-----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, AacBBvFm2Oqbw5c7q046WFjhqaIQ2tLoBEBEFQrdgYGOsutEU+2ohAopxEKsC5Z1 T9TWery3i8tRIMnzmKHHag== 0000950152-99-009167.txt : 19991117 0000950152-99-009167.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950152-99-009167 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-27602 FILM NUMBER: 99755929 BUSINESS ADDRESS: STREET 1: 3201 ENTERPRISE PKWY STREET 2: STE 2200 CITY: BEACHWOOD STATE: OH ZIP: 44122 BUSINESS PHONE: 2165143350 MAIL ADDRESS: STREET 1: 1400 MCDONALD INVESTMENT CENTER STREET 2: 800 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 10-Q 1 NCS HEALTHCARE, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1999 Commission File Number- 0-27602 ------- NCS HealthCare, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware No. 34-1816187 - ------------------------------- ---------------------- (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122 - --------------------------------------------------------- (Address of principal executive offices and zip code) (216) 378-6800 - ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check whether the registrant: 1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and 2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Common Stock Outstanding - ------------------------ Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practical date. Class A Common Stock, $.01 par value -- 14,516,329 shares as of November 9, 1999 Class B Common Stock, $.01 par value -- 5,871,811 shares as of November 9, 1999 1 2 NCS HEALTHCARE, INC. AND SUBSIDIARIES INDEX
Page ---- Part I. Financial Information: Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- September 30, 1999 and June 30, 1999 3 Condensed Consolidated Statements of Income- Three months ended- September 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows- Three months ended- September 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements - September 30, 1999 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
(Unaudited) (Note A) September 30, June 30, 1999 1999 ------------- --------- ASSETS Current Assets: Cash and cash equivalents $ 20,356 $ 29,424 Accounts receivable, less allowances 164,462 160,168 Inventories 49,184 49,244 Other 40,335 46,397 -------- -------- Total current assets 274,337 285,233 Property and equipment, at cost net of accumulated depreciation and amortization 58,016 59,116 Goodwill, less accumulated amortization 341,153 343,247 Other assets 12,853 11,903 -------- -------- Total assets $686,359 $699,499 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 52,245 $ 50,061 Accrued expenses and other liabilities 32,158 37,777 -------- -------- Total current liabilities 84,403 87,838 Line of credit 203,120 214,700 Long-term debt, excluding current portion 1,993 1,936 Convertible subordinated debentures 100,000 100,000 Other 18,564 18,591 Stockholders' Equity: Preferred stock, par value $ .01 per share, 1,000,000 shares authorized; none issued -- -- Common stock, par value $ .01 per share: Class A - 50,000,000 shares authorized; 14,453,662 and 14,277,492 shares issued and outstanding at September 30, 1999 and June 30, 1999, respectively 145 143 Class B - 20,000,000 shares authorized; 5,899,673 and 6,005,280 shares issued and outstanding at September 30, 1999 and June 30, 1999, respectively 59 60 Paid-in capital 264,198 263,882 Retained earnings 13,877 12,349 -------- -------- Total stockholders' equity 278,279 276,434 -------- -------- Total liabilities and stockholders' equity $686,359 $699,499 ======== ========
Note A: The balance sheet at June 30, 1999 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 -------- -------- Revenues $184,191 $172,846 Cost of revenues 143,891 128,990 -------- -------- Gross profit 40,300 43,856 Selling, general and administrative expenses (1) 32,040 32,801 -------- -------- Operating income 8,260 11,055 Interest expense, net 5,670 4,478 -------- -------- Income before income taxes 2,590 6,577 Income tax expense 1,062 2,829 Cumulative effect of accounting change, net of taxes (1) -- (2,921) -------- -------- Net income $ 1,528 $ 827 ======== ======== Net income per share - basic $ 0.08 $ 0.04 ======== ======== Net income per share - diluted $ 0.08 $ 0.04 ======== ======== Income before cumulative effect of accounting change per share - basic $ 0.08 $ 0.19 ======== ======== Income before cumulative effect of accounting change per share - diluted $ 0.08 $ 0.19 ======== ======== Shares used in the computation - basic 20,322 20,085 ======== ======== Shares used in the computation - diluted 20,322 20,171 ======== ========
