-----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, QLCuW4Gl/yEOZdXSBo7RMwrbLHwNC+HSJo7qmTOE3Rgk3BfPN1TRKZCETF1sAqAf Z+bSycibculyWjyuVDFjXw== 0000950130-03-002762.txt : 20030331 0000950130-03-002762.hdr.sgml : 20030331 20030331161240 ACCESSION NUMBER: 0000950130-03-002762 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTIV HEALTH INC CENTRAL INDEX KEY: 0001089473 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 522181734 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30318 FILM NUMBER: 03630923 BUSINESS ADDRESS: STREET 1: 200 COTTONTAIL LANE STREET 2: VANTAGE COURT NORTH CITY: SOMERSET STATE: NJ ZIP: 08873 MAIL ADDRESS: STREET 1: 200 COTTONTAIL LANE STREET 2: VANTAGE COURT NORTH CITY: SOMERSET STATE: NJ ZIP: 08873 FORMER COMPANY: FORMER CONFORMED NAME: SNYDER HEALTHCARE SERVICES INC DATE OF NAME CHANGE: 19990624 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to _______ Commission file number: 0-30318 VENTIV HEALTH, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 52-2181734 (State or Other Jurisdiction No. of (I.R.S. Employer Identification No.) Incorporation or Organization) 200 Cottontail Lane Vantage Court North Somerset, New Jersey 08873 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (800) 416-0555 Securities registered pursuant to Section 12(g) of the Act: Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] Based on the closing sale price on the Nasdaq National Market as of the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $31,639,055. For the purposes of this calculation, shares owned by officers, directors and 10% shareholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not a determination for other purposes. As of March 21, 2003, there were 22,958,776 outstanding shares of the registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive proxy statement to be filed with the Commission for use in connection with the 2002 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K. TABLE OF CONTENTS
Item Description Page - ---- ----------- ---- PART I 1 Business ..................................................................................... 1 2 Properties ................................................................................... 6 3 Legal Proceedings ............................................................................ 7 4 Submission of Matters to a Vote of Securities Holders ........................................ 7 PART II 5 Market for the Registrant's Common Stock and Related Stockholder Matters ..................... 8 6 Selected Financial Data ...................................................................... 9 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 10 7A Quantitative and Qualitative Disclosures About Market Risk ................................... 23 8 Financial Statements and Supplementary Data .................................................. 24 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ........ 46 PART III 10 Directors and Executive Officers of the Registrant ........................................... 47 11 Executive Compensation ....................................................................... 47 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 47 13 Certain Relationships and Related Transactions ............................................... 47 PART IV 14 Controls and Procedures ...................................................................... 48 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................. 48
CAUTIONARY STATEMENT All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements or characterizations of historical fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning future revenues, operating expenses, capital requirements, growth rates, cash flows, operational performance, sources and uses of funds and acquisitions, our accounting estimates, assumptions and judgments, the competitive nature of and anticipated growth in our markets, the need for additional capital, changes in the pharmaceutical industry, uncertainty related to the continued growth of pharmaceutical outsourcing, changes in the competitive climate in which we operate, our ability to maintain large client contracts or enter into new contracts, uncertainties related to future incentive payments and earnings generated through revenue sharing arrangements and the emergence of future opportunities and other factors. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "potential," "continue," similar expressions and variations or negatives of these words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date of this Report and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section "Risks Related to Our Business" in Item 7 of this Report. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. PART I Item 1. Business. Overview Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is a leading provider of outsourced sales and marketing solutions for the pharmaceutical and life sciences industries. The Company offers a broad range of integrated and standalone services, in a context of consultative partnership that identifies strategic goals and applies targeted, tailored solutions. The portfolio of offerings includes: integrated sales force recruitment, training and management; standalone sales force recruitment, training, systems automation and regulatory compliance services; product, sample and literature fulfillment; telemarketing and other marketing support; product/brand management; brand/portfolio analytics and forecasting; market research and intelligence; and strategic and tactical planning. Over almost three decades, Ventiv's businesses have provided a broad range of innovative strategic and tactical solutions to many of the world's leading pharmaceutical and life sciences companies. The aggregation of the businesses currently conducted by Ventiv began with a merger transaction between Snyder Communications, Inc. ("SNC") and a U.S. provider of pharmaceutical sales and marketing services in 1997. After forming its pharmaceutical sales and marketing services business segment in that year, SNC completed a series of follow-on acquisitions in the healthcare marketing services areas. On June 22, 1999, the Board of Directors of SNC approved a plan to effect a distribution (the "Distribution") of SNC's healthcare marketing services business segment to existing stockholders. SNC contributed the net assets and liabilities related to its healthcare marketing services business segment in the third quarter of 1999 to Ventiv, which was then a newly formed subsidiary of SNC, and subsequently consummated the Distribution on September 27, 1999 through a special dividend of one share of Ventiv common stock for every three shares of SNC common stock. As a result of the Distribution, Ventiv became an independently managed, publicly traded corporation. Our organization and service offerings reflect the changing needs of our clients as their new products move through the development and regulatory approval process and into commercialization. As a potential drug or device advances in the clinical trial process towards commercialization, our clients must design a focused launch campaign to maximize product profitability upon regulatory approval of their product. Prescription products are typically sold through product detailing, which involves one-on-one meetings between a sales representative and a targeted prescriber. Pharmaceutical manufacturers, in particular, rely on this sales process as the most effective means of influencing prescription-writing patterns, although these companies are now increasingly supplementing their marketing programs with direct-to-consumer advertising. We are in the process of making available our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 free of charge on our corporate website located at www.ventiv.com. These reports will be available as soon as reasonably practicable after the filing of those reports with the Securities and Exchange Commission. Information found on our website should not be considered part of this annual report on Form 10-K. Restatement of Results Subsequent to the issuance of the Company's consolidated financial statements for the year ended December 31, 2001, the Company determined that certain balances relating to its now held for sale French operations contained errors resulting from consolidating entries prior to 2000 that had not been properly reconciled to the subsidiary. As a result, the Company's stockholders' equity and accumulated deficit as of December 31, 1999 have been restated from the amounts previously reported to reflect an adjustment that decreased stockholders' equity and increased accumulated deficit by $3.8 million to properly reconcile certain balances. The accompanying consolidated balance sheet as of December 31, 2001 has also been restated from the amounts previously reported to reflect the adjustment to stockholders' equity and accumulated deficit and the related adjustments to decrease assets by $1.7 million and increase liabilities by $2.1 million; these adjustments are included in balances associated with assets and liabilities held for sale. 1 Ventiv's Business Units We serve our clients primarily through two business units: Planning and Analytics (as provided by the Company's Health Products Research ("HPR") subsidiary) and Ventiv Health Sales and Marketing ("VHSM"). These units address various aspects of the marketing process for pharmaceutical and other life sciences products. A product's targeted marketing and sales effort must be carefully designed to maximize the manufacturer's return on investment. Sales results must be constantly monitored and sales strategies must be adjusted to respond to a dynamic marketplace. HPR has recognized expertise in assisting clients in these areas. Pharmaceutical products must be sold by a team of highly trained sales representatives. VHSM has market-leading capability in recruiting, training, deploying and managing small to large scale product sales forces. VHSM is capable of functioning independently or in tandem with a client's existing, internal sales force. Each business unit performs specific functions as part of the overall sales and marketing plan. Our clients may choose either to work with us across our full spectrum of services or narrowly focus their service needs within one of these units. Given the nature of the services provided by each business unit in relation to marketing needs throughout a product's life cycle, ample opportunities exist for cross-selling to current clients. Many of our larger clients utilize the services of both units. Our strategic goal is to provide the pharmaceutical and life sciences industries with value-added marketing and sales services that will enable our clients to achieve superior product sales through higher market penetration. Our business units possess significant combined experience, as each has developed and conducted successful marketing and sales programs for hundreds of individual pharmaceutical and life science products. Our expertise spans most therapeutic categories, including the significant markets of cardiology, anti-infectives, oncology and neurology. Our core competencies and track record of proven success enable us to establish strong relationships with our clients' senior marketing and sales personnel, which greatly contributes to client retention. The following is a detailed description of our individual business units (see Part II - Item 8 - Notes to Consolidated Financial Statements - Segment Information for a further description): HPR HPR is capable of designing product launch programs and monitoring each program's progress to maximize the potential for a product's success. This is achieved by using proprietary software to analyze data compiled from internal sources (such as the contract pharmaceutical sales force) and third parties (such as IMS Health, Inc., a provider of market research data for the healthcare industry) to determine specifically how a targeted strategy can maximize asset utilization and return on investment for our clients. HPR's distinctive processes for developing strategic and tactical resource allocation are predicated upon the linking of services and data through solutions based on physician-level intelligence. The direct links that are created between strategy, tactics and data ensures pragmatic and effective solutions and yields tangible results for our clients. HPR offers the following core services, which it customizes for particular clients: o Market Segmentation Analyses: HPR conducts segmentation analyses of the physician universe using pharmacy-level data in combination with numerous variables such as product potential, market share, the medical professionals' specialties and reputations as innovators, and many other individually weighted qualitative and quantitative data points. Segmenting this physician-level data supports analyses and modeling that are designed to address issues such as promotion response, targeting, message development and forecasting. HPR also links segment data to primary market research to identify differences in attitudes and estimate future prescribing patterns. o Promotion Planning and Evaluation: HPR's proprietary Promotion Response Optimization Model ("PROM/SM/") measures historical promotion response by physicians from various personal and non-personal promotional events (including market trials). This provides a comprehensive understanding of the sales responsiveness to an individual product or marketing effort. PROM/SM/ is unique in that it can measure a separate response for individual physicians by promotional channel. PROM/SM/ is also designed to quantify the interactive effect of promotional media. This data is used to determine the optimal promotional mix. Ultimately, PROM/SM/ is used to provide market intelligence to enhance market share, identify optimal sampling levels, evaluate the cost of a detail over time, understand the impact of marketing programs and measure field force effectiveness. o Resource Allocation (Single and Multi-Product): Utilizing segmentation and promotional response data, HPR's resource allocation models determine the resource needs for single-product or multiple brand promotions. The UniBrand/SM/ model uses the output of a PROM/SM/ analysis and market research as inputs into a causal forecasting model that develops, by brand, future promotion response curves and optimal, unconstrained details by physician segment while considering future market events and the knowledge of product management. Based on the response by promotion type and an understanding of the interaction among promotion types, a promotion mix analysis can determine the optimal promotion by brand. The UniBrand/SM/ approach focuses on increasing return on investment through the evaluation of content and capital employed for each promotion type. Additionally, it also identifies how one type of promotion can substitute for and/or enhance other promotion types. 2 Once the future response curves have been calibrated by UniBrand/SM/, this leading-edge technology can be incorporated in a multi-product resource allocation model, or RAM/SM/. RAM/SM/ is designed to maximize sales and profits by determining optimal sales force size and structure, as well as constrained details across brands. The RAM/SM/ approach also can be used to examine "what if" scenarios for different strategic and tactical alternatives. o Call Planning: Through its proprietary technologies and its Call Planning System ("CAPS/SM/") HPR provides an easily implemented targeting plan for the sales representative while ensuring the optimum allocation of field force effort across brands and physicians. The CAPSSM system determines the best call frequency and brand detailing priorities for each physician. CAPSSM also supports changes in the portfolio focus on short notice, thereby enabling organizations to respond quickly to internal and external developments. o Sales Force Deployment and Analysis Group: HPR provides strategic sales force alignment and deployment strategies for home office and field teams. Alignment services are conducted by analysts with technical expertise as well as healthcare industry experience who are committed to the design and realignment of sales forces. o Data Services: HPR provides healthcare-specific data management services by integrating data from multiple sources, including internal legacy systems and purchased third-party data, to identify opportunities that drive business performance. Data service consultants design customized data collection and manipulation software programs which analyze data, maintain report generation functions and manage operational activities such as production control, data clean-up, matching and ad hoc projects. o Market Research: HPR conducts primary and secondary research, syndicated studies, market tracking and custom research audits. It has established expertise in developing proprietary customized market research projects that measure attitudes and behaviors of diverse audiences including both physicians and consumers. During 2000, HPR introduced its pioneering Metropolitan-Area Promotional Audit (MPA), a syndicated service that studies thousands of physicians and tracks pharmaceutical promotional activity city by city, intelligence that was previously available only on a national basis. o Strategic Consulting: HPR's consultants in the strategic consulting group work with clients, designing solutions for issues such as resource allocation, forecasting, pricing, and compensation. Their focus on incorporating best practices within the culture of organizations yields pragmatic and easily implemented business solutions that can be integrated throughout the organization. HPR has invested significantly in the development of desktop tools that incorporate several of HPR's proprietary analytical models. The Company believes that these products will enhance future revenues by creating new revenue streams and demand for additional analytical consulting services. VHSM VHSM is organized to plan, implement and execute outsourced product commercialization programs for prescription pharmaceutical and other life sciences products. VHSM maintains and operates the requisite systems, facilities, and support services to rapidly recruit, train and deploy a customized, full-service and highly targeted sales force. Currently, VHSM operates one of the largest contract sales organizations in the U.S. (larger, in fact, than some pharmaceutical companies), with approximately 1,500 sales representatives as of December 31, 2002. Life sciences companies, particularly pharmaceutical manufacturers, have traditionally relied upon product detailing as the primary means of influencing prescription writing patterns and promoting their products. Product detailing consists of a one-on-one meeting in a physician's office where a sales representative reviews the medical profile of a product's FDA-approved indications. Information provided by the sales representative includes the product's role in treatment, efficacy, potential side-effects, dosage, danger of contra-indications with other drugs, cost and any other appropriate information. The dialogue is two-way with the salesperson collecting the views of each individual physician. Discussions will often include topics such as the type of patient most likely to benefit from a particular therapy as well as the relative benefits of alternative products. This requires the salesperson to be well educated and highly trained. Recruiting qualified personnel and providing client and product specific training are both core competencies of VHSM. In addition to engaging in an educational dialogue with the medical professional, the sales representative will provide free product samples as a supplement to the sales effort. This affords the prescription writer and his or her patients first-hand exposure to the medical product and creates a sense of familiarity and comfort with the product. Providing clients with the highest quality sales people requires effective recruiting and training. To accomplish a coordinated recruiting effort, we maintain a national recruitment office that locates and hires potential sales representatives. Our in-house human resources team adheres to selective hiring criteria and conducts detailed evaluations to ensure the highest quality of representation for our clients. VHSM's recruiters maintain a fully automated database of qualified candidates for immediate hiring opportunities, and our website home page offers an online application for employment. We offer these recruitment services to clients as part of an integrated sales force recruitment, training and management program, or on a standalone basis. VHSM hires a mix of full-time and flex-time representatives in order to accommodate the detailing level required by clients and maximize cost efficiency. 3 We also emphasize the training of our personnel, and believe we have made more significant investments in this area than our competitors. VHSM's Professional Development Group has the largest dedicated training facility of its type in the United States. Our goal is to ensure that sales representatives are knowledgeable and operate professionally, effectively, and efficiently. Topics such as sample accountability, negotiation tactics, personal writing skills, integrity selling, time and territory management, team productivity, and pharma-manager leadership are covered extensively in order to prepare the representatives for their contact with medical professionals. VHSM's trainers are top professionals in their field and rely upon proprietary information regarding physician prescribing behavior and industry best practices. As the trainees are from both VHSM's sales force and our clients' sales forces, the training and development services are essential to maintaining and building our relationships with the pharmaceutical companies. These strengths are widely recognized as differentiating factors, which distinguish VHSM from its competitors and benefit the overall contract sales effort. VHSM also offers these training services to clients as part of an integrated package or on a standalone basis. In addition to its dedicated sales forces, VHSM has also built and deployed several standing specialty sales teams that each promotes multiple complementary products from different manufacturers. These relationship sales teams ("RSOs") are dedicated to developing and extending long-term relationships with their target physician specialists, which increases the value of these teams to our clients over time. Each RSO team promotes multiple products that are mutually complementary to the physician, allowing us to build a total therapeutic call providing depth to our physician interactions. VHSM is also intimately involved in the marketing of several of these products. We are committed to providing our clients with customized cost-effective sales support. This is reflected in the variety of options clients have to choose from, including the type of sales force, the specialties of the sales force (oncology, cardiology, etc.), the methodology employed to target decision makers in the medical community and the type of analysis to be conducted based on the information the sales force collects. We work closely with our clients in all aspects of our service offering to ensure maximum impact of the product's promotional effort. Consistent with standard practices in the pharmaceutical industry, VHSM collects and analyzes sales force level data necessary to make marketing resource allocation decisions. Sales representatives are equipped with an industry-leading palm-top and laptop sales force automation system developed exclusively for VHSM. This system enables our sales representatives to rapidly collect sales call and physician profiling information while in the field, which is compiled daily in a central data storage server. Our information processing system allows sales management teams to analyze data regularly, compare the results with targeted initiatives and historical data, and make necessary adjustments to the sales strategy. VHSM also offers this sales force automation system on a standalone basis to clients. VHSM provides telemarketing services, which significantly enhance a life sciences company's ability to communicate effectively with physicians. These services give us the ability to conduct physician awareness programs, focus group recruitment, physician profiling, physician detailing, sampling follow-ups, qualification of sales leads, phone surveys, consumer surveys, customer service, compliance building and patient care management. Registered with the Food and Drug Administration ("FDA") as a secondary repackager, VHSM offers a full complement of warehousing, assembly and packaging, and mailing and distribution services. This allows VHSM to provide quick and efficient assembly of promotional programs with samples, under controlled conditions, and ship these promotional materials to potential prescribers from its warehouse. The effective warehousing and distribution system allows for precise tracking of promotional materials. The group's combination of pharmaceutical warehousing and direct mail capabilities allow it to offer coordinated sample delivery and sales calls to physicians as well as administer drug recalls and rebate programs, all of which have the potential to be part of a seamless service offering for the client. For example, offering avenues of support through the direct mail and sample fulfillment programs could enable VHSM and other sales forces to operate more efficiently and effectively by automating a significant portion of the post-physician consultation follow-up work (such as literature and sample mailings). Competitive Advantages Our ability to increase the incremental sales of older life sciences products and enhance the sale of newer products is critical to the financial success of our clients. Our integrated approach to contract sales, recruiting, professional training and development, our experienced management team, and our use of technology provide VHSM with a competitive advantage in marketing products for our clients. With the ability to leverage the capabilities of HPR, VHSM is well positioned to provide value-added services across an array of product types in the life sciences industry. Leading Healthcare Marketing and Sales Services Company: We are one of the largest providers of pharmaceutical contract sales services in the U.S. and we are also a significant provider of strategic and tactical sales and marketing planning in the U.S. We detail to a large number of physicians, nurses, pharmacists and formularies--approximately three million calls were made on physicians in 2002 alone. These targets are regularly contacted by our representatives, enabling the collection of valuable profiling data. Our large-scale presence in our markets provides significant advantages in terms of experience, speed, capabilities, and technology. 4 Comprehensive Service Offering: We offer a broad range of services, from strategic and tactical planning and analytics to the recruiting, training, deployment and management of sales forces and development of sales and marketing strategies. We believe that Ventiv's combination of planning and analytics capabilities and sales and marketing experience effectively differentiates Ventiv in its marketplaces. Diversified Client Base: In addition to serving many of the largest pharmaceutical companies, we also serve a large number of mid-size and smaller biotech and life sciences companies. As each of these companies uses our services, our relationship is expanded and the opportunity to cross-sell products increases. Relative to our peers, our business is not overly concentrated on a small number of clients and we continue to seek new opportunities to further diversify our client base. Proprietary Technologies and Data: We maintain and operate a number of proprietary software programs and systems for marketing development and data gathering. To conduct strategic studies, HPR employs a series of programs, which were designed in-house and utilize data, which is gathered and processed by HPR's clients and, on certain engagements, VHSM to conduct proprietary market research. Also, we have made a considerable investment in technology and have developed and deployed cutting-edge sales force automation tools to increase our efficiency. Such data collection is important for the management of a sales and marketing campaign for pharmaceutical products throughout their life cycle, especially during the product launch phase. Experienced Management Team: Our management team includes executives with substantial expertise managing pharmaceutical sales forces and establishing sales and marketing strategies. We believe our mix of senior management with pharmaceutical sales force management, entrepreneurial talent and strategic perspective is unique in the industry. Our basic strategy is to offer the best combination of high-quality, flexible and cost-effective services to our clients. We continue to enhance our capabilities, deepen our client relationships and offer more fully-integrated solutions. Clients We provide our services to leading pharmaceutical, biotechnology, medical device and diagnostics companies. During 2002, approximately 75.9% of our revenues were derived from our ten largest clients. Our ten largest clients during 2002, listed alphabetically, were as follows: Allergan, Inc., Altana Pharma, Amgen, Inc., Bayer Corporation ("Bayer"), Boehringer Ingleheim Pharmaceuticals, Inc., Bristol-Myers Squibb, Inc. ("BMS"), Endo Pharmaceuticals, Inc. ("Endo"), Novartis Consumer Health, Inc., Vivelle Ventures, LLC, and Reliant Pharmaceucticals, Inc. ("Reliant"). Three clients, Bayer, Endo, and Reliant accounted for approximately 25.3%, 11.8% and 10.6% respectively, of our total revenue for the year ended December 31, 2002. Reliant, BMS and Bayer each accounted for 27.6%, 16.6% and 13.2%, respectively, of our revenues during 2001. No other clients accounted for more than 10.0% of revenue in 2002 or 2001. We consider our close relationships with leading pharmaceutical manufacturers to be an important competitive advantage, providing us with a source for recurring revenues as well as sales growth opportunities as our clients launch new products and as we develop new offerings. Our services are sold to the same target groups for each client, typically their marketing and sales departments. This provides the basis for continuous interaction and feedback, allowing us to continuously improve our services and identify new business opportunities, a process augmented by the longevity of many of our client relationships. We have developed sustained relationships with large, mid-tier and emerging pharmaceutical clients that provide us with recurring revenue streams and service cross-selling opportunities. Our ability to perform services and add value at every part of the product life cycle enhances our ability to develop new business opportunities and form long-lasting relationships with clients. Our relationships with a client's marketing and sales organizations also benefit from high switching costs, as retaining another sales force and redesigning a marketing program creates substantial additional expense and causes losses in time and productivity for our clients. In addition, successful marketing and sales outsourcers have established their reputations due to sophisticated performance evaluation capabilities, and clients are unlikely to use vendors without widely recognized expertise. We provide services to many of our most significant clients under contracts that our clients may cancel, typically on 60 to 120 days notice. In addition, many of these contracts provide our clients with the opportunity to internalize the sales forces ("sales force conversion") under contract, with sufficient notice. Also, although the Company has been successful in a number of cases in negotiating longer-term commitments and an initial non-cancelable contract period, the Company cannot be assured that clients will renew relationships beyond the expiration date of existing contracts. Competition We believe that no other organization offers the same depth of expertise in healthcare planning and analytics and sales and marketing services as we offer our clients. Our healthcare planning and analytics services are premium priced based on proprietary software and analytical methods developed by HPR. Our sales and marketing services are priced to offer an economical and flexible alternative to pharmaceutical companies which need to expand sales force capacity. Our competitors include contract sales organizations as well as contract research organizations that also offer healthcare marketing services. Additionally, drug distribution companies have indicated a desire to enter this lucrative market by leveraging their knowledge base and effecting strategic acquisitions. Each of our operating groups faces distinct 5 competitors in the individual markets in which the group operates. Sales & Marketing: A small number of providers comprise the market for contract sales. We believe that Ventiv, Innovex (Quintiles) and Professional Detailing, Inc. combined account for the majority of the U.S. contract sales market share. The rest of the industry is fragmented, with a large number of small providers attempting to develop niche services. One or more of our large competitors in the contract sales market could become significant competitors with regard to the other services we offer by either developing additional capabilities or acquiring smaller companies. Planning and Analytics: HPR's largest competitor in the strategic and tactical planning marketplace is ZS Associates, which provides market segmentation, promotion planning and resource allocation services similar to HPR's. In the market research marketplace, HPR competes against a variety of large and small companies, which provide primary and secondary market research on a contract basis. Seasonality Although Ventiv's business is subject to variability as a result of the ongoing startup and completion of contracts, periodic receipt of incentive fees and the ramp up of product revenues in certain contracts, Ventiv's business is not generally subject to seasonal variation. Employees At December 31, 2002, we employed approximately 1,800 people in continuing operations, including approximately 1,500 sales representatives. Our part-time sales force employees account for approximately nine percent of our total field workforce. We believe that our relations with our employees are satisfactory. Many aspects of our business are very labor intensive and the turnover rate of employees in our industry, and in corresponding segments of the pharmaceutical industry, is generally high, particularly with respect to sales force employees. We believe our turnover rate is comparable to that of other contract service organizations and internal pharmaceutical sales and marketing departments. An increase in the turnover rate among our employees would increase our recruiting and training costs and decrease our operating efficiencies and productivity. Our operations typically require specially trained persons, such as those employees in the pharmaceutical detailing business. Growth in our business will require us to recruit and train qualified personnel at an accelerated rate from time to time. The labor markets for quality personnel are competitive, and we cannot assure you that we will be able to continue to hire, train and retain a sufficient labor force of qualified persons. Government Regulation Several of the industries in which our clients operate are subject to varying degrees of governmental regulation, particularly the pharmaceutical and healthcare industries. Generally, compliance with these regulations is the responsibility of our clients. However, we could be subject to a variety of enforcement or private actions for our failure or the failure of our clients to comply with such regulations. In connection with the handling and distribution of pharmaceutical products samples, we are subject to the Prescription Drug Marketing Act of 1987 and other applicable federal, state and local laws and regulations. These laws and regulations regulate the distribution of drug samples by mandating storage, handling, solicitation and record-keeping requirements for drug samples and by banning the purchase or sale of drug samples. Some of our physician education services are subject to a variety of federal and state regulations relating to both the education of medical professionals and the marketing and sale of pharmaceuticals. In addition, certain ethical guidelines promulgated by the American Medical Association ("AMA") govern the receipt by physicians of gifts in connection with the marketing of healthcare products. These guidelines govern the honoraria and other items of value that AMA physicians may receive, directly or indirectly, from pharmaceutical companies. Any changes in such regulations or their application could have a material adverse effect on Ventiv. Failure to comply with these requirements could result in the imposition of fines, loss of licenses and other penalties and could have a material adverse effect on Ventiv. From time to time, state and federal legislation is proposed with regard to the use of proprietary databases of consumer and health groups. The uncertainty of the regulatory environment is increased by the fact that we generate and receive data from many sources. As a result, there are many ways government might attempt to regulate our use of this data. Any such restriction could have a material adverse effect on Ventiv. Item 2. Properties. Our principal executive offices are located in Somerset, New Jersey at a site which is leased by the Company. Ventiv and its operating subsidiaries also own a facility in Louisville, Colorado. We lease a total of four facilities in the U.S. The operating leases on these facilities exist through fiscal year 2008. 6 Item 3. Legal Proceedings. The Company is subject to lawsuits, investigations and claims arising out of the conduct of its business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against the Company. In the opinion of management and based on the advice of legal counsel, all matters are without merit or are of such kind, or involve such amounts, as would not have a material effect on the financial position or results of operations of the Company if disposed of unfavorably. Item 4. Submission of Matters to a Vote of Securities Holders. No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2002. 7 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The following table contains the high and low sales prices of our existing common stock traded on the Nasdaq National Market during the periods indicated: High Low Year ended December 31, 2002 First Quarter $4.00 $1.15 Second Quarter 2.98 1.55 Third Quarter 2.70 1.02 Fourth Quarter 2.18 1.00 High Low Year ended December 31, 2001 First Quarter $17.25 $11.81 Second Quarter 20.64 13.05 Third Quarter 19.94 4.00 Fourth Quarter 4.70 2.44 On March 21, 2003, the closing price for Ventiv's common stock was $2.74 per share, and there were approximately 200 record holders and approximately 4,663 beneficial owners of Ventiv's common stock as of that date. To date, Ventiv has not declared cash dividends on its common stock and is currently restricted from doing so under its credit agreement (See Part II--Item 8--Notes to Consolidated Financial Statements (Note 7)). Ventiv does not anticipate paying any cash dividends in the foreseeable future. Payment of any future dividends will depend upon the future earnings, capital requirements and strategic plans of Ventiv and other factors, as determined by our Board of Directors. The following table summarizes our current equity compensation plans:
Number of securities to be issued upon exercise of outstanding Weighted-average options, exercise price of Number of securities remaining warrants and outstanding options, available for future issuance rights warrants and rights under equity compensation plans ------------------ ---------------------- -------------------------------- Equity compensation plans approved by security holders 1999 Stock Incentive Plan - option program 3,891,358 $3.43 441,837 ------------------ -------------------------------- Equity compensation plans not approved by security holders -0- $0.00 -0- ------------------ -------------------------------- Total 3,891,358 441,837 ========= =======
The transfer agent for Ventiv's common stock is American Stock Transfer and Trust Company, 6201 Fifteenth Avenue, Brooklyn, New York, 11219. 8 Item 6. Selected Financial Data SELECTED FINANCIAL DATA The following table summarizes certain historical financial data with respect to Ventiv and is qualified in its entirety by reference to, and should be read in conjunction with, the Company's historical consolidated financial statements and related notes included elsewhere in this Form 10-K. These financial statements have been restated as a result of the Company's decision to discontinue the operations of its medical education and communications businesses in Stamford, Connecticut and Alpharetta, Georgia, as well as its European contract sales organizations operating in the U.K., France, Germany and Hungary. Historical financial information may not be indicative of Ventiv's future performance. Prior to their respective acquisitions, certain U.S.-based acquirees were not subject to federal or state income taxes. See also "Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations".
