time the Borrower gives the notice of the Closing Date or a notice of Conversion in respect of the making of, or conversion into, a Eurodollar Loan (in the case of the initial Interest 3 4 Period applicable thereto) or prior to 11:00 A.M. on the third Business Day prior to the expiration of an Interest Period applicable to a Eurodollar Loan, it shall have the right to elect by giving the Lender written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Lender) of the Interest Period applicable to such Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Eurodollar Loan shall commence on the date such Loan is made (including the date of any conversion from a Prime Rate Loan) and each Interest Period occurring thereafter in respect of such Loan shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, PROVIDED that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) no Interest Period for any Loan may be selected which would end after the then scheduled Termination Date; and (v) no Interest Period may be elected at any time when a Default under section 5.1(a) or an Event of Default is then in existence unless the Lender otherwise agrees. (b) If upon the expiration of any Interest Period the Borrower has failed to (or may not) elect a new Interest Period to be applicable to a Eurodollar Loan as provided above, the Borrower shall be deemed to have elected to convert such Loan to a Prime Rate Loan effective as of the expiration date of such current Interest Period. 1.9. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that the Lender shall have determined on a reasonable basis (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period that, by reason of any changes arising after the Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that the Lender shall incur increased costs or reductions in the amounts received or receivable hereunder in an amount which the Lender deems material with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Effective Date in any applicable law, governmental rule, regulation, guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves includable in the Eurodollar Rate pursuant to the definition thereof) and/or (y) other circumstances adversely affecting the interbank Eurodollar market or the position of such Lender in such market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by the Lender in good faith with any change since the Effective Date in any law, governmental rule, regulation, guideline or order, or the interpretation or application thereof, or would 4 5 conflict with any thereof not having the force of law but with which the Lender customarily complies or has become impracticable as a result of a contingency occurring after the Effective Date which materially adversely affects the interbank Eurodollar market; THEN, and in any such event, the Lender shall (x) on or promptly following such date or time and (y) within 10 Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower of such determination. Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Lender notifies the Borrower that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any notice of the Closing Date or notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred or converted shall be deemed rescinded by the Borrower or, in the case of the notice of the Closing Date, shall, at the option of the Borrower, be deemed Converted into a notice requesting a Prime Rate Loan to be made on the Closing Date, (y) in the case of clause (ii) above, the Borrower shall pay to the Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Lender shall determine) as shall be required to compensate the Lender, for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to the Lender, showing the basis for the calculation thereof, which basis must be reasonable, submitted to the Borrower by the Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in section 1.9(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan is affected by the circumstances described in section 1.9(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected pursuant to section 1.9(a)(iii) the Borrower shall) either a. if the affected Eurodollar Loan is then being made on the Closing Date, by giving the Lender telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by the Lender pursuant to section 1.9(a)(ii) or (iii), cancel said borrowing, or convert the related notice of the Closing Date into a notice requesting a Prime Rate Loan, or b. if the affected Eurodollar Loan is then outstanding, upon at least one Business Day's notice to the Lender, require the Lender to Convert each such Eurodollar Loan into a Prime Rate Loan. (c) If the Lender shall have determined that after the Effective Date, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged by law with the interpretation or administration thereof, or compliance by the Lender or its parent corporation with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, in each case made subsequent to the Effective Date, has or would have the effect of reducing by an amount reasonably deemed by the Lender to be material the rate of return on the Lender's or its parent corporation's capital or assets as a consequence of the Lender's commitments or obligations hereunder to a level below that which the Lender or its parent corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration the Lender's or its parent corporation's policies with respect to capital adequacy), then from time to time, within 15 days after demand by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender or its parent corporation for such reduction. The Lender, upon determining in good faith that any additional amounts will be payable pursuant to this section 1.9(c), will