(1) As disclosed in the Form 10-K for the year ended June 30, 1999, selling, general and administrative expenses as originally reported for the first quarter of fiscal 1999 excluded pre-tax costs of $1,757 that were capitalized prior to the adoption of SOP 98-5, "Reporting on the Costs of Start-up Activities." The $2,921 cumulative effect of the accounting change represents start-up costs, net of tax, that were previously capitalized as of June 30, 1998. As a result of the restatement for the adoption of SOP 98-5, net income and diluted earnings per share, were reduced by $3,923 and $0.20 from the originally reported amounts of $4,750 and $0.24, respectively, for the first quarter of fiscal 1999. See notes to condensed consolidated financial statements. 4 5 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended September 30, ---------------------- 1999 1998 -------- -------- OPERATING ACTIVITIES Net income $ 1,528 $ 827 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,300 5,746 Cumulative effect of accounting change, net of taxes -- 2,921 Changes in assets and liabilities, net of effects of assets and liabilities acquired: Accounts receivable, net (4,294) (17,747) Accrued expenses and other liabilities (3,196) (5,103) Other, net 6,438 (6,482) -------- -------- Net cash provided by (used in) operating activities 6,776 (19,838) -------- -------- INVESTING ACTIVITIES Purchases of businesses -- (425) Capital expenditures for property and equipment, net (2,329) (6,350) Other (1,753) (1,681) -------- -------- Net cash used in investing activities (4,082) (8,456) -------- -------- FINANCING ACTIVITIES Line-of-credit, net (11,580) 25,200 Repayment of long-term debt (182) (250) -------- -------- Net cash (used in) provided by financing activities (11,762) 24,950 -------- -------- Net decrease in cash and cash equivalents (9,068) (3,344) Cash and cash equivalents at beginning of period 29,424 21,186 -------- -------- Cash and cash equivalents at end of period $ 20,356 $ 17,842 ======== ========
See notes to condensed consolidated financial statements. 5 6 NCS HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (UNAUDITED) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending June 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended June 30, 1999. 2. During the fourth quarter of fiscal 1999, the Company recorded special and nonrecurring charges of $40.5 million ($24.3 million net of tax). A special charge of $32.4 million before tax was recorded to increase the allowance for doubtful accounts, and nonrecurring charges of $8.1 million before tax were recorded in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. The special charge to increase the allowance for doubtful accounts resulted from significant changes observed in industry and customer trends during the last three months of the fiscal year ended June 30, 1999, and items encountered from recent acquisitions. The circumstances of the customer and industry trends primarily relate to increased bankruptcies and significant financial difficulties recently experienced by the Company's customers primarily as a result of the Medicare Prospective Payment System implementation. The acquisition items encountered pertain to specific accounts receivable collectibility issues identified relating to previous utilization of "legacy" systems, and other nonrecurring issues which have resulted in potentially uncollectible accounts receivable. During the fourth quarter of fiscal 1999, the Company adopted a new plan of restructuring to consolidate certain pharmacy sites in similar geographies. The plan is a continuation of the plan adopted in fiscal 1998 to combine pharmacies in close proximity in order to improve operating efficiencies. As a result of the new exit plan, 4 additional pharmacy sites were consolidated into either a new or existing location as of September 30, 1999. During the year ended June 30, 1999, the Company recorded nonrecurring charges of $4.7 million, before tax, related to the new site consolidations and additional costs incurred on the site consolidations announced in the prior year. The remaining $3.4 million of the nonrecurring charge primarily relates to severance incurred during the fourth quarter associated with the Company's expense reduction initiatives, additional acquisition related and other miscellaneous expenses. Employee severance costs included in the nonrecurring charge relate to the termination of 120 employees. 6 7 Details of the fourth quarter fiscal 1999 special and nonrecurring charge, related activity and reserve balance are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99 ----------- ------------- ------------ -------- ---------- -------- ---------- (In millions) Site Consolidations Severance/compensation related Cash $ 2.1 $ (1.5) $ .6 $(.4) $.2 Lease terminations Cash .6 (.1) .5 (.2) .3 Asset impairments Non-cash 1.5 (1.5) -- -- -- Other Cash .5 (.5) -- -- -- Special increase to allowance for doubtful accounts Non-cash 32.4 (32.4) -- -- -- Other Cash 3.4 (2.7) .7 (.3) .4 ----- ------ ---- ---- --- Total $40.5 $(38.7) $1.8 $(.9) $.9 ===== ====== ==== ==== ===
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring charge of $8,900,000 primarily related to: 1) the adoption of a formal plan of restructuring to consolidate certain pharmacy sites in similar geographies; 2) the buyout of existing employment agreements with the prior owners of certain acquired businesses; 3) the write-off of certain financing fees; and 4) additional acquisition related expenses. The Company has adopted a formal plan of restructuring that will combine pharmacies in close geographical proximity in order to improve operating efficiencies. As a result of the plan, 17 pharmacy sites will be consolidated into either new or existing locations and an estimated total of 149 employees will be terminated. As of September 30, 1999, 14 site consolidations were completed, with the remainder expected to be completed by the end of fiscal 2000. Details of the fourth quarter fiscal 1998 nonrecurring charge, related activity and reserve balance are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99 ----------- ------------- ------------ -------- ---------- -------- ---------- (In millions) Site Consolidations Severance packages Cash $ .5 $ (.5) $-- $ -- $-- Lease terminations Cash .7 (.4) .3 (.1) .2 Asset impairments Non-cash 3.5 (3.5) -- -- -- Other Cash .6 (.6) -- -- -- Buyout of employment agreements Cash .9 (.8) .1 -- .1 Write-off financing fees Non-cash 1.3 (1.3) -- -- -- Other Cash 1.0 (.9) .1 (.1) -- Non-cash .4 (.4) -- -- -- ---- ----- --- ---- --- Total $8.9 $(8.4) $.5 $(.2) $.3 ==== ===== === ==== ===