For the Years Ended December 31, ---------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands, except per share data) Revenues ......................................................... $215,387 $294,763 $274,686 $166,949 $119,128 ========= =========== ============ ============= =========== Earnings (losses) from continuing operations ..................... $4,941 $(16,060) $24,715 $3,817 $4,674 ========= =========== ============ ============= =========== Earnings (losses) from discontinued operations (a) ............... $2,951 $(42,442) $(7,901) $(14,424) $(3,228) ========= =========== ============ ============= =========== Net earnings (losses) ............................................ $7,892 $(58,502) $16,814 $(10,607) $1,446 ========= =========== ============ ============= =========== Basic earnings (losses) per share (b) Continuing operations .......................................... $0.22 $(0.71) $1.09 $ 0.16 $0.20 ========= =========== ============ ============= =========== Discontinued operations (a)..................................... $0.13 $(1.87) $(0.35) $(0.60) $(0.14) ========= =========== ============ ============= =========== Net earnings (losses) .......................................... $0.35 $(2.58) $0.74 $(0.44) $0.06 ========= =========== ============ ============= =========== Diluted earnings (losses) per share (b) Continuing operations .......................................... $0.22 $(0.71) $1.06 $ 0.16 $0.20 ========= =========== ============ ============= =========== Discontinued operations (a)..................................... $0.13 $(1.87) $(0.34) $(0.60) $(0.14) ========= =========== ============ ============= =========== Net earnings (losses) .......................................... $0.35 $(2.58) $0.72 $(0.44) $0.06 ========= =========== ============ ============= =========== Shares used in computing basic earnings (losses) per share (b) ... 22,842 22,648 22,628 23,907 23,715 ========= =========== ============ ============= =========== Shares used in computing diluted earnings (losses) per share (b) . 22,857 22,648 23,406 23,907 23,715 ========= =========== ============ ============= =========== Balance sheet data: Total assets (a).................................................. $153,418 $232,343 $249,491 $230,754 193,644 ========= =========== ============ ============= =========== Long-term debt (c) ............................................... $8,904 $16,947 $31,857 $ -- $ -- ========= =========== ============ ============= =========== Total investments and advances from SNC (d) ...................... n/a n/a n/a n/a $119,727 ========= =========== ============ ============= =========== Total equity (a).................................................. $96,446 $87,206 $145,311 $141,938 n/a ========= =========== ============ ============= ===========
(a) As restated. See Part II - Item 8, Note 3 to the consolidated financial statements included elsewhere herein. Also, see prior comments on restatement on page 2. (b) For all dates prior to the Distribution, the number of shares used to calculate earnings (losses) per share is equal to the shares of Ventiv common stock that were issued upon the Distribution, which was based on the number of outstanding shares of SNC common stock on September 27, 1999. From the date of the Distribution through December 31, 2002, the number of shares used to calculate earnings (losses) per share was the actual number of shares of Ventiv common stock outstanding. (c) Long-term debt includes the non-current portion of the capital lease obligations but excludes the current portion of the line of credit and capital lease obligations. (d) Investments and advances from SNC represents the net cash transferred to Ventiv from SNC and the net assets and liabilities of businesses acquired by SNC and contributed to Ventiv in connection with the Distribution. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is a leading provider of outsourced sales and marketing solutions for the pharmaceutical and life sciences industries. The Company offers a broad range of integrated and standalone services, in a context of consultative partnership that identifies strategic goals and applies targeted, tailored solutions. The portfolio of offerings includes: integrated sales force recruitment, training and management; standalone sales force recruitment, training, systems automation and regulatory compliance services; product, sample and literature fulfillment; telemarketing and other marketing support; product/brand management; brand/portfolio analytics and forecasting; market research and intelligence; and strategic and tactical planning. Over almost three decades, Ventiv's businesses have provided a broad range of innovative strategic and tactical solutions to many of the world's leading pharmaceutical and life sciences companies. The aggregation of the businesses currently conducted by Ventiv began with a merger transaction between Snyder Communications, Inc. ("SNC") and a U.S. provider of pharmaceutical sales and marketing services in 1997. After forming its pharmaceutical sales and marketing services business segment in that year, SNC completed a series of follow-on acquisitions in the healthcare marketing services areas. On June 22, 1999, the Board of Directors of SNC approved a plan to effect a distribution (the "Distribution") of SNC's healthcare marketing services business segment to existing stockholders. SNC contributed the net assets and liabilities related to its healthcare marketing services business segment in the third quarter of 1999 to Ventiv, which was then a newly formed subsidiary of SNC, and subsequently consummated the Distribution on September 27, 1999 through a special dividend of one share of Ventiv common stock for every three shares of SNC common stock. As a result of the Distribution, Ventiv became an independently managed, publicly traded corporation. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, accompanying notes and other financial information included in this Annual Report on Form 10-K for the years ended December 31, 2002, 2001 and 2000. Overview The Company provides integrated sales and marketing services for its clients, primarily pharmaceutical, biotechnology and life sciences companies. Ventiv's services are designed to develop, execute and monitor strategic and tactical sales and marketing plans and programs for the promotion of pharmaceutical, biotechnology and other life sciences products. The Company currently conducts its continuing operations in the United States, serving U.S. companies and domestic affiliates of foreign corporations. The Company is organized into two operating segments based on products and services offered: Planning and Analytics (as provided by the Company's Health Products Research ("HPR") subsidiary) and Ventiv Health Sales and Marketing ("VHSM"). The VHSM segment is focused on planning, implementing and executing outsourced product commercialization programs for prescription pharmaceutical and other life sciences products in the United States. This segment maintains and operates the requisite systems, facilities, and support services to rapidly recruit, train and deploy a customized, full-service and highly targeted sales force. In addition, VHSM offers telemarketing services, which significantly enhance a life sciences company's ability to communicate effectively with physicians in a cost efficient manner. The Planning and Analytics segment is capable of designing product launch programs and monitoring each program's progress to maximize the potential for a product's success. This is achieved by using proprietary software to analyze data compiled from internal sources and third parties to determine specifically how a targeted strategy can maximize asset utilization and return on investment for our clients. HPR's distinctive process for developing strategic and tactical resource allocation is predicated upon the linking of services and data through solutions based on physician-level intelligence. HPR also conducts primary and secondary research, syndicated studies and market tracking and custom research audits, with proven expertise in developing proprietary, customized market research projects that measure attitudes and behaviors of diverse audiences including both physicians and consumers. Recent Business Developments In February 2002, the Company was notified by Reliant Pharmaceuticals, Inc. ("Reliant") of their intent to convert the field sales force working under the Ventiv-Reliant contract from full-time Ventiv employment to full-time Reliant employment effective April 1, 2002. The Ventiv-Reliant contract, which commenced on August 1, 2000, provided Reliant with the option to convert all or a portion of the field sales force to Reliant employment at any time. Revenues from this client relationship represented 10.6% and 27.6% of the Company's revenues for the years ended December 31, 2002 and 2001, respectively. As a consequence of the conversion, Ventiv ceased providing contract sales services to Reliant as of March 31, 2002. On April 26, 2002, the Company was notified by Cellegy Pharmaceuticals, Inc. ("Cellegy") of its withdrawal of the New Drug Application for Cellegesic(R) with the U.S. Food & Drug Administration ("FDA"). Cellegy decided to withdraw the application after meetings with the FDA indicated that additional information would be required before the FDA would grant marketing clearance of Cellegesic(R) in the United States. The Company, through Ventiv Integrated Solutions ("VIS") and another wholly-owned subsidiary, had entered into a contract with Cellegy to provide cash and services in support of the commercialization of the Cellegesic(R) product. On September 30, 2002, the 10 Company notified Cellegy of its intent to exercise its rights to terminate this agreement, effective immediately. Both Cellegy and the Company agreed to such termination. As a result of this termination and pursuant to this agreement, Cellegy and Ventiv agreed to share equally (50% each) the $1.5 million of marketing expenses incurred during the project. As a result, in 2002 the Company recognized approximately $0.8 million of expense for its proportionate share of the expenses on the project. Effective May 15, 2002, the Company's contract sales agreement with Bayer was amended and restated to provide for (i) a new fixed fee structure for services rendered from May 15, 2002 through December 31, 2003, and (ii) an extension of the option for Bayer to reduce the size of the Company's sales force from May 15, 2002 to May 15, 2003. Under the original terms of the Bayer agreement and through May 14, 2002, the Company received certain fees that covered a substantial portion, but not all of the Company's costs of services relating to this engagement. Additionally, effective January 1, 2003, the contract sales agreement has been further amended to (i) reduce the size of the sales force from 500 to 350 full-time sales representatives through May 31, 2003, (ii) provide Bayer with the option to reduce the sales force to no less than 250 sales representatives from May 31, 2003 through October 31, 2003 and to less than 250 sales representatives thereafter, (iii) provide for certain penalties for permanent reduction of the sales force below 350 sales representatives, and (iv) provide for advance payments totaling $10.6 million comprised of a non-refundable $1.6 million Redeployment Milestone Payment and a $9.0 million Up-Front Payment to be earned equally, on a monthly basis, from January 1, 2003 through October 31, 2003. Any unearned monies related to the Up-Front Payment are to be refunded to Bayer in the event of termination prior to October 31, 2003. Effective September 12, 2002, the Company entered into a multi-year fee for service agreement to provide Altana Pharma ("Altana"), the U.S. operations of German-based Altana Pharma AG, with a nationwide sales force, including recruitment, training and operational support. Under the terms of the agreement, in a first phase, Ventiv provides 220 full-time sales representatives and 10 Regional Training and Administrative Managers. The Altana sales force has been co-promoting Detrol(R) together with Pharmacia since October 2002. Revenues associated with the initial recruiting and training of this sales force were recognized in the third quarter of 2002, while the revenue related to the promotion activities for this engagement commenced in the fourth quarter of 2002. Based on historical performance and as outcomes of strategic initiatives implemented by Company management to better focus the Company on its core businesses and operating segments, in September 2001 and April 2002, respectively, the Company's Board of Directors approved plans to divest the net assets of its Stamford, Connecticut and Alpharetta, Georgia-based business units. In June 2002, based on management's ongoing strategic assessment of the business, the Company's Board of Directors authorized management to dispose of the business units comprising its European contract sales organizations operating in U.K., France, Germany and Hungary. The Company completed the sale of its Stamford, Connecticut-based business unit on May 7, 2002 and the Alpharetta, Georgia-based business unit on June 3, 2002. In addition, the Company completed the sale of its Germany-based contract sales business unit on September 26, 2002. On October 16, 2002, the Company completed the sale of its United Kingdom-based contract sales business unit. Finally, the Company completed the sale of its Hungary-based contract sales business (a wholly-owned subsidiary of its U.K.-based operations) on January 23, 2003. The Company is holding for sale its remaining European Contract Sales business operating in France pursuant to a plan of divestiture adopted by Ventiv. Any potential transaction would be subject to negotiation of terms and conditions, legal and financial due diligence, regulatory review and approval (if necessary). The Company's Colorado-based marketing support services business unit, Promotech Research Associates, Inc. ("Promotech"), previously considered and classified as part of the Communications operating segment, has been operationally merged with VHSM. On March 18, 2003, the Company entered into a multi-year fee-for-service agreement with Watson Pharmaceuticals, Inc. ("Watson") to provide a national sales force including recruiting, training and operational support. Under the terms of the agreement, Ventiv will provide 385 full-time sales representatives and 37 district managers in the promotion of Oxytrol. The promotion effort is scheduled to commence in the third quarter of 2003. The Company has recently built and deployed three standing specialty sales teams that each promotes multiple complementary products from different manufacturers. In October 2002 the Company deployed a team of 25 sales representatives promoting products to physicians in the women's health marketplace. The Company deployed a team of 40 sales representatives promoting products to the dental marketplace in November 2002. In January 2003 Ventiv deployed a team of 40 sales representatives promoting products to the dermatology marketplace. 11 Results of Operations Revenues and associated costs under pharmaceutical detailing contracts are generally based on the number of physician calls made or the number of sales representatives utilized. With respect to risk-based contracts, all or a portion of revenues earned are based on contractually defined percentages of either product revenues or the market value of prescriptions written and filled in a given period. For planning and analytics services, Ventiv's revenues are generally based on a fixed project amount or a fee-for-service basis. Costs of services consist of all costs specifically associated with client programs such as salary, commissions and benefits paid to personnel, including senior management associated with specific service offerings, payments to third-party vendors and systems and other support facilities and functions specifically associated with client service delivery. Selling, general and administrative expenses consist primarily of costs associated with administrative functions such as finance, accounting, human resources and information technology, as well as personnel costs of senior management not specifically associated with delivery of client services. In addition, costs related to business development and new product development are classified as selling, general and administrative expenses. Restructuring charges include costs to rationalize management and employee positions, all costs associated with the early termination of leases for office space and abandonment of related improvements to that space, as well as anticipated losses on the disposition of assets not related to Ventiv's core business. The following sets forth, for the periods indicated, certain components of Ventiv's statement of operations, including such data stated as a percentage of revenues.
For the Years Ended December 31, 2002 2001 2000 ------------------------ ----------------------- ---------------------- (in thousands, except for per share data) ----------------------------------------------------------------------- Revenues ................................................. $215,387 100.0% $294,763 100.0% $274,686 100.0% Operating expenses: Cost of services ...................................... $178,901 83.1% 260,171 88.3% 206,920 75.3% Selling, general and administrative expenses .......... 27,397 12.7% 32,181 10.9% 26,330 9.6% Impairment of goodwill ................................ -- 0.0% 14,811 5.0% -- 0.0% Restructuring charges ................................. -- 0.0% 2,025 0.7% -- 0.0% Realized losses on investments......................... -- 0.0% 2,600 0.9% -- 0.0% ------------- ---------- ------------ ---------- ----------- ---------- Operating earnings (losses) .............................. 9,089 4.2% (17,025) (5.8)% 41,436 15.1% Interest expense ........................................ (1,576) (0.7)% (4,494) (1.5)% (3,024) (1.1)% Investment income ....................................... 456 0.2% 427 0.1% 826 0.3% ------------- ---------- ------------ ---------- ----------- ---------- Earnings (losses) from continuing operations before income taxes ............................................. 7,969 3.7% (21,092) (7.2)% 39,238 14.3% Income tax provision (benefit) ........................ 3,028 1.4% (5,032) (1.7)% 14,523 5.3% ------------- ---------- ------------ ---------- ----------- ---------- Earnings (losses) from continuing operations ............. 4,941 2.3% (16,060) (5.4)% 24,715 9.0% Earnings (losses) from discontinued operations: Losses from discontinued operations, net of taxes ..... (4,772) (2.2)% (40,488) (13.7)% (7,901) (2.9)% Gains (losses) on disposals of discontinued operations, net of taxes ............................. 2,323 1.1% (1,954) (0.7)% -- 0.0% Tax benefit arising from the disposal of a discontinued operation ................................ 5,400 2.5% -- 0.0% -- 0.0% ------------- ---------- ------------ ---------- ----------- ---------- Earnings (losses) from discontinued operations ........... 2,951 1.4% (42,442) (14.4)% (7,901) (2.9)% ------------- ---------- ------------ ---------- ----------- ---------- Net earnings (losses) .................................... $7,892 3.7% $(58,502) (19.8)% $16,814 6.1% ============= ========== ============ ========== =========== ========== Earnings (losses) per share: Continuing operations: Basic ................................................. $0.22 $(0.71) $1.09 Diluted ............................................... $0.22 $(0.71) $1.06 Discontinued operations: Basic ................................................. $0.13 $(1.87) $(0.35) Diluted ............................................... $0.13 $(1.87) $(0.34) Net earnings (losses): Basic ................................................. $0.35 $(2.58) $0.74 Diluted ............................................... $0.35 $(2.58) $0.72
12 Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Revenues: Revenues decreased by approximately $79.4 million, or 26.9%, to $215.4 million in 2002, from $294.8 million in 2001. Revenues in our Ventiv Health Sales and Marketing ("VHSM") business were $189.0 million, a decrease of 29.9%, or $80.5 million, over 2001, and accounted for 87.7% of total Ventiv revenues in 2002. This decrease resulted primarily from the conversion of the Reliant field force from full-time Ventiv employment to full-time Reliant employment and the completion of Ventiv's contract with Bristol-Myers Squibb ("BMS"), both effective as of March 31, 2002. These reductions in revenues were partially offset by increased revenues generated through continuing business with Bayer (which commenced in May 2001), the launch of the Altana project in September 2002, and several other new and expanded contracts. Revenues from the VHSM business include incentive fees of $2.5 million and $2.1 million for the years ended December 31, 2002 and 2001, respectively. Our Planning and Analytics business, HPR, generated 11.9% of total revenues in 2002. Revenues increased $0.4 million or 1.7%, to $25.7 million from $25.2 million for the years ended December 31, 2002 and 2001, respectively. Increased business with Abbott Laboratories and Bayer was offset in part by reduced business volume with BMS, Ortho McNeil and other smaller clients. Costs of Services: Costs of services decreased by approximately $81.3 million, or 31.2%, to $178.9 million for the year ended December 31, 2002 from $260.2 million for the year ended December 31, 2001. Costs of services at the VHSM business decreased by $83.8 million or 34.1% to $161.7 million for the year ended December 31, 2002 from $245.5 million in 2001. Costs of services in 2002 were 85.6% of revenue compared to 91.1% of revenue in 2001. The decrease in costs of services as a percentage of revenue in 2002 was principally due to the effect of a more profitable mix of primarily fixed-fee contracts and the effect of the renegotiated Bayer agreement. In the fourth quarter of 2001, the Company recorded a reserve of approximately $6.1 million for estimated cumulative losses on the original Bayer agreement through May 14, 2002, under the assumption that Ventiv would elect to discontinue promotion services under the original contract on a loss basis beyond May 14, 2002 (the first date that Ventiv could exercise its right to terminate the contract). As a result of the amendment and restatement of the agreement, effective May 15, 2002, the Company reduced its cumulative loss estimate by $2.4 million, which positively impacted the Company's profit margins in the second quarter of 2002. The Bayer engagement has operated at a profit subsequent to the effective date of the amended and restated agreement. Additionally, effective March 31, 2002, Reliant opted to internalize the entire Ventiv field force. In the third quarter of 2002, the Company and Reliant commenced negotiations regarding final amounts due and owing under the Reliant agreement. On October 9, 2002, the Company reached a final agreement with Reliant and received payment for all amounts due and owing, as mutually agreed on that date. During 2001, the Company had deferred recognition of approximately $1.8 million of revenue to provide for certain contingencies under the original Reliant agreement. In the course of final negotiations, the Company agreed to assume the cost of approximately $0.7 million of deductions relating to such contingencies. Accordingly, revenue and operating income for the year ended December 31, 2002 reflect the recognition of $1.1 million of revenue and operating profit in the third quarter of that year which was previously deferred. Finally, the decrease of costs of services as a percentage of revenue in 2002 as compared to 2001 was attributable, in part, to the VHSM group's ongoing initiatives to increase operating efficiencies and minimize internal operating costs and expenses. HPR incurred costs of services of $16.5 million in 2002, representing an increase of $2.0 million or 13.6% from $14.5 million in 2001. Costs of services were 64.2% of revenues in 2002 compared to 57.5% in 2001. The increase in costs of services as a percent of revenues was primarily due to the completion of certain profitable client engagements in 2001 and a shift in the business mix to lower margin projects in 2002. Selling, General and Administrative Expenses: Selling, general and administrative ("SG&A") expenses decreased by approximately $4.8 million, or 14.9%, to $27.4 million from $32.2 million in the years ended December 31, 2002 and 2001, respectively. SG&A expenses in the VHSM business decreased by approximately $2.1 million to $12.2 million in 2002 compared to $14.4 million in 2001. This decrease is primarily due to restructuring actions taken during the third quarter of 2001 and other ongoing cost savings measures implemented by management to align the support and infrastructure of the Company with the current level of operations. In addition, the Company experienced SG&A savings due to the discontinuance of amortization of goodwill pursuant to SFAS No. 142, recognizing approximately $1.6 million in goodwill amortization expenses in 2001, with no such charges in 2002. HPR had SG&A expenses of $5.3 million in 2002 compared to $6.6 million in 2001. The decrease of $1.4 million is due to a reduction of compensation and benefits costs to employees, resulting from turnover involving some higher-level management positions, as well as a reduction in incentive compensation paid in 2002. Furthermore, this reduction was due to the cost savings 13 recognized as HPR closed a foreign office in the third quarter of 2002. Other SG&A expenses decreased to $9.9 million in 2002 from $11.2 million in 2001. Savings derived from restructuring efforts initiated in 2001 were offset in part by severance fees and non-recurring prior year re-audit fees recorded in the fourth quarter of 2002. Impairment of Goodwill: The Company completed an evaluation of the goodwill and other intangible assets of several of its operating units during the year ended December 31, 2001. In accordance with the Company's accounting policy in effect at that time, undiscounted cash flow projections were prepared and analyzed for these operating units in order to determine whether such undiscounted cash flows were sufficient to support current intangible asset carrying values relating directly to these operations. Based on changes in market conditions and competitive factors, projected undiscounted cash flows for our Promotech business (now a part of the VHSM operating segment) were insufficient to support the carrying amounts of related goodwill. The Company obtained estimates of the current fair values of this operation through an independent third party appraisal. Based on the appraised value in relation to the net book values of this operation at that time, the Company recorded a goodwill impairment charge of approximately $14.8 million. The Company completed a similar evaluation of the goodwill and other intangible assets of its sales and marketing business during the year ended December 31, 2002. Based on this evaluation, the Company concluded that the fair value of the business was sufficient to support the carrying amounts of related goodwill. Additionally, the Company obtained estimates of the current fair value of this operation through an independent third party appraisal to further support their conclusions. Restructuring Charges: In the third quarter of 2001, the Company completed an evaluation of the operations of certain business units. As a result of this evaluation, the Company adopted a plan of restructuring and recorded a charge of approximately $2.0 million. Included in this charge were provisions for the severance of 23 employees, as well as for costs and expenses associated with the elimination of the New York office and the reduction of the size of the Somerset, NJ administrative office. Ventiv did not record any restructuring charges related to continuing operations during the year ended December 31, 2002. Interest Expense: Ventiv recorded $1.6 million of interest expense in the year ended December 31, 2002, a decrease of $2.9 million from the year ended December 31, 2001. Interest expense decreased in 2002 as a result of the Company's repayment of the $35.0 million outstanding under its prior line of credit and reflects the effect of lower overall interest rates in 2002. During the second quarter of 2002, the Company received a $15.0 million short-term advance pursuant to its credit agreement with Foothill Capital Corporation ("Foothill Capital" or "Foothill"), which was treated as restricted cash. Per the terms of the credit agreement, the related borrowing was not considered a draw against the Company's borrowing availability under the line of credit and was to be repaid ninety days after the initial advance. This initial advance was repaid, together with accrued interest and fees of approximately $0.4 million, on September 4, 2002. The Company also incurred $0.4 million of interest expense related to obligations under its capital lease arrangement for the VHSM automobile fleet in the year ended December 31, 2002 and $1.2 million for the corresponding period in 2001. The decrease in auto fleet interest relates primarily to a decrease in contracts that provided leased autos as well as lower prevailing interest rates in 2002. Interest Income: Ventiv recorded approximately $0.5 million and $0.4 million of investment income in the years ended December 31, 2002 and 2001, respectively. The slight increase in the investment income is a direct result of the cash balances on-hand throughout the year. Realized Losses on Investments: During the second quarter of 2001, one of our e-Health partners, HeliosHealth, Inc. ("Helios"), filed for protection under Chapter 7 of the U.S. Bankruptcy Code. Accordingly, the Company wrote-off its entire $0.5 million investment in Helios. In the fourth quarter of 2001, the Company wrote off its $2.1 million investment in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's ability to continue as a going concern. Income Tax Provision (Benefit): Ventiv recorded a provision for income taxes on continuing operations using an effective tax rate of 38.0% for the year ended December 31, 2002. The effective rate for the year was based on reported earnings in each tax jurisdiction in which the Company's continuing operations conduct business and are subject to taxation. The Company reported a net benefit from income taxes in the year ended December 31, 2001 of approximately $5.0 million, primarily attributable to the impairment charge taken against goodwill related to the Promotech operating unit. Discontinued Operations: Ventiv's discontinued operations include the following business units: our European Contract sales organizations, operating in the U.K., France, Germany and Hungary; our Alpharetta, Georgia-based communications business unit; and our Stamford, Connecticut-based communications business unit. Net earnings (losses) from discontinued operations were earnings of $3.0 million and a loss of $42.4 million, net of tax, for the years ended December 31, 2002 and 2001, respectively. These earnings (losses) comprised the collective operating results of the Company's discontinued operations, which generated losses of $4.8 million and $40.5 million, net of tax, for the years ended December 31, 2002 and 2001, 14 respectively. These earnings (losses) also included actual or estimated gains and losses on the divestiture of these businesses, which totaled a gain of $2.3 million in 2002 and a loss of $2.0 million in 2001, both net of taxes. The 2002 gains on divestitures of these businesses are inclusive of approximately $4.9 million of net gains for the removal of foreign currency translation accounts previously accumulated by the Company's discontinued operating units. In addition, these earnings (losses) included an estimated $5.4 million tax benefit in 2002 for carry-back deductions relating to the disposal of the Stamford, Connecticut-based business unit. Operating results for the year ended December 31, 2001 are inclusive of charges recorded for the impairment of intangible assets in certain business units treated as discontinued operations. As previously stated in the "Impairment of Intangible Assets" section above, the Company completed an evaluation of the goodwill and other intangible assets of several of its operating units in September 2001. In addition to the impairment charges taken on business units in continuing operations, the Company also recorded goodwill and other intangible asset impairment charges in 2001 of approximately $13.7 million related to the U.K.-based contract sales business, $23.2 million related to the France-based contract sales business and $1.1 million related to the Stamford, Connecticut-based communications business unit. Goodwill associated with the U.K. and France-based contract sales businesses was not deductible for tax purposes; therefore, there were no current or future benefits attributable to the goodwill impairment charges taken in the third quarter of 2001 related to these operations. Effective May 7, 2002, the Company entered into a definitive purchase and sale agreement, completing the sale of substantially all of the net assets of its Stamford, Connecticut-based business unit to Discovery East, LLC, a majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit, a leading provider of medical education and communications services. In consideration for the sale, the Company received approximately $3.4 million in cash together with a note receivable in the amount of $0.6 million, due and subsequently collected in February 2003. In connection with the completion of this divestiture, the Company recorded an estimated $5.4 million tax benefit for carry-back deductions relating to the disposal of this business unit. In addition, the Company completed the sale of substantially all of the net assets of its Alpharetta, Georgia-based business unit to a management group of that business unit on June 3, 2002. The Company received $0.9 million of cash at closing for the sale of this business unit and may be entitled to contingent payments based on a percentage of earnings before interest, taxes, depreciation and amortization as defined in the agreement for the business unit, up to a total aggregate amount of $0.5 million. Total losses on the disposal of the Stamford, Connecticut-based business of $2.0 million, net of tax, were estimated in the third quarter of 2001 and adjusted to reflect final transaction terms in the second quarter of 2002. Total losses on the disposal of the Alpharetta, Georgia-based business unit of $6.6 million, net of tax, were recorded in the second quarter of 2002, which included a charge of $7.5 million for the write-down of goodwill related to that business unit. On September 26, 2002 and effective September 30, 2002, the Company completed the sale of 100% of the shares of Ventiv Health Germany GmbH (the holding company for the subsidiaries comprising the Ventiv Health Germany operating unit) to a group of management purchasers, led by the managing director of that business. In consideration for the sale, the Company received EUR 6.2 million ($6.1 million) at closing, and may receive additional consideration of up to EUR 5.0 million payable from future earnings of the business. The Company recognized a gain of approximately $5.5 million on the sale of this business unit inclusive of the aforementioned net gains from the removal of the accumulated foreign currency translation accounts. The Company anticipates that this transaction will result in a loss for tax purposes. Given that the Company may be limited in its ability to utilize such losses in the foreseeable future, a tax benefit for such loss has not been recorded. On October 16, 2002, the Company completed the sale of the assets and business of its U.K.-based contract sales operating unit to Ireland-based United Drug plc. Total consideration of $7.5 million was satisfied in cash and received in full on the completion of the transaction. The Company recorded a gain of $2.5 million, net of taxes, related to this transaction in the fourth quarter of 2002. Net Earnings (Losses) and Earnings (Losses) Per Share ("EPS"): Ventiv's net earnings increased by approximately $66.4 million to earnings of $7.9 million, from net losses of $58.5 million, for the years ended December 31, 2002 and 2001, respectively. In 2002 diluted earnings per share increased to $0.35 for the year, up from a loss of $2.58 per share in 2001. Impairment charges for intangible assets and restructuring expenses recorded during 2001, as well as new business and savings initiatives coupled with earnings from the sale of discontinued operations during 2002 contributed to the increase in earnings as more fully explained above. Shares used in computing diluted EPS increased by approximately 0.2 million shares in 2002 from 2001. The increase was the result of the exercise of employee stock options, net of the cancellation of certain restricted stock awards and outstanding options during the year. During 2001, potentially dilutive common shares relating to employee stock options and restricted stock awards were not included in the calculation of diluted EPS as they were anti-dilutive to the net loss per share. There were 0.6 million potentially dilutive shares at December 31, 2001. Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Revenues: Revenues increased by approximately $20.1 million, or 7.3%, to $294.8 million in 2001, from $274.7 million in 2000. Revenues in our Ventiv Health Sales and Marketing business were $269.5 million, an increase of 7.4%, or $18.7 million, 15 over 2000, and accounted for 91.4% of total Ventiv revenues in 2001. The increase in revenue in 2001 was attributable to new and expanded contracts with Bayer and Reliant Pharmaceuticals, among others. Revenue was adversely impacted by the conclusion of a contract with Eli Lilly at the end of 2000, for which there was no comparable revenue in 2001, and the planned conversion of the Novo Nordisk sales force during the second quarter of 2001. VHSM's revenues and operating income included incentive fees of approximately $2.1 million and $13.2 million for the years ended December 31, 2001 and 2000, respectively. Revenue was also adversely impacted by the effect of the resizing of the Bristol-Myers Squibb, Inc. ("BMS") sales force and lower than expected revenues from the revenue sharing arrangement. During the first quarter of 2001, BMS reduced the size of the sales force from 725 sales representatives to 450, and retargeted the detailing efforts to primary care physicians. In addition, VHSM ceased detailing BuSpar(R) at the end of the first quarter of 2001, following a court decision affecting BMS's patent for this product. BMS ceased sales force promotion services under this contract during the first quarter of 2002. Our Planning and Analytics business, HPR, generated 8.6% of total revenues in 2001. Revenues increased $1.4 million or 5.8%, to $25.2 million from $23.8 million for the year ended December 31, 2001 and 2000, respectively. The increase in revenues was a result of business from several new and expanded client relationships including Bayer and Ortho-McNeil. Costs of Services: Costs of services increased by approximately $53.3 million, or 25.7%, to $260.2 million for the year ended December 31, 2001 from $206.9 million in the year ended December 31, 2000. Costs of services in the VHSM business increased by $50.8 million or 26.1% to $245.5 million for the year ended December 31, 2001 from $194.7 million in 2000. Costs of services in 2001 were 91.1% of revenue compared to 77.6% of revenue in 2000. The increase in costs of services as a percent of revenues was primarily due to a decrease in incentive fees, for which there are no corresponding costs of services, and the completion or wind-down of certain profitable contracts. The BMS contract yielded lower overall margins than were realized in 2000 as a result of lower than expected revenue share results in 2001 and the effect of the incremental revenue and operating income recognized in 2000 related to contract start-up activities and related costs on this engagement incurred in the third and fourth quarters of 1999. The Bayer contract that commenced in May 2001 produced minimal gross profit on a substantial revenue base through the end of 2001. The Bayer agreement was a risk-based contract for the duration of 2001 under which the Company received certain base fees that covered a substantial portion, but not all of the Company's costs of services under this engagement. Under the arrangement, the Company was also eligible to receive variable fees tied to the performance of the products being promoted. The variable fees were intended to provide the Company with the opportunity to recover the remaining costs and earn sufficient margins on this engagement. During 2001, the Company earned $5.5 million of these variable fees. Based on the Company's assessment of future product performance in relation to the contract criteria in place at the time, and its estimates of future costs of services under the agreement, the Company accrued a pre-tax charge of approximately $6.1 million at the end of 2001 for estimated future losses under this contract. The Company later renegotiated the fee structure of the contract, effective May 15, 2002 as discussed in the "Recent Business Developments" section. HPR incurred costs of services of $14.5 million in 2001, representing an increase of $2.3 million or 18.9% from $12.2 million in 2000. Costs of services were 57.5% of revenue in 2001 compared to 51.2% in 2000. The increase in costs of services as a percent of revenue was primarily due to the completion of certain profitable client engagements in 2000 and a shift in the business mix to lower margin projects in 2001. Selling, General and Administrative Expenses: Selling, general and administrative ("SG&A") expenses increased by approximately $5.9 million, or 22.2%, to $32.2 million from $26.3 million in the years ended December 31, 2001 and 2000, respectively. SG&A expenses in the VHSM business increased by approximately $0.3 million in 2001 compared to 2000. SG&A expenses represented 5.3% of revenue in 2001 compared to 5.6% in 2000. The decrease as a percentage of revenue is a result of minimal incremental expenditures in overall infrastructure compared to the increase in the revenues, as infrastructure enhancements effected in prior periods were sufficient to support current business levels. HPR had SG&A expenses of $6.6 million in 2001 compared to $4.1 million in 2000. This increase of $2.5 million was associated with investments in new product development and depreciation related to improvements in the information technology infrastructure of the business. In addition, there was an increase in staffing levels to support the growth of revenues at HPR. SG&A expenses at the corporate level increased to $11.2 million in 2001 from $8.2 million in 2000. The increase in costs related to legal, professional and other costs associated with new business development and other business initiatives in 2001, including approximately $1.3 million related to Ventiv Integrated Solutions. Impairment of Goodwill: During the third quarter of 2001, the Company completed an evaluation of the goodwill and other intangible assets of several of its operating units. In accordance with the Company's stated accounting policy, undiscounted cash flow projections were prepared and analyzed for these operating units in order to determine whether such undiscounted cash flows were sufficient to support current intangible asset carrying values relating directly to these operations. Based on changes in market 16 conditions, competitive factors and the discontinuation of several of the Company's operating units, projected undiscounted cash flows for one of the Company's subsidiaries (Promotech) were insufficient to support the carrying amounts of related goodwill and certain intangible assets. The Company obtained estimates of the current fair value of this operation through independent third party appraisals. Based on this appraisal in relation to current net book values of this operations, the Company recorded goodwill and other intangible asset impairment charges totaling $14.8 million in the third quarter of 2001. Restructuring Charges: During the year ended December 31, 2001, the Company completed an evaluation of the operations of certain business units. As a result of this evaluation, the Company adopted a plan of restructuring and recorded a charge of approximately $2.0 million, which included provisions of $1.3 million for severance costs (a total of 23 employees) and costs to reduce the size of the Somerset, NJ office and eliminate the New York, NY administrative office. Interest Expense: Ventiv recorded $4.5 million of interest expense in the year ended December 31, 2001, an increase of $1.5 million from the year ended December 31, 2000. Interest expense increased as a direct result of net borrowings drawn against the Company's revolving line of credit in support of operations, investing activities and in connection with the Company's share repurchase program. Interest expense was also higher due to the increased number of vehicles leased by the VHSM business under its master fleet agreement. These leases are capital in nature. Interest Income: Ventiv recorded approximately $0.4 million and $0.8 million of investment income in the years ended December 31, 2001 and 2000, respectively. The decrease in the investment income is a direct result of the lower cash balances on-hand throughout the year and the lower prevailing interest rates applied to the concentrated cash balances. Realized Losses on Investments: During the second quarter of 2001, one of our e-Health partners, HeliosHealth, Inc. ("Helios"), filed for protection under Chapter 7 of the U.S. Bankruptcy Code. Accordingly, the Company wrote off its entire $0.5 million investment in Helios. In the fourth quarter of 2001, the Company wrote off its $2.1 million investment in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's ability to continue as a going concern. Income Tax Provision (Benefit): The Company recorded a net tax benefit of $5.0 million for the year ended December 31, 2001 on a pretax loss of $21.1 million from continuing operations. The Company recorded a tax benefit $5.2 million related to the portion of the goodwill charge associated with the Promotech business. However, the Company did not recognize a tax benefit associated with the devaluation of its investment in RxCentric. Discontinued Operations: Net losses from discontinued operations were $40.5 million and $7.9 million, net of tax, for the years ended December 31, 2001 and 2000, respectively. These losses comprised the collective operating results of the following business units: our U.K.