give prompt written notice thereof to the Borrower, which notice shall set forth, in reasonable detail, the basis of the calculation of such additional amounts, which basis must be reasonable, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this section 1.9(c) upon the subsequent receipt of such notice. (d) Notwithstanding anything in this Agreement to the contrary, a. the Lender shall not be entitled to compensation or payment or reimbursement of other amounts under this section 1.9 for any amounts incurred or accruing more than 90 days prior to the giving of notice to the Borrower of additional costs or other amounts of the nature described in this section, and b. the Lender shall not demand compensation for any reduction referred to in section 1.9(c) if it shall not at the time be the general policy or practice of the Lender to demand such compensation 5 6 in similar circumstances under comparable provisions of other credit agreements. 1.10. BREAKAGE COMPENSATION. The Borrower shall compensate the Lender, upon its written request (which request shall set forth the detailed basis for requesting and the method of calculating such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by the Lender to fund its Eurodollar Loans) which the Lender may sustain: a. if for any reason (other than a default by the Lender) a borrowing of a Eurodollar Loan does not occur on a date specified therefor in the notice of the Closing Date or a notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to section 1.9(a)); b. if any repayment, prepayment or Conversion of any Eurodollar Loan occurs on a date which is not the last day of an Interest Period applicable thereto; c. if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or d. as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement or (y) an election made pursuant to section 1.9(b). 1.11. TERMINATION/REDUCTION OF THE COMMITMENT. (a) The Commitment shall terminate on the earlier of (x) the Termination Date and (y) the date on which a Change of Control occurs. (b) Amounts borrowed hereunder and repaid or prepaid may not be reborrowed. The Commitment shall be considered utilized by the principal amount of each Loan made hereunder. (c) The Borrower shall have the right, upon at least three Business Days' notice to the Lender, to terminate in whole or reduce in part the unused portion of the Commitment, PROVIDED that each partial reduction shall be in the amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (d) In the event the Total General Revolving Commitment under the Credit Agreement is increased above $150,000,000, the then Commitment hereunder shall be automatically and permanently reduced by the amount of such increase. (e) If any portion of the Commitment remains unused after Loans are made on the Closing Date, such unused portion of the Commitment shall be automatically terminated. 1.12. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment not later than 11:00 A.M. (Cleveland, Ohio time) on the day when due in U.S. dollars to the Lender at its address referred to herein in same day funds. (b) The Borrower hereby authorizes the Lender, if and to the extent payment is not made when due, to charge from time to time against any or all of the Borrower's accounts with the Lender any amount so due. (c) All computations of interest shall be made by the Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest. SECTION 2. CONDITIONS OF LENDING. 2.1. CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of the Lender to make its initial Loan is subject to satisfaction of the following conditions: 6 7 (a) EFFECTIVENESS; NOTE. This Agreement shall have been duly executed and delivered by the parties and shall be in full force and effect, and there shall have been delivered to the Lender the Note executed by the Borrower in the amount, maturity and as otherwise provided herein. (b) CREDIT AGREEMENT, ETC. The Credit Agreement, and the Subsidiary Guaranty and the Pledge Agreement referred to therein, shall each have been duly executed and delivered and shall be in full force and effect. All conditions specified in section 6.1 of the Credit Agreement shall have been satisfied or waived. (c) FEES, ETC. The Borrower shall have paid or caused to be paid all fees required to be paid by it on or prior to such date pursuant to section 1.3 and all reasonable fees and expenses of the Lender and of special counsel to the Lender which have been invoiced on or prior to such date in connection with the preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. (d) CORPORATE RESOLUTIONS AND APPROVALS. The Lender shall have received certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the execution, delivery and performance by the Borrower of this Agreement. (e) INCUMBENCY CERTIFICATE. The Lender shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower, certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the Note and any other documents to which the Borrower is a party which may be executed and delivered in connection herewith. (f) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and all documents incidental to the transactions contemplated hereby shall be satisfactory in substance and form to the Lender and the Lender and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as the Lender or its special counsel may reasonably request. 2.2. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to make each Loan is subject, at the time thereof, to the satisfaction of the conditions that at the time of such Loan and also after giving effect thereto: (a) the Borrower shall have complied with the notice requirements hereof with respect to the making of such Loan; (b) there shall exist no Default or Event of Default; and (c) all representations and warranties of the Borrower contained herein shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loan, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties shall have been true and correct in all material respects as of the date when made. SECTION 3. REPRESENTATIONS AND WARRANTIES. 