7 8 3. The following table sets forth the computation of basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128):
THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 1999 1998 ------- ------- Numerator: Numerator for basic earnings per share - net income $ 1,528 $ 827 Effect of dilutive securities: Convertible debentures -- -- ------- ------- Numerator for diluted earnings per share $ 1,528 $ 827 ======= ======= Denominator: Denominator for basic earnings per share - Weighted average common shares 20,322 20,085 ------- ------- Effect of dilutive securities: Stock options -- 86 Convertible debentures -- -- ------- ------- Dilutive potential common shares -- 86 ------- ------- Denominator for diluted earnings per share 20,322 20,171 ======= ======= Basic earnings per share: Net income per share before accounting change $ 0.08 $ 0.19 Cumulative effect of change in accounting principle -- (0.15) ------- ------- Net income per share $ 0.08 $ 0.04 ======= ======= Diluted earnings per share: Net income per share before accounting change $ 0.08 $ 0.19 Cumulative effect of change in accounting principle -- (0.15) ------- ------- Net income per share $ 0.08 $ 0.04 ======= =======
At September 30, 1999, the Company has 1,335,944 of employee stock options that are potentially dilutive that were not included in the computation of diluted earnings per share as their effect would be antidilutive. The Company had $100,000,000 of convertible subordinated debentures outstanding at September 30, 1999 and 1998, that were convertible into 3,058,000 shares of Class A Common Stock that were not included in the computation of diluted earnings per share as their effect would be antidilutive for all periods presented. 4. The Company's facility in Indianapolis, Indiana has been the subject of an investigation by federal authorities, and the Company has engaged in discussions with representatives of the U.S. Attorney's office concerning the alleged violations of federal law at that facility. It is possible that the imposition of significant fines or other remedies in connection with the Indiana matter could have a material effect on the Company's financial condition and results of operations. The Company is involved from time to time in other litigation and regulatory investigations on various matters relating to the conduct of its business and acquisition related events. The Company is unable to predict the ultimate outcome of these other various current litigation and regulatory investigation matters. The Company 8 9 intends to vigorously defend actions currently pending. However, if the Company is unsuccessful in defending such matters and insurance is unavailable or insufficient, the resolution of certain lawsuits and regulatory investigations could have a material effect on the Company's consolidated financial position, results of operations, and cash flows. Certain of the Company's acquisition agreements provide for contingent purchase price arrangements under which the purchase price paid may be subsequently increased upon the achievement of specific operating performance targets during post acquisition periods. The additional purchase price, payable in cash or Company stock is recorded, if earned, upon resolution of the contingent factors. Depending on the outcome of various contingent factors, the purchase price contingently payable could have a material effect on the Company's financial condition and results of operations. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Operating results for the fiscal quarter ended September 30, 1999 continued to be negatively impacted by the implementation of Medicare's Prospective Payment System (PPS). The adverse impact of the implementation of the PPS under the Balanced Budget Act of 1997 for Medicare residents of skilled nursing facilities was significantly greater than anticipated. PPS has created numerous changes to reimbursement policies applicable to skilled nursing under Medicare Part A. Prior to PPS, Medicare reimbursed each skilled nursing facility based on that facility's actual Medicare Part A costs plus a premium. Under PPS, Medicare pays skilled nursing facilities a fixed fee per Medicare Part A patient day based on the acuity level of the patient. The per diem rate covers all items and services furnished during a covered stay for which reimbursement was formerly made separately under Medicare. Consequently, the Company has experienced revenue pressure as a result of nursing facilities attempting to manage pharmaceutical costs along with all other costs associated with patient care under a simple per diem reimbursement amount. In addition, there has been a reduction in utilization of other therapies such as speech, occupational and physical rehabilitation. Additionally, as a result of these changes, skilled nursing facilities have become increasingly more reluctant to admit Medicare