-based contract sales business, our France-based contract sales business, our Germany-based contract sales business, our Hungary-based contract sales business, our Alpharetta, Georgia-based communications business unit and our Stamford, Connecticut-based communications business unit. Additionally, such losses for the year ended December 31, 2001 are inclusive of charges recorded for the impairment of intangible assets in certain business units treated as discontinued operations. As previously stated in the "Impairment of Intangible Assets" section above, the Company completed an evaluation of the goodwill and other intangible assets of several of its operating units in September 2001. In addition to the impairment charges taken on business units in continuing operations, the Company also recorded goodwill and other intangible asset impairment charges of approximately $13.7 million related to the U.K.-based contract sales business, $23.2 million related to the France-based contract sales business, and $1.1 million related to the Stamford, Connecticut-based Communications business unit. Goodwill associated with the U.K. and France-based contract sales businesses was not deductible for tax purposes; therefore, there were no current or future benefits attributable to the goodwill impairment charges taken in the third quarter of 2001 related to these operations. Losses on disposals of discontinued operations were $2.0 million, net of tax, for the year ended December 31, 2001 with no comparable charge in 2000. In September 2001, the Company's Board of Directors approved a plan to divest certain net assets of the Company's operations in Stamford, Connecticut and the Company recorded an estimated loss on disposal of these net assets at that time. Effective May 7, 2002, the Company completed the sale of substantially all of the net assets of its Stamford, Connecticut-based business unit to Discovery East, LLC, a majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit, a leading provider of medical education and communications services. Net Earnings (Losses) and Earnings (Losses) Per Share ("EPS"): Ventiv's net earnings decreased by approximately $75.3 million to net losses of 17 $58.5 million, from net earnings of $16.8 million, for the years ended December 31, 2001 and 2000, respectively. Lower average operating margins, additional restructurings charges, impairment of intangible assets and certain charges relating to discontinued operations, as more fully explained above, accounted for the overall decline in net earnings. Shares used in computing basic and diluted EPS increased by less than 0.1 million shares in 2001 from 2000. The increase was the result of the exercise of employee stock options, net of the cancellation of certain restricted stock awards during the year. During 2001, potentially dilutive common shares relating to employee stock options and restricted stock awards were not included in the calculation of diluted EPS as they were anti-dilutive to the net loss per share. The number of potentially dilutive common shares at December 31, 2001 was 0.6 million shares. Liquidity and Capital Resources At December 31, 2002, Ventiv had $46.1 million of unrestricted cash and equivalents, an increase of $10.6 million from December 31, 2001. For the year ended December 31, 2002 compared to December 31, 2001, cash provided by operations increased by $23.0 million from $11.2 million to $34.2 million. Cash provided by investing activities increased by $16.1 million from a use of $2.9 million to a source of $13.2 million. Cash used in financing activities increased by $53.3 million from a source of $10.4 million in 2001 to a use of $42.9 million over the same comparative periods. Cash provided by operations were $34.2 million and $11.2 million in the years ended December 31, 2002 and 2001, respectively. This increase was, in large part, due to the billing and collection of certain payments due under the Bayer, BMS and Reliant agreements. Bayer paid the Company $35.8 million in February 2002. In 2002, the Company collected payments due from Reliant and BMS subsequent to the conversion of the Reliant field force from full-time Ventiv employment to full-time Reliant employment and the completion of the Company's contract with BMS, as mentioned in the "Results of Operations" section. Similarly, accrued payroll, accounts payable and accrued expenses have increased by $4.6 million in 2001 and decreased by $4.3 million in 2002, relating to the increase in sales representatives in 2001 and a decrease in sales representatives as a result of these contracts in 2002. The trend continues in client advances and unearned revenue, where there is a $10.4 million increase in 2001 versus a $12.7 million decrease in 2002. Cash provided by investing activities was $13.2 million in 2002 compared to cash used of $2.9 million in 2001. The Company received total proceeds of approximately $17.9 million from divestitures completed in 2002. Investing activities included capital expenditures of approximately $4.0 million and $4.5 million for 2002 and 2001, respectively. Cash used in financing activities was $42.9 million, as compared to cash provided by financing activities of $10.4 million for 2002 and 2001, respectively. In February 2002, the Company repaid the $35.0 million that was outstanding under its previous credit facility (see below). During the same period last year, the Company made net borrowings of $16.0 million under this credit facility, primarily to support operations. Subsequent to the signing and pursuant to the terms of its new credit agreement with Foothill Capital Corporation (described below), the Company drew a $15.0 million short-term advance on May 24, 2002. This advance was restricted from use for any purpose and accordingly was classified as restricted for the entire term of the advance, and was repaid on September 4, 2002, together with accrued interest and fees of approximately $0.4 million. In addition, the Company paid fees and related expenses of approximately $0.6 million in connection with this new credit facility, which became effective as of March 29, 2002. These fees have been capitalized and are being amortized over the three-year term of the agreement. The Company also made capital lease payments of $7.3 million and $7.8 million in 2002 and 2001, respectively, under the fleet lease agreement in its VHSM business unit. On December 1, 1999, Ventiv entered into a $50 million unsecured revolving credit facility, expiring on December 1, 2003. At December 31, 2001, the Company had $35.0 million outstanding under this line of credit with a weighted average interest rate of 4.39%. Based on the Company's financial results for the twelve-month period ended September 30, 2001, Ventiv was not in compliance with certain covenants under this facility. Accordingly, all amounts due under this facility were classified as current as of December 31, 2001. On February 13, 2002, the Company repaid all amounts outstanding under this facility. On March 29, 2002, the Company entered into an asset-based lending agreement with Foothill, expiring on March 31, 2005, a wholly owned subsidiary of Wells Fargo and Company. This revolving credit facility provides for a maximum borrowing amount of $50 million, subject to a borrowing base calculation, on a revolving basis and is secured by substantially all of the Company's assets. Interest on the new facility is payable at the Company's option of a base rate (defined as the lending institution's prime rate) plus a margin of up to 0.75% or LIBOR plus a margin ranging from 2.25% to 2.75%, subject to a minimum borrowing rate of 4.75%. Under the facility, the Company pays an unused commitment fee of 0.375%. The Company is also subject to certain financial and other restrictive covenants, including, during any period in which any amounts are outstanding under the credit agreement, a requirement to maintain minimum levels of Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and U.S. Earnings before Interest and Taxes ("EBIT"). Additionally, the facility contains material adverse change clauses with regard to the financial condition of the assets, liabilities and operations of the Company. The Company does not have any amounts outstanding under the credit facility at December 31, 2002. A summary of our contractual obligations and commercial commitments as of December 31, 2002 are as follows: 18
(Amounts in thousands) Amounts Due In Obligation Total Obligation 2003 2004 2005 and thereafter Capital lease obligations 13,052 4,148 4,111 4,793 Operating leases 20,708 3,668 3,872 13,168 -------------------- ---------------- ------------------ -------------------- Total obligations $33,760 $7,816 $7,983 $17,961 ======= ====== ====== =======
We believe that our cash and equivalents, cash to be provided by operations and available credit under our credit facility will be sufficient to fund our current operating requirements and planned capital expenditures over the next 12 months and for the foreseeable future. We plan to focus on internal growth in the near term as the primary means of our expansion, although we may consider acquisition and investment opportunities as they arise, to the extent permissible. Cash provided by operations may not be sufficient to fund all internal growth initiatives that we may wish to pursue. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions. We cannot assure you that we will be successful in raising the cash required to complete all acquisition, investment or business opportunities which we may wish to pursue in the future. Risks Related to Our Business Before deciding to invest in our Company or to maintain or increase your investment, you should carefully consider the risk described below, in addition to the other information contained in this Report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Ventiv, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment. Our revenues are dependent on expenditures by companies in the life sciences industries, and a variety of factors could cause the overall levels of those expenditures to decline. Our revenues are highly dependent on promotional, marketing and sales expenditures by companies in the life sciences industries, particularly the pharmaceutical industry. Promotional, marketing and sales expenditures by pharmaceutical manufacturers have in the past been, and could in the future be, negatively impacted by, among other things, governmental reform or private market initiatives intended to reduce the cost of pharmaceutical products or by governmental, medical association or pharmaceutical industry initiatives designed to regulate the manner in which pharmaceutical manufacturers promote their products. Furthermore, the trend in the life sciences industries toward consolidation, by merger or otherwise, may result in a reduction in overall sales and marketing expenditures and, potentially, the use of contract sales and marketing services providers. If the demand for outsourced marketing and sales services in the life sciences industries declines our business would be harmed. Our business and growth depend in large part on the demand from the pharmaceutical and life sciences industries for the outsourced marketing and sales services. Companies may elect to perform such services internally based on industry and company specific factors such as the rate of new product development and FDA approval of those products, number of sales representatives employed internally in relation to demand for or the need to promote new and existing products, and competition from other suppliers. The decision by the pharmaceutical or life sciences companies not to use, or to reduce the use of, outsourced marketing and sales services such as those that we provide would have a material adverse effect on our business. Many of the contracts under which we provide marketing and sales services are subject to termination on short notice, which may make our revenues less predictable. Ventiv has seen an increase in demand from clients for incentive-based and revenue sharing arrangements. Under incentive-based arrangements, Ventiv is typically paid a fixed fee and, in addition, has an opportunity to increase its earnings based on the market performance of the products being detailed in relation to targeted sales volumes, sales force performance metrics or a combination thereof. Under revenue sharing arrangements, Ventiv's compensation is based on the market performance of the products being detailed, usually expressed as a percentage of product sales. These types of arrangements transfer some market risk from clients to the Company. In addition, these arrangements can result in variability in revenue and earnings due to seasonality of product usage, changes in market share, new product introductions, overall promotional efforts and other market related factors. 19 We provide services to many of our most significant clients under contracts that our clients may cancel, typically on 60 to 120 days notice. In addition, many of these contracts provide our clients with the opportunity to internalize the sales forces ("sales force conversion") under contract, with sufficient notice. Also, although the Company has been successful in a number of cases in negotiating longer-term commitments and a non-cancelable initial period, the Company cannot be assured that clients will renew relationships beyond the expiration date of existing contracts. As a result, we cannot assure you that our most significant clients will continue to do business with us over the long term. If any of our significant clients elect to cancel, convert or not renew their contracts, it could have a material adverse effect on our results of operations. We may not be successful in managing our infrastructure and resources to support continued growth. Our ability to grow depends to a significant degree on our ability to successfully leverage our existing infrastructure to perform services for our clients, as well as on our ability to develop and successfully implement new marketing methods or channels for new services. Our growth will also depend on a number of other factors, including our ability to maintain the high quality of the services we provide to our customers and to increase our penetration with existing customers; to recruit, motivate and retain qualified personnel; and to economically train existing sales representatives and recruit new sales representatives. We will also be required to implement operational and financial systems and additional management resources to operate efficiently and effectively regardless of market conditions. We cannot assure you that we will be able to manage or expand our operations effectively to address current demand and market conditions. If we are unable to manage our infrastructure and resources effectively, this could materially adversely affect our business, financial condition and results of operations. We employ computer technology to deliver our services, and any failure of or damage to this technology could impair our ability to conduct our business. We have invested significantly in specialized computer technology and have focused on the application of this technology to provide customized solutions to meet many of our clients' needs. We have also invested significantly in end-user databases and software that enable us to market our clients' products to targeted markets. We anticipate that it will be necessary to continue to select, invest in and develop new and enhanced technology and end-user databases on a timely basis in the future in order to maintain our competitiveness. In addition, our business is dependent on our computer equipment and software systems, and the temporary or permanent loss of this equipment or systems, through casualty or operating malfunction, could have a material adverse effect on our business. Our property and business interruption insurance may not adequately compensate us for all losses that we may incur in any such event. We are subject to a high degree of government regulation. Significant changes in these regulations, or our failure to comply with them, could impose additional costs on us or otherwise negatively affect our operations. In connection with the handling and distribution of samples of pharmaceutical products, we are subject to regulation by the Prescription Drug Marketing Act of 1987 and other applicable federal, state and local laws and regulations in the United States. These laws regulate the distribution of drug samples by mandating storage, handling and record-keeping requirements for drug samples and by banning the purchase or sale of drug samples. In addition, certain ethical guidelines promulgated by the American Medical Association ("AMA") govern the receipt by physicians of gifts in connection with the marketing of healthcare products. These guidelines govern the honoraria and other items of value, which AMA physicians may receive, directly or indirectly, from pharmaceutical companies. Any changes in these regulations and guidelines or their application could have a material adverse effect on our business. Failure to comply with these requirements could result in the imposition of fines, loss of licenses and other penalties and could have a material adverse effect on Ventiv. Pharmaceutical manufacturers and the healthcare industry, in general, are subject to significant U.S. federal and state regulation. In particular, regulations affecting the pricing or marketing of pharmaceuticals could make it uneconomical or infeasible for pharmaceutical companies to market their products through medical marketing detailers. Other changes in the domestic and international regulation of the pharmaceutical industry could also have a material adverse effect on Ventiv. Our services are subject to evolving industry standards and rapid technological changes. The markets for our services are characterized by rapidly changing technology, evolving industry standards and frequent introduction of new and enhanced services. To succeed, we must continue to enhance our existing services; introduce new services on a timely and cost-effective basis to meet evolving customer requirements; integrate new services with existing services; achieve market acceptance for new services; and respond to emerging industry standards and other technological changes. We may be adversely affected by customer concentration. 20 We have three customers that each accounted for more than of 10% of our net revenues for the year ended December 31, 2002, and our largest customer during such year accounted for 25.3% of net revenues. If any large customer decreases or terminates its relationship with us, our business, results of operations or financial condition could be materially adversely affected. Critical Accounting Policies Revenue Recognition Revenues are recognized on product detailing contracts as services are performed. Most of the Company's contracts involve two phases, a "Deployment phase", typically three months, in which the Company performs initial recruiting, training and preparation for deployment of the field force at the start of a new contract, and the "Promotion phase" in which the Company's deployed field force actively promotes specified products for clients ("Detailing"). The Company recognizes revenue during the "Promotion phase" of its contracts on a straight-line basis based on the size of the deployed field force. The Promotion phase continues for the remaining life of the contract. Many of the product Detailing contracts allow for additional periodic incentive fees to be earned by the Company once agreed upon performance benchmarks have been attained. Revenue earned from incentive fees is recognized when the Company is reasonably assured that payment will be made, and is typically based upon verification through calculation of achievement, third party data or client verification. Many contracts also stipulate penalties if agreed upon performance benchmarks have not been met. These penalties are recognized upon verification of performance shortfalls. A number of the Company's smaller Detailing contracts for products promoted by the Company's standing specialty sales teams are revenue-sharing based arrangements whereby the Company receives a portion of the revenue from products it promotes. Revenue from these contracts is recognized when agreed upon performance benchmarks have been attained and payment is reasonably assured. The Company periodically analyzes its detailing contracts to determine the likelihood and amount of any potential loss on a contract resulting from lower than anticipated product or field force performance. In the event that current information illustrates a loss is likely to be incurred over the remaining life of the contract, the Company accrues that loss at the time it becomes probable. Most of the Company's contracts specify a separate fee for the initial "Deployment phase" of a project. The Company considers the Deployment phase to be a separate and distinct earnings process and recognizes the related revenues throughout the Deployment phase. Non-refundable conversion fees are paid and recognized as revenue when one of the Company's sales professionals accepts a firm offer of permanent employment from a customer during the term of a contract. Reimbursable costs including those relating to travel and out-of pocket expenses, sales force bonuses tied to product revenues, and other similar costs, are included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services. Revenues for the Company's HPR planning and analytics business generally include fixed fees, which are recognized when monthly services are performed on a straight-line basis and payment is reasonably assured. HPR's initial contracts typically range from one month to one year. Revenues for additional services are recognized when the services are provided and payment is reasonably assured. Customers are invoiced according to agreed upon billing terms. Contracts that are invoiced prior to performance of related services are recorded as deferred revenue and are not recognized as revenues until earned, in accordance with the Company's revenue recognition policies. Amounts earned for revenues recognized before the agreed upon billing terms have been met are recorded as revenue and included in unbilled accounts receivable on the accompanying consolidated balance sheets. Upon billing, these amounts are transferred to billed accounts receivable. Contracts are typically either terminable upon 60-120 days written notice by client, or non-cancelable for a one year term. Most contracts are immediately terminable by the client for default by the Company. Normally, if a client terminates a project, the client remains obligated to pay for services performed and reimbursable expenses incurred through the date of termination. Goodwill and Other Intangible Assets In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets" ("SFAS No. 142"). This statement requires that goodwill and intangible assets with an 21 indefinite life not be amortized but instead be tested for impairment to be performed annually, or immediately if conditions indicate that an impairment might exist. The Company adopted SFAS No. 142 effective January 1, 2002, and, as a result, the Company no longer amortizes its goodwill. Prior to fiscal 2002, the Company amortized goodwill over periods of twenty-five to thirty years. Goodwill related to those businesses now comprising the Company's continuing operations was reflected in the Company's consolidated balance sheets as of December 31, 2002 and 2001 at a carrying amount of approximately $20.6 million for both years. The remaining unamortized goodwill balance relates solely to the businesses currently comprising the Company's Sales and Marketing operating segment. Effect of Inflation Because of the relatively low level of inflation experienced in the United States, inflation did not have a material impact on our consolidated results of operations for 2002, 2001, and 2000. New Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective in 2003. It requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability accreted each year based on a present value interest rate. This standard, which the Company will adopt in 2003, will not have a material effect on the company's consolidated financial position or results of operations. In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The Company is evaluating the impact of the adoption of SFAS No. 146, which is effective for the Company as of January 1, 2003, but does not believe it will have a material impact on the Company's financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have adopted the disclosure requirements of SFAS No. 148 as of December 31, 2002. We account for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and comply with the disclosure provisions of SFAS No. 123, as amended. Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the quoted market price of our stock and the exercise price. In November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply to guarantees issued or modified after December 31, 2002. The Company has evaulated the impact of the adoption of FIN 45, and does not believe it will have a material impact on the Company's consolidated financial position or results of operations. On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 addresses consolidation of entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as special purpose entities. The Interpretation provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also provides guidance related to the initial and subsequent measurement of assets, liabilities and noncontrolling interests in newly consolidated variable interest entities and requires disclosures for both the primary beneficiary of a variable interest entity and other beneficiaries of the entity. The Company will adopt the provision of FIN No. 46 effective January 1, 2003 but does not believe it will have a material impact on the Company's financial position or results of operations as the Company does not have any involvement with variable interest entities. 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk from changes in market interest rates and foreign currency exchange rates. We are subject to interest rate risk on our debt for changes in the LIBOR and base lending rates. We do not currently engage in hedging or other market risk management strategies. Long-Term Debt Exposure At December 31, 2002 the Company had no debt outstanding under its line of credit. See Liquidity and Capital Resources section for further detail on the Company's available line of credit. If the Company draws on its line of credit in the future, it may incur additional interest expense based on LIBOR and/or the base-lending rate of any future outstanding loans. Foreign Currency Exchange Rate Exposure The Company is not currently affected by foreign currency exchange rate exposure, except for any intercompany transactions between any of its US-based operations and its French-based unit, which the Company currently classifies as held for sale. 23 Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report ............................................................................. 25 Consolidated Balance Sheets as of December 31, 2002 and 2001 (restated) .................................. 26 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 ............... 27 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 (restated), and 2000 (restated) .................................................................................... 28 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 ............... 29 Notes to Consolidated Financial Statements ............................................................... 30
24 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Ventiv Health, Inc. Somerset, New Jersey We have audited the accompanying consolidated balance sheets of Ventiv Health, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 2 and 15 to the consolidated financial statements, in 2001 the Company changed its method of accounting for the impairment or disposal of long-lived assets to conform to Statement of Financial Accounting Standards No. 144 and, retroactively, restated the 2000 financial statements for the change. As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142. As discussed in Note 3 to the consolidated financial statements, the accompanying consolidated balance sheet as of December 31, 2001 and the consolidated statements of stockholders' equity for the years ended December 31, 2001 and 2000 have been restated. Deloitte & Touche LLP New York, New York March 31, 2003 25 VENTIV HEALTH, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
December 31, ---------------------- 2002 2001 --------- --------- ASSETS Current assets: Cash and equivalents ....................................................................... $ 46,059 $ 35,427 Restricted cash ............................................................................ 1,694 1,025 Accounts receivable, net of allowances for doubtful accounts of $1,178 and $979 at December 31, 2002 and 2001, respectively ................................................ 28,696 38,481 Unbilled services .......................................................................... 14,547 42,480 Prepaid expenses and other current assets .................................................. 1,426 1,048 Current deferred tax assets ................................................................ 1,744 956 Assets held for sale ....................................................................... 10,511 50,925 --------- --------- Total current assets ................................................................ 104,677 170,342 Property and equipment, net .................................................................. 19,675 30,542 Goodwill ..................................................................................... 20,638 20,638 Deferred tax assets .......................................................................... 7,670 10,208 Deposits and other assets .................................................................... 758 613 --------- --------- Total assets ........................................................................ $ 153,418 $ 232,343 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under lines of credit ........................................................... $ -- $ 35,000 Current portion of capital lease obligations ............................................... 4,148 8,516 Accrued payroll, accounts payable and accrued expenses ..................................... 28,179 34,922 Current income tax liabilities ............................................................. 3,279 5,532 Client advances and unearned revenue ....................................................... 3,725 16,429 Liabilities held for sale .................................................................. 8,537 27,654 --------- --------- Total current liabilities ........................................................... 47,868 128,053 Capital lease obligations .................................................................... 8,904 16,947 Other non-current liabilities ................................................................ 200 137 --------- --------- Total liabilities ................................................................... 56,972 145,137 --------- --------- Commitments and contingencies Stockholders' Equity: Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2002 and 2001, respectively ................................................... -- -- Common stock, $.001 par value, 50,000,000 shares authorized; 22,958,776 and 22,992,397 shares issued and outstanding at December 31, 2002 and 2001, respectively .................. 23 23 Additional paid-in-capital ................................................................... 158,619 157,864 Deferred compensation ........................................................................ (457) (1,275) Accumulated other comprehensive losses ....................................................... (4,288) (4,063) Accumulated deficit .......................................................................... (57,451) (65,343) --------- --------- Total stockholders' equity ................................................................... 96,446 87,206 --------- --------- Total liabilities and stockholders' equity ................................................... $ 153,418 $ 232,343 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 26 VENTIV HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
For the Years Ended December 31, ----------------------------------- 2002 2001 2000 --------- --------- --------- Revenues ............................................................... $ 215,387 $ 294,763 $ 274,686 Operating expenses: Cost of services .................................................... 178,901 260,171 206,920 Selling, general and administrative expenses ........................ 27,397 32,181 26,330 Impairment of goodwill .............................................. -- 14,811 -- Restructuring charges ............................................... -- 2,025 -- Realized losses on investments ...................................... -- 2,600 -- --------- --------- --------- Operating earnings (losses) ............................................ 9,089 (17,025) 41,436 Interest expense ....................................................... (1,576) (4,494) (3,024) Interest income ........................................................ 456 427 826 --------- --------- --------- Earnings (losses) from continuing operations before income taxes ....... 7,969 (21,092) 39,238 Income tax provision (benefit) ...................................... 3,028 (5,032) 14,523 --------- --------- --------- Earnings (losses) from continuing operations ........................... 4,941 (16,060) 24,715 --------- --------- --------- Earnings (losses) from discontinued operations: Losses from discontinued operations, net of taxes ................... (4,772) (40,488) (7,901) Gains (losses) on disposals of discontinued operations, net of taxes 2,323 (1,954) -- Tax benefit arising from the disposal of a discontinued operation ... 5,400 -- -- --------- --------- --------- Earnings (losses) from discontinued operations.......................... 2,951 (42,442) (7,901) --------- --------- --------- Net earnings (losses) .................................................. $ 7,892 $ (58,502) $ 16,814 ========= ========= ========= Earnings (losses) per share: Continuing operations: Basic ............................................................... $ 0.22 $ (0.71) $ 1.09 Diluted ............................................................. $ 0.22 $ (0.71) $ 1.06 Discontinued operations: Basic ............................................................... $ 0.13 $ (1.87) $ (0.35) Diluted ............................................................. $ 0.13 $ (1.87) $ (0.34) Net earnings (losses): Basic ............................................................... $ 0.35 $ (2.58) $ 0.74 Diluted ............................................................. $ 0.35 $ (2.58) $ 0.72 Weighted average common shares outstanding: Basic ............................................................... 22,842 22,648 22,628 Diluted ............................................................. 22,857 22,648 23,406
The accompanying notes are an integral part of these consolidated financial statements. 27 VENTIV HEALTH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 2000, 2001 and 2002 (in thousands)
Number Additional of Common Paid-In Treasury Accumulated Shares Stock Capital Stock Deficit --------- ------- ----------- ---------- ------------- Balance at January 1, 2000, as previously reported 25,231 $25 $176,495 $(4,307) $(19,840) Prior period adjustments (Note 3) -- -- -- -- (3,815) --------- ------- ----------- ---------- ------------- Balance at January 1, 2000, as restated 25,231 25 176,495 (4,307) (23,655) Capital contribution -- -- 256 -- -- Net earnings -- -- -- -- 16,814 Foreign currency translation adjustments -- -- -- -- -- Issuance of restricted shares 29 -- 500 -- -- Cancellation of restricted shares (127) -- (1,025) -- -- Vesting of restricted shares -- -- -- -- -- Exercise of stock options 166 -- 1,316 -- -- Tax benefit from exercises of employee stock options and vesting of restricted stock -- -- 380 -- -- Purchase of outstanding common shares -- -- -- (17,549) -- Retirement of treasury shares (2,226) (2) (21,854) 21,856 -- Retirement of shares (303) -- -- -- -- Adjustments to foreign deferred tax assets -- -- 342 -- -- --------- ------- ----------- ---------- ------------- Balance at December 31, 2000 22,770 23 156,410 -- (6,841) Net losses -- -- -- -- (58,502) Foreign currency translation adjustments -- -- -- -- -- Issuance of previously granted restricted shares 29 -- -- -- -- Cancellation of restricted shares (103) -- (739) -- -- Vesting of restricted shares -- -- -- -- -- Exercise of stock options 296 -- 2,351 -- -- Tax benefit from exercise of employee stock options and vesting of restricted stock -- -- 458 -- -- Other -- -- (616) -- -- --------- ------- ----------- ---------- ------------- Balance at December 31, 2001 22,992 23 157,864 -- (65,343) Net earnings -- -- -- -- 7,892 Foreign currency translation adjustments -- -- -- -- -- Write-off of currency translation adjustments from divestitures -- -- -- -- -- Taxes payable from vesting of restricted stock -- -- (166) -- -- Cancellation of restricted shares (33) -- (300) -- -- Vesting of restricted shares -- -- -- -- -- Issuance of stock options to employees -- -- 12 -- -- Write-off of officer loan to purchase common -- -- 500 -- -- stock Other -- -- 709 -- -- ========= ======= =========== ========== ============= Balance at December 31, 2002 22,959 $23 $158,619 $ -- $(57,451) ========= ======= =========== ========== =============