3.1. GENERAL REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that a. all of its representations and warranties contained in section 7 of the Credit Agreement are true and correct, and b. all of such representations and warranties contained in section 7 of the Credit Agreement would be true and correct if references therein to the Credit Documents were instead references to this Agreement and the Note. 7 8 3.2. USE OF PROCEEDS, ETC. No part of the proceeds of any Loan will be used directly or indirectly to a. purchase or carry Margin Stock, or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, in violation of any of the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, or b. finance any Acquisition (as defined in the Credit Agreement) if such Acquisition is actively opposed by the Board of Directors (or similar governing body) of the selling person or the person whose equity interests are to be acquired. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. At no time would more than 25% of the value of the assets of the Borrower or of the Borrower and its consolidated Subsidiaries that are subject to any "arrangement" (as such term is used in section 221.2(g) of such Regulation U) hereunder be represented by Margin Stock. SECTION 4. COVENANTS OF THE BORROWER. So long as the Note shall remain unpaid or the Lender shall have any Commitment hereunder: 4.1. CREDIT AGREEMENT COVENANTS. The Borrower will comply with all covenants and agreements contained in sections 8 and 9 of the Credit Agreement as originally executed and delivered, regardless of any subsequent modification or termination of the Credit Agreement, or consent or waiver thereunder, UNLESS the Lender shall otherwise consent in writing (it being understood that a consent by the Lender as a Lender under the Credit Agreement shall likewise be considered a consent hereunder, UNLESS otherwise specified by the Lender at the time any such consent is given). 4.2. REPORTING REQUIREMENTS. The Borrower will furnish to the Lender at the time ot times referred to therein copies of all financial statements and other information furnished or to be furnished pursuant to section 8.1 of the Credit Agreement, as originally executed and delivered. 4.3. BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will cause each of its Subsidiaries to, permit, upon at least five Business Days' notice to the Chief Financial Officer or any other Authorized Officer of the Borrower, officers and designated representatives of the Lender to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in whomsoever's possession (but only to the extent the Borrower or such Subsidiary has the right to do so to the extent in the possession of another person), and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants and independent actuaries (the Borrower having been offered an opportunity to be present by telephone or in person for any discussions with such independent accountants or independent actuaries), if any, all at such reasonable times and intervals and to such reasonable extent as the Lender may request. SECTION 5. EVENTS OF DEFAULT. 5.1. EVENTS OF DEFAULT. Any of the following events (an "EVENT OF DEFAULT") shall constitute an Event of Default hereunder: (a) PAYMENTS: the Borrower shall a. default in the payment when due of any principal of the Loans; or b. default, and such default shall continue for five or more Business Days, in the payment when due of any interest on the Loans or any other amounts owing hereunder; or (b) REPRESENTATIONS, ETC.: any representation, warranty or statement made by the Borrower herein or in any statement or certificate delivered or required to be delivered pursuant hereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or (c) CERTAIN NEGATIVE COVENANTS: the Borrower shall a. default in the due performance or observance by it of any term, covenant or agreement contained in section 4.1 hereof insofar as it relates to sections 9.6 through 9.9, inclusive, or section 9.13, of the Credit Agreement; or b. default, and such default 8 9 shall continue for five or more Business Days after the Borrower shall first have obtained actual knowledge thereof or the Lender shall have notified the Borrower thereof in writing, whichever shall first occur, in the due performance or observance by it of any other term, covenant or agreement contained in section 4.1 hereof insofar as it relates to sections 9.2 through 9.5, inclusive, of the Credit Agreement; or (d) OTHER COVENANTS: the Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in this Agreement, other than those referred to in section 5.1(a) or (b) or (c) above, and such default shall continue unremedied for a period of at least 30 days after notice by the Lender; or (e) DEFAULT UNDER OTHER AGREEMENTS: an Event of Default under and as defined in the Credit Agreement shall have occurred; or the Borrower or any of its Subsidiaries shall a. default in any payment with respect to any Indebtedness (other than the Note) owed to the Lender, or having an unpaid principal amount of $1,000,000 or greater, and such default shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or b. default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto (and all grace periods applicable to such observance, performance or condition shall have expired), or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or shall be required