residents, especially those requiring complex care, causing Medicare census in these facilities to weaken and a reduction in the average length of stay for Medicare residents. These factors have had the effect of significantly reducing overall occupancy in the facilities served by the Company. The resident acuity level has also decreased as these facilities have attempted to avoid high acuity patients negatively impacting overall utilization of drugs, particularly those with higher cost such as infusion therapy. For Medicare certified skilled nursing facilities with a high cost structure, or those which are unable to cut costs, PPS has caused significant earnings and cash pressure. Some facilities have sought consolidation as a method of reducing costs and increasing efficiencies causing the Company to experience some bed loss. These outcomes have negatively impacted nursing facilities and the institutional pharmacy services industry as a whole. Although there may be some legislative relief for the Company's customers, management is reacting to pressures in the current PPS environment by adjusting its cost structure appropriately. The Company is rapidly reducing operating and overhead costs and accelerating the implementation of the hub and spoke fulfillment and delivery model. Revenues for the three months ended September 30, 1999 increased $11,345,000 or 6.6% to $184,191,000 from $172,846,000 recorded in the comparable period in fiscal 1999. The increase in revenues during the first quarter of fiscal 2000 over the comparable prior year period is primarily attributed to internal growth. The Company's revenues continued to grow through marketing efforts to new and existing clients, increased drug utilization of long-term care facilities and the growth and integration of new and existing products and services by non Medicare Part-A residents. Internal revenue growth was primarily driven by expansion of the Company's non-pharmacy products and services. The total number of beds served by the Company as of September 30, 1999 was 258,000, up from the 251,000 beds served at September 30, 1998, but a slight decrease from the 262,000 beds served at June 30, 1999. Although the Company added a number of new customers during the quarter through its sales and marketing efforts, the number of beds served by the Company declined slightly due to decisions by management to terminate several uneconomic accounts. Cost of revenues for the three months ended September 30, 1999 increased $14,901,000 or 11.6% to $143,891,000 from $128,990,000 recorded in the comparable period in fiscal 1999. Cost of revenues as a percentage of revenues for the three month period ended September 30, 1999 was 78.1%, compared to 74.6% for the same period during the prior fiscal year. Gross margins during the period were effected by improved leverage associated with purchasing pharmaceuticals, improvements in formulary management programs and restructuring and streamlining production costs. These improvements were offset by gross margin reductions due to the impact of the PPS reimbursement system. The current period margin pressure resulted from continued Medicare Part A pricing pressure and reduced acuity levels and census 10 11 at customer facilities. In addition, payer mix has shifted slightly towards lower margin payers from the higher margin Medicare Part A business. Selling, general and administrative expenses for the three months ended September 30, 1999 decreased by $761,000 or 2.3% to $32,040,000, from $32,801,000 recorded in the comparable period in fiscal 1999. Selling, general and administrative expenses as a percentage of revenues was 17.4% for the three month period ended September 30, 1999, compared to 19.0% during the comparable period in fiscal 1999. Excluding the addition of $1,757,000 of pre-tax costs in the first quarter of fiscal 1999 for costs that were capitalized prior to the adoption of SOP-98-5, "Reporting on the Costs of Start-up Activities", selling, general and administrative costs for the three months ended September 30, 1999 increased $996,000 or 3.2% to $32,040,000 from $31,044,000 recorded in the comparable period in fiscal 1999. Excluding the effects of the adoption of SOP 98-5, selling, general and administrative expenses as a percentage of revenues was 17.4% for the three month period ended September 30, 1999, compared to 18.0% during the comparable period in fiscal 1999. The percentage decrease for the three month period ended September 30, 1999 is a result of efforts by the Company to reduce operating and overhead costs, accelerating the implementation of the hub and spoke fulfillment and delivery model and the ability to leverage overhead expenses over a larger revenue base. The Company has already reduced annualized operating expenses by over $8 million through staff reductions, selling general and administrative expense savings and the closing of four pharmacy sites. The Company had net interest expense of $5,670,000 for the three month period ended September 30, 1999, compared to net interest expense of $4,478,000 during the comparable period in fiscal 1999. The increase is primarily attributable to increased borrowing on the Company's revolving credit facility and other finance related charges during the first quarter of fiscal 2000 as compared to the same period in fiscal 1999. The additional funds were primarily