Accumulated Deferred Compre- Other Compen- hensiv Comprehensive sation Income Losses Total (Losses) ---------- ------------ ------------ ----------- Balance at January 1, 2000, as previously reported $(4,219) $(2,401) $145,753 Prior period adjustments (Note 3) -- -- (3,815) ---------- ------------ ----------- Balance at January 1, 2000 as restated (4,219) (2,401) 141,938 Capital Contribution -- -- 256 Net earnings -- 16,814 -- 16,814 Foreign currency translation adjustments -- 859 859 859 ------------ 17,673 ============ Issuance of restricted shares (500) -- -- Cancellation of restricted shares 1,025 -- -- Vesting of restricted shares 955 -- 955 Exercise of stock options -- -- 1,316 Tax benefit from exercises of employee stock options and vesting of restricted stock -- -- 380 Purchase of outstanding common shares -- -- (17,549) Retirement of treasury shares -- -- -- Retirement of shares related to acquisitions -- -- -- Adjustments to foreign deferred tax assets -- -- 342 ---------- ------------ ----------- Balance at December 31, 2000 (2,739) (1,542) 145,311 Net losses -- (58,502) -- (58,502) Foreign currency translation adjustments -- (2,521) (2,521) (2,521) ------------ (61,023) ============ Issuance of previously granted restricted shares -- -- -- Cancellation of restricted shares 739 -- -- Vesting of restricted shares 725 -- 725 Exercise of stock options -- -- 2,351 Tax benefit from exercise of employee stock options and vesting of restricted stock -- -- 458 Other -- -- (616) ---------- ------------ ----------- Balance at December 31, 2001 (1,275) (4,063) 87,206 Net earnings -- 7,892 -- 7,892 Foreign currency translation adjustment -- 4,712 4,712 4,712 Write-off of currency translation adjustments from divestitures -- (4,937) (4,937) (4,937) Taxes payable from vesting of restricted stock -- -- -- (166) ------------ 7,667 ============ Cancellation of restricted shares 300 -- -- Vesting of restricted shares 518 -- 518 Issuance of stock options to employees -- -- 12 Write-off of officer loan to purchase common -- -- 500 stock Other -- -- 709 ========== ============ =========== Balance at December 31, 2002 $(457) $(4,288) $96,446 ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 28 VENTIV HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Years Ended December 31, -------------------------------- 2002 2001 2000 -------- -------- -------- Cash flows from operating activities: Net earnings (losses) ...................................................... $ 7,892 $(58,502) $ 16,814 Adjustments to reconcile net earnings (losses) to net cash provided by operating activities: Earnings (losses) from discontinued operations ........................... (2,951) 42,442 7,901 Depreciation ............................................................. 9,585 11,881 6,873 Amortization ............................................................. 47 1,644 2,011 Deferred taxes ........................................................... 1,750 (732) (767) Loss on disposals of capital assets ...................................... -- 193 982 Write off of deferred financing costs .................................... 314 -- -- Impairment of goodwill ................................................... -- 14,811 -- Stock compensation expense ............................................... 518 725 954 Write-off of officer note receivable ..................................... 500 -- -- Estimated future losses on contracts ..................................... (2,400) 6,100 -- Realized losses on investments ........................................... -- 2,600 -- Changes in assets and liabilities, net of effects from discontinued operations: Restricted cash .......................................................... (669) 213 -- Accounts receivable, net ................................................. 9,785 (960) (13,227) Unbilled services ........................................................ 27,933 (28,439) (3,556) Prepaid expenses and other current assets ................................ 447 (332) 488 Accrued payroll, accounts payable and accrued expenses ................... (4,343) 4,647 (2,006) Current income tax liabilities ........................................... (2,253) 4,150 1,013 Client advances and unearned revenue ..................................... (12,704) 10,375 (11,718) Other .................................................................... 722 380 189 -------- -------- -------- Net cash provided by operating activities ............................ 34,173 11,196 5,951 -------- -------- -------- Cash flows from investing activities: Proceeds from disposals of discontinued operations ......................... 17,870 -- -- Funding of product commercialization expenditures .......................... (825) -- -- Purchases of property and equipment ........................................ (3,966) (4,502) (4,993) Proceeds from manufacturers rebates on leased vehicles ..................... 111 1,730 1,342 Investments in equity of non-affiliates .................................... -- (100) (2,500) Purchases of license agreements ............................................ -- -- (347) -------- -------- -------- Net cash provided by (used in) investing activities .................. 13,190 (2,872) (6,498) -------- -------- -------- Cash flows from financing activities: Net (repayments) borrowings on line of credit .............................. (35,000) 16,000 19,000 Repurchases of issued and outstanding common stock ......................... -- -- (17,585) Repayments of capital lease obligations .................................... (7,274) (7,809) (3,509) Fees to establish line of credit ........................................... (610) -- -- Proceeds from exercise of stock options .................................... -- 2,193 1,357 -------- -------- -------- Net cash provided by (used in) financing activities .................. (42,884) 10,384 (737) -------- -------- -------- Net cash provided by (used in) discontinued operations......................... 6,378 2,853 (4,080) Effect of exchange rate changes ............................................... (225) (2,521) 1,298 Net increase (decrease) in cash and equivalents ............................... 10,632 19,040 (4,066) Cash and equivalents, beginning of period ..................................... 35,427 16,387 20,453 -------- -------- -------- Cash and equivalents, end of period ........................................... $ 46,059 $ 35,427 $ 16,387 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest ................................................... $ 1,312 $ 2,883 $ 2,579 Cash paid for income taxes ............................................... $ 564 $ 808 $ 11,962 Supplemental disclosure of non-cash activities: Vehicles acquired through capital lease agreements ....................... $ 7,099 $ 17,129 $ 24,192
The accompanying notes are an integral part of these consolidated financial statements. 29 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Business and Basis of Presentation: Business Ventiv Health, Inc and subsidiaries (collectively "Ventiv" or "the Company") provides integrated sales and marketing services for its clients, primarily pharmaceutical, biotechnology and life sciences companies. Ventiv's services are designed to develop, execute and monitor strategic and tactical sales and marketing plans and programs for the promotion of pharmaceutical, biotechnology and other life sciences products. The Company currently conducts its continuing operations in the U.S. serving domestic corporations and domestic affiliates of foreign corporations. Basis of Presentation The consolidated financial statements include the accounts of Ventiv and its wholly owned subsidiaries. The Company's continuing operations consist primarily of two business units: Planning and Analytics ("HPR") and Ventiv Health Sales and Marketing ("VHSM"). These consolidated financial statements also include the assets and liabilities and operating results of businesses that have been discontinued or are held for sale, which amounts are separately classified. Ventiv's discontinued operations and assets held for sale include the following business units: European Contract sales organizations, operating in the U.K., France, Germany and Hungary; Alpharetta, Georgia-based communications business unit; and Stamford, Connecticut-based communications business unit. All significant intercompany transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies: Cash and Equivalents Cash and equivalents are comprised principally of amounts in operating accounts, money market investments and other short-term instruments. These accounts are stated at cost, which approximate market value, and have original maturities of three months or less. Approximately $1.7 million and $1.0 million at December 31, 2002 and 2001, respectively, were held in escrow on the behalf of clients and included in restricted cash. Revenue Recognition Revenues are recognized on product detailing contracts as services are performed. Most of the Company's contracts involve two phases, a "Deployment phase" in which the Company performs initial recruiting, training and preparation for deployment of the field force at the start of a new contract, and a "Promotion phase" in which the Company's deployed field force actively promotes specified products for clients ("Detailing"). The Company recognizes revenue during the "Promotion phase" of its contracts on a straight-line basis based on the size of the deployed field force. Many of the product Detailing contracts allow for additional periodic incentive fees to be earned by the Company once agreed upon performance benchmarks have been attained. Revenue earned from incentive fees is recognized when the Company is reasonably assured that payment will be made, and is typically based upon verification through calculation of achievement, third party data or client verification. Many contracts also stipulate penalties if agreed upon performance benchmarks have not been met. These penalties are recognized upon verification of performance shortfalls. A number of the Company's smaller Detailing contracts for products promoted by the Company's standing specialty sales teams are revenue-sharing based arrangements whereby the Company receives a portion of the revenue from products it promotes. Revenue from these contracts is recognized when agreed upon performance benchmarks have been attained and payment is reasonably assured. 30 Ventiv Health, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company periodically analyzes its detailing contracts to determine the likelihood and amount of any potential loss on a contract resulting from lower than anticipated product or field force performance. In the event that current information indicates a loss is likely to be incurred over the remaining life of the contract, the Company accrues that loss at the time it becomes probable. Most of the Company's contracts specify a separate fee for the initial "Deployment phase" of a project. The Company considers the Deployment phase to be a separate and distinct earnings process and recognizes the related revenues throughout the Deployment phase which typically spans a period of two to three months at the beginning of the first year of a contract. Non-refundable conversion fees are recognized as revenue when one of the Company's sales professionals accepts a firm offer of permanent employment from a customer during the term of a contract. Reimbursable costs including those relating to travel and out-of pocket expenses, sales force bonuses tied to product revenues, and other similar costs, are included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services. Revenues for the Company's HPR planning and analytics business generally include fixed fees, which are recognized when monthly services are performed on a straight-line basis and payment is reasonably assured. HPR's initial contracts typically range from one month to one year. Revenues for additional services are recognized when the services are provided and payment is reasonably assured. Customers are invoiced according to agreed upon billing terms. Contracts that are invoiced prior to performance of related services are recorded as deferred revenue and are not recognized as revenues until earned, in accordance with the Company's revenue recognition policies. Amounts earned for services provided before the agreed upon billing terms have been met are recorded as revenue and included in unbilled accounts receivable. Upon billing, these amounts are transferred to billed accounts receivable. Contracts are typically either terminable upon 60-120 days written notice by client, or non-cancelable for a one year term. Most contracts are immediately terminable by the client for default by the Company. Normally, if a client terminates a project, the client remains obligated to pay for services performed and reimbursable expenses incurred through the date of termination. Receivables Receivables consist of amounts billed and currently due from customers and unbilled amounts which have been earned but not yet billed. With the exception of amounts relating to certain contracts with pre-determined billing intervals, all amounts that are unbilled at the end of each monthly period are billed during the immediately succeeding monthly period. Property and Equipment Property and equipment is stated at cost. The Company depreciates furniture, fixtures and office equipment on a straight-line basis over three to seven years; computer equipment over three to five years and buildings up to thirty nine years. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful lives of the improvements. The Company amortizes the cost of vehicles under capital leases on a straight-line basis over the term of the lease. Goodwill and Other Intangible Assets In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets" ("SFAS No. 142"). This statement requires that goodwill and intangible assets with an indefinite life not be amortized but instead be tested for impairment annually, or immediately if conditions indicate that an impairment might exist. The Company adopted SFAS No. 142 effective January 1, 2002, and, as a result, the Company no longer amortizes its goodwill. Prior to fiscal 2002, the Company amortized goodwill over periods of twenty-five to thirty years. Goodwill related to those businesses now comprising the Company's continuing operations is reflected in the Company's consolidated balance sheets as of December 31, 2002 and 2001 at a carrying amount of approximately $20.6 million for both years. The remaining unamortized goodwill balance relates solely to the businesses currently comprising the Company's Sales and Marketing operating segment. The following table adjusts net earnings (losses) to calculate basic and diluted earnings per share "EPS" to eliminate historical amortization of goodwill and related tax effects. 31 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Tax effect
For the Year Ended December 31, ------------------------------------------ 2002 2001 2000 ------------- -------------- ------------- Reported net earnings (losses) ........................ $7,892 $(58,502) $16,814 Add back: Goodwill amortization ...................... - 994 1,099 ------------- -------------- ------------- Adjusted net earnings (losses) ........................ $7,892 $ (57,508) $17,913 ============= ============== ============= Basic EPS: Reported net earnings (losses)...................... $0.35 $(2.58) $0.74 Goodwill amortization .............................. - 0.04 0.05 ------------- -------------- ------------- Adjusted net earnings (losses) per share............... $0.35 $(2.54) $0.79 ============= ============== ============= Diluted EPS: Reported net earnings (losses)...................... $0.35 $(2.58) $0.72 Goodwill amortization .............................. - 0.04 0.05 ------------- -------------- ------------- Adjusted net earnings (losses) per share............... $0.35 $(2.54) $0.77 ============= ============== =============
In the second quarter of 2002, management completed its initial impairment analysis under SFAS No. 142 and concluded that no current goodwill impairment charges were necessary. The initial test compared the fair value of each of the Company's business reporting units having recorded goodwill balances with the business unit's carrying amount. Fair value was determined using discounted projected future operating cash flows for all business reporting units. Where the carrying amount exceeded fair value, additional testing was performed for possible goodwill impairment. The fair value for these business reporting units was then allocated to individual assets and liabilities, using a depreciated replacement cost approach for fixed assets, and outside appraised values for intangible assets. Any excess of fair value over the allocated amounts was equal to the implied fair value of goodwill. The implied goodwill value was compared to the goodwill book value to determine any impairment loss. Based on this evaluation, the Company concluded that the fair value of the business was sufficient to support the carrying amounts of related goodwill. Additionally, the Company obtained estimates of the current fair value of this operation through an independent third party appraisal to further support their conclusions. Goodwill is recorded separately on the consolidated balance sheet, while intangible assets, such as contractual covenant and marketing rights are included in deposits and other assets. The goodwill balance at December 31, 2002 and 2001 was $20.6 million. Intangible assets, net were $0.1 million and $0.2 million at December 31, 2002 and 2001 respectively. During 2001, the Company completed an evaluation of the goodwill and other intangible assets of several of its operating units. In accordance with guidance under Accounting Principles Board ("APB") Opinion No. 17 "Intangible Assets" undiscounted cash flow projections were prepared and analyzed for these operating units in order to determine whether such undiscounted cash flows were sufficient to support current intangible asset carrying values relating directly to these operations. Based on changes in market conditions and competitive factors, projected undiscounted cash flows for Promotech Research Associates ("Promotech"), currently part of the Company's Sales and Marketing segment, were insufficient to support the carrying amounts of related goodwill and certain intangible assets. The Company obtained estimates of the then current fair values of this operation through independent third party appraisals. Based on these appraisals in relation to Promotech's current net book value, the Company recorded goodwill impairment charges totaling $14.8 million. Long-Lived Assets and Assets to be Held for Sale In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, modifies the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the requirements of SFAS No. 121 for evaluation and recognition of impairment losses on long-lived assets to be held and used, but eliminates the requirement to allocate goodwill to the assets being tested for impairment. In addition, SFAS No. 144 provides additional guidance for implementing these impairment tests, including discussion on the use of probability-weighted cash flow estimation methods when alternative recovery methods may exist, and the establishment of a "primary asset" approach to determine the estimation period for groups of assets. In order to create a single accounting model, SFAS No.144 also provides specific guidance on accounting for disposals of long-lived assets. Long-lived assets to 32 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS be disposed of other than by sale (e.g. through abandonment, exchange for similar productive asset, or in a distribution to owners in a spin-off) are to be considered held and used until disposed of, with impairment losses recognized at the disposal date. For long-lived assets to be disposed of by sale, SFAS No. 144 continues to require that assets classified as held for sale be reported at the lower of carrying amount or fair value, less costs to sell, with no further depreciation and amortization recorded subsequent to the decision to dispose of those assets. SFAS No. 144 also provides for the presentation of discontinued operations when net assets held for sale relate to a component of an entity, for which results of operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity held for sale or to be disposed of is presented as a discontinued operation if its operations and cash flows have been or will be eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. Discontinued operations are no longer measured on a net realizable basis, and estimated future operating losses are no longer recognized before they occur. The Company has adopted the provisions of SFAS No. 144 effective January 1, 2001. The Company restated its financial statements for 2001 and 2000 to give effect to the adoption of SFAS No. 144. See Note 15 for further details. Earnings (Losses) Per Share Basic net income or loss per share excludes dilution for potentially dilutive securities and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income or loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net income or loss per share when their inclusion would be antidilutive. A summary of the computation of basic and diluted earnings (losses) per share is as follows:
Year Ended December 31, ------------------------------------------------------- 2002 2001 2000 ------------------------------------------------------- (in thousands, except per share data) Basic EPS Computation Net earnings (losses) .......................... $7,892 $(58,502) $16,814 Weighted average common shares outstanding ..... 22,842 22,648 22,628 ------------------ ------------------ ----------------- Basic EPS ...................................... $0.35 $(2.58) $0.74 ================== ================== ================= Diluted EPS Computation Net earnings (losses) .......................... $7,892 $(58,502) $16,814 Adjustments to net earnings (losses) ........... -- -- -- ------------------ ------------------ ----------------- Adjusted net earnings (losses) ................. $7,892 $(58,502) $16,814 ------------------ ------------------ ----------------- Weighted average common shares outstanding ..... 22,842 22,648 22,628 Employee stock options ......................... 15 n/a 524 Restricted stock awards ........................ n/a n/a 254 ------------------ ------------------ ----------------- Total diluted common shares outstanding ........ 22,857 22,648 23,406 ------------------ ------------------ ----------------- Diluted EPS .................................... $0.35 $(2.58) $0.72 ================== ================== =================
For the year ended December 31, 2001, there was no adjustment for the effect of stock options or restricted shares, since the Company incurred net losses and any adjustment would have had an anti-dilutive effect. The number of potentially dilutive common shares that were excluded for the calculation of diluted EPS in 2001 was 591,164. For the year ended December 31, 2002, there was no adjustment for the effect of restricted shares because the strike prices of all of the shares did not exceed the market price at any time during the year. The weighted average restricted shares outstanding for the year ended December 31, 2002 was 119,294. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured annually based on enacted tax laws and rates for temporary differences between the financial accounting and income tax bases of assets and liabilities. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. Foreign Currency Translations The Company currently classifies its France-based operations as a discontinued operation. Any transactions conducted between the Company's U.S.-based 33 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS operations and its French subsidiary may affect foreign currency translation. Assets and liabilities of the Company's discontinued and held for sale international operations are translated into US dollars using the final spot exchange rate as of the balance sheet date. Revenue and expense accounts for these subsidiaries are translated using the average spot exchange rate for each period presented. Foreign currency transaction gains or losses are included in the results of operations. The Company's foreign currency translation adjustments are reported as a component of comprehensive earnings (losses). Use of Estimates The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include certain amounts that are based on management's best estimates and judgments. Estimates are used in determining items such as reserves for accounts receivable, certain assumptions related to goodwill and intangible assets, deferred tax valuation, and amounts recorded for contingencies and other reserves. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. The Company is not aware of reasonably likely events or circumstances that would result in different amounts being reported that would have a material impact on results of operations or financial condition. Fair Value of Financial Instruments The carrying amount of the Company's cash and equivalents, accounts receivable, unbilled services and accounts payable approximate fair value because of the relatively short maturity of these instruments. Long-term debt approximates fair value as the majority of this debt has a variable interest rate and is comprised of notes with short-term maturities, which are typically renewed at maturity. The fair value of capitalized lease obligations approximates carrying value based on their effective interest rates compared to current market rates. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of accounts receivable and unbilled services. The Company places its investments in highly rated financial institutions, U.S. Treasury bills, money market accounts, investment grade short-term debt instruments and state and local municipalities, while limiting the amount of credit exposure to any one entity. The Company's receivables are concentrated with its major pharmaceutical clients. The Company does not require collateral or other security to support clients' receivables. Accounting for Stock Options The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of APB Opinion No. 25, "Accountings for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the quoted market price of the Company's stock and the exercise price. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The following table illustrates the effect on net earnings (losses) and earnings (losses) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
Year Ended December 31, ---------------------------------------- 2002 2001 2000 ---------- ------------- --------------- (in thousands, except per share data) Net earnings (losses) attributable to common shareholders, as reported ...................................................... $7,892 $(58,502) $16,814 Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ........................................ (2,245) (2,151) (1,923) ---------- ------------- --------------- Pro forma net earnings (losses) ........................... $5,647 $(60,653) $14,891 ========== ============= =============== Net earnings (losses) per share attributable to common shareholders: As reported: Basic .................................. $0.35 $(2.58) $0.74 As reported: Diluted ................................ $0.35 $(2.58) $0.72 Pro forma: Basic ..................................... $0.25 $(2.68) $0.66 Pro forma: Diluted .................................. $0.25 $(2.68) $0.64
34 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective in 2003. It requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability accreted each year based on a present value interest rate. This Standard, which the Company will adopt in 2003, will not have a material effect on the Company's consolidated financial position or results of operations. In September 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The Company does not believe that the adoption of this standard which is effective for the Company as of January 1, 2003, will have a material impact on the Company's financial position or results of operations. In November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply to guarantees issued or modified after December 31, 2002. The Company has evaluated the impact of the adoption of FIN 45, and does not believe it will have a material impact on the Company's consolidated financial position or results of operations. On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 addresses consolidation of entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as special purpose entities. The Interpretation provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also provides guidance related to the initial and subsequent measurement of assets, liabilities and noncontrolling interests in newly consolidated variable interest entities and requires disclosures for both the primary beneficiary of a variable interest entity and other beneficiaries of the entity. The Company will adopt the provision of FIN No. 46 effective January 1, 2003 but does not believe it will have a material impact on the Company's financial position or results of operations as the Company does not have any involvement with variable interest entities. 3. Restatement of Financial Statements Subsequent to the issuance of the Company's consolidated financial statements for the year ended December 31, 2001, the Company determined that certain balances relating to its now held for sale French operations contained errors resulting from consolidating entries prior to 2000 that had not been properly reconciled to the subsidiary. As a result, the Company's stockholders' equity and accumulated deficit as of December 31, 1999 have been restated from the amounts previously reported to reflect an adjustment that decreased stockholders' equity and increased accumulated deficit by $3.8 million to properly reconcile certain balances. The accompanying consolidated balance sheet as of December 31, 2001 has also been restated from the amounts previously reported to reflect the adjustment to stockholders' equity and accumulated deficit and the related adjustments to decrease assets by $1.7 million and increase liabilities by $2.1 million; these adjustments are included in balances associated with assets and liabilities held for sale. A summary of the significant effects of the restatement is set forth below:
As of December 31, -------------------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------------------- (in thousands) As Previously Reported As Restated As Previously Reported As Restated ------------------------- ------------------- ------------------------- -------------------- Total Assets .................... $235,066(a) $232,343 $251,214 $249,491 Total Liabilities ............... $143,045(a) $145,137 $102,088 $104,180 Accumulated Deficit ............. $(61,528) $(65,343) $(3,026) $(6,841) Stockholders' Equity ............ $91,021 $87,206 $149,126 $145,311
- ---------------- (a) Reflects certain tax reclassifications to conform to current year's presentation. 4. Significant Clients: During 2002, three clients, Bayer Corporation ("Bayer"), Endo Pharmaceuticals, Inc. ("Endo"), and Reliant Pharmaceuticals, Inc. ("Reliant") accounted for approximately 25%, 12% and 11% of our total revenue for the year ended December 31, 2002. During 2001, the Company had one client--Reliant, which represented 35 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 28% of total revenue for the year and two other clients representing 17% (Bristol-Myers Squibb, Inc. ("BMS")) and 13% (Bayer). The Company had one client, BMS, which represented 38% of total revenue for the year ended December 31, 2000. At December 31, 2002, the Company had four clients that accounted for more than 10% of the accounts receivable: Bayer (19%), Abbott Laboratories (16%), Altana Pharma ("Altana") (13%) and Endo (11%). At December 31, 2002 the Company had three clients that comprised more than 10% of the unbilled receivable balance: Bayer (36%); Endo (18%); and Altana (13%). At December 31, 2001, the Company had one client, Reliant, that accounted for 37% of accounts receivable. At December 31, 2001 the Company had three clients that comprised more than 10% of the unbilled receivable balance: Bayer (50%); BMS (25%); and Reliant (13%). In late June 2001, BMS notified the Company of its intent to cease; sales force promotion services under this contract effective December 31, 2001; promotion services were later extended through March 2002. In addition, in February 2002, Ventiv was notified by Reliant of their intent to convert the field sales force working under the Ventiv-Reliant contract from full-time Ventiv employment to full-time Reliant employment effective April 1, 2002. The Ventiv-Reliant contract, which commenced on August 1, 2000, provided Reliant with the option to convert all or a portion of the field sales force to Reliant employment at any time. Revenues from this client relationship represented 10.6% and 27.6% of the Company's total revenues for the years ended December 31, 2002 and 2001, respectively. 5. Property and Equipment: Property and equipment consist of the following: As of December 31, ------------------------ 2002 2001 ------------------------ (in thousands) Land .................................. $ 60 $ 60 Buildings and leasehold improvements .. 2,720 2,646 Computer equipment and software ....... 13,701 10,946 Vehicles .............................. 16,469 32,574 Furniture and fixtures ................ 4,203 3,964 -------- -------- $ 37,153 $ 50,190 Accumulated depreciation .............. (17,478) (19,648) -------- -------- $ 19,675 $ 30,542 ======== ======== The vehicles have been recorded under the provisions of a capital lease. The Company's Sales and Marketing segment has entered into a lease agreement to provide fleets of automobiles for sales representatives for certain client engagements. Depreciation expense totaled $9.6 million, $11.9 million, and $6.9 million in 2002, 2001 and 2000, respectively. In 2002, 2001, and 2000 the Company recorded $5.9 million, $7.3 million and $4.0 million of depreciation, respectively, on vehicles under capital lease. 6. Deposits and Other Assets: From time to time, in connection with certain business relationships, the Company has made investments in non-affiliate companies. In the fourth quarter of 2001, the Company wrote off its $2.1 million investment in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's ability to continue as a going concern. During the second quarter of 2001, one of the Company's e-Health partners, HeliosHealth, Inc. ("Helios"), filed for protection under Chapter 7 of the U.S. Bankruptcy Code. Accordingly, the Company wrote off its entire $0.5 million investment in Helios. 7. Debt: 36 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On December 1, 1999, Ventiv entered into a $50 million unsecured revolving credit facility, expiring on December 1, 2003. At December 31, 2001, the Company had $35.0 million outstanding under this line of credit with a weighted average interest rate of 4.39%. Based on the Company's financial results for the twelve-month period ended September 30, 2001, Ventiv was not in compliance with certain covenants under this facility. Accordingly, all amounts due under this facility were classified as current as of December 31, 2001. On February 13, 2002, the Company repaid all amounts outstanding under this facility. On March 29, 2002, the Company entered into an asset-based lending agreement, expiring on March 31, 2005 with Foothill Capital Corporation, a wholly owned subsidiary of Wells Fargo and Company. This revolving credit facility provides for a maximum borrowing amount of $50 million, subject to a borrowing base calculation, on a revolving basis and is secured by substantially all of the Company's assets. Interest on this facility is payable at the Company's option of a base rate (defined as the lending institution's prime rate) plus a margin of up to 0.75% or LIBOR plus a margin ranging from 2.25% to 2.75%, subject to a minimum borrowing rate of 4.75%. Under the facility, the Company pays an unused commitment fee of 0.375%. The Company is also subject to certain financial and other restrictive covenants, including, during any period in which any amounts are outstanding under the credit agreement, a requirement to maintain minimum levels of Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and U.S. Earnings before Interest and Taxes ("EBIT"). Additionally, the facility contains material adverse change clauses with regard to the financial condition of the assets, liabilities and operations of the Company. During 2002 and 2001, the Company incurred costs of approximately $1.1 and $2.4 million related to these credit facilities. These amounts have been included in interest expense in the accompanying consolidated statements of operations. The Company does not have any amounts outstanding under the credit facility at December 31, 2002. 8. Accrued Payroll, Accounts Payable and Accrued Expenses: Accrued payroll, accounts payable and accrued expenses consist of the following:
December 31, -------------------------------------- 2002 2001 -------------------------------------- (in thousands) Accrued payroll and related employee benefits $11,046 $14,652 Accounts payable 1,728 1,206 Accrual for estimated losses on long-term contracts -- 6,100 Accrued expenses and other general liabilities 15,405 12,964 ------------------ ------------------- $28,179 $34,922 ================== ===================
In the fourth quarter of 2001, the Company recorded a reserve of approximately $6.1 million for estimated cumulative future losses on the original Bayer agreement under the assumption that Ventiv would elect to discontinue promotion services under the original contract on a loss basis beyond May 14, 2002 (the first date that Ventiv could exercise its right to terminate the contract). As a result of the amendment and restatement of the agreement, effective May 15, 2002, the Company reduced its cumulative loss estimate by $2.4 million, which positively impacted the Company's profit margins in the second quarter of 2002. 9. Leases: The Company leases certain facilities, office equipment and other assets under non-cancelable operating leases. The following is a schedule of future minimum lease payments for these operating leases at December 31, 2002 (in thousands): Years Ending December 31, 2003 .................................. $3,668 2004 .................................. 3,872 2005 .................................. 3,831 2006 .................................. 3,805 2007 .................................. 3,836 Thereafter ............................ 1,696 --------------- Total minimum lease payments .......... $20,708 =============== Rental expense for all operating leases was approximately $2.3 million, $2.4 million, and $1.7 million for the years ended December 31, 2002, 2001 and 2000, respectively. The Company also has commitments under capital leases. The following is a schedule of future minimum lease payments for these capital leases at December 31, 2002 (in thousands): 37 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ending December 31, 2003 .................................. $4,453 2004 .................................. 4,335 2005 .................................. 3,513 2006 .................................. 1,160 2007 .................................. 300 Thereafter ............................ -- ----------- Total minimum lease payments .......... $13,761 Amount representing interest and fees.. (709) ----------- 13,052 Current portion ....................... (4,148) ----------- Non-current lease obligations ......... $8,904 =========== 10. Commitments and Contingencies: The Company is subject to lawsuits, investigations and claims arising out of the conduct of its business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against the Company. In the opinion of management and based on the advice of legal counsel, all matters outstanding as of December 31, 2002 are without merit or are of such a nature, or involve amounts that would not have a material effect on the financial position or results of operations of the Company if disposed of unfavorably. 11. Common Stock and Stock Incentive Plans: During 1999, the Company's Board of Directors authorized the repurchase of $25 million of the Company's common stock. At December 31, 1999, the Company had repurchased 494,000 shares of the Company's common stock at a total cost of $4.3 million, including broker fees and commissions. On March 15, 2000, the Board of Directors authorized the repurchase of an additional $12.5 million of the Company's common stock, bringing the total authorized to $37.5 million. During 2000, the Company repurchased 1.7 million shares of the Company's common stock for a total cost of $17.6 million, including broker fees and commissions. All of these shares were retired in 2000. The Company did not repurchase any shares during 2001 or 2002. Under the terms of its current credit agreement, the Company is restricted from further repurchases of its outstanding stock. Ventiv's 1999 Stock Incentive Plan authorizes the Company to grant incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights ("SARs"). The aggregate number of shares of Ventiv common stock that may be issued under the Stock Plan upon exercise of options, SARs or in the form of restricted stock is 4.8 million shares. The exercise price of Ventiv options granted under the Stock Plan may not be less than 100% of the fair market value per share of Ventiv common stock on the date of the option grant. The vesting and other provisions of the options are determined by the Compensation Committee of Ventiv's Board of Directors. A summary of the option activity within the Stock Plan, is as follows: Weighted Number of Average Shares Exercise Price ------------------------------- (in thousands) Outstanding options at January 1, 2000 3,440 $7.95 Granted 605 10.03 Exercised (171) 7.94 Forfeited or expired (564) 8.00 ------------- ----------------- Outstanding options at December 31, 2000 3,310 8.33 Granted 1,137 7.39 Exercised (296) 7.94 Forfeited or expired (835) 8.81 ------------- ----------------- Outstanding options at December 31, 2001 3,316 $7.92 Granted 3,238 2.62 Exercised -- -- Forfeited or expired (2,662) 8.04 ------------- ----------------- Outstanding options at December 31, 2002 3,892 $3.43 ============= ================= Exercisable at: December 31, 2000 943 $7.95 ============= ================= December 31, 2001 1,260 $8.18 ============= ================= December 31, 2002 1,277 $4.80 ============= ================= 38 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's options outstanding and exercisable have exercise price ranges and weighted average remaining contractual lives of: (numbers below are presented in thousands)
Outstanding Options Exercisable Options ------------------- Weighted Average ------------------- Exercise Numbers of Weighted Average Remaining Life Number Weighted Average Price Range Options Exercise Price (years) of Options Exercise Price - ------------ ---------- ---------------- ----------------- ---------- ---------------- $1.19 to $1.62 90 $1.51 9.69 0 $ - $1.66 to $1.66 1,657 $1.66 9.95 325 $ 1.66 $1.68 to $2.62 400 $2.52 9.01 80 $ 2.62 $2.70 to $2.81 84 $2.77 9.15 0 $ - $4.00 to $4.00 1,051 $4.00 9.89 414 $ 4.00 $4.37 to $8.06 528 $7.95 6.61 417 $ 7.93 $8.81 to $13.00 72 $9.54 7.49 36 $ 9.41 $14.38 to $18.45 10 $14.44 7.63 5 $ 15.26 ----- ----- 3,892 1,277
The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions. 2002 2001 2000 ------------- -------------- -------------- Expected life of option .. 4 yrs 4 yrs 4 yrs Risk-free interest rate .. 3.03% 4.39% 5.17% Expected volatility ...... 100.00% 82.78% 61.95% Expected dividend yield .. 0.00% 0.00% 0.00% The weighted average option fair value at date of grant was $2.83, $4.12 and $3.89 at December 31, 2002, 2001 and 2000, respectively. During 1999, the Company granted 831,502 shares of restricted stock to certain key employees, of which 269,608 of the shares vested upon grant with the remaining shares of restricted stock vesting ratably over the four years following the grant date. A summary of the restricted stock activity within the Stock Plan is as follows. Restricted Stock Number of Shares ------------------ (in thousands) January 1, 2000 831 Granted 29 Cancelled (127) ------------------ December 31, 2000 (370 shares vested) 733 Granted 29 Cancelled (103) ------------------ December 31, 2001 (492 shares vested) 659 Granted 0 Cancelled (33) ------------------ December 31, 2002 (559 shares vested) 626 ================== During 2002, 2001 and 2000, the Company recognized compensation expense related to the vesting of restricted shares of $1.0 million, $0.7 million and $0.5 million, respectively. At December 31, 2002, Ventiv had reserved 4.3 million common shares for issuance under the Stock Plan of which, approximately 0.4 million remain available for grant. In May 2002 the Company initiated a tender offer which provided Ventiv employees with the opportunity to tender their Ventiv employee stock options on May 2, 2002, on a grant by grant basis, for new Ventiv stock options with an exercise price of $4.00 per share which would be issued on December 2, 2002. Those employees who elected to tender their options suspended vesting on those options from May 2, 2002 to December 2, 2002, and adjusted the balance of the vesting schedule on those options to the greater of two years or the original vesting schedule. 1,067,529 employee stock options were tendered pursuant to this tender offer from a total of 2,189,647 outstanding employee stock options eligible to be tendered. 39 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Pension and Profit-Sharing Plans: Ventiv and certain of its subsidiaries maintain defined contribution benefit plans. Pension and profit sharing costs incurred by the Company related to these plans amounted to approximately $0.6 million, $0.8 million, and $0.4 million for 2002, 2001 and 2000, respectively. 13. Restructuring Charges: During 2001, the Company completed an evaluation of the operations of certain U.S.-based operations. As a result of this evaluation, the Company adopted a plan of restructuring and recorded a charge of approximately $2.0 million, which included provisions for the severance of 23 people and costs to reduce the size of the Somerset, NJ and New York, NY administrative offices. The Company expects that the remaining amounts will be paid during 2003. The following table summarizes the activity in the restructuring liability account (in thousands):