to be prepaid (other than by a regularly scheduled required prepayment or redemption, prior to the stated maturity thereof); or (f) BANKRUPTCY, ETC.: the Borrower or any of its Material Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE"); or an involuntary case is commenced against the Borrower or any of its Material Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Material Subsidiaries; or the Borrower or any of its Material Subsidiaries commences (including by way of applying for or consenting to the appointment of, or the taking of possession by, a rehabilitator, receiver, custodian, trustee, conservator or liquidator (collectively, a "CONSERVATOR") of itself or all or any substantial portion of its property) any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Material Subsidiaries; or any such proceeding is commenced against the Borrower or any of its Material Subsidiaries to the extent such proceeding is consented by such person or remains undismissed for a period of 60 days; or the Borrower or any of its Material Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Material Subsidiaries suffers any appointment of any conservator or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Borrower or any of its Material Subsidiaries makes a general assignment for the benefit of creditors; or any corporate (or similar organizational) action is taken by the Borrower or any of its Material Subsidiaries for the purpose of effecting any of the foregoing. 5.2. ACCELERATION, ETC. If an Event of Default shall have occurred and be continuing, THEN, and in any such event, the Lender (i) may, by notice to the Borrower, declare the Commitment and its obligation to make Loans to be terminated, whereupon the same shall forthwith terminate, and (ii) may, by notice to the Borrower, declare the Note, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that in the event of an actual or deemed entry of an order for relief with respect to the 9 10 Borrower or any of its subsidiaries under the Bankruptcy Code, (A) the obligation of the Lender to make Loans shall automatically be terminated and (B) the Loans, the Note, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. 5.3. SHARING OF PROCEEDS OF ENFORCEMENT. The Lender irrevocably undertakes for the benefit of the Administrative Agent and the Lenders party to the Credit Agreement that all amounts collected (by setoff or otherwise) in connection with the enforcement of this Agreement and the Note after the occurrence and during the continuance of an Event of Default hereunder will be applied as provided in section 10.3 of the Credit Agreement. The Borrower hereby consents to any such application. 6. DEFINITIONS. 6.1. TERMS DEFINED IN CREDIT AGREEMENT. Unless otherwise defined herein, terms which are defined in the Credit Agreement, as originally executed and delivered, are used herein with the same meaning. 6.2. DEFINED TERMS. As used in this Agreement, the following terms have the following meanings: "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in Cleveland, Ohio and, if the applicable Business Day relates to any Eurodollar Loans, on which dealings are carried on in the London interbank market. "CLOSING DATE" shall have the meaning provided in section 1.1. "CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of a Loan of one Type into a Loan of another Type pursuant to section 1.5 or 1.9. "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of June 1, 1998 (as now in effect or as hereafter amended or otherwise modified), among the Borrower, the financial institutions party thereto as Lenders, and KeyBank National Association, as Administrative Agent. "DEFAULT" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "EFFECTIVE DATE" shall mean the date when this Agreement is executed and delivered by the parties hereto. "EURODOLLAR LOAN" shall mean each Loan bearing interest at the rates provided in section 1.6(b). "EURODOLLAR RATE" shall mean with respect to each Interest Period for a Eurodollar Loan, (A) either (i) the rate per annum for deposits in Dollars of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan for which an interest rate is then being determined for a maturity most nearly comparable to such Interest Period which appears on page 3750 of the Dow Jones Telerate Screen as of 11:00 A.M. (local time at the Notice Office) on the date which is two Business Days prior to the commencement of such Interest Period, or (ii) if such a rate does not appear on such page, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Dollars are offered to the Lender by prime banks in the London interbank Eurodollar market for deposits of amounts in Dollars in same day funds comparable to the outstanding principal amount of the Eurodollar Loan for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period, in each case divided (and rounded 10 11 upward to the nearest whole multiple of 1/16th of 1%) by (B) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves and without benefit of credits for proration, exceptions or offsets which may be available from time to time) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "PRIME RATE LOAN" means an Loan which bears interest as provided in section 1.6(a). "TYPE" of Loan means a Prime Rate Loan or a Eurodollar Loan, as the case may be. SECTION 7. MISCELLANEOUS. 7.1. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or the Note, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 7.2. NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the Borrower, at Suite 220, 3201 Enterprise Parkway, Beachwood, Ohio 44122, attention: Chief Financial Officer (facsimile: (216) 464-8376); and if to the Lender at 127 Public Square, Cleveland, Ohio 44114, attention: Large Corporate Group (facsimile: (216) 689-4981); or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 7.3. NO WAIVER; REMEDIES. No failure on the part of the Lender to exercise, and no delay in exercising, any right under this Agreement or the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 7.4. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. 7.5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement and the other documents to be delivered in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of special counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under this Agreement and such other documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this section 7.5. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution, delivery, filing and recording of the this Agreement and the other documents to be delivered in connection herewith, and agrees to save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. 7.6. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other 11 12 indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Note, whether or not the Lender shall have made any demand hereunder or thereunder and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. 7.7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, EXCEPT that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender. 7.8. MARGIN STOCK. The Lender is not relying on any direct or indirect security of any Margin Stock in extending the credit facilities provided for herein and this Agreement shall be construed in a manner consistent with such intention. 7.9. GOVERNING LAW. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of Ohio. 7.10. WAIVER OF JURY TRIAL. Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the Note or the transactions contemplated hereby or thereby. 7.11. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same agreement. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Lender. 12 13 ------------------------------- If the foregoing correctly sets forth the arrangements between us with regard to the matters specified above, please sign in the space provided below and return a counterpart of this letter to the undersigned whereupon this letter shall be a binding agreement. Again, we thank you sincerely for this opportunity to be of assistance to you, and we look forward to a long and mutually beneficial relationship with you. Very truly yours, KEYBANK NATIONAL ASSOCIATION BY:/S/ THOMAS J. PURCELL ------------------------------ VICE PRESIDENT Accepted and agreed as of the date set forth above. NCS HEALTHCARE, INC. BY:/S/ GERALD D. STETHEM ------------------------------------ CHIEF FINANCIAL OFFICER 13 EX-10.14 4 EXHIBIT 10.14 1 EXHIBIT 10.14 ================================================================================ NCS HEALTHCARE, INC. AS BORROWER THE LENDERS NAMED HEREIN AS LENDERS NBD BANK NATIONAL CITY BANK AS CO-AGENTS AND KEYBANK NATIONAL ASSOCIATION AS A LENDER, THE SWING LINE LENDER, THE LETTER OF CREDIT ISSUER AND AS ADMINISTRATIVE AGENT --------------------- AMENDMENT NO. 1 DATED AS OF JULY 13, 1998 TO CREDIT AGREEMENT DATED AS OF JUNE 1, 1998 --------------------- ================================================================================ 2 AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of July 13, 1998 ("THIS AMENDMENT"), among the following: (i) NCS HEALTHCARE, INC., a Delaware corporation (herein, together with its successors and assigns, the "BORROWER"); (ii) the Lenders party hereto; (iii) NBD BANK and NATIONAL CITY BANK, as Lenders and as Co-Agents; and (iv) KEYBANK NATIONAL ASSOCIATION, a national banking association, as a Lender, the Swing Line Lender, the Letter of Credit Issuer, and as the Administrative Agent under the Credit Agreement: PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders named therein, the Swing Line Lender and the Administrative Agent entered into the Credit Agreement, dated as of June 1, 1998 (as in effect immediately prior to the effective date of this Amendment, the "CREDIT AGREEMENT"; with the terms defined therein, or the definitions of which are incorporated therein, being used herein as so defined). (2) The Borrower, the Lenders party hereto and the Administrative Agent desire to increase the Total General Revolving Commitment under the Credit Agreement from $150,000,000 to $245,000,000, and to amend certain of the other terms of the Credit Agreement, all as more fully set forth below. Contemporaneously herewith, the Borrower is terminating the Bridge Facility Agreement and prepaying in full all loans outstanding thereunder. NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. AMENDMENTS. 1.1. COMMITMENTS. Effective on July 13, 1998, the Total General Revolving Commitment under the Credit Agreement is increased from $150,000,000 to $245,000,000 and Annex I to the Credit Agreement is amended and restated to read in its entirety as set forth in Annex I to this Amendment. 