used to fund internal growth and capital expenditures for infrastructure improvement. During the fourth quarter of fiscal 1999, the Company recorded special and nonrecurring charges of $40.5 million ($24.3 million net of tax). A special charge of $32.4 million before tax was recorded to increase the allowance for doubtful accounts, and nonrecurring charges of $8.1 million before tax were recorded in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations and other nonrecurring items. The special charge to increase the allowance for doubtful accounts resulted from significant changes observed in industry and customer trends during the last three months of the fiscal year ended June 30, 1999, and items encountered from recent acquisitions. The circumstances of the customer and industry trends primarily relate to increased bankruptcies and significant financial difficulties recently experienced by the Company's customers primarily as a result of the Medicare Prospective Payment System implementation. The acquisition items encountered pertain to specific accounts receivable collectibility issues identified relating to previous utilization of "legacy" systems, and other nonrecurring issues which have resulted in potentially uncollectible accounts receivable. During the fourth quarter of fiscal 1999, the Company adopted a new plan of restructuring to consolidate certain pharmacy sites in similar geographies. The plan is a continuation of the plan adopted in fiscal 1998 to combine pharmacies in close proximity in order to improve operating efficiencies. As a result of the new exit plan, 4 additional pharmacy sites were consolidated into either a new or existing location as of September 30, 1999. During the year ended June 30, 1999, the Company recorded nonrecurring charges of $4.7 million, before tax, related to the new site consolidations and additional costs incurred on the site consolidations announced in the prior year. The remaining $3.4 million of the nonrecurring charge primarily relates to severance incurred during the fourth quarter associated with the Company's expense reduction initiatives, additional acquisition related and other miscellaneous expenses. Employee severance costs included in the nonrecurring charge relate to the termination of 120 employees. 11 12 Details of the fourth quarter fiscal 1999 special and nonrecurring charge, related activity and reserve balance are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99 ----------- ------------- ------------ -------- ---------- -------- ---------- (In millions) Site Consolidations Severance/compensation related Cash $ 2.1 $ (1.5) $ .6 $(.4) $.2 Lease terminations Cash .6 (.1) .5 (.2) .3 Asset impairments Non-cash 1.5 (1.5) -- -- -- Other Cash .5 (.5) -- -- -- Special increase to allowance for doubtful accounts Non-cash 32.4 (32.4) -- -- -- Other Cash 3.4 (2.7) .7 (.3) .4 ----- ------ ---- ---- --- Total $40.5 $(38.7) $1.8 $(.9) $.9 ===== ====== ==== ==== ===
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring charge of $8,900,000 primarily related to: 1) the Company adopting a formal plan of restructuring to consolidate certain pharmacy sites in similar geographies; 2) the buyout of existing employment agreements with the prior owners of certain acquired businesses; 3) the write-off of certain financing fees; and 4) additional acquisition related expenses. The Company adopted a formal plan of restructuring that will combine pharmacies in close geographical proximity in order to improve operating efficiencies. As a result of the plan, 17 pharmacy sites will be consolidated into either new or existing locations and an estimated total of 149 employees will be terminated as a result of the plan. As of September 30, 1999, 14 site consolidations were completed with the remainder expected to be completed by the end of fiscal 2000. Details of the fourth quarter fiscal 1998 nonrecurring charge, related activity and reserve balance are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99 ----------- ------------- ------------ -------- ---------- -------- ---------- (In millions) Site Consolidations Severance packages Cash $ .5 $ (.5) $-- $ -- $-- Lease terminations Cash .7 (.4) .3 (.1) .2 Asset impairments Non-cash 3.5 (3.5) -- -- -- Other Cash .6 (.6) -- -- -- Buyout of employment agreements Cash .9 (.8) .1 -- .1 Write-off financing fees Non-cash 1.3 (1.3) -- -- -- Other Cash 1.0 (.9) .1 (.1) -- Non-cash .4 (.4) -- -- -- ---- ----- --- ---- --- Total $8.9 $(8.4) $.5 $(.2) $.3 ==== ===== === ==== ===
Liquidity and Capital Resources Net cash provided by operating activities was $6,776,000 for the three months ended September 30, 1999, as compared to net cash used in operating activities of $19,838,000 during the comparable period in fiscal 1999. The increase in net cash provided by operating activities was primarily due to a slower growth rate in accounts 12 13 receivable and refunds received from federal and state income tax authorities. The slower growth rate in accounts receivable from June 30, 1999 is mainly attributable to slower internal sales growth during the three months ended September 30, 1999, as compared to the three months ended June 30, 1999. Additionally, some accounts receivable growth is attributable to slower payment trends by customers as a result of PPS implementation. Net cash used in investing activities decreased to $4,082,000 during