Beginning Deductions for Balance at End Balance Additions Amounts Paid of Period ------------ ------------- ------------------- ------------------ Year Ended December 31, 2002 $1,064 $ - $530 $534 Year Ended December 31, 2001 $ - $2,025 $961 $1,064
14. Income Taxes: The Company's net earnings (losses) from continuing operations before income taxes consisted of: 2002 2001 2000 ---------------------------------------- (in thousands) Domestic .......... $7,969 $(21,092) $39,238 Foreign ........... -- -- -- ---------- -------------- -------------- Total ........ $7,969 $(21,092) $39,238 ========== ============== ============== The Company's income tax provision (benefit) from continuing operations included the following components:
For the Years Ended December 31, ---------------------------------------------- 2002 2001 2000 ---------------------------------------------- (in thousands) Current: U.S.--Federal ............................ $349 $2,337 $11,800 U.S.--State and local .................... 189 462 1,457 Foreign .................................. -- -- -- --------------- ---------------- ------------- $538 $2,799 $13,257 --------------- ---------------- ------------- Deferred: U.S.--Federal ............................ $2,229 $(7,762) $807 U.S.--State and local .................... 261 (69) 459 Foreign .................................. -- -- -- --------------- ---------------- ------------- $2,490 $(7,831) $1,266 --------------- ---------------- ------------- Income tax provision (benefit) ........... $3,028 $(5,032) $14,523 =============== ================ =============
40 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for taxes on net earnings (losses) differs from the amount computed by applying the U.S. federal income tax rate as a result of the following:
For the Years Ended December 31, ------------------------------------- 2002 2001 2000 ----------- ----------- ------------- Taxes at statutory U.S. federal income tax rate ........... 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit .. 5.6 (1.9) 5.2 Utilization of NOL / Other Tax Benefits ................... (4.7) -- (5.5) Other permanent differences ............................... 2.1 (9.3) 2.3 ----------- ----------- ------------- Effective tax rate ........................................ 38.0% 23.8% 37.0% =========== =========== =============
Deferred income taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities. As of December 31, 2002 and 2001, the deferred tax assets and liabilities consisted of the following: As of December 31, ----------------------------- 2002 2001 ----------------------------- Current Deferred Assets: (in thousands) Accrued expenses ................ $4,282 $5,543 Other ........................... 1,350 32 -------------- -------------- Subtotal $5,632 $5,575 Non-Current Deferred Assets: Deferred Compensation ........... $ 360 $ 104 Intangible Assets ............... 4,328 4,341 Tax Losses of Subsidiaries ...... 30 2,502 Fixed Assets .................... 8,452 5,600 Other ........................... 1,431 857 -------------- -------------- Subtotal $14,601 $13,404 Gross Deferred Assets ........... $20,233 $18,979 Current Deferred Liabilities: Accrued Expenses ................ (2,899) (1,660) Other ........................... (989) (2,959) -------------- -------------- Subtotal $(3,888) $(4,619) Non-Current Deferred Liabilities: Property and Equipment .......... $(6,444) $(3,182) Other............................ (487) (14) -------------- -------------- Subtotal $(6,931) $(3,196) Gross Deferred Liabilities ..... $ (10,819) $ (7,815) -------------- -------------- Net deferred tax assets .... $9,414 $11,164 ============== ============== Several of the Company's subsidiaries had operating loss carry forwards at December 31, 2001, that could be realized only if these subsidiaries generated taxable operating income in future periods. As a result of the divestitures previously discussed, any operating loss carry forwards and related deferred tax assets that management determined would not be utilized in future tax periods, were written off as of December 31, 2002. Management continually assesses whether the Company's deferred tax asset associated with operating tax loss carry forwards is realizable and believes that the remaining deferred tax asset is realizable at December 31, 2002. 15. Discontinued Operations: Ventiv's discontinued operations include the following business units: its European Contract sales organizations, operating in the U.K., France, Germany and Hungary; its Alpharetta, Georgia-based communications business unit; and its Stamford, Connecticut-based communications business unit. Net earnings (losses) from discontinued operations were earnings of $3.0 million and losses of $42.4 million and $7.9 million, net of taxes, for the years ended December 31, 2002, 2001 and 2000 respectively. These earnings (losses) comprised the collective operating results of the Company's discontinued operations, which generated losses of $4.8 million, $40.5 million and $7.9 million for the years ended December 31, 2002, 2001 and 2001 respectively. These earnings (losses) also included actual or estimated gains and losses on the divestiture of these businesses, which totaled a gain of $2.3 million in 2002 and a loss of $2.0 million in 2001, both net of taxes. The 2002 gains on divestitures of these businesses are inclusive of approximately $4.9 million net gains for the removal of currency translation accounts previously accumulated by the Company's discontinued operating units. In addition, these earnings (losses) included an estimated $5.4 million tax benefit in 2002 for carry-back deductions relating to the disposal of the Stamford, Connecticut-based business unit. Operating results for the year ended December 31, 2001 are inclusive of charges recorded for the impairment of intangible assets in certain business units treated as discontinued operations. As a result of an evaluation of the goodwill and other intangible assets of several of its operating units in September 2001 the Company recorded goodwill and other intangible asset impairment charges of approximately $13.7 million related to the U.K.-based contract sales 41 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS business, $23.2 million related to the France-based contract sales business and $1.1 million related to the Stamford, Connecticut-based communications business unit. Results of discontinued operations have been shown net of tax, the effects of which were minimal in both periods given the net losses attributable to the operations. Accordingly, the Company has not recognized tax benefits for losses attributable to these business units. Goodwill associated with the U.K. and France-based contract sales businesses was not deductible for tax purposes; therefore, there were no current or future benefits attributable to the goodwill impairment charges taken in the third quarter of 2001 related to these operations. Effective May 7, 2002, the Company entered into a definitive purchase and sale agreement, completing the sale of substantially all of the net assets of its Stamford, Connecticut-based business unit to Discovery East, LLC, a majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit. In consideration for the sale, the Company received approximately $3.4 million in cash together with a note receivable in the amount of $0.6 million, due and subsequently collected in February 2003 and guaranteed by Bcom3 Group, Inc. In connection with the completion of this divestiture, the Company recorded an estimated $5.4 million tax benefit for carry-back deductions relating to the disposal of this business unit. Total losses on the disposal of the Stamford, Connecticut-based business of $2.0 million, net of tax, were estimated in the third quarter of 2001 and adjusted to reflect final transaction terms in the second quarter of 2002. In addition, the Company completed the sale of substantially all of the net assets of its Alpharetta, Georgia-based business unit to a management group of that business unit on June 3, 2002. The Company received $0.9 million of cash at closing for the sale of this business unit and will be entitled to contingent payments based on a percentage of earnings before interest, taxes, depreciation and amortization as defined in the agreement for the business unit, up to a total maximum amount of $0.5 million. Total losses on the disposal of the Alpharetta, Georgia-based business unit of $6.6 million, net of tax, were recorded in the second quarter of 2002, which included a charge of $7.5 million for the write-down of goodwill related to that business unit. On September 26, 2002 and effective September 30, 2002, the Company completed the sale of 100% of the shares of Ventiv Health Germany GmbH ("Germany")(the holding company for the subsidiaries comprising the Ventiv Health Germany operating unit) to a group of management purchasers, led by the managing director of that business. In consideration for the sale, the Company received EUR 6.2 million ($6.1 million) at closing, and may receive additional consideration of up to EUR 5.0 million payable from potential future earnings of the business. According to the sale agreement, although the Company has no ongoing interest, Germany will continue to operate under the name "Ventiv Health Germany" for a period of up to three (3) years. The Company recognized a gain of approximately $5.5 million on the sale of this business unit, inclusive of the aforementioned net gains from the removal of the accumulated currency translation accounts. This transaction will result in a loss for tax purposes. Given that the Company may be limited in its ability to utilize such losses in the foreseeable future, a tax benefit for such loss has not been recorded. On October 16, 2002, the Company completed the sale of the assets and business of its U.K.-based contract sales operating unit to Ireland-based United Drug plc. Total consideration of $7.5 million was satisfied in cash and received in full on the completion of the transaction. The Company recorded a gain of $2.5 million, net of taxes, related to this transaction in the fourth quarter of 2002. Below is a summary of the results of our European Contract Sales discontinued operations, which consist of our U.K. and Germany based divested units and our France and Hungary-based operations that are classified as held for sale:
Year Ended December 31, ---------------------------------- 2002 2001 2000 ---------------------------------- (in thousands) Revenue .............................................. $80,772 $94,868 $92,379 Losses before income taxes ........................... (1,011) (35,619) (4,973) Benefit from (provision for) income taxes ............ (1,153) (562) 708 ---------- ------------ ---------- Net earnings (losses) from discontinued operations.... $2,164 $(36,181) $(4,265) ========== ============ ==========
Below is a summary of the results of our Communications operations, which consist of our Stamford, Connecticut and Alpharetta, Georgia - based divested units:
Year Ended December 31, ---------------------------------- 2002 2001 2000 ---------------------------------- (in thousands) Revenue ............................................. $8,735 $26,465 $49,595 Losses before income taxes .......................... (3,918) (4,090) (6,243) Benefit from (provision for) income taxes ........... 6,712 (217) 2,607 ---------- ------------ ---------- Net Earnings (losses) from discontinued operations... $2,794 $(4,307) $(3,636) ========== ============ ==========
42 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All assets and liabilities specifically related to the business units based in France and Hungary have been classified as "held for sale" in the accompanying balance sheets as of December 31, 2002 and 2001. 16. Related Parties: Included in the results of operations for 2000 are charges of approximately $1.0 million related to certain administrative services performed by related parties. There were no similar charges incurred during 2001 or 2002. In September 1999 the Company's Chief Executive Officer borrowed $0.5 million on a non-recourse basis from the Company exclusively for the purchase of 45,000 shares of the Company's common stock, subject to the terms of a promissory note dated September 30, 1999 and payable on September 30, 2003, as agreed to under terms under the executive's employment agreement with the Company. In December 2002 the Company forgave the loan, and the executive agreed to return the shares to the Company. The Company charged $0.5 million to compensation expense in conjunction with the forgiveness of this loan. 17. Segment Information: During the fourth quarter of 2001, the Company structured its internal reporting practices and identified reportable segments based on its then current management structure. The Company now segregates reporting segments by products and services offered. In 2001, the Company operated under five segments: U.S. Contract Sales, European Contract Sales, Planning and Analytics, Communications, and Other. The Company currently operates under three segments: Ventiv Health Sales and Marketing, Planning and Analytics and Other. As discussed previously, in 2002, the Company divested two of its three subsidiaries in its European Contract Sales segment, while classifying its remaining France and Hungary-based units as held for sale. In addition, all of the Company's units in its Communications segment were divested in 2002 except for the Colorado-based Promotech business, which was reclassified as part of U.S. Contract Sales (now renamed Ventiv Health Sales & Marketing), leaving just three segments. The Company's reportable segments are: Sales and Marketing (VHSM) The Sales and Marketing segment is focused on planning, implementing and executing outsourced product commercialization programs for prescription pharmaceutical and other life sciences products in the United States. This segment maintains and operates the requisite systems, facilities, and support services to rapidly recruit, train and deploy a customized, full-service and highly targeted sales force. The Sales and Marketing segment offers each of the aforementioned services on a standalone basis as well. In addition, Sales and Marketing offers telemarketing services, which significantly enhance a life sciences company's ability to communicate effectively with physicians in a cost efficient manner. Planning and Analytics (HPR) Through the wholly-owned subsidiary, Health Products Research ("HPR"), the planning and analytics segment is responsible for the design of a product launch program and monitoring that program's development to maximize the potential for a product's success. This is achieved by using proprietary software to analyze data compiled from internal sources and third parties to determine specifically how a targeted strategy can maximize asset utilization and return on investment for our clients. HPR's distinctive process for developing strategic and tactical resource allocation is predicated upon the linking of services and data through solutions based on doctor-level intelligence. HPR also conducts primary and secondary research, syndicated studies, market tracking and custom research audits, with proven expertise in developing proprietary, customized market research projects that measure attitudes and behaviors of diverse audiences including both physicians and consumers. Other The Other segment encompasses the activities of the corporate management group as well as the operations of our Ventiv Integrated Solutions unit. The accounting policies of the segments are the same as those described in Note 2, "Summary of Significant Accounting Policies". Ventiv evaluates the performance of its segments and allocates resources to them based on operating income before restructuring charges. Each segment's revenue and operating income have been reported net of any inter-segment revenue. The following presents information about the reported segments: 43 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2002 (in thousands)
Sales & Planning & Marketing Analytics Other Total ------------------ ----------------- ----------------- ----------------- Revenues ................................. $188,978 $ 25,677 $ 732 $215,387 Depreciation and amortization ............ 8,643 785 204 9,632 Interest expense ......................... 377 - 1,199 1,576 Interest income .......................... - - 456 456 Segment income (loss) .................... $ 14,693 $ 3,906 $(10,630) $ 7,969 For the year ended December 31, 2001 (in thousands) Sales & Planning & Marketing Analytics Other Total ------------------ ----------------- ----------------- ----------------- Revenues ................................. $269,526 $ 25,237 $ - $294,763 Depreciation and amortization ............ 12,418 908 199 13,525 Impairment of goodwill ................... - 14,811 - 14,811 Restructuring charges .................... 1,459 - 566 2,025 Realized losses on investments ........... - - 2,600 2,600 Interest expense ......................... 1,162 - 3,332 4,494 Interest income .......................... - - 427 427 Segment income (loss) .................... $ 7,044 $(10,730) $(17,406) $(21,092) For the year ended December 31, 2000 (in thousands) Sales & Planning & Marketing Analytics Other Total ------------------ ----------------- ----------------- ----------------- Revenues ................................. $250,840 $ 23,846 $ - $274,686 Depreciation and amortization ............ 7,886 879 119 8,884 Interest expense ......................... 1,047 - 1,977 3,024 Interest income .......................... - - 826 826 Segment income (loss) .................... $ 41,072 $ 7,529 $ (9,363) $ 39,238
December 31, -------------------------------------- 2002 2001 ---- ---- (in thousands) -------------------------------------- Total Assets: Sales & Marketing .................. $76,343 $125,040 Planning & Analytics ............... 13,796 10,804 Other .............................. 52,768 45,574 Assets held for sale ............... 10,511 50,925 ------------------- ------------------ Total assets ......................... $153,418 $232,343 =================== ==================
The Company's continuing operations are exclusively in the United States. 44 VENTIV HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Selected Quarterly Financial Data (unaudited): The following table summarizes financial data by quarter for the Company for 2002 and 2001.
2002 Quarter Ended (b) ------------------------------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 Total ------------ ------------- ------------ ------------ ------------- (in thousands, except per share amounts) Revenues ............................................. $69,868 $48,769 $46,888 $49,862 $215,387 Gross profit ......................................... 8,851 8,944 8,246 10,445 36,486 Earnings from continuing operations .................. 1,131 1,259 1,016 1,535 4,941 Earnings (losses) from discontinued operations ....... (726) (1,368) 3,283 1,762 2,951 Earnings (losses) .................................... 405 (109) 4,299 3,297 7,892 Earnings (losses) per share (a) Continuing operations ........................... $0.05 $0.06 $0.04 $0.07 $0.22 Discontinued operations ......................... $(0.03) $(0.06) $0.15 $0.08 $0.13 2001 Quarter Ended (b) ------------------------------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 Total ------------------------------------------------------------------ (in thousands, except per share amounts) Revenues ............................................. $74,598 $72,254 $68,885 $79,026 $294,763 Gross profit ......................................... 12,247 12,400 3,672 6,272 34,591 Earnings (losses) from continuing operations ......... 1,596 1,664 (15,529) (3,791) (16,060) Earnings (losses) from discontinued operations ....... (226) 521 (44,499) 1,762 (42,442) Earnings (losses) .................................... 1,370 2,185 (60,028) (2,029) (58,502) Earnings (losses) per share (a) Continued ....................................... $0.07 $0.07 $(0.68) $(0.17) $(0.71) Discontinued operation .......................... $(0.01) $0.02 $(1.96) $0.08 $(1.87)
(a) The sum of the net earnings per share do not add up to the full year amount due to rounding and because the quarterly calculations are based on varying numbers of shares outstanding. (b) The above tables have been reclassified as per SFAS No. 144 for the effects of discontinued operations. See Note 15 for a further description. 45 VENTIV HEALTH, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2002, 2001 and 2000 (in thousands)
Deductions from Balance at Reserve for Purpose Beginning Additions Charged to for Which Reserve Balance at End Of Year Cost and Expense was Created Of Year -------------- ---------------------- --------------------- ----------------- Allowances for Doubtful Accounts: Year ended December 31, 2002 .......... $979 $236 $37 $1,178 Year ended December 31, 2001 .......... 867 183 71 979 Year ended December 31, 2000 .......... 823 377 333 867
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable 46 PART III Item 10. Directors and Executive Officers of the Registrant. The information contained in Ventiv's definitive proxy statement to be filed with the Commission for use in connection with the 2002 Annual General Meeting of Shareholders ("Ventiv's Proxy Statement") under the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference in response to this item. Item 11. Executive Compensation. The information contained in Ventiv's Proxy Statement under the section entitled "Executive Compensation" is incorporated herein by reference in response to this item, except that the information contained in the Proxy Statement under the sub-headings of "Report of the Board of Directors of Ventiv Health, Inc. on Executive Compensation" and "Stockholder Return Performance Graph" is not incorporated herein by reference and is not deemed "filed" as part of this filing. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained in Ventiv's Proxy Statement under the section entitled "Security Ownership of Directors, Executive Officers and Certain Beneficial Owners" is incorporated herein by reference in response to this item. Item 13. Certain Relationships and Related Transactions. The information contained in Ventiv's Proxy Statement under the section entitled "Compensation Committee Interlocks and Insider Participation" is incorporated herein by reference in response to this item. 47 PART IV Item 14. Controls and Procedures. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. The following Consolidated Financial Statements of Ventiv Health, Inc. are filed under "Item 8. Financial Statements and Supplementary Data." Consolidated Balance Sheets as of December 31, 2002 and 2001 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000. Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000. Notes to Consolidated Financial Statements 2. The following financial statement schedule is filed under "Item 8. Financial Statements and Supplementary Data." Schedule II--Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or are not required under Regulation S-X. 3. The following exhibits are filed herewith or are incorporated herein by reference, as indicated.
Exhibit Description Page - --------- ---------------------------------------------------------------------------------------------------------------- ------- - --------- ---------------------------------------------------------------------------------------------------------------- ------- 3.1 Amended and Restated Certificate of Incorporation of Ventiv Health, Inc. (filed as Exhibit 3.1 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 3.2 By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 4.1 Specimen form of certificate representing Ventiv Health, Inc. common stock (filed as Exhibit 4.1 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.1 Form of Distribution Agreement between Snyder Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit 10.1 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.2 Form of Tax Sharing Agreement between Snyder Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit 10.2 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.3 Form of Interim Services Agreement between Snyder Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit 10.3 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.4 Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Exhibit 10.4 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.5 Employment Agreement, dated June 14, 1999 by and between Eran Broshy and Snyder Communications, Inc. (filed as Exhibit 10.5 to the Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended. * - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.6 Employment Agreement, dated January 1, 2001 by and between Leonard J. Vicciardo and Ventiv Health, Inc. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.9 Employment Agreement, dated August 13, 2001 by and between John R. Emery and Ventiv Health, Inc. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.10 Credit Agreement, dated March 29, 2002, among Ventiv Health, certain subsidiaries of Ventiv Health, Inc., and Foothill Capital Corporation. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 10.11 Employment Agreement, dated April 8, 2002 by and between Terrell Herring and Ventiv Health, Inc. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 21.1 Subsidiaries of Ventiv Health, Inc. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 23 Consent of Deloitte & Touche LLP. - --------- ---------------------------------------------------------------------------------------------------------------- ------- 99.1 Chief Executive Officer's Certification of Financial Statements pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - --------- ---------------------------------------------------------------------------------------------------------------- ------- 99.2 Chief Financial Officer's Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - --------- ---------------------------------------------------------------------------------------------------------------- -------
* Incorporated by reference. 48 (b) Reports on Form 8-K Current Report on Form 8-K, (Item 5--Other Material Events) filed as of October 21, 2002, regarding the divestitures of the Company's Germany and United Kingdom-based contract sales business units. 49 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. VENTIV HEALTH, INC. By: /s/ JOHN R. EMERY John R. Emery Chief Financial Officer Date: March 31, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ ERAN BROSHY Chief Executive Officer and Director March 31, 2003 -------------------------------- (Principal Executive Officer) Eran Broshy /s/ JOHN R. EMERY Chief Financial Officer March 31, 2003 -------------------------------- (Principal Financial Office and Accounting Officer) John R. Emery /s/ DANIEL M SNYDER Chairman of the Board March 31, 2003 -------------------------------- Daniel M. Snyder /s/ DONALD CONKLIN Director March 31, 2003 -------------------------------- Donald Conklin /s/ FRED DRASNER Director March 31, 2003 -------------------------------- Fred Drasner /s/ JOHN R. HARRIS Director March 31, 2003 -------------------------------- John R. Harris /s/ A. CLAYTON PERFALL Director March 31, 2003 -------------------------------- A. Clayton Perfall
50 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Eran Broshy, Chief Executive Officer of Ventiv Health, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.: 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ Eran Broshy - ----------------------- Chief Executive Officer 51 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John R. Emery, Chief Financial Officer of Ventiv Health, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 31, 2003 /s/ John R. Emery - ----------------------------- Chief Financial Officer 52 EX-10.6 3 dex106.txt EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 2001 Exhibit 10.6 [LOGO OF VENTIV HEALTH] EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of January 1,2001 (the "Effective Date") between Ventiv Health, Inc., a Delaware corporation with its principal place of business at 1114 Avenue of the Americas, New York, New York 10036 (the "Company"), and Leonard J. Vicciardo, residing at 6019 Covered Bridge Road, Pipersville, PA 18947 (the "Executive"). WITNESSETH: ---------- WHEREAS, the Company desires to employ the Executive as its President and Chief Operating Officer and the Executive desires to accept such employment, all on the terms and conditions specified herein; and WHEREAS, the Executive and the Company desire to set forth in writing all of their respective duties, rights and obligations with respect to the Executive's employment by the Company; and NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be Legally bound, hereby agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive ---------- hereby accepts employment by the Company, in the capacity and upon the terms and conditions hereinafter set forth. 2. Duties. The Executive shall serve as the Company's President and Chief ------ Operating Officer and shall perform such duties, functions and responsibilities as are associated with and incident to that position and as the Company may, from time to dine, require of him. The Executive shall serve the Company faithfully, conscientiously and to the best of the Executive's ability and shall promote the interests and reputation of the Company. Unless prevented by sickness or disability, the Executive shall devote all of the Executive's time, attention, knowledge, energy and skills, during normal working hours, and at such other times as the Executive's duties may require, to the duties of the Executive's employment. The principal place of employment of the Executive shall be at Employer's Whitehouse, NJ office and/or such other location as shall be necessary for the Executive to discharge the Executive's duties hereunder. The Executive acknowledges that in the course of employment the Executive may be required, from time to time, to travel on behalf of the Company. 3. Compensation and Benefits. As full and complete compensation for the ------------------------- Executive's execution and delivery of this Agreement and performance of any services hereunder, the Company shall pay, grant or provide the Executive, and the Executive agrees to accept, the following compensation and benefits: Lenny Vicciardo January 1, 2001 a. Base Salary. The Company shall pay the Executive a base ----------- salary at an annual) rate of $273,000 payable at such times and in accordance with the Company's customary payroll practices as they may be adopted or modified from time to time. On an annual basis or at such other times as the Company may determine, the Company may review the Executive's performance and determine whether, in its sole discretion, the Company will increase (but not decrease) the Executive's base salary. b. Fringe Benefits. The Company shall afford the opportunity --------------- to participate in any health care, dental, disability insurance, retirement, savings and any other employee benefits plans, policies or arrangements which the Company maintains for its employees in accordance with the written terms of such plans, policies or arrangements. Nothing in this Agreement shall require the Company or its affiliates to establish, maintain or continue any benefit plans, policies or arrangements or restrict the right of the Company or any of its affiliates to amend, modify or terminate any such benefit plan, policy or arrangement c. Stock Option Arrangements. Subject to the approval of the ------------------------- Compensation Committee of the Company's Board of Directors, the Company shall grant to the Executive an option to purchase additional 12,000 shares of common stock, with a grant date of January 29,2001, an Exercise Price equivalent to the closing price on the grant date, and will vest 25% per year, 100% after four (4) years. Such grant shall be pursuant to the terms and conditions of the Ventiv Health, Inc. Stock Incentive Plan and the Executive's execution of a standard Ventiv Nonqualified Stock Option Agreement in the form provided to the Executive by the Company. The Executive acknowledges having received a copy of the Ventiv Health Inc. Stock Incentive Plan and an unexecuted Nonqualified Stock Option Agreement. Nothing herein shall effect the vesting of the Executive's 75,000 Ventiv Common Stock governed by the 1999 Ventiv Stock Incentive Plan as provided for in paragraph 4 of the Executive's prior Employment Agreement dated 26th day of October, 1998. d. Bonus. The Executive shall be eligible for a bonus in each ----- calendar year, based on the Executive's success in reaching or exceeding performance objectives as determined by the Chief Executive Officer or his/her designee, the amount of such bonus, if any, to be determined in the discretion of the Company. Notwithstanding the foregoing if the Executive remains employed by the Company through the bonus payout date, the Executive shall be entitled to a bonus range of 0-100% of the Executive's then current base salary, with the amount of such bonus, if any, remaining subject to the discretion of the Company. e. Expenses. The Executive shall be entitled to reimbursement -------- or payment of reasonable business expenses in accordance with the Company's policies, as the same may be amended from time to time in the Company's sole discretion, following the Executive's submission of appropriate receipts, bills and/or expense reports to the Company in accordance with such policies. Lenny Vicciardo January 1, 2001 f. Vacations, Holidays or Temporary Leave: The Executive shall -------------------------------------- be entitled to take 4 weeks of vacation per year, without loss or diminution of compensation. Such vacation shall be taken at such time or times consistent with the needs of the Company's business. The Executive shall further be entitled to the number of paid holidays, and leaves for illness or temporary disability in accordance with the Company's policies as such policies may be amended from time to time or terminated in the Company's sole discretion. g. Car allowance: During the period of the Executive's ------------- employment by the Company, the Company shall pay to the Executive as a car allowance the gross amount of $729.17 per month. h. Additional Payments: If there is a Change in Control (as ------------------- defined in paragraph 5(e) herein) within the 12-month period following the Effective Date of this Agreement, and the Executive is employed by the Company upon the Change in Control, the Company shall award the Executive up to fifty-two (52) weeks base pay, minus such deductions as may be required by law or reasonably requested by the Executive. The payment provided for in this paragraph 3(h) shall be payable in two equal installments, the first installment of twenty-six weeks (26) weeks shall be paid to the Executive within thirty (30) days following the Change in Control, and the second installment of twenty-six weeks (26) weeks shall be paid to the Executive on the earlier of (i) the six (6) month anniversary of the Change in Control or (ii) upon the termination Without Cause of the Executive's employment by the Company; provided however, that no second installment payment shall be made hereunder if the Executive's employment with the surviving or resulting entity is terminated for any reason other than by the Company Without Cause. If the Executive's employment hereunder is terminated Without Cause within the two months immediately preceding the Change in Control, the Executive shall be entitled to twenty-six (26) weeks base pay pursuant to this paragraph 3(h), minus such deductions as may be required by law or reasonably requested by the Executive, and any payment to which the Executive may be entitled pursuant to paragraph 6(c) of this Agreement; provided however, that no payment shall be made hereunder if the Executive's employment is terminated for any reason other than Without Cause. The Executive acknowledges that the payments provided for in this paragraph 3(h) are in lieu of (and not in addition to) any other payments or benefits to which the Executive might otherwise be entitled due to a change in control, including but not limited to, any stay bonuses, severance payments or termination benefits of any kind offered to employees in connection with a change in control. whether pursuant to a plan, arrangement, policy or otherwise; provided however, that nothing herein shall effect the Executive's right to payment pursuant to paragraph 6(c) of this Agreement 4. Non-Competition, Confidentiality, Discoveries and Works: ------------------------------------------------------- a. Non-Competition: During the period of The Executive's --------------- employment at the Company and for twelve (12) months following the termination, for any reason, of The Executive's employment, the Executive agrees not to compete in any manner, either directly or indirectly, whether for compensation or otherwise, with the Company, or to assist any other person or entity to compete with the Company either: Lenny Vicciardo January 1, 2001 (i) by producing, developing or marketing, or assisting others to produce, develop or market, or (ii) by accepting employment from or having any other relationship (including, without limitation, through owning, managing, operating, controlling or consulting) with any entity which produces, develops or markets, a product, process, or service which is competitive with those products, processes, or services of the Company, whether existing or planned for in the future, on which the Executive has worked, or concerning which the Executive has in any manner acquired knowledge of or had access to Confidential Information (as defined in Section 4(e)(iii) below), during the five (5) years preceding termination of the Executive's employment, provided however, that it shall not -------- ------- be a violation of this Agreement for The Executive to have beneficial ownership of less than 1% of the outstanding amount of any class of securities listed on a national securities exchange or quoted on an inter-dealer quotation system. b. Non-Solicitation: During the period of the Executive's ---------------- employment at the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on The Executive's own behalf or on behalf of any other person or entity (other than for the benefit of the Company), directly or indirectly, (i) solicit any person or entity that is a customer of the Company, or has been a customer of the Company during the prior twelve (12) months, to purchase any products or services the Company provides to the customer, or (ii) interfere with any of the Company's business relationships. c. No-Hire: During the period of the Executive's employment at ------- the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, hire, solicit or encourage to leave the employ of or engagement by the Company any person who is then an employee or contractor of the Company or who was an employee or contractor of the Company within six (6) months of the date of such hiring, soliciting, or encouragement to leave the Company. d. Geographic Scope: The foregoing restrictions shall apply in ---------------- the "Restricted Area" which means (i) the geographic sales region(s) assigned to the Executive by the Company and/or serviced by the Executive during the twelve (12) month period prior to termination of the Executive's employment and the fifty (50) mile radius around any office of the Company out of which the Executive worked, provided services to or provided supervision over, and (ii) any location, storefront. address or place of business where a Covered Customer is present and available for solicitation Lenny Vicciardo January 1, 2001 The Executive will not circumvent the purpose of any restriction contained in Sections 4(a), 4(b) or 4(c) by engaging in business outside the geographic region covered by the above definition through remote means like telephone, correspondence or computerized communication. "Covered Customer" means those customers, entities and/or persons who did business with the Company and that the Executive either (x) received Confidential Information about in the course of his/her duties, (y) had contact with within the last twenty-four (24) month period of employment by the Company, or (z) supervised contact with within the last twenty-four (24) month period of employment with the Company. e. Confidentiality: --------------- (i) During the period of the Executive's employment at the Company and for all time following the termination, for any reason, of the Executive's employment, the Executive shall hold all Confidential Information of the Company in a fiduciary capacity and agrees not to take any action which would constitute or facilitate the Unauthorized use or disclosure of Confidential Information. The Executive further agrees to take all reasonable measures to prevent the Unauthorized use and disclosure of Confidential Information and to prevent Unauthorized persons or entities from obtaining or using Confidential Information. The terms "Confidential Information" and "Unauthorized" shall have the meanings set forth in Sections 4e(iii) and (iv) of this Agreement respectively. (ii) Promptly upon termination, for any reason, of the Executive's employment with the Company, the Executive to deliver to the Company all property and materials within the Executive's possession or control which belong to the Company or which contain Confidential Information. (iii) As used in this Agreement, the term "Confidential Information" shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials, owned, developed or possessed by the Company, its parents, subsidiaries or affiliates, their respective predecessors and successors, whether in tangible or intangible form, that is not generally known to the public. Confidential Information includes, but is not limited to, (a) financial information, (b) products, (c) product and service costs, prices, profits and sales, (d) new business ideas, (e) business strategies, (f) product and service plans, (g) marketing plans and studies, (ii) forecasts, (i) budgets, (j) projections, (k) computer programs, (l) data bases and the documentation (and information contained therein), (m) computer access codes and similar information, (n) software ideas, (o) know-how, technologies, concepts and designs, (p) research projects and all information connected with research and development efforts, (q) records, (r) business relationships, methods and recommendations, (s) existing or prospective client, customer, vendor and supplier information (including, but not limited to, identities, needs, transaction histories, volumes, characteristics, agreements, prices, identities of individual contacts, and spending, preferences or habits), (t) training manuals and similar materials used by the Company in conducting its business operations, (u) skills, responsibilities, compensation and personnel files of Company employees, directors and independent contractors, Lenny Vicciardo January 1, 2001 (v) competitive analyses, (w) contracts with other parties, and (x) other confidential or proprietary information that has not been made available to the general public by the Company's senior management. (iv) As used in this Agreement, the term "Unauthorized" shall mean: (a) in contravention of the Company's policies or procedures; (b) otherwise