1.2. OTHER AMENDMENTS. (a) The phrase ", the Security Documents" is added to the definition of the term Credit Documents in section 1.1 of the Credit Agreement after the phrase "the Subsidiary Guaranty" which is contained in such definition. (b) There being no possibility at this time of any termination of the Total Commitment pursuant to section 4.3(a) of the Credit Agreement, such section 4.3(a) is deleted from the Credit Agreement. (c) A new section 8.14 is added to the Credit Agreement, reading as follows: 8.14. CERTIFIED RESOLUTIONS, ETC. In light of the increase in the Total General Revolving Commitment hereunder from $150,000,000 to $245,000,000, pursuant to Amendment No. 1 to Credit Agreement, dated as of July 13, 1998, and the termination of the entire $50,000,000 principal amount of the Bridge Facility Agreement, both of which became effective July 13, 1998, the Borrower will, prior to the earlier of (x) July 31, 1998, or (y) any Credit Event which would result in the sum of the Letter of Credit Outstandings and the aggregate Loans 3 outstanding hereunder exceeding $200,000,000, deliver to the Administrative Agent, in sufficient quantities for the Lenders, (i) certified resolutions of the Board of Directors of the Borrower authorizing the increase of the Total General Revolving Commitment hereunder from $150,000,000 to $245,000,000, and (ii) an opinion of Calfee, Halter & Griswold LLP, special counsel to the Borrower, addressed to the Administrative Agent and the Lenders, as to the due authorization, execution, delivery, binding effect and enforceability of such Amendment No. 1 and as to such other matters incident to such Amendment No. 1 as the Administrative Agent may reasonably request. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: (a) this Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer of the Borrower, and constitutes the valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms; (b) the representations and warranties of the Credit Parties contained in the Credit Agreement or in the other Credit Documents are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties are hereby reaffirmed as true and correct in all material respects as of the date when made; (c) no condition or event has occurred or exists which constitutes or which, after notice or lapse of time or both, would constitute an Event of Default; and (d) the Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Credit Documents to which it is a party. SECTION 3. RATIFICATIONS. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. SECTION 4. BINDING EFFECT. This Amendment shall become effective on July 13, 1998 if the following conditions shall have been satisfied on and as of such date: (a) this Amendment shall have been executed by the Borrower, the Lenders and the Administrative Agent, and counterparts hereof as so executed shall have been delivered to the Administrative Agent; (b) the Acknowledgment and Consent appended hereto shall have been executed by the Credit Parties named therein, and counterparts thereof as so executed shall have been delivered to the Administrative Agent; (c) the Administrative Agent shall have been notified by each of the Lenders that such Lenders have executed this Amendment (which notification may be by facsimile or other written confirmation of such execution); and thereafter this Amendment shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, and each Lender and their respective permitted successors and assigns. After this Amendment becomes effective, the Administrative Agent will promptly furnish a copy of this 2 4 Amendment to each Lender and the Borrower. SECTION 5. MISCELLANEOUS. 5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any subsequent Loan or other Credit Event shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. 5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 5.3. EXPENSES. As provided in the Credit Agreement, but without limiting any terms or provisions thereof, the Borrower shall pay on demand all reasonable costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment, including without limitation the reasonable costs and fees of the Administrative Agent's special legal counsel, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all reasonable costs and expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby. 5.4. SEVERABILITY. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. 5.5. APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio. 5.6. HEADINGS. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. 5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto separately in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. 3 5 IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written.
- ----------------------------------------------------------- -------------------------------------------------------- NCS HEALTHCARE, INC. KEYBANK NATIONAL ASSOCIATION, INDIVIDUALLY AS A LENDER, THE SWING LINE LENDER, THE LETTER OF CREDIT ISSUER, AND BY:____________________________ AS ADMINISTRATIVE AGENT CHIEF FINANCIAL OFFICER BY:____________________________ VICE PRESIDENT - -------------------------------------------------------------------------------------------------------------------- NBD BANK, NATIONAL CITY BANK, AS A LENDER AND AS CO-AGENT AS A LENDER AND AS CO-AGENT BY:____________________________ BY:____________________________ FIRST VICE PRESIDENT VICE PRESIDENT - -------------------------------------------------------------------------------------------------------------------- BANK ONE, NA FIRST UNION NATIONAL BANK BY:____________________________ BY:____________________________ VICE PRESIDENT VICE PRESIDENT - -------------------------------------------------------------------------------------------------------------------- COMERICA BANK MELLON BANK, N. A. BY:____________________________ BY:____________________________ VICE PRESIDENT VICE PRESIDENT - -------------------------------------------------------------------------------------------------------------------- HARRIS TRUST AND SAVINGS BANK STAR BANK, N. A. BY:____________________________ BY:____________________________ VICE PRESIDENT VICE PRESIDENT - -------------------------------------------------------------------------------------------------------------------- AMSOUTH BANK BANK HAPOALIM B. M., CHICAGO BRANCH BY:____________________________ VICE PRESIDENT BY:____________________________ VICE PRESIDENT AND:__________________________ TITLE: - --------------------------------------------------------------------------------------------------------------------