the three months ended September 30, 1999, as compared to $8,456,000 during the comparable period in fiscal 1999. The decrease is primarily the result of reduced cash outlays for information system equipment and building leasehold improvements. The reduced levels of capital expenditures were achieved as a result of decreased activity in the conversion of sites to a common operating system and fewer build-outs required as the majority of the physical infrastructure of the Company has been completed. To date, conversion to the common operating system, Concord DX, has been implemented in over 80% of the Company's customer base. Net cash used in financing activities increased to $11,762,000 during the three months ended September 30, 1999, from net cash provided by financing activities of $24,950,000 during the comparable period in fiscal 1999. The increase in cash used in financing activities is a result of the Company's efforts to pay down the outstanding revolving credit facility balance using positive cash flow generated from operating activities and decreasing cash reserves. In August 1997, the Company issued $100 million of convertible subordinated debentures due 2004. The debentures carry an interest rate of 5 3/4%. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. The Company's ability to make payments of principal and interest on the debentures will depend on its ability to receive distributions of cash from its subsidiaries. Each of the Company's wholly-owned subsidiaries has guaranteed the Company's payment obligations under the debentures, so long as such subsidiary is a member of an affiliated group (within the meaning of Section 279(g) of the Internal Revenue Code of 1986, as amended) that includes the Company. The satisfaction by the Company's subsidiaries of their contractual guarantees, as well as the payment of dividends and certain loans and advances to the Company by such subsidiaries, may be subject to certain statutory or contractual restrictions, are contingent upon the earnings of such subsidiaries and are subject to various business considerations. The Company expects to meet future financing needs principally through the use of its $235 million revolving credit facility. The Credit Facility bears interest at a variable rate based upon the Eurodollar rate plus a spread of 150 to 275 basis points, dependent upon the Company's ratio of Total Funded Debt to EBITDA. The Company believes that its cash and available sources of capital, including funds available under its revolving credit facility, are sufficient to meet its normal operating requirements. Certain Regulatory Investigations and Legal Proceedings In the ordinary course of its business, the Company is subject to inspections, audits, inquiries and similar actions by governmental authorities responsible for enforcing the laws and regulations to which the Company is subject. In January 1997, governmental authorities requested information from the Company in connection with an audit and investigation of the circumstances surrounding the apparent drug-related homicide of a non-management employee of one of the Company's pharmacies. The information provided relates to the Company's inventory and the possible theft of controlled substances from this pharmacy. The review identified inadequacies in record keeping and inventory control at this pharmacy. In a meeting with governmental authorities in August 1997, the Company discussed its findings and those of the government and documented corrective measures taken by the Company. In September 1998, the Company was notified by the United States Department of Justice, United States Attorney for the Southern District of Indiana ("USA-Indiana") that the United States Drug Enforcement Administration had referred this matter to the Office of the USA-Indiana for possible legal action involving certain numerous alleged violations of federal law. The USA-Indiana invited the Company to contact the Office of the USA-Indiana in an effort to resolve the matter. The Company subsequently contacted the Office of the USA-Indiana, discussions regarding a possible settlement of this matter ensued and are currently proceeding. No specific settlement terms or amounts have yet been agreed upon by the parties. 13 14 In January 1998, federal and state government authorities sought and obtained various documents and records from a Herrin, Illinois pharmacy operated by a wholly-owned subsidiary of the Company. The Company has cooperated fully and continues to cooperate fully with the government's inquiry. In June 1999, representatives of the Company met with attorneys with the Civil and Criminal Divisions of the Office of the United States Department of Justice, United States Attorney for the Southern District of Illinois ("USA-Illinois") regarding the government's investigation. The USA-Illinois informed the Company that it had information that allegedly substantiated numerous violations of federal law, but the Company has not received any written notification of these allegations. Discussions regarding the government's investigation have ensued and are currently proceeding between representatives of the USA-Illinois and the Company. It is possible that the imposition of significant fines or other remedies in connection with the resolution of either of these matters could have a material effect on the Company's financial