inconsistent with the Company's measures to protect its interests in the Confidential Information; (c) in contravention of any lawful instruction or directive, either written or oral, of a Company employee empowered to issue such instruction or directive; (d) in contravention of any duty existing under law or contract; or (e) to the detriment of the Company. (v) In the event that the Executive is requested by any governmental or judicial authority to disclose any Confidential Information, the Executive shall give the Company prompt notice of such request (including, by giving the Company a copy of such request if it is in writing), such that the Company may seek a protective order or other appropriate relief, and in any such proceeding the Executive shall disclose only so much of the Confidential Information as is required to be disclosed. f. Discovered Works: All discoveries and works made or ---------------- conceived by the Executive during and in the course of his/her employment by the Company, jointly or with others, that relate to the Company's activities shall be owned by the Company. The terms "discoveries and works" include, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings, and works of authorship, including all educational and sales materials or other publications which relate to Company's current business. The Executive shall promptly notify and make full disclosure to, and execute and deliver any documents requested by, the Company to evidence or better assure title to such discoveries and works by the Company, assist the Company in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection and other protection of any and all such discoveries and works, and promptly execute, whether during his/her employment or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Company and to protect its title thereto. Any discoveries and works which, within six (6) months after the termination of the Executive's employment hereunder, are made, disclosed, reduce to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with, and in his/her capacity as an Executive of, the Company shall, as between the Executive and the Company presumed to have been made during the Executive's employment by the Company. g. Representations. Warranties and Acknowledgements ------------------------------------------------ (i) The Executive acknowledges that (a) the Company considers Confidential Information to be commercially and competitively valuable to the Company and critical to its success; (b) Unauthorized use or disclosure of Confidential Information would cause irreparable harm to the Company; and (c) by this Agreement, Lenny Vicciardo January 1, 2001 the Company is taking reasonable steps to protect its legitimate interests in its Confidential Information. (ii) The Executive also acknowledges that businesses that are competitive with the Company include, but are not limited to, any business involving marketing, consulting to or contract sales, detailing and marketing support or any other marketing services for pharmaceutical or any other related health care or biotechnology companies, including competitive e-health businesses. The Executive further acknowledges that given the nature of the Company's business, certain accounts of the Company are national and international in scope and are not dependent on the geographic location of the executive personnel or the business by which they are employed. (iii) The Executive represents and warrants to the Company that he/she is not a party to any agreement, or non-competition or other covenant or restriction contained in any agreement, commitment, arrangement or understanding (whether oral or written), that in any way conflicts with or limits the Executive's ability to accordance or continue to render services to the Company or that would otherwise limit the Executive's ability to perform all responsibilities in accordance with the terms and subject to the conditions of the Executive's employment. (iv) The Executive acknowledges that certain accounts are national and international in scope and the location of the Company's customers is not dependent on the geographic location of the Executive or the Company. (v) The Executive consents and agrees that, during the Executive's employment with Company and thereafter, the Company may review, audit, intercept, access and disclose all communications created, received or sent over the electronic mail and internet access system provided by Company with or without notice to the Executive and that such review, audit, interception, access, or disclosure may occur during or after working hours. The Executive further consents and agrees that the Company may, at any time, access and review the contents of all computers, computer disks, other data storage equipment and devices, files, desks, drawers, closets, cabinets and work stations which are either on Company's premises or which are owned or provided by Company. h. Remedies: In the event of breach or threatened breach by -------- the Executive of any provision of Section 4 hereof, the Company shall be entitled to obtain (i) temporary, preliminary and permanent injunctive relief in each case without the posting of any bond or other security, (ii) damages and an equitable accounting of all earnings, profits and other benefits arising from such breach, or threatened breach, (iii) recovery of all attorney's fees and costs incurred by the Company in obtaining such relief, (iv) repayment of any severance benefits paid to the Executive pursuant to this Agreement or any severance benefit agreement, plan or arrangement of the Company, and (v) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which Company may incur as a result of said breach or threatened breach. Pending arbitration pursuant to Section 7 of the Agreement, the Company shall Lenny Vicciardo January 1, 2001 be entitled to cease making any payments or providing any benefits to the Executive and to obtain temporary and preliminary injunctive relief as described in Section 4(h)(i) from a court of competent jurisdiction. The Company may pursue any remedy available, including declaratory relief, concurrently or consecutively, in any order, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. i. Early Resolution Conference: This Agreement is understood --------------------------- to be clear and enforceable as written and is executed by both parties on that basis. However, should the Executive later challenge any provision as unclear, unenforceable, or inapplicable to activity that the Executive intends to engage in, the Executive will first notify Company in writing and meet with a Company representative and a neutral mediator (if the Company elects to retain one at its expense) to discuss resolution of any disputes between the parties. The Executive will provide this notification at least fourteen (14) days before the Executive engages in any activity on behalf of a competing business or engages in other activity that could foreseably fall within a questioned restriction. The failure to comply with this requirement shall waive the Executive's right to challenge the reasonable scope, clarity, applicability, or enforceability of the Agreement and its restrictions at a later time. All rights of both parties will be preserved if the Early Resolution Conference requirement is complied with even if no agreement is reached in the conference. 5. Termination of Employment: ------------------------- a. The Executive is an employee at-will, and either the Executive or the Company may terminate the employment relationship at any time for any reason with or without Cause (as defined below). The date upon which the termination of the Executive's employment becomes effective pursuant to this Agreement shall be referred to herein as the "Termination Date". The Termination Date shall be the date upon which any of the following events shall occur: (i) the death of the Executive; (ii) the Disability (as defined below) of the Executive; (iii) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment for Cause (as defined below); (iv) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment Without Cause (as defined below); or (v) resignation by the Executive. Lenny Vicciardo January 1, 2001 For purposes of this Agreement, the Executive's employment will not be deemed to have terminated upon a Change in Control (as defined below). b. For purposes of this Agreement. the "Disability" of the Executive shall mean the Executive's inabiity because of mental or physical illness or incapacity, whether total or partial, to perform one or more of the primary duties of the Executive's employment with or without reasonable accommodation, and which continues for a length of time that exceeds any period of leave following which the Executive may have a right to be restored to the same job or to an equivalent job under federal, state or local law. c. For purposes of this Agreement, the term "Cause" shall mean the Executive's (i) conviction or entry of a plea of guilty or non contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty; (iii) violation of any term of this Agreement or any written policy of the Company; or (iv) inability to meet the agreed annual performance objectives for the respective position. d. For purposes of this Agreement, "Without Cause" shall mean for any reason(s) whatsoever (other than the reasons described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), and 5(a)(v) hereof). e. For purposes of this Agreement, a "Change in Control" of the Company means a sale, transfer or other disposition of all or substantially all of the assets of the Company, or the consummation of a merger or consolidation of the Company or a sale or exchange of capital stock of the Company, in either case as a result of which the stockholders of the Company immediately prior to such transaction own, in the aggregate, less than a majority of the outstanding voting capital stock or equity interests of the surviving or resulting entity. 6. Payments Upon Termination of Employment --------------------------------------- a. Death or Disability. If the Executive's employment ------------------- hereunder is terminated due to the Executive's death or Disability pursuant to Sections 5(a)(i) or (ii) hereof, the Company shall pay or provide to the Executive, the Executive's designated beneficiary or to the Executive's estate (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof (including, but not limited to, life insurance and disability insurance) in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. b. Termination for Cause or Resignation. If the Executive's ------------------------------------ employment hereunder is terminated by the Company for Cause pursuant to Section 5(a)(iii) or due to the Executive's resignation pursuant to Section 5(a)(v), the Company shall pay or provide to the Executive (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned Lenny Vicciardo January 1, 2001 but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. c. Termination Without Cause. If the Executive's employment ------------------------- hereunder is terminated by the Company Without Cause pursuant to Section 5(a)(iv), the Company shall award the Executive such severance benefits, subject to the terms and conditions of The Ventiv Health, Inc. Severance Benefit Plan The amount of the Executive's severance pay benefit shall be the lesser of (a) continuation of base pay for a period of twenty six (26) weeks from the Termination Date or (b) continuation of base pay for the period from the Termination Date until the Executive obtains new employment (whether as an employee, officer, director, partner, proprietor, investor, associate, executive, consultant, adviser or otherwise). The Executive shall keep the Company informed of whether or not the Executive has obtained new employment and upon request shall provide documentation to the Company regarding the Executive's employment status during the period in which the Executive receives severance pay benefits from the Company. In order to be eligible to receive any Severance Payment pursuant to this paragraph 6, the Executive must sign, prior to receiving such Severance Payment, a valid release and waiver of all claims against the Company relating to the Executive's employment or the termination thereof, in a format to be determined by the Company. No payment shall be made hereunder until at least eight (8) days following the execution and delivery by the Executive of the valid release and waiver. c. No Other Payments. Except as provided in this Section 6, ----------------- the Executive shall not be entitled to receive any other payments or benefits from the Company due to the termination of the Executive's employment, including but not limited to, any employee benefits under any of the Company's employee benefits plans or arrangements (other than at the Executive's expense under the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the written terms of any pension benefit plan in which the Executive is a participant in which the Company may have in effect from time to time) or any right to severance benefits. 7. Arbitration. ----------- a. Any controversy or claim arising out of or relating to this Agreement, the employment relationship between the Executive and the Company, or the termination thereof, including the arbitrability of any controversy or claim, which cannot be resolved amicably after a reasonable attempt to negotiate such a resolution (including by exhaustion of all grievance or claims procedures made available by the Company or any employee benefit plan of the Company) shall be submitted to arbitration under the auspices of the American Arbitration Association in accordance with its Commercial Dispute Resolution Procedures and Rules, as such rules may be amended from time to time, and at its office nearest to the Company's place of business where the Executive works or to which the Executive reports. The award of the arbitrator shall be final and binding upon the parties, and judgment may be entered with respect to such award in any court of competent jurisdiction. Any arbitration under this Agreement shall be governed by and subject to the confidentiality restrictions set forth in Section 4(e) of this Lenny Vicciardo January 1, 2001 Agreement The Executive acknowledges reading, prior to the signing of this agreement, the Commercial Dispute Resolution Procedures and Rules of the American Arbitration Association, which are available via the internet at http://www.adr.org. Notwithstanding the foregoing, any controversy or claim arising out of or relating to any claim by the Company for temporary or preliminary relief with respect to Section 4 of this Agreement need not be resolved in arbitration and may be resolved in accordance with Section 4(h) of this Agreement. b. The Executive acknowledges that this agreement to submit to arbitration includes all controversies or claims of any kind (e.g., whether in contract or in tort, statutory or common law, legal or equitable) now existing or hereafter arising under any federal, state, local or foreign law (except claims by the Company for temporary or preliminary injunctive relief pursuant to Section 4 as set forth above), including, but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Family and Medical Leave Act, the Employee Retirement Income Security Act, and the Americans With Disabilities Act, and all similar state laws, and the Executive hereby waives all rights there under to have a judicial tribunal resolve such claims. 8. Deductions and Withholding. The Executive agrees that the Company -------------------------- shall withhold from any and all compensation payable wider this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld under applicable statutes and/or regulations from time to time in effect and all amounts required to be deducted in respect of the Executive coverage by and participation in applicable Executive benefit plans, policies or arrangements. 9. Entire Agreement. This Agreement embodies the entire agreement of ---------------- the parties with respect to the Executive's employment and, except as otherwise set forth herein, supersedes any other prior oral or written agreements between the Executive and the Company and its affiliates. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. 10. Waiver. The waiver by the Company of a breach of any provision ------ of this Agreement by the Executive shall not operate or be construed as a waiver of any subsequent breach by the Executive. The waiver by the Executive of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company. 11. Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the New Jersey, without regard to the choice of law rules of any state or where the Executive is in fact required to work. 12. Jurisdiction. Any legal suit, action or proceeding against any ------------ party hereto arising out of or relating to this Agreement that is not subject to arbitration pursuant to Section 7 of this Agreement shall be instituted in a federal or state court in the State of New Jersey and each party hereto waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding and each Lenny Vicciardo January 1, 2001 party hereto irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding 13. Assignability. The obligations of the Executive may not be ------------- delegated and, except as expressly provided in Section 6(a) relating to the designation of beneficiaries, the Executive may not, without the Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest therein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Executive agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to and may be assumed by and become binding upon and may inure to the benefit of any affiliate of or successor to the Company. The term "successor" shall mean (with respect to the Company or any of its subsidiaries) any other corporation or other business entity which, by merger, consolidation, purchase of the assets, or otherwise, acquires all or a material part of the assets of the Company. Any assignment by the Company of its rights or obligations hereunder to any affiliate of or successor to the Company shall not be a termination of employment for purposes of this Agreement. 14. Severability. If any provision of this Agreement as applied to ------------ either party or to any circumstances shall be adjudged by a court of competent jurisdiction or arbitrator to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability of this Agreement. If any court or arbitrator construes any of the provisions of Section 4 hereof, or any part thereof, to be unreasonable because of the duration of such provision or the geographic or other scope thereof, such court or arbitrator may reduce the duration or restrict the geographic or other scope of such provision and enforce such provision as so reduced or restricted. 15. Notices. All notices to the Executive hereunder shall be in ------- writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: Leonard J. Vicciardo 6019 Covered Bridge Road Pipersville, PA 18947 All notices to the Company hereunder shall be in writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: Ventiv Health, Inc. c/o Ventiv Health U.S. Sales 200 Cottontail Lane Somerset, NJ 08873 Attention: Executive Director Human Resources Lenny Vicciardo January 1, 2001 Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. 16. Section Headings. The section headings contained in this ---------------- Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 17. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. 18. Voluntary Agreement. The Executive acknowledges that before ------------------- entering into this Agreement, the Executive has had the opportunity to consult with any attorney or other advisor of his/her choice, and that this Section 18 of this Agreement constitutes advice from the Company to do so if he/she chooses. The Executive further acknowledges that he/she has entered into this Agreement of his/her own free will, and that no promises or representations have been made to him/her by any person to induce him/her to enter into this Agreement other than the express terms set forth herein. The Executive further acknowledges that he/she has read this Agreement and understands all of its terms, including the waiver of the right to have all disputes with and claims against the Company decided in a judicial forum set forth in Section 7. The Executive may take up to twenty-one (21) days from today to consider, sign and return this Agreement. In addition the Executive may revoke this Agreement after signing it, but only by delivering a signed revocation notice to the Company within seven (7) days of signing this Agreement. Such a revocation shall automatically terminate the Executive's employment due to resignation pursuant to Section 5(a)(v). IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. VENTIV HEALTH INC. By: /s/ Eran Brosny ------------------------------ Eran Brosny Chief Executive Officer, Ventiv Health, Inc. /s/ Lenny Vicciardo ------------------------------ Executive signature L.J. Vicciardo ------------------------------ Print Executive's Name EX-10.9 4 dex109.txt EMPLOYMENT AGREEMENT DATED AS OF AUGUST 13, 2001 Exhibit 10.9 [LOGO OF VENTIV HEALTH] EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of August 13, 2001 (the "Executive Date") between Ventiv Health Inc., a Delaware corporation with its principal place of business at 1114 Avenue of the Americas, New York, New York 10036 (the "Company"), and John Emery, 24 Brooks Bend Drive, New Hope. PA 18938 (the "Executive"). WITNESSETH: ---------- WHEREAS, the Company desires to employ the Executive as its Chief Financial Officer and the Executive desires to accept such employment, all on the terms and conditions specified herein; and WHEREAS, the Executive and the Company desire to set forth in writing all of their respective duties, rights and obligations with respect to the Executive's employment by the Company; and NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby employs the Executive, and the ---------- Executive hereby accepts employment by the Company, in the capacity and upon the terms and conditions hereinafter set forth. 2. Duties. The Executive shall serve as the Company's Chief ------ Financial Officer and shall perform such duties, functions and responsibilities as are associated with and incident to that position and as the Company may, from time to time, require of him. The Executive shall serve the Company faithfully, conscientiously and to the best of the Executive's ability and shall promote the interests and reputation of the Company. Unless prevented by sickness or disability, the Executive shall devote all of the Executive's time, attention, knowledge, energy and skills, during normal working hours, and at such other times as the Executive's duties may require, to the duties of the Executive's employment The principal place of employment of the Executive shall be at the Employer's New York, NY office (1114 Avenue of the Americas, New York, New York 10036) and/or such other location as shall be necessary for the Executive to discharge the Executive's duties hereunder. The Executive acknowledges that in the course of employment the Executive may be required, from time to time, to travel on behalf of the Company. 3. Conversation and Benefits. As full and complete compensation for ------------------------- the Executive's execution and delivery of this Agreement and performance of any services hereunder, the Company shall pay, grant or provide the Executive, and the Executive agrees to accept, the following compensation and benefits: John Emery July 25, 2001 a. Base Salary. The Company shall pay the Executive a base ----------- salary at an annual rate of $270,000 payable at such times and in accordance with the Company's customary payroll practices as they may be adopted or modified from time to time. On an annual basis or at such other times as the Company may determine, the Company may review the Executive's performance and determine whether, in its sole discretion, the Company will increase (but not decrease) the Executive's base salary. b. Fringe Benefits. The Company shall afford the opportunity --------------- to participate in any health care, dental, disability insurance, retirement, savings and any other employee benefits plans, policies or arrangements which the Company maintains for its employees in accordance with the written terms of such plans, policies or arrangements. Nothing in this Agreement shall require the Company or its affiliates to establish, maintain or continue any benefit plans, policies or arrangements or restrict the right of the Company or any of its affiliates to amend, modify or terminate any such benefit plan, policy or arrangement. c. Stock Option Arrangements. Subject to the approval of the ------------------------- Compensation Committee of the Company's Board of Directors, the Company shall grant to the Executive an option top 200,000 shares of common stock, with an Exercise Price according to the grant date, and will vest 25% per year, 100% after four (4) years. Such grant shall be pursuant to the terms and conditions of the Ventiv Health, Inc. Stock Incentive Plan and the Executive's execution of a standard Ventiv Nonqualified Stock Option Agreement in the form provided to the Executive by the Company. Should the Company undergo a Change of Control, then fifty (50) percent of the remaining unvested shares shall be considered vested should there not be a comparable role offered to the Executive resulting from the Change of Control. The Executive acknowledges having received a copy of the Ventiv Health Inc. Stock Incentive Plan and an unexecuted Nonqualified Stock Option Agreement. d. Bonus. The Executive shall be eligible for a bonus in each ----- calendar year, based on the Executive's success in reaching or exceeding performance objectives as determined by the Chief Executive Officer or his/her designee, the amount of such bonus, if any, to be determined in the discretion of the Company. Notwithstanding the foregoing, if the Executive remains employed by the Company through the bonus payout date, the Executive shall be entitled to a target bonus of 40% of the Executive's then current base salary, with the amount of such bonus, if any, remaining subject to the discretion of the Company. The employee shall be eligible for a prorated bonus to be paid for the balance of 2001 if performance objectives are met. e. Expenses. The Executive shall be entitled to reimbursement -------- or payment of reasonable business expenses in accordance with the Company's policies, as the same may be amended from time to time in the Company's sole discretion, following the Executive's submission of appropriate receipts, bills and/or expense reports to the Company in accordance with such policies. John Emery July 25, 2001 f. Vacations, Holidays or Temporary Leave: The Executive shall -------------------------------------- be entitled to take 4 weeks of vacation per year, without loss or diminution of compensation. Such vacation shall be taken at such time or times consistent with the needs of the Company's business. The Executive shall further be entitled to the number of paid holidays, and leaves for illness or temporary disability in accordance with the Company's policies as such policies may be amended from time to time or terminated in the Company's sole discretion. g. Travel allowance: During the period of the Executive's ---------------- employment by the Company, the Company shall pay to the Executive as a travel allowance the gross amount of $450 per month. 4. Non-Competition, Confidentiality, Discoveries and Works: ------------------------------------------------------- a. Non-Competition: During the period of The Executive's --------------- employment at the Company and for twelve (12) months following the termination, for any reason, of The Executive's employment, the Executive agrees not to compete in any manner, either directly or indirectly, whether for compensation or otherwise, with the Company, or to assist any other person or entity to compete with the Company either: (i) by producing, developing or marketing, or assisting others to produce, develop or market, or (ii) by accepting employment from or having any other relationship (including, without limitation, through owning, managing, operating, controlling or consulting) with any entity which produces, develops or markets, a product, process, or service which is competitive with those products, processes, or services of the Company, whether existing or planned for in the future, on which the Executive has worked, or concerning which the Executive has in any manner acquired knowledge of or had access to Confidential Information (as defined in Section 4(e)(iii) below), during the five (5) years preceding termination of the Executive's employment, provided, however, that it shall not -------- ------- be a violation of this Agreement for The Executive to seek and/or accept employment directly with a fully integrated pharmaceutical or biotech company (i.e. one that discovers, develops, manufactures, and promotes drugs) or to have beneficial ownership of less than 1% of the outstanding amount of any class of securities listed on a national securities exchange or quoted on an inter-dealer quotation system. b. Non-Solicitation: During the period of the Executive's ---------------- employment at the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on The Executive's own behalf or on behalf of any other person or entity (other than for the benefit of the Company), directly or indirectly, (i) solicit any person or John Emery July 25, 2001 entity that is a customer of the Company, or has been a customer of the Company during the prior twelve (12) months, to purchase any products or services the Company provides to the customer, or (ii) interfere with any of the Company's business relationships. c. No-Hire: During the period of the Executive's employment ------- at the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, hire, solicit or encourage to Leave the employ of or engagement by the Company any person who is then an employee or contractor of the Company or who was an employee or contractor of the Company within six (6) months of the date of such hiring, soliciting, or encouragement to leave the Company. d. Geographic Scope: The foregoing restrictions shall apply in ---------------- the "Restricted Area" which means (i) the geographic sales region(s) assigned to the Executive by the Company and/or serviced by the Executive during the twelve (12) month period prior to termination of the Executive's employment and the fifty (50) mile radius around any office of the Company out of which the Executive worked, provided services to or provided supervision over, and (ii) any location, storefront, address or place of business where a Covered Customer is present and available for solicitation, The Executive will not circumvent the purpose of any restriction contained in Sections 4(a), 4(b) or 4(c) by engaging in business outside the geographic region covered by the above definition through remote means like telephone, correspondence or computerized communication. "Covered Customer" means those customers, entities and/or persons who did business with the Company and that the Executive either (x) received Confidential Information about in the course of his/her duties, (y) had contact with within the last twenty-four (24) month period of employment by the Company, or (z) supervised contact with within the last twenty-four (24) month period of employment with the Company. e. Confidentiality: --------------- (i) During the period of the Executive's employment at the Company and for all time following the termination, for any reason, of the Executive's employment, the Executive shall hold all Confidential Information of the Company in a fiduciary capacity and agrees not to take any action which would constitute or facilitate the Unauthorized use or disclosure of Confidential Information. The Executive further agrees to take all reasonable measures to prevent the Unauthorized use and disclosure of Confidential Information and to prevent Unauthorized persons or entities from obtaining or using Confidential Information. The terms "Confidential Information" and "Unauthorized" shall have the meanings set forth in Sections 4(e)(iii) and (iv) of this Agreement respectively. John Emery July 25, 2001 (ii) Promptly upon termination, for any reason, of the Executive's employment with the Company, the Executive agrees to deliver to the Company all property and materials within the Executive's possession or control which belong to the Company or which contain Confidential Information. (iii) As used in this Agreement, the term "Confidential Information" shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials, owned, developed or possessed by the Company, its parents, subsidiaries or affiliates, their respective predecessors and successors, whether in tangible or intangible form, that is not generally known to the public. Confidential Information includes, but is not limited to, (a) financial information, (b) products, (c) product and service costs, prices, profits and sales, (d) new business ideas, (e) business strategies, (f) product and service plans, (g) marketing plans and studies, (h) forecasts, (i) budgets, (j) projections, (k) computer programs, (1) data bases and the documentation (and information contained therein), (m) computer access codes and similar information, (n) software ideas, (o) know-how, technologies, concepts and designs, (p) research projects and all information connected with research and development efforts, (q) records, (r) business relationships, methods and recommendations, (s) existing or prospective client, customer, vendor and supplier information (including, but not limited to, identities, needs, transaction histories, volumes, characteristics, agreements, prices, identities of individual contacts, and spending, preferences or habits), (t) training manuals and similar materials used by the Company in conducting its business operations, (u) skills, responsibilities, compensation and personnel files of Company employees, directors and independent contractors, (v) competitive analyses, (w) contracts with other parties, and (x) other confidential or proprietary information that has not been made available to the general public by the Company's senior management. (iv) As used in this Agreement, the term "Unauthorized" shall mean: (a) in contravention of the Company's policies or procedures; (b) otherwise inconsistent with the Company's measures to protect its interests in the Confidential Information; (c) in contravention of any lawful instruction or directive, either written or oral, of a Company employee empowered to issue such instruction or directive; (d) in contravention of any duty existing under law or contract; or (e) to the detriment of the Company. (v) In the event that the Executive is requested by any governmental or judicial authority to disclose any Confidential Information, the Executive shall give the Company prompt notice of such request (including, by giving the Company a copy of such request if it is in writing), such that the Company may seek a protective order or other appropriate relief, and in any such proceeding the Executive shall disclose only so much of the Confidential Information as is required to be disclosed. f. Discoveries and Works: All discoveries and works made or --------------------- conceived by the Executive during and in the course of his/her employment by the Company, jointly or with others, that relate to the Company's activities shall be owned by the Company. The terms "discoveries and works" include, by way of example, inventions, computer programs (including documentation of such programs), technical John Emery July 25, 2001 improvements, processes, drawings, and works of authorship, including all educational and sales materials or other publications which relate to Company's current business. The Executive shall promptly notify and make full disclosure to, and execute and deliver any documents requested by, the Company to evidence or better assure title to such discoveries and works by the Company, assist the Company in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection and other protection of any and all such discoveries and works, and promptly execute, whether during his/her employment or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Company and to protect its title thereto. Any discoveries and works which, within six (6) months after the termination of the Executive's employment hereunder, are made, disclosed, reduce to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with, and in his/her capacity as an Executive of, the Company shall, as between the Executive and the Company presumed to have been made during the Executive's employment by the Company. g. Representations, Warranties and Acknowledgements ------------------------------------------------ (i) The Executive acknowledges that (a) the Company considers Confidential Information to be commercially and competitively valuable to the Company and critical to its success; (b) Unauthorized use or disclosure of Confidential Information would cause irreparable harm to the Company; and (c) by this Agreement, the Company is taking reasonable steps to protect its legitimate interests in its Confidential Information. (ii) The Executive also acknowledges that businesses that are competitive with the Company include, but are not limited to, any business involving marketing, consulting to or contract sales, detailing and marketing support or any other marketing services for pharmaceutical or any other related health care or biotechnology companies, including competitive e-health businesses. The Executive further acknowledges that given the nature of the Company's business, certain accounts of the Company are national and international in scope and are not dependent on the geographic location of the executive personnel or the business by which they are employed. (iii) The Executive represents and warrants to the Company that he/she is not a party to any agreement, or non-competition or other covenant or restriction contained in any agreement, commitment, arrangement or understanding (whether oral or written), that in any way conflicts with or limits the Executive's ability to commence or continue to render services to the Company or that would otherwise limit the Executive's ability to perform all responsibilities in accordance with the terms and subject to the conditions of the Executive's employment. (iv) The Executive acknowledges that certain accounts are national and international in scope and the location of the Company's customers is not dependent on the geographic location of the Executive or the Company. John Emery July 25, 2001 (v) The Executive consents and agrees that, during the Executive's employment with Company and thereafter, the Company may review, audit, intercept, access and disclose all communications created, received or sent over the electronic mail and internet access system provided by Company with or without notice to the Executive and that such review, audit, interception, access, or disclosure may occur during or after working hours. The Executive further consents and agrees that the Company may, at any time, access and review the contents of all computers, computer disks, other data storage equipment and devices, files, desks, drawers, closets, cabinets and work stations which are either on Company's premises or which are owned or provided by Company. h. Remedies: In the event of breach or threatened breach by -------- the Executive of any provision of Section 4 hereof, the Company shall be entitled to obtain (i) temporary, preliminary and permanent injunctive relief, in each case without the posting of any bond or other security, (ii) damages and an equitable accounting of all earnings, profits and other benefits arising from such breach, or threatened breach, (iii) recovery of all attorney's fees and costs incurred by the Company in obtaining such relief, (iv) repayment of any severance benefits paid to the Executive pursuant to this Agreement or any severance benefit agreement, plan or arrangement of the Company, and (v) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which Company may incur as a result of said breach or threatened breach. Pending arbitration pursuant to Section 7 of the Agreement, the Company shall be entitled to cease making any payments or providing any benefits to the Executive and to obtain temporary and preliminary injunctive relief as described in Section 4(h)(i) from a court of competent jurisdiction. The Company may pursue any remedy available, including declaratory relief, concurrently or consecutively, in any order, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. i. Early Resolution Conference: This Agreement is understood --------------------------- to be clear and enforceable as written and is executed by both parties on that basis. However, should the Executive later challenge any provision as unclear, unenforceable, or inapplicable to activity that the Executive intends to engage in, the Executive will first notify Company in writing and meet with a Company representative and a neutral mediator (if the Company elects to retain one at its expense) to discuss resolution of any disputes between the parties. The Executive will provide this notification at least fourteen (14) days before the Executive engages in any activity on behalf of a competing business or engages in other activity that could foreseeably fall within a questioned restriction. The failure to comply with this requirement shall waive the Executive's right to challenge the reasonable scope, clarity, applicability, or enforceability of the Agreement and its restrictions at a later time. All rights of both parties will be preserved if the Early Resolution Conference requirement is complied with even if no agreement is reached in the conference. John Emery July 25, 2001 5. Termination of Employment: ------------------------- a. The Executive is an employee at-will, and either the Executive or the Company may terminate the employment relationship at any time for any reason with or without Cause (as defined below). The date upon which the termination of the Executive's employment becomes effective pursuant to this Agreement shall be referred to herein as the "Termination Date." The Termination Date shall be the date upon which any of the following events shall occur: (i) the death of the Executive; (ii) the Disability (as defined below) of the Executive; (iii) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment for Cause (as defined below); (iv) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment Without Cause (as defined below); or (v) resignation by the Executive. For purposes of this Agreement, the Executive's employment will not be deemed to have terminated upon a Change in Control (as defined below). b. For purposes of this Agreement, the "Disability" of the Executive shall mean the Executive's inability, because of mental or physical illness or incapacity, whether total or partial, to perform one or more of the primary duties of the Executive's employment with or without reasonable accommodation, and which continues for a length of time that exceeds any period of leave following which the Executive may have a right to be restored to the same job or to an equivalent job under federal, stale or local law. c. For purposes of this Agreement, the term "Cause" shall mean the Executive's (i) conviction or entry of a plea of guilty or nolo contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty; (iii) violation of any term of this Agreement or any written policy of the Company; or (iv) the failure of the Executive, for any reason, to devote his full time and efforts in a diligent manner to the performance of his duties and responsibilities hereunder. d. For purposes of this Agreement, "Without Cause" shall mean for any reason(s) whatsoever (other than the reasons described in Sections 5(a)(i), 5(a)(ii), S(a)(iii), and 5(a)(v) hereof). e. For purposes of this Agreement, a "Change in Control" of the Company means a sale, transfer or other disposition of all or substantially all of the assets of the Company, or the consummation of a merger or consolidation of the John Emery July 25, 2001 Company or a sale or exchange of capital stock of the Company, in either case as a result of which the stockholders of the Company immediately prior to such transaction own, in the aggregate, less than a majority of the outstanding voting capital stock or equity interests of the surviving or resulting entity. 