4 EX-21.1 5 EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
STATE OF INCORPORATION OR CORPORATE NAME ORGANIZATION Advanced Rx Services, Inc....................................................... New Jersey Beachwood HealthCare Management, Inc............................................ Delaware Cheshire Long Term Care Pharmacy, Inc........................................... Connecticut HLF Adult Home Pharmacy Corp.................................................... New York IV-A-Care of Wisconsin, Inc. ................................................... Wisconsin JK Medical Services, Inc........................................................ Oklahoma Kinetic Services, Inc........................................................... California Look Drug Stores, Inc........................................................... Wisconsin Management & Network Services, Inc.............................................. Ohio Marlowe Nursing Center Services Limited Partnership............................. Delaware Medi Centre, Inc................................................................ Michigan NCS Daven Drug, Inc............................................................. Ohio NCS HealthCare of Arizona, Inc.................................................. Ohio NCS HealthCare of Arkansas, Inc................................................. Ohio NCS HealthCare of California, Inc............................................... Ohio NCS HealthCare of Florida, Inc.................................................. Ohio NCS HealthCare of Illinois, Inc................................................. Illinois NCS HealthCare of Indiana, Inc.................................................. Indiana NCS HealthCare of Iowa, Inc..................................................... Ohio NCS HealthCare of Kansas, Inc................................................... Ohio NCS HealthCare of Kentucky, Inc................................................. Ohio NCS HealthCare of Maryland, Inc................................................. Ohio NCS HealthCare of Massachusetts, Inc............................................ Ohio NCS HealthCare of Michigan, Inc................................................. Ohio NCS HealthCare of Minnesota, Inc................................................ Ohio NCS HealthCare of Missouri, Inc................................................. Ohio NCS HealthCare of Modesto, Inc.................................................. Ohio NCS HealthCare of Montana, Inc.................................................. Ohio NCS HealthCare of Nebraska, Inc................................................. Ohio NCS HealthCare of New Mexico, Inc............................................... Ohio NCS HealthCare of New York, Inc................................................. Ohio NCS HealthCare of North Carolina, Inc........................................... Ohio NCS HealthCare of Ohio, Inc..................................................... Ohio NCS HealthCare of Oklahoma, Inc................................................. Oklahoma NCS HealthCare of Oregon, Inc................................................... Ohio NCS HealthCare of Pennsylvania, Inc............................................. Pennsylvania NCS HealthCare of Rhode Island, Inc............................................. Rhode Island NCS HealthCare of South Carolina, Inc........................................... Ohio NCS HealthCare of Tennessee, Inc................................................ Ohio NCS HealthCare of Texas, Inc.................................................... Ohio NCS HealthCare of Vermont, Inc.................................................. Ohio
E-3 2
STATE OF INCORPORATION OR CORPORATE NAME ORGANIZATION NCS HealthCare of Washington, Inc............................................... Ohio NCS HealthCare of Wisconsin, Inc................................................ Ohio NCS of Missouri, Inc............................................................ Delaware NCS Quality Care Pharmacy, Inc.................................................. Ohio NCS Services, Inc............................................................... Ohio NCS Unlimited, Inc.............................................................. Illinois NDS Consulting, Inc............................................................. Ohio PharmaSource Healthcare, Inc.................................................... Georgia Rescot Systems Group, Inc....................................................... Pennsylvania Thrifty Medical Supply, Inc..................................................... Oklahoma Uni-Care Health Services, Inc................................................... New Hampshire Uni-Care Health Services of Maine, Inc. ........................................ New Hampshire
E-4 EX-23 6 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-49417; Form S-3, 333-63437; Form S-3, No. 333-47293; Form S-3/A No. 333-29565 and Form S-3/A No. 333-35551) of NCS HealthCare, Inc. and in the related propsectuses of our report dated August 6, 1998, with respect to the consolidated financial statements of NCS HealthCare, Inc. and subsidiaries included in its Annual Report (Form 10-K) for the year ended June 30, 1998. /s/ ERNST & YOUNG LLP Cleveland, Ohio September 25, 1998 EX-27.1 7 EXHIBIT 27.1
5 1,000 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 1 21,186 0 160,752 18,427 43,784 221,519 69,559 25,966 623,790 72,157 108,180 198 0 0 287,136 623,790 509,064 380,217 380,217 0 2,279 8,199 20,345 9,014 11,331 0 0 0 11,331 .59 .58
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