condition and results of operations. On June 7, 1999, a lawsuit was filed against the Company in the Superior Court of Norfolk County, Massachusetts. Plaintiffs are certain selling stockholders of the PharmaSource Group, Inc. ("PharmaSource"), which NCS acquired on September 17, 1997. The complaint alleges breach of contract and unfair business practices arising out of NCS' non-payment of certain amounts allegedly payable under the terms of an earn-out provision included in the acquisition agreement. Plaintiffs seek to compel payment of NCS stock worth $17,385,223 based on the preliminary earn-out calculation. NCS disputes the amount of the earn-out claim by the plaintiffs. Under the terms of the earn-out arrangement, amounts payable under the earn-out are to be paid through the issuance of additional shares of Class A Common Stock. If on the first anniversary of the date of issuance of the earn-out shares, the per share price of the Company's Class A Common Stock is less than $17.225 per share, then the Company will be required to issue additional shares to compensate for the difference in value. The Court held a pretrial hearing on October 4, 1999, at which time the court set a discovery schedule and order concerning the progression of the proceedings. Discovery closes on April 14, 2000 and dispositive motions are due on April 28, 2000. Trial has been set for June of 2000. NCS strongly believes that it has meritorious defenses against the claim of the plaintiffs and believes the earn-out, if any, is substantially less than the amount claimed by the plaintiffs. Year 2000 Readiness Disclosure Computer systems in use after the beginning of the year 2000 will need to accept four-digit entries in the date code field in order to distinguish 21st century dates from 20th century dates. Consequently, many companies face significant uncertainties because of the need to upgrade or replace their currently installed computer systems to comply with such "Year 2000" requirements. Various systems could be affected ranging from complex information technology ("IT") computer systems to non-IT devices, such as an individual machine's programmable logic controller. The Company has reviewed all significant current and planned internal IT systems and believes these systems are Year 2000 compliant. However, there can be no assurance that coding errors or other defects will not be discovered in the future. The Company is currently in the process of reviewing and assessing all significant non-IT devices for Year 2000 compliance. The Company expects to complete the process for review and assessment, device testing and resolution of noncompliance issues, if any, by November 30, 1999. The Company is currently determining the extent to which it may be impacted by any third parties' failure to remediate their own Year 2000 issues. The Company is assessing and reviewing relationships with all significant customers, suppliers, payors and other third parties to determine the extent, if any, to which the Company could be impacted by those third-parties' failure to remediate their own Year 2000 issues. The Company expects to complete this review and assessment by November 30, 1999. At this stage of the review no assurance can be given that the failure by one or more third parties to become Year 2000 compliant will not have a material adverse impact on its operations. 14 15 The Company intends to develop contingency plans for significant third parties' determined to be at high risk of noncompliance or business disruption before November 30, 1999. The contingency plans will be developed on a case-by-case basis. Judgments regarding contingency plans are themselves subject to many variables and uncertainties. There can be no assurance that the Company will correctly anticipate the level, impact or duration of noncompliance by third parties, or that its contingency plan will be sufficient to mitigate the impact. Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. Nevertheless, since it is not possible to anticipate all future outcomes, especially when third parties are involved, there could be circumstances in which the Company's operations could be interrupted. If the federal and state healthcare reimbursement agencies or their intermediaries fail to implement Year 2000 compliant technologies before December 31, 1999, a significant cash flow problem may result. In addition, disruptions in the economy in general resulting from Year 2000 issues could also adversely impact the Company. The majority of costs related to Year 2000 readiness issues have been and will be expensed as incurred and are expected to be funded through operating cash flows. Through the first quarter of fiscal 2000 costs related to the Year 2000 issue have been immaterial to the financial results of the Company. Future costs related to Year 2000 issues are also expected to be immaterial to the financial results of the Company. Estimates of costs are based on currently available information and developments may occur that could increase the costs related to Year 2000 issues. Disclosure Regarding Forward-Looking Statements Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q, including, but not limited to, those regarding the Company's financial position, business strategy, Year 2000 readiness disclosure and other plans and objectives for future operations and any other statements that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have expected effects on its business or operations. Among the factors that could cause actual results to differ materially from the Company's expectations include continuation of various trends in the long-term care market (including the trend toward consolidation and the impact of the Balanced Budget Act of 1997), competition among providers of long-term care pharmacy services, the availability of capital for capital requirements, changes in regulatory requirements, reform of the health care delivery system, litigation, disruption to the operations of the Company resulting from Year 2000 issues and other factors. 