6. Payments Upon Termination of Employment --------------------------------------- a. Death or Disability. If the Executive's employment ------------------- hereunder is terminated due to the Executive's death or Disability pursuant to Sections 5(a)(i) or (ii) hereof, the Company shall pay or provide to the Executive, the Executive's designated beneficiary or to the Executive's estate (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof (including, but not limited to, life insurance and disability insurance) in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. b. Termination for Cause or Resignation. if the Executive's ------------------------------------ employment hereunder is terminated by the Company for Cause pursuant to Section S(a)(iii) or due to the Executive's resignation pursuant to Section 5(a)(v), the Company shall pay or provide to the Executive (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. c. Termination Without Cause. If the Executives employment ------------------------- hereunder is terminated by the Company Without Cause pursuant to Section 5(a)(iv) as from August 13, 2002, then the Company shall award the Executive such severance benefits, subject to the terms and conditions of The Ventiv Health, Inc. Severance Benefit Plan. The amount of the Executive's severance pay benefit shall be the lesser of (a) continuation of base pay for a period of twenty six (26) weeks from the Termination Date or (b) continuation of base pay for the period from the Termination Date until the Executive obtains new employment (whether as an employee, officer, director, partner, proprietor, investor, associate, executive, consultant, adviser or otherwise). The Executive shall keep the Company informed of whether or not the Executive has obtained new employment and upon request shall provide documentation to the Company regarding the Executive's employment status during the period in which the Executive receives severance pay benefits from the Company. In order to be eligible to receive any Severance Payment pursuant to this paragraph 6, the Executive must sign, prior to receiving such Severance Payment, a valid release and waiver of all claims against the Company relating to the Executive's employment or the termination thereof, in a format to be determined by the Company. No payment shall be made hereunder until at least eight (8) days following the execution and delivery by the Executive of the valid release and waiver. John Emery July 25, 2001 c. No Other Payments. Except as provided in this Section 6, ----------------- the Executive shall not be entitled to receive any other payments or benefits from the Company due to the termination of the Executive's employment, including but not limited to, any employee benefits under any of the Company's employee benefits plans or arrangements (other than at the Executive's expense under the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the written terms of any pension benefit plan in which the Executive is a participant in which the Company may have in effect from time to time) or any right to severance benefits. 7. Arbitration. ----------- a. Any controversy or claim arising out of or relating to this Agreement, the employment relationship between the Executive and the Company, or the termination thereof, including the arbitrability of any controversy or claim, which cannot be resolved amicably after a reasonable attempt to negotiate such a resolution (including by exhaustion of all grievance or claims procedures made available by the Company or any employee benefit plan of the Company) shall be submitted to arbitration under the auspices of the American Arbitration Association in accordance with its Commercial Dispute Resolution Procedures and Rules, as such rules may be amended from time to time, and at its office nearest to the Company's place of business where the Executive works or to which the Executive reports. The award of the arbitrator shall be final and binding upon the parties, and judgment may be entered with respect to such award in any court of competent jurisdiction. Any arbitration under this Agreement shall be governed by and subject to the confidentiality restrictions set forth in Section 4(e) of this Agreement. The Executive acknowledges reading, prior to the signing of this agreement, the Commercial Dispute Resolution Procedures and Rules of the American Arbitration Association, which are available via the internet at http://www.adr.org. Notwithstanding the foregoing, any controversy or claim arising out of or relating to any claim by the Company for temporary or preliminary relief with respect to Section 4 of this Agreement need not be resolved in arbitration and may be resolved in accordance with Section 4(h) of this Agreement. b. The Executive acknowledges that this agreement to submit to arbitration includes all controversies or claims of any kind (e.g., whether in contract or in tort, statutory or common law, legal or equitable) now existing or hereafter arising under any federal, state, local or foreign law (except claims by the Company for temporary or preliminary injunctive relief pursuant to Section 4 as set forth above), including, but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Family and Medical Leave Act, the Employee Retirement Income Security Act, and the Americans With Disabilities Act, and all similar state laws, and the Executive hereby waives all rights there under to have a judicial tribunal resolve such claims. 8. Deductions and Withholding. The Executive agrees that the Company -------------------------- shall withhold from any and all compensation payable under this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld under applicable statutes and/or regulations from time to time in effect and all amounts John Emery July 25, 2001 required to be deducted in respect of the Executive's coverage by and participation in applicable Executive benefit plans, policies or arrangements. 9. Entire Agreement. This Agreement embodies the entire agreement of ---------------- the parties with respect to the Executive's employment and, except as otherwise set forth herein, supersedes any other prior oral or written agreements between the Executive and the Company and its affiliates. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. 10. Waiver. The waiver by the Company of a breach of any provision ------ of this Agreement by the Executive shall not operate or be construed as a waiver of any subsequent breach by the Executive. The waiver by the Executive of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company. 11. Governing Law. Because Ventiv is incorporated in the state of ------------- Delaware, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law rules of any state or where the Executive is in fact required to work. 12. Jurisdiction. Any legal suit, action or proceeding against any ------------ party hereto arising out of or relating to this Agreement that is not subject to arbitration pursuant to Section 7 of this Agreement shall be instituted in a New York federal or state court in the Borough of Manhattan and each party hereto waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding and each party hereto irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. 13. Assignability. The obligations of the Executive may not be ------------- delegated and, except as expressly provided in Section 6(a) relating to the designation of beneficiaries, the Executive may not, without the Company's written consent thereto, assist, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest therein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Executive agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to and may be assumed by and become binding upon and may inure to the benefit of any affiliate of or successor to the Company. The term "successor" shall mean (with respect to the Company or any of its subsidiaries) any other corporation or other business entity which, by merger, consolidation, purchase of the assets, or otherwise, acquires all or a material part of the assets of the Company. Any assignment by the Company of its rights or obligations hereunder to any affiliate of or successor to the Company shall not be a termination of employment for purposes of this Agreement. 14. Severability. If any provision of this Agreement as applied to ------------ either party or to any circumstances shall be adjudged by a court of competent jurisdiction or arbitrator to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability of this Agreement. If any court or John Emery July 25, 2001 arbitrator construes any of the provisions of Section 4 hereof, or any part thereof, to be unreasonable because of the duration of such provision or the geographic or other scope thereof, such court or arbitrator may reduce the duration or restrict the geographic or other scope of such provision and enforce such provision as so reduced or restricted. 15. Notices. All notices to the Executive hereunder shall be in ------- writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: John Emery 24 Brooks Bend Drive New Hope, PA 18938 All notices to the Company hereunder shall be in writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: Ventiv Health, Inc. c/o Ventiv Health U.S. Sales 200 Cottontail Lane Somerset, NJ 08873 Attention: Executive Director Human Resources Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. 16. Section Headings. The section headings contained in this ---------------- Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 17. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. 18. Voluntary Agreement. The Executive acknowledges that before ------------------- entering into this Agreement, the Executive has had the opportunity to consult with any attorney or other advisor of his/her choice, and that this Section 18 of this Agreement constitutes advice from the Company to do so if he/she chooses. The Executive further acknowledges that he/she has entered into this Agreement of his/her own free will, and that no promises or representations have been made to him/her by any person to induce him/her to enter into this Agreement other than the express terms set forth herein. The Executive further acknowledges that he/she has read this Agreement and understands all of its terms, including the waiver of the right to have all disputes with and claims against the Company decided in a judicial forum set forth in Section 7. The Executive may take up to twenty-one (21) days from today to consider, sign and return this Agreement. In addition, the Executive may revoke this Agreement after signing it, but only by delivering a signed revocation notice to the Company within seven (7) days of signing John Emery July 25, 2001 this Agreement. Such a revocation shall automatically terminate the Executive's employment due to resignation pursuant to Section 5(a)(v). IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. VENTIV HEALTH, INC. By: /s/ Eran Broshy ----------------------- Eran Broshy Chief Executive Officer, Ventiv Health, Inc. /s/ John R. Emery ------------------------ Executive signature John R. Emery ------------------------ Print Executive's Name EX-10.10 5 dex1010.txt LOAN AND SECURITY AGREEMENT Exhibit 10.10 ================================================================================ LOAN AND SECURITY AGREEMENT by and among VENTIV HEALTH, INC. and VENTIV HEALTH U.S. SALES LLC as Borrowers, THE LENDERS THAT ARE SIGNATORIES HERETO as the Lenders, and FOOTHILL CAPITAL CORPORATION as the Arranger and Administrative Agent Dated as of March 29, 2002 ================================================================================ LOAN AND SECURITY AGREEMENT --------------------------- THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into --------- as of March 29, 2002, between and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and FOOTHILL CAPITAL CORPORATION, a ------ ------- California corporation, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, VENTIV HEALTH, INC., a Delaware corporation ----- ("Parent"), and VENTIV HEALTH U.S. SALES LLC, a New Jersey limited liability ------ company ("U.S. Sales" and together with Parent, each individually a "Borrower", ---------- -------- and individually and collectively, jointly and severally, the "Borrowers"). --------- The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. As used in this Agreement, the following terms shall ----------- have the following definitions: "Account Debtor" means any Person who is or who may become obligated -------------- under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "Accounts" means all of Borrowers' now owned or hereafter acquired -------- right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "ACH Transactions" means any cash management or related services ---------------- (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or its Affiliates for the account of Administrative Borrower or its Subsidiaries. "Additional Documents" has the meaning set forth in Section 4.4. -------------------- ----------- "Administrative Borrower" has the meaning set forth in Section 17.9. ----------------------- ------------ "Advances" has the meaning set forth in Section 2.1. -------- ----------- "Affiliate" means, as applied to any Person, any other Person who, --------- directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definitions of Eligible ----------------- Billed Accounts and Eligible Unbilled Accounts and Section 7.13 hereof: (a) any ------------ Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person; (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person; and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. "Agent" means Foothill, solely in its capacity as agent for the ----- Lenders hereunder, and any successor thereto. "Agent's Account" means the account identified on Schedule A-1. --------------- ------------ "Agent Advances" has the meaning set forth in Section 2.2(e)(i). -------------- ----------------- "Agent's Liens" means the Liens granted by Borrowers to Agent for the ------------- benefit of the Lender Group under this Agreement or the other Loan Documents. "Agent-Related Persons" means Agent together with its Affiliates, --------------------- officers, directors, employees, and agents. "Agreement" has the meaning set forth in the preamble hereto. --------- "Applicable Prepayment Premium" means, as of any date of ----------------------------- determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 2% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, 1.5% times the Maximum Revolver Amount, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to the Maturity Date, 1% times the Maximum Revolver Amount. "Assignee" has the meaning set forth in Section 14.1. -------- ------------ "Assignment and Acceptance" means an Assignment and Acceptance in the ------------------------- form of Exhibit A-1. ----------- "Authorized Person" means any officer or other employee of ----------------- Administrative Borrower. "Availability" means, as of any date of determination, if such date is ------------ a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrowers are entitled to borrow as Advances under Section 2.1 ----------- (after giving effect to all then outstanding Obligations (other than Bank Products Obligations) and all sublimits and reserves applicable hereunder). "Bank Product Agreements" means those certain cash management service ----------------------- agreements entered into from time to time by Administrative Borrower or its Subsidiaries in connection with any of the Bank Products. "Bank Product Obligations" means all obligations, liabilities, ------------------------ contingent reimbursement obligations, fees, and expenses owing by Administrative Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by the Bank Product -2- Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Borrower is obligated to reimburse to Agent or any member of the Lender Group as a result of Agent or such member of the Lender Group purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to Administrative Borrower or its Subsidiaries pursuant to the Bank Product Agreements. "Bank Products" means any service or facility extended to ------------- Administrative Borrower or its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedge Agreements. "Bank Product Reserves" means, as of any date of determination, the --------------------- amount of reserves that Agent has established (based upon Wells Fargo's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Bank Products) for Bank Products then provided or outstanding. "Bankruptcy Code" means the United States Bankruptcy Code, as in --------------- effect from time to time. "Base LIBOR Rate" means the rate per annum, determined by Agent in --------------- accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by Administrative Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error. "Base Rate" means, the rate of interest announced within Wells Fargo --------- at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. "Base Rate Loan" means each portion of an Advance that bears interest -------------- at a rate determined by reference to the Base Rate. -3- "Base Rate Margin" means (i) for the period from the Closing Date up ---------------- to and including March 31, 2003, 0.75 percentage points and (ii) for each 12 month period commencing on each April 1 thereafter, the following margin which shall be based upon EBITDA of the Parent and its Subsidiaries for the immediately preceding fiscal year as determined based upon Borrowers' audited financial statements for the immediately preceding fiscal year: =========================================================== EBITDA Base Rate Margin ------ ---------------- =========================================================== Greater than $27,500,000 0.25 percentage points - ----------------------------------------------------------- $22,500,000 to $27,500,000 0.50 percentage points - ----------------------------------------------------------- Less than $22,500,000 0.75 percentage points =========================================================== "Bayer" means Bayer Corporation, an Indiana corporation. ----- "Bayer Contract" means the Contract Sales Force and Co-Promotion -------------- Agreement dated as of June 7, 2001 between Bayer and U.S. Sales. "Benefit Plan" means a "defined benefit plan" (as defined in Section ------------ 3(35) of ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of any Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. "Billed Subline" means the subline under the Maximum Revolver Amount -------------- for Advances made against Eligible Billed Accounts equal to (i) $30,000,000 prior to the date that Agent approves the initial Advances under the Unbilled Subline and (ii) the Maximum Revolver Amount from and after the date that there are one or more lenders, in addition to Foothill, that have aggregate commitments of $20,000,000 or more under this Agreement. "Board of Directors" means the board of directors (or comparable ------------------ managers) of Parent or any committee thereof duly authorized to act on behalf thereof. "Books" means all of each Borrower's and its Subsidiaries' now owned ----- or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of each Borrower's or its Subsidiaries' Records relating to its or their business operations or financial condition, and all of its or their goods or General Intangibles related to such information). "Borrower" and "Borrowers" have the respective meanings set forth in -------- --------- the preamble to this Agreement. "Borrowing" means a borrowing hereunder consisting of Advances made on --------- the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance, in each case, to Administrative Borrower. "Borrowing Base" has the meaning set forth in Section 2.1. -------------- ----------- -4- "Business Day" means any day that is not a Saturday, Sunday, or other ------------ day on which national banks are authorized or required to close, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market. "Capital Lease" means a lease that is required to be capitalized for ------------- financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means any Indebtedness represented by ---------------------------- obligations under a Capital Lease. "Cash Equivalents" means (a) marketable direct obligations issued or ---------------- unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 270 days from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. "Cash Management Bank" has the meaning set forth in Section 2.6(a). -------------------- -------------- "Cash Management Account" has the meaning set forth in Section 2.6(a). ----------------------- -------------- "Cash Management Agreements" means those certain cash management -------------------------- service agreements, in form and substance reasonably satisfactory to Administrative Borrower and Agent, each of which is among Administrative Borrower, Agent, and one of the Cash Management Banks. "Cellegy" means Cellegy Pharmaceuticals, Inc., a California ------- corporation. "Change of Control" means (a) any "person" or "group" (within the ----------------- meaning of Sections 13(d) and 14(d) of the Exchange Act), becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 49%, or more, of the Stock of Parent having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (c) except in connection with a Permitted Disposition or a Permitted Dissolution, any Borrower ceases to directly own and control 100% of the outstanding capital Stock of each of its Subsidiaries extant as of the Closing Date. "Closing Date" means the date of the making of the Initial Advance (or ------------ other extension of credit) hereunder or the date on which Agent sends Administrative Borrower a -5- written notice that each of the conditions precedent set forth in Section 3.1 either have been satisfied or have been waived. "Closing Date Business Plan" means the set of Projections of Borrowers -------------------------- for the 2 year period following the Closing Date (on a year by year basis, and for the 2002 calendar year, on a month by month basis), in form and substance (including as to scope and underlying assumptions) reasonably satisfactory to Agent. "Code" means the New York Uniform Commercial Code, as in effect from ---- time to time. "Collateral" means all of each Borrower's now owned or hereafter ---------- acquired right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Investment Property, provided that only 66-2/3% of the shares of capital Stock of each Borrower's Subsidiaries organized outside of the United States shall be included in the Collateral, (g) Negotiable Collateral, (h) Real Property Collateral, (i) money or other assets of each such Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and (j) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Collateral Access Agreement" means a landlord waiver, bailee letter, --------------------------- or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or other Collateral, in each case, in form and substance reasonably satisfactory to Agent. -6- "Collections" means all cash, checks, notes, instruments, and other ----------- items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) to Borrowers. "Commercial Tort Claim Assignment" has the meaning set forth in -------------------------------- Section 4.4(b). - ------------- "Commitment" means, with respect to each Lender, its Commitment, and, ---------- with respect to all Lenders, their Commitments, in each case as such Dollar amounts are set forth beside such Lender's name on Schedule C-1 or on the ------------ signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. ------------- "Compliance Certificate" means a certificate substantially in the form ---------------------- of Exhibit C-1 delivered by the chief financial officer of Parent to Agent. ----------- "Continuing Director" means (a) any member of the Board of Directors ------------------- who was a director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Parent (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. "Contribution Agreement" means a contribution agreement executed and ---------------------- delivered by each Borrower and Guarantor, the form and substance of which is reasonably satisfactory to Agent. "Control Agreement" means a control agreement, in form and substance ----------------- reasonably satisfactory to Agent, executed and delivered by the applicable Borrower, Agent, and the applicable securities intermediary with respect to a Securities Account or a bank with respect to a deposit account. "Daily Balance" means, with respect to each day during the term of ------------- this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by --- any Borrower. "Default" means an event, condition, or default that, with the giving ------- of notice, the passage of time, or both, would be an Event of Default. "Defaulting Lender" means any Lender that fails to make any Advance ----------------- (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder. -7- "Defaulting Lender Rate" means (a) the Base Rate for the first 3 days ---------------------- from and after the date the relevant payment is due, and (b) thereafter, at the interest rate then applicable to Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto). "Designated Account" means certain DDA of Administrative Borrower ------------------ identified on Schedule D-1. ------------ "Designated Account Bank" has the meaning set forth on Schedule D-1. ----------------------- ------------- "Dilution" means, as of any date of determination, a percentage, based ------- upon the experience of the immediately prior 90 days, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to Borrowers' Accounts during such period, by (b) Borrowers' Accounts that were created and billed during such period. "Dilution Reserve" means, as of any date of determination, an amount ---------------- sufficient to reduce the advance rate against Eligible Billed Accounts specified in Section 2.1(x)(i)(A) by one percentage point for each percentage point by -------------------- which Dilution is in excess of 5%. "Disbursement Letter" means an instructional letter executed and ------------------- delivered by Administrative Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which is reasonably satisfactory to Agent. "Distribution Agreement" means that certain Distribution Agreement ---------------------- dated as of September 27, 1999, by and between Snyder Communications, Inc., a Delaware corporation and Parent. "Dollars" or "$" means United States dollars. ------- - "Domestic Subsidiary" means any direct or indirect Subsidiary of the ------------------- Parent organized under the laws of a state of the United States. "Due Diligence Letter" means the due diligence letter sent by Agent's -------------------- counsel to Administrative Borrower, together with Administrative Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be reasonably satisfactory to Agent. "EBITDA" means, with respect to any fiscal period, Parent's and its ------ Subsidiaries consolidated net earnings (or loss), minus extraordinary gains, plus interest expense, income taxes, depreciation and amortization, and non-cash charges related to a restructuring, divestiture or asset impairment for such period, as determined in accordance with GAAP. "Eligible Billed Accounts" means those Accounts created by one of ------------------------ Borrowers in the ordinary course of its business, that arise out of its sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Billed Accounts made by Borrowers under the Loan Documents and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed -------- ------- and revised from time to time by Agent in Agent's Permitted Discretion to address the results of any -8- audit performed by Agent from time to time after the Closing Date. In determining the amount to be included, Eligible Billed Accounts shall be calculated net of customer deposits, client advances and unapplied cash remitted to Borrowers. Eligible Billed Accounts shall not include the following: (a) Accounts that the Account Debtor has failed to pay within 90 days of original invoice date or, except as consented to in writing by Agent, Accounts with terms of more than 60 days, (b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above, (c) Accounts with respect to which the Account Debtor is (i) an employee, Affiliate, vendor, or agent of any Borrower or (ii) Bayer; provided, that upon the renegotiation of the Bayer Contract, Agent will consider the inclusion of the Accounts from the Bayer Contract as Eligible Billed Accounts based upon the results of Agent's due diligence of such renegotiated Bayer Contract, provided that the determination to include such Accounts as Eligible Billed Accounts shall be made in Agent's Permitted Discretion, (d) Accounts arising in a transaction wherein there are conditions to payment by the Account Debtor that are unsatisfied, (e) Accounts that are not payable in Dollars, (f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit reasonably satisfactory to Agent (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Agent and is directly drawable by Agent, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, reasonably satisfactory to Agent, (g) Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which the applicable Borrower has complied, to the reasonable satisfaction of Agent, with the Assignment of Claims Act, 31 USC Section 3727), or (ii) any state of the United States (exclusive, however, of (y) Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act or (z) Accounts owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which the applicable Borrower has complied to Agent's reasonable satisfaction), -9- (h) Accounts with respect to which the Account Debtor is a creditor of any Borrower, has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account, to the extent of such claim, right of setoff, or dispute, (i) Accounts with respect to an Account Debtor whose total obligations owing to Borrowers exceed 10% (or, in the case of Bristol Myers Squibb and Reliant, 20%) (such percentage as applied to a particular Account Debtor being subject to reduction by Agent in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Billed Accounts and Eligible Unbilled Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, (j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which a Borrower has received notice of an imminent Insolvency Proceeding, (k) Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless the applicable Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement, (l) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition, (m) Accounts that are not subject to a valid and perfected first priority Agent's Lien, (n) Accounts with respect to which the services giving rise to such Account have not been performed and billed to the Account Debtor, (o) Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by the applicable Borrower of the subject contract for goods or services, provided that the amount of such Account not included in Eligible Billed Accounts as a result of this clause (o) shall be equal to the amount of such progress payment or other advance billing due prior to the completion of such performance, or (p) prior to the Agent's completion of its due diligence with respect to Accounts from any customer contracts generated by VIS and the Agent's satisfaction, in its Permitted Discretion, with the results of such due diligence, Accounts from any customer contracts generated by VIS (which due diligence will be conducted by Agent as promptly as practicable upon a request by Parent). -10- "Eligible Transferee" means (a) a commercial bank organized under the ------------------- laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a Lender that was party hereto as of the Closing Date, provided that such Affiliate is able to perform its obligations under this Agreement, (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Administrative Borrower, and (f) during the continuation of an Event of Default, any other Person approved by Agent. "Eligible Unbilled Accounts" means those Accounts of Borrowers that -------------------------- (a) are not more than 45 days past billing, (b) do not qualify as Eligible Billed Accounts solely because such Accounts have not been billed to the Account Debtor, and (c) are acceptable to Agent in its sole and absolute discretion. "Environmental Actions" means any complaint, summons, citation, --------------------- notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of any Borrower or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Borrower or any predecessor in interest. "Environmental Law" means any applicable federal, state, provincial, ----------------- foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on Borrowers, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC Section 1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601 et seq; the -- --- -- --- Clean Air Act, 42 USC Section 7401 et seq.; the Safe Drinking Water Act, 42 USC. -- --- Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. Section 2701 et -- --- -- seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 - --- USC. Section 11001 et seq.; the Hazardous Material Transportation Act, 49 USC -- --- Section 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. -- --- Section 651 et seq. (to the extent it regulates occupational exposure to -- --- Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Environmental Liabilities and Costs" means all liabilities, monetary ----------------------------------- obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, -11- sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action. "Environmental Lien" means any Lien in favor of any Governmental ------------------ Authority for Environmental Liabilities and Costs. "Equipment" means all of Borrowers' now owned or hereafter acquired --------- right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute thereto. "ERISA Affiliate" means (a) any Person subject to ERISA whose --------------- employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which a Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with a Borrower and whose employees are aggregated with the employees of a Borrower under IRC Section 414(o). "Event of Default" has the meaning set forth in Section 8. ---------------- --------- "Excess Availability" means the amount, as of the date any ------------------- determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Borrowers aged in excess of their historical levels with respect thereto and all book overdrafts in excess of their historical practices with respect thereto, in each case as determined by Agent in its Permitted Discretion. "Exchange Act" means the Securities Exchange Act of 1934, as in effect ------------ from time to time. "Existing Lender" means Bank of America, N.A., as administrative agent --------------- for certain lenders to Parent. "Fee Letter" means that certain fee letter, dated as of even date ---------- herewith, between Borrowers and Agent, in form and substance reasonably satisfactory to Agent. "FEIN" means Federal Employer Identification Number. ---- "Foothill" means Foothill Capital Corporation, a California -------- corporation. "Foreign Subsidiary" means any direct or indirect Subsidiary of the ------------------ Parent other than Domestic Subsidiaries. -12- "Funding Date" means the date on which a Borrowing occurs. ------------ "Funding Losses" has the meaning set forth in Section 2.12(b)(ii). -------------- ------------------- "GAAP" means generally accepted accounting principles as in effect ---- from time to time in the United States, consistently applied. "General Intangibles" means all of Borrowers' now owned or hereafter ------------------- acquired right, title, and interest with respect to general intangibles (including Intellectual Property, payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Governing Documents" means, with respect to any Person, the ------------------- certificate or articles of incorporation, by-laws, or other organizational documents of such Person. "Governmental Authority" means any federal, state, local, or other ---------------------- governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. "Guarantor Security Agreement" means that certain security agreement ---------------------------- made by Guarantors in favor of Agent for the benefit of the Lender Group in the form attached as Exhibit G-1. ----------- "Guarantors" means, collectively, Ventiv Health, LLC, VIS, HPR, ---------- Promotech, Imedex, VHC and Scientific Exchange. "Guaranty" means that certain general continuing guaranty executed and -------- delivered by each Guarantor in favor of Agent, for the benefit of the Lender Group, in the form of Exhibit G-2. ----------- "Hazardous Materials" means (a) substances that are defined or listed ------------------- in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. -13- "Hedge Agreement" means any and all transactions, agreements, or --------------- documents now existing or hereafter entered into between Administrative Borrower or its Subsidiaries and Wells Fargo or its Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Administrative Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "HPR" means Health Products Research, Inc., a New Jersey corporation. --- "Indebtedness" means with respect to any Person (a) all obligations ------------ for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of Administrative Borrower or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of business and repayable in accordance with customary trade practices), and (f) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse, but excluding any endorsement of instruments or items of payment for deposit into any DDA of any Borrower) any obligation of any other Person. "Indemnified Liabilities" has the meaning set forth in Section 11.3. ----------------------- ------------ "Indemnified Person" has the meaning set forth in Section 11.3. ------------------ ------------ "Initial Advance" has the meaning set forth in Section 2.1. --------------- ----------- "Initial Advance Account" has the meaning set forth in Section 2.1. ----------------------- ----------- "Insolvency Proceeding" means any proceeding commenced by or against --------------------- any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intangible Assets" means, with respect to any Person, that portion of ----------------- the book value of all of such Person's assets that would be treated as intangibles under GAAP. "Intellectual Property" means all foreign and domestic (i) trademarks, --------------------- service marks, brand names, certification marks, collective marks, d/b/a's, Internet domain names, logos, symbols, trade dress, assumed names, fictitious names, trade names, and other indicia of origin, all applications and registrations for all of the foregoing, and all goodwill associated therewith and symbolized thereby, including without limitation all extensions, modifications and renewals of same; (ii) inventions, discoveries and ideas, whether patentable or not, and all patents, registrations, and applications therefor, including without limitation divisions, continuations, continuations-in-part and renewal applications, and including without limitation renewals, -14- extensions and reissues; (iii) confidential and proprietary information, trade secrets and know-how, including without limitation processes, schematics, databases, formulae, drawings, prototypes, models, designs and customer lists; (iv) published and unpublished works of authorship, whether copyrightable or not, copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof; and (v) all other intellectual property or proprietary rights and claims or causes of action arising out of or related to any infringement, misappropriation or other violation of any of the foregoing, including without limitation rights to recover for past, present and future violations thereof. "Intercompany Subordination Agreement" means a subordination agreement ------------------------------------ executed and delivered by Borrowers, Guarantors, and Agent in the form of Exhibit I-1. - ----------- "Interest Period" means, with respect to each LIBOR Rate Loan, a --------------- period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period -------- ------- would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (e) Borrowers (or Administrative Borrower on behalf thereof) may not elect an Interest Period which will end after the Maturity Date. "Imedex" means International Medical Experience Exchange U.S.A., Inc., ------ a Georgia corporation. "Inventory" means all Borrowers' now owned or hereafter acquired --------- right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by a Borrower as lessor, goods that are furnished by a Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in a Borrower's business. "Investment" means, with respect to any Person, any investment by such ---------- Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business consistent with past practices), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. -15- "Investment Property" means all of Borrowers' now owned or hereafter ------------------- acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "IRC" means the Internal Revenue Code of 1986, as in effect from time --- to time. "Issuing Lender" means Foothill or any other Lender that, at the -------------- request of Administrative Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.11. ------------ "L/C" has the meaning set forth in Section 2.11(a). --- ------- "L/C Disbursement" means a payment made by the Issuing Lender pursuant ---------------- to a Letter of Credit. "L/C Undertaking" has the meaning set forth in Section 2.11(a). --------------- --------------- "Lender" and "Lenders" have the respective meanings set forth in the ------ ------- preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1. ------------ "Lender Group" means, individually and collectively, each of the ------------ Lenders (including the Issuing Lender) and Agent. "Lender Group Expenses" means all (a) costs or expenses (including --------------------- taxes, and insurance premiums) required to be paid by a Borrower under any of the Loan Documents that are paid or incurred by the Lender Group, (b) reasonable fees or charges paid or incurred by Agent in connection with the Lender Group's transactions with Borrowers, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic Collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred by Agent in the disbursement of funds to or for the account of Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and expenses of Agent related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Group's relationship with any Borrower or any guarantor of the Obligations, (h) Agent's