15 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered into derivative financial instruments for trading purposes. The Company's primary market risk exposure relates to interest rate risk. The Company has managed its interest rate risk by balancing its exposure between fixed and variable rates while attempting to minimize its interest costs. The Company has a balance of $203,120,000 on its revolving credit facility at September 30, 1999, which is subject to a variable rate of interest based on the Eurodollar rate. Assuming borrowings at September 30, 1999, a one-hundred basis point change in interest rates would impact net interest expense by approximately $2,031,200 per year. 16 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Numbers Exhibit ------- ------- 10.1 Amendment No. 3, dated August 3, 1999, to the Credit Agreement dated as of June 1, 1998 , among the Company and the Lenders named therein, NBD Bank and National City Bank, as co-agents, and KeyBank National Association, as a Lender, the Swing Line Lender, the Letter of Credit issuer and as Administrative Agent. (A) 10.2 Security Agreement, dated August 3, 1999, among the Company, its subsidiaries and KeyBank National Association. (A) 10.3 Form of Salary Continuation Agreement, dated July 20, 1999, between the Company and each of Thomas B. Mangum, J. Patrick Morris, Marvin R. Richardson, and Gerald D. Stethem. 27.1 Financial Data Schedule (A) Incorporated herein, by reference to the appropriate exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1999. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended September 30, 1999. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NCS HealthCare, Inc. (Registrant) Date: November 15, 1999 By /s/ Kevin B. Shaw ---------------------------------- Kevin B. Shaw President, Chief Executive Officer and Director Date: November 15, 1999 By /s/ William B. Byrum ---------------------------------- William B. Byrum Chief Operating Officer Date: November 15, 1999 By /s/ Gerald D. Stethem ---------------------------------- Gerald D. Stethem Chief Financial Officer 18 EX-10.3 2 EXHIBIT 10.3 1 EXHIBIT 10.3 SALARY CONTINUATION AGREEMENT ----------------------------- THIS SALARY CONTINUATION AGREEMENT between NCS HealthCare, Inc., an Ohio corporation (the "Company"), and ____________________ (the "Employee"), dated as of the 20th day of July, 1999. WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. ------------ 1.1 EFFECTIVE DATE OF THIS AGREEMENT. (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 2 (c) The "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change of Control Period shall not be so extended. 1.2 CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own a majority of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 3 2. Termination of Employment. -------------------------- 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony, or (iii) illegal drug use. 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion with or without "Good Reason." For purposes of this Agreement, "Good Reason" means any of the following: (a) the reduction or diminution of the Employee's base salary or other compensation or benefits, (b) the relocation of the Company's principal executive offices outside the Cleveland, Ohio metropolitan area, or (c) the requirement by the Company that the Employee be based anywhere other than the Company's principal executive offices or the Employee's then current office. 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). 3 4 (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is twenty-four (24) months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment for Good Reason: (a) The Company shall continue pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) For the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose 4 5 (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 5. FULL SETTLEMENT. 5 6 The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: 6 7 If to the Company: NCS HealthCare, Inc. 3201 Enterprise Parkway Suite 220 Beachwood, Ohio 44122 Attention: President and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. (Signature Page Follows) 7 8 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. __________________________________________ ("Employee") NCS HEALTHCARE, INC. By:________________________________________ Kevin B. Shaw, President and Chief Executive Officer (the "Company") 8 EX-27 3 EXHIBIT 27
5 1,000 3-MOS JUN-30-2000 JUL-1-1999 SEP-30-1999 20,356 0 202,427 37,965 49,184 274,337 96,683 38,667 686,359 84,403 305,113 0 0 204 278,075 686,359 184,191 184,191 143,891 143,891 0 1,380 6,783 2,590 1,062 1,528 0 0 0 1,528 .08 .08
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