and each Lender's reasonable fees and expenses (including attorneys fees) incurred in advising, structuring, drafting, -16- reviewing, administering, or amending the Loan Documents, and (i) Agent's and each Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Borrower or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral, provided that Lender Group shall not be entitled to include their ordinary course overhead expenses as of part of Lender Group Expenses. "Lender-Related Person" means, with respect to any Lender, such --------------------- Lender, together with such Lender's Affiliates, and the officers, directors, employees, and agents of such Lender. "Letter of Credit" means an L/C or an L/C Undertaking, as the context ---------------- requires. "Letter of Credit Usage" means, as of any date of determination, the ---------------------- aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the amount of outstanding time drafts accepted by an Underlying Issuer as a result of drawings under Underlying Letters of Credit. "LIBOR Deadline" has the meaning set forth in Section 2.12(b)(i). -------------- ------------------ "LIBOR Notice" means a written notice in the form of Exhibit L-1. ------------ ----------- "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, ---------- the rate per annum determined by Agent (rounded upwards, if necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. "LIBOR Rate Loan" means each portion of an Advance that bears interest --------------- at a rate determined by reference to the LIBOR Rate. "LIBOR Rate Margin" means (i) for the period from the Closing Date up ----------------- to and including March 31, 2003, 2.75 percentage points (ii) and for each 12 month period commencing on each April 1 thereafter, the following margin which shall be based upon EBITDA of the Parent and its Subsidiary for the immediately preceding fiscal year as determined based upon Borrowers' audited financial statements for the immediately preceding fiscal year: =================================================== EBITDA LIBOR Rate Margin ------ ----------------- =================================================== Greater than $27,500,000 2.25 percentage points - --------------------------------------------------- $22,500,000 to $27,500,000 2.50 percentage points - --------------------------------------------------- Less than $22,500,000 2.75 percentage points =================================================== -17- "Lien" means any interest in an asset securing an obligation owed to, ---- or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Lighthouse Software" means the Lighthouse Software and the Lighthouse ------------------- Intellectual Property related to the Lighthouse Software (in each case as defined in the Membership Interest Redemption Agreement dated as of May 31, 2001 among Administrative Borrower, Diginet LLC, Gregory L. Miller, Brian Lilley and Shane J. Wood). "Loan Account" has the meaning set forth in Section 2.9. ------------ ----------- "Loan Documents" means this Agreement, the Bank Product Agreements, -------------- the Cash Management Agreements, the Contribution Agreement, the Control Agreements, the Copyright Security Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee Letter, the Guaranty, the Guarantor Security Agreement, the Letters of Credit, the Mortgages, the Officers' Certificate, the Patent Security Agreement, the Pledge Agreement, the Trademark Security Agreement, the Intercompany Subordination Agreement, any note or notes executed by a Borrower in connection with this Agreement and payable to a member of the Lender Group, and any other agreement entered into, now or in the future, by any Borrower and the Lender Group in connection with this Agreement. "Material Adverse Change" means (a) a material adverse change in the ----------------------- business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrowers taken as a whole or of Borrowers and Guarantors taken as a whole, (b) a material impairment of a Borrower's ability to perform its obligations under the Loan Documents to which it is a party or of the ability of Borrowers and Guarantors, taken as a whole, to perform their obligations under the Loan Documents to which they are a party, or of the Lender Group's ability to enforce the Obligations or realize upon the Collateral, other than as a result of an action or failure to act on the part of a Lender, or (c) a material impairment of the enforceability or priority of the Agent's Liens with respect to the Collateral as a result of an action or failure to act on the part of a Borrower. "Material Contract" means any agreement or contract of any Borrower or ----------------- any Subsidiary of a Borrower which (a)(i) in the case of a Borrower, involves consideration to such Borrower of $250,000 or more in any year and (ii) in the case of a Subsidiary of a Borrower (other than U.S. Sales), involves consideration to such Subsidiary of $2,000,000 or more in any year, (b) involves consideration by such Borrower or Subsidiary of $250,000 or more in any year, (c) imposes financial obligations on any Borrower or any Subsidiary of $250,000 or more in any year, or (d) is otherwise material (or together with related agreements and contracts, is material) to the business, operations, financial condition, performance or properties of the Parent and its -18- Subsidiaries, taken as a whole; provided that employment agreements shall not constitute Material Contracts. "Maturity Date" has the meaning set forth in Section 3.4. ------------- ----------- "Maximum Revolver Amount" means $50,000,000. ----------------------- "Mortgages" means, individually and collectively, one or more --------- mortgages, deeds of trust, or deeds to secure debt, executed and delivered by a Borrower in favor of Agent, for the benefit of the Lender Group, in form and substance reasonably satisfactory to Agent, that encumber the Real Property Collateral and the related improvements thereto. "Negotiable Collateral" means all of Borrowers' now owned and --------------------- hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "Obligations" means (a) all loans, Advances, debts, principal, ----------- interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrowers' Loan Account pursuant hereto), obligations, fees (including the fees provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrowers to the Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Group Expenses that Borrowers are required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "Officers' Certificate" means the representations and warranties of --------------------- officers forms submitted by Agent to Administrative Borrower, together with Borrowers' completed responses to the inquiries set forth therein, in the form of Exhibit O-1. ----------- "Originating Lender" has the meaning set forth in Section 14.1(e). ------------------ --------------- "Overadvance" has the meaning set forth in Section 2.4. ----------- ----------- "Overhead" means costs and expenses of Parent and its Subsidiaries for -------- corporate management, oversight and support of Parent's operating divisions. Such overhead is identified on the Closing Date Business Plan as "Corporate", and totals $6.071 million for 2002 and $6.071 for 2003, respectively, in that plan. "Parent" has the meaning set forth in the preamble to this Agreement. ------ -19- "Participant" has the meaning set forth in Section 14.1(e). ----------- --------------- "Pay-Off Letter" means a letter, in form and substance reasonably -------------- satisfactory to Agent, from Existing Lender to Agent confirming that all of the obligations of Borrowers owing to Existing Lender (other than obligations with respect to letters of credit that have been fully cash collateralized) have been paid in full. "Permitted Discretion" means a determination made in good faith and in -------------------- the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by ---------------------- Administrative Borrower or its Subsidiaries of Equipment that is substantially worn, damaged, or obsolete or is no longer used in any Borrower's business, (b) the use or transfer of money or Cash Equivalents by Administrative Borrower or its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (c) the licensing by Administrative Borrower or its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, (d) the sale or other disposition of all or substantially all of the assets of, or 100% of the Stock of, VHC, Scientific Exchange, Promotech, Imedex and/or any Foreign Subsidiary, provided that (i) no Event of Default has occurred and is continuing or would result from such sale or disposition, (ii) the proceeds of such sale or disposition are deposited into a Cash Management Account in accordance with Section 2.6, (iii) the net cash proceeds of such sale ----------- or disposition equal or exceed the aggregate amount of outstanding loans, advances and other investments made by the Borrowers to such Person since the Closing Date (after deducting the aggregate amount of cash repayments of such loans, advances or other investments made by such Persons to Borrowers), (iv)(A) in the case of a sale or other disposition of Stock, the Person subject to such sale or other disposition shall be released as a Guarantor under the Loan Documents pursuant to documentation acceptable to Agent, and (B) in the case of a sale or other disposition of assets, Agent shall release its Lien on such assets pursuant to documentation acceptable to Agent, and (v) in the case of a sale or other disposition of all or substantially all of the assets of, or 100% of the Stock of, VHC, such sale may include the Lighthouse Software owned by the Parent and all agreements related thereto, and (e) the sale or other disposition by the Parent of its equity investment in RxCentric.com, Inc., provided that (i) no Event of Default has occurred and is continuing or would result from such sale or disposition and (ii) the proceeds of such sale or disposition are deposited into a Cash Management Account in accordance with Section 2.6. ----------- "Permitted Dissolution" means a liquidation or dissolution of a --------------------- Foreign Subsidiary, provided that (i) after the satisfaction of third party creditor claims, (a) at or prior to the time such Foreign Subsidiary ceases to exist as a result of such liquidation or dissolution, all cash of such Foreign Subsidiary is distributed to a Borrower or a Guarantor, (b) all cash distributed to a Borrower or Guarantor in connection therewith is placed in a Cash Management Account and (c) at or prior to the time such Subsidiary ceases to exist as a result of such liquidation or dissolution, any Stock, promissory notes, other instruments of indebtedness or other assets held by such Subsidiary are distributed to the equityholders thereof and (ii) if the Stock of such Subsidiary had been pledged to the Agent pursuant to the Pledge Agreement, the holders of the Stock, promissory notes, other instruments of indebtedness or other assets -20- distributed in connection with the liquidation or dissolution become parties to the Pledge Agreement pursuant to documentation reasonably satisfactory to Lender. "Permitted Investments" means (a) investments in Cash Equivalents, (b) --------------------- investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) loans, advances or other investments by any Borrower to any other Borrower; provided that if any such loan, advance or other investment is in the -------- form of Indebtedness, such Indebtedness shall be subject to the terms and conditions of the Intercompany Subordination Agreement, (e) loans, advances or other investments by the Borrowers to any Guarantor; provided that (i) no Event -------- of Default has occurred and is continuing or would result from such loan, advance or other investment, (ii) if any such loan, advance or other investment is in the form of Indebtedness, (A) the repayment of each such intercompany loan, advance or other investment shall be subordinated to the payment of the Obligations pursuant to the terms and conditions of the Intercompany Subordination Agreement, and evidenced by one or more promissory notes, in form and substance reasonably satisfactory to Agent, and (B) such promissory notes shall be pledged to Agent for the benefit of the Lender Group pursuant to the Pledge Agreement, (iii) immediately prior to and immediately following such loan, advance or other investment, there is Excess Availability and Unrestricted Cash of at least $10,000,000 in the aggregate, and (iv) the aggregate amount of all such loans, advances and other investments made on or after the Closing Date to all Guarantors at any one time outstanding (after deducting the aggregate amount of cash repayments of such loans, advances or other investments made by such Persons to Borrowers) shall not exceed $5,000,000, and (f) loans, advances or other investments by a Borrower or a Guarantor to any Foreign Subsidiary and by any Foreign Subsidiary to a Borrower or a Guarantor; provided that in the -------- cash of any such loan, advance or other investment to a Foreign Subsidiary (i) no Event of Default has occurred and is continuing or would result from such loan, advance or other investment, (ii) the aggregate amount of all such loans, advances and other investments made on or after the Closing Date to all Foreign Subsidiaries at any one time outstanding (after deducting the aggregate amount of cash repayments of such loans, advances or other investments made by all Foreign Subsidiaries to Borrowers) shall not exceed $5,000,000, (iii) immediately prior to and immediately following such loan, advance or other investment, there is Excess Availability and Unrestricted Cash of at least $15,000,000 in the aggregate, and (iv) if any such loan, advance or other investment is in the form of Indebtedness, (A) the repayment of each such intercompany loan, advance or other investment shall be subordinated to the payment of the Obligations pursuant to the terms and conditions of the Intercompany Subordination Agreement, and evidenced by one or more promissory notes, in form and substance reasonably satisfactory to Agent, and (B) such promissory notes shall be pledged to Agent for the benefit of the Lender Group pursuant to the Pledge Agreement. "Permitted Liens" means (a) Liens held by Agent for the benefit of --------------- Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the ------------ interests of lessors under operating leases, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in -21- the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business and not in connection with the borrowing of money, (i) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) Liens with respect to the Real Property Collateral that are exceptions to the commitments for title insurance issued in connection with the Mortgages, as accepted by Agent, (l) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof, (m) security deposits with respect to leases of property (real or personal) in the ordinary course of business, and with respect to precautionary Uniform Commercial Code filings made with respect to operating leases, and (n) Liens in favor of Existing Lender in a certain deposit account at Bank of America, N.A., provided that (i) the funds on deposit in such account shall not exceed - -------- $1,500,000 (which is the initial amount deposited into such account) plus interest accruing thereon and (ii) upon release of any or all funds from such account by the Existing Lender, such funds shall be deposited into a Cash Management Account in accordance with Section 2.6. ----------- "Permitted Protest" means the right of Administrative Borrower or any ----------------- of its Subsidiaries, as applicable) to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Administrative Borrower or any of its Subsidiaries, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Agent's Liens. "Permitted Purchase Money Indebtedness" means, as of any date of ------------------------------------- determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate amount outstanding at any one time not in excess of $500,000. "Person" means natural persons, corporations, limited liability ------ companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Personal Property Collateral" means all Collateral other than Real ---------------------------- Property. "Pledge Agreement" means a pledge and security agreement, in the form ---------------- of Exhibit P-1, executed and delivered by each Borrower and each Guarantor that ----------- owns Stock of a Subsidiary of Parent or that is the holder of any promissory notes. "Projections" means Parent's forecasted (a) balance sheets, (b) profit ----------- and loss statements, and (c) cash flow statements, all prepared on a consistent basis with Parent's -22- historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. "Promotech" means Promotech Research Associates, Inc., a Colorado --------- corporation. "Pro Rata Share" means: -------------- (a) with respect to a Lender's obligation to make Advances and receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the Commitments being reduced to zero, the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate Commitments of all Lenders, and (y) from and after the time that the Commitment has been terminated or reduced to zero, the percentage obtained by dividing (i) the aggregate principal amount of such Lender's Advances, by (ii) the aggregate principal amount of all Advances, (b) with respect to a Lender's obligation to participate in Letters of Credit, to reimburse the Issuing Lender, and to receive payments of fees with respect thereto, (x) prior to the Commitments being reduced to zero, the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate Commitments of all Lenders, and (y) from and after the time that the Commitment has been terminated or reduced to zero, the percentage obtained by dividing (i) the aggregate principal amount of such Lender's Advances, by (ii) the aggregate principal amount of all Advances, and (c) with respect to all other matters (including the indemnification obligations arising under Section 16.7), the percentage ------------ obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate amount of Commitments of all Lenders; provided, however, that, in each -------- ------- case, in the event all Commitments have been terminated or reduced to zero, Pro Rata Share shall be the percentage obtained by dividing (A) the principal amount of such Lender's Advances, by (B) the principal amount of all outstanding Advances. "Purchase Money Indebtedness" means Indebtedness (other than the --------------------------- Obligations, but including Capitalized Lease Obligations (other than Capitalized Lease Obligations in connection with automobile leases)), incurred at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. "Real Property" means any estates or interests in real property now ------------- owned or hereafter acquired by any Borrower and the improvements thereto. "Real Property Collateral" means the parcel or parcels of Real ------------------------ Property identified on Schedule R-1 and any Real Property hereafter acquired by ------------ a Borrower. "Record" means information that is inscribed on a tangible medium or ------ which is stored in an electronic or other medium and is retrievable in perceivable form. -23- "Registered" means issued, registered, renewed or the subject of a ---------- pending application. "Reliant" means Reliant Pharmaceuticals, LLC, a Delaware limited ------- liability company. "Remedial Action" means all actions taken to (a) clean up, remove, --------------- remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC Section. 9601. "Report" has the meaning set forth in Section 16.17. ------ ------------- "Required Availability" means Excess Availability and Unrestricted --------------------- Cash, in an aggregate amount of not less than $30,000,000. "Required Lenders" means, at any time, (a) Agent, and (b) Lenders ---------------- whose Pro Rata Shares aggregate 51% of the Commitments, or if the Commitments have been terminated irrevocably, 51% of the Obligations (other than Bank Product Obligations) then outstanding. "Reserve Percentage" means, on any day, for any Lender, the maximum ------------------ percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero. "Revolver Usage" means, as of any date of determination, the sum of -------------- (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage. "Risk Participation Liability" means, as to each Letter of Credit, all ---------------------------- reimbursement obligations of Borrowers to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrowers, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto. "Scientific Exchange" means Scientific Exchange, Inc., a Connecticut ------------------- corporation. "SEC" means the United States Securities and Exchange Commission and --- any successor thereto. -24- "Securities Account" means a "securities account" as that term is ------------------ defined in the Code. "Settlement" has the meaning set forth in Section 2.2(f)(i). ---------- ----------------- "Settlement Date" has the meaning set forth in Section 2.2(f)(i). --------------- ----------------- "Solvent" means, with respect to any Person on a particular date, that ------- such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "Stock" means all shares, options, warrants, interests, ----- participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Subsidiary" of a Person means a corporation, partnership, limited ---------- liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. "Swing Lender" means Foothill or any other Lender that, at the request ------------ of Administrative Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become the Swing Lender hereunder. "Swing Loan" has the meaning set forth in Section 2.2(d)(i). ---------- ----------------- "Tax Sharing Agreement" means that certain Tax Sharing Agreement dated --------------------- as of September 27, 1999, by and between Snyder Communications, Inc., a Delaware corporation and Parent. "Taxes" has the meaning set forth in Section 16.11(e). ----- ---------------- "Trademark Security Agreement" means a trademark security agreement ---------------------------- executed and delivered by each Borrower, each Guarantor, and Agent, the form and substance of which is reasonably satisfactory to Agent. "UCC Filing Authorization Letter" means a letter executed by each ------------------------------- Borrower and Guarantor authorizing Agent to file appropriate financing statements on Form UCC-1 in such office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the Liens to be created by each applicable Loan Document. "Unbilled Subline" means the subline under the Maximum Revolver Amount ---------------- for Advances made against Eligible Unbilled Accounts equal to $12,500,000. -25- "Underlying Issuer" means a third Person which is the beneficiary of ----------------- an L/C Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrowers. "Underlying Letter of Credit" means a letter of credit that has been --------------------------- issued by an Underlying Issuer. "Unrestricted Cash" means unrestricted cash and Cash Equivalents and ----------------- all amounts on deposit in the Initial Advance Account. "U.S. EBIT" means, with respect to any fiscal period, Parent's and its --------- Domestic Subsidiaries' consolidated net earnings (or loss), minus extraordinary gains, plus interest expense and income taxes for such period, as determined in accordance with GAAP. "U.S. Sales" has the meaning set forth in the preamble to this ---------- Agreement. "VHC" means Ventiv Health Communications, Inc., a Delaware --- corporation. "VIS" means VIS FINANCIAL LLC, a Delaware limited liability company. --- "Voidable Transfer" has the meaning set forth in Section 17.7. ----------------- ------------ "Wells Fargo" means Wells Fargo Bank, National Association, a national ----------- banking association. 1.2 Accounting Terms. All accounting terms not specifically defined ---------------- herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrowers" or the term "Parent" is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3 Code. Any terms used in this Agreement that are defined in the ---- Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 Construction. Unless the context of this Agreement or any other ------------ Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, -26- and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached ---------------------- to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 Revolver Advances. Subject to the terms and conditions of this ----------------- Agreement, and during the term of this Agreement, each Lender agrees (severally, not jointly or jointly and severally) to make advances ("Advances") to Borrowers -------- in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage, provided that (A) Advances made against Eligible -------- Billed Accounts shall not exceed the Billed Subline less the Letter of Credit Usage and (B) Advances made against Eligible Unbilled Accounts shall not exceed the Unbilled Subline and will be available in the sole discretion of the Lenders, and (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as of any date of determination, -------------- shall mean an amount equal to the lesser of: (x) the result of (i) the sum of (A) in the case of the Billed Subline, 85% of the amount of Eligible Billed Accounts, less the amount, if any, of the Dilution Reserve, plus (B) in the case of the Unbilled Subline, 75% of the amount of Eligible Unbilled Accounts, provided that, the -------- aggregate amount of Advances under the Unbilled Subline shall in no event exceed the total aggregate amount of Advances under the Billed Subline pursuant to subclause (A) above, less (ii) $7,500,000, provided that, the amount under this -------- clause (ii) shall be decreased to $5,000,000 beginning in September 2002 and continuing thereafter at any time that no Event of Default shall have occurred and be continuing, and (y) an amount equal to Borrowers' Collections with respect to Accounts for the immediately preceding 60 day period, in each case minus, the sum of (i) the Bank Products Reserve, (ii) an amount equal to 2 times the reserve established for performance metrics on the balance sheet of the Borrowers, and (iii) the aggregate amount of reserves, if any, established by Agent under Section 2.1(b). -------------- -27- (a) In addition, aggregate Advances shall not at any time exceed the difference between (i) EBITDA for the most recent twelve months period times 2 and (ii) the Letter of Credit Usage. For purposes of this Section 2.1(a), -------------- EBITDA shall be calculated without giving effect to (A) Foreign Subsidiaries, (B) 20% of Overhead of the Parent and its Subsidiaries, which is assumed to be allocated to the Foreign Subsidiaries, and (C) the expenses for Borrowers' initial investments in Cellegy and VIS, each up to a maximum of $10,000,000. (b) Anything to the contrary in this Section 2.1 notwithstanding, ----------- Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including reserves with respect to (i) sums that Borrowers are required to pay (such as payroll and other taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, and (ii) amounts owing by Borrowers to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have - ------------ priority over the Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the Agent's Liens (such as Liens or trusts in favor of landlords or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral. (c) Notwithstanding anything to the contrary contained herein, on the Closing Date the Borrowers shall request, and the Lenders shall, subject to Section 3.1, fund their respective Pro Rata Shares of, an Advance in an amount - ----------- equal to $15,000,000 (the "Initial Advance"). The proceeds of the Initial --------------- Advance shall be deposited in a deposit account maintained at Wells Fargo and such deposit account shall be subject to a Control Agreement (the "Initial Advance Account"). Amounts deposited in the Initial Advance Account may only be invested in Cash Equivalents or other securities satisfactory to Agent. The Initial Advance shall be repaid in full on the 90th day after the Closing Date by Agent's application of all funds held in the Initial Advance Account to the repayment of the Obligations then outstanding. The Initial Advance shall not be deemed an Advance or other extension of credit for purposes of Section 6.2 or ----------- Section 7.19 hereof. - ------------ (d) The Lenders shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount. (e) Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 2.2 Borrowing Procedures and Settlements. ------------------------------------ (a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent (which notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day prior to the date that is the requested Funding Date in the case of a request for an Advance specifying (i) the -28- amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that in the case of a request for Swing Loan in -------- ------- an amount of $5,000,000, or less, such notice will be timely received if it is received by Agent no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date) specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent's election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. (b) Agent's Election. Promptly after receipt of a request for a Borrowing pursuant to Section 2.2(a), Agent shall elect, in its discretion, (i) -------------- to have the terms of Section 2.2(c) apply to such requested Borrowing, or (ii) -------------- if the Borrowing is for an Advance, to request Swing Lender to make a Swing Loan pursuant to the terms of Section 2.2(d) in the amount of the requested -------------- Borrowing; provided, however, that if Swing Lender declines in its sole -------- ------- discretion to make a Swing Loan pursuant to Section 2.2(d), Agent shall elect to -------------- have the terms of Section 2.2(c) apply to such requested Borrowing. -------------- (c) Making of Advances. (i) In the event that Agent shall elect to have the terms of this Section 2.2(c) apply to a requested Borrowing as described in Section ------------- ------- 2.2(b), then promptly after receipt of a request for a Borrowing pursuant ------ to Section 2.2(a), Agent shall notify the Lenders, not later than 1:00 p.m. -------------- (California time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent's Account, not later than 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agent's receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in Section 3 hereof, Agent shall --------- make the proceeds thereof available to Administrative Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Administrative Borrower's Designated Account; provided, however, that, subject to the provisions of Section -------- ------- ------- 2.2(i), Agent shall not request any Lender to make, and no Lender shall ------ have the obligation to make, any Advance if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for --------- the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date. (ii) Unless Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least 1 Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender's Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon -29- such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrowers such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender's Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Administrative Borrower of such failure to fund and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date. (iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrowers to Agent for the Defaulting Lender's benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such Defaulting Lender's Advance was funded by the other members of the Lender Group) or, if so directed by Administrative Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender's Advance was not funded by the Lender Group), retain same to be re-advanced to Borrowers as if such Defaulting Lender had made Advances to Borrowers. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrowers for the account of such Defaulting Lender the amount of all such payments received and retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Administrative Borrower shall have waived such Defaulting Lender's default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrowers of their duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Administrative Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the -30- Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance Agreement in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Bank Product Obligations) (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided -------- further, however, that any such assumption of the Commitment of such ------- ------- Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups' or Borrowers' rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. (d) Making of Swing Loans. (i) In the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this Section 2.2(d) apply -------------- to a requested Borrowing as described in Section 2.2(b), Swing Lender as a -------------- Lender shall make such Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this Section ------- 2.2(d) being referred to as a "Swing Loan" and such Advances being referred ------ ---------- to collectively as "Swing Loans") available to Borrowers on the Funding ----------- Date applicable thereto by transferring immediately available funds to Administrative Borrower's Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that all payments on any Swing Loan shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Swing Loan). Subject to the provisions of Section 2.2(i), Agent shall not -------------- request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make, any Swing Loan if Agent has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will --------- not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the --------- Funding Date applicable thereto prior to making, in its sole discretion, any Swing Loan. (ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. (e) Agent Advances. (i) Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make --------- -31- Advances to Borrowers on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations), or (C) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this ---------- Section 2.2(e) shall be referred to as "Agent Advances"). Each Agent -------------- -------------- Advance is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Agent Advance shall be eligible for the LIBOR Option and all payments thereon shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Agent Advance). (ii) The Agent Advances shall be repayable on demand and secured by the Agent's Liens granted to Agent under the Loan Documents, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. (f) Settlement. It is agreed that each Lender's funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrowers) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: (i) Agent shall request settlement ("Settlement") with the ---------- Lenders on a weekly basis, or on a more frequent basis if so determined by Agent, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect to Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (California time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the "Settlement Date"). Such --------------- notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Agent Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.2(c)(iii)): (y) if a Lender's balance ------------------- of the Advances, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time) on the Settlement Date, transfer in immediately available funds to the account of such Lender as such Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances, and (z) if a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to the Agent's Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the -32- Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing Lender's Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate. (ii) In determining whether a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrowers and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement. (iii) Between Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Agent Advances, and each Lender (subject to the effect of letter agreements between Agent and individual Lenders) with respect to the Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. (g) Notation. Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records constituting conclusive evidence, absent manifest error, of the accuracy of the information contained therein. (h) Lenders' Failure to Perform. All Advances (other than Swing Loans and Agent Advances) shall be made by the Lenders contemporaneously and in accordance -33- with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder. (i) Optional Overadvances. Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrowers notwithstanding that an Overadvance exists or thereby would be created, so long as (i) after giving effect to such Advances (including a Swing Loan), the Revolver Usage does not exceed the Borrowing Base by more than $5,000,000, (ii) after giving effect to such Advances (including a Swing Loan) the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at the time of the making of any such Advance (including a Swing Loan), Agent does not believe, in good faith, that the Overadvance created by such Advance will be outstanding for more than 90 days. The foregoing provisions are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrowers in any way. The Advances and Swing Loans, as applicable, that are made pursuant to this Section 2.2(i) shall be subject to the same terms and conditions as any other - -------------- Advance or Swing Loan, as applicable, except that they shall not be eligible for the LIBOR Option and the rate of interest applicable thereto shall be the rate applicable to Advances that are Base Rate Loans under Section 2.5(c) hereof -------------- without regard to the presence or absence of a Default or Event of Default. (i) In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of, or reason for, such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrowers and intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrowers to an amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. (ii) Each Lender shall be obligated to settle with Agent as provided in Section 2.2(f) for the amount of such Lender's Pro Rata Share -------------- of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.2(i), and -------------- any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses. -34- 2.3 Payments. -------- (a) Payments by Borrowers. (i) Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent's Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (California time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (ii) Unless Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid. (b) Apportionment and Application. (i) Except as otherwise provided with respect to Defaulting Lenders and except as otherwise provided in the Loan Documents (including letter agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent's separate account, after giving effect to any letter agreements between Agent and individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and all such payments (other than payments received while no Default or Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees), and all proceeds of Accounts or other Collateral received by Agent, shall be applied as follows: A. first, to pay any Lender Group Expenses then due to ----- Agent under the Loan Documents, until paid in full, B. second, to pay any Lender Group Expenses then due to ------ the Lenders under the Loan Documents, on a ratable basis, until paid in full, -35- C. third, to pay any fees then due to Agent (for its ----- separate accounts, after giving effect to any letter agreements between Agent and the individual Lenders) under the Loan Documents until paid in full, D. fourth, to pay any fees then due to any or all of ------ the Lenders (after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents, on a ratable basis, until paid in full, E. fifth, to pay interest due in respect of all Agent ----- Advances, until paid in full, F. sixth, ratably to pay interest due in respect of the ----- Advances (other than Agent Advances) and the Swing Loans until paid in full, G. seventh, to pay the principal of all Agent Advances ------- until paid in full, H. eighth, to pay the principal of all Swing Loans ------ until paid in full, I. ninth, so long as no Event of Default has occurred ----- and is continuing, and at Agent's election (which election Agent agrees will not be made if an Overadvance would be created thereby), to pay amounts then due and owing by Administrative Borrower or its Subsidiaries in respect of Bank Products, until paid in full, J. tenth, so long as no Event of Default has occurred ----- and is continuing, to pay the principal of all Advances until paid in full, K. eleventh, if an Event of Default has occurred and is -------- continuing, ratably (i) to pay the principal of all Advances until paid in full, and (ii) to Agent, to be held by Agent, for the benefit of Wells Fargo or its Affiliates, as applicable, as cash collateral in an amount up to the amount of the Bank Products Reserve established prior to the occurrence of, and not in contemplation of, the subject Event of Default until Administrative Borrower's and its Subsidiaries' obligations in respect of the then extant Bank Products have been paid in full or the cash collateral amount has been exhausted, L. twelfth, if an Event of Default has occurred and is ------- continuing, to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and the other Lenders, as cash collateral in an amount up to 105% of the then extant Letter of Credit Usage until paid in full, -36- M. thirteenth, to pay any other Obligations (including ---------- Bank Product Obligations) until paid in full, and N. fourteenth, to Borrowers (to be wired to the ---------- Designated Account) or such other Person entitled thereto under applicable law. (ii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.2. ----------- (iii) In each instance, so long as no Event of Default has occurred and is continuing, Section 2.3(b) shall not be deemed to apply to -------------- any payment by Borrowers specified by Borrowers to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement. (iv) For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. (v) In the event of a direct conflict between the priority provisions of this Section 2.3 and other provisions contained in any other ----------- Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.3 shall control and govern. ----------- 2.4 Overadvances. If, at any time or for any reason, the amount of ------------ Obligations (other than Bank Product Obligations) owed by Borrowers to the Lender Group pursuant to Sections 2.1 and 2.11 is greater than either the Dollar --------------------- or percentage limitations set forth in Sections 2.1 or 2.11, (an "Overadvance"), -------------------- ----------- Borrowers immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.3(b). In addition, Borrowers hereby -------------- promise to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.5 Interest Rates and Letter of Credit Fee: Rates, Payments, and ------------------------------------------------------------- Calculations. - ------------ (a) Interest Rates. Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows (i) if the relevant Obligation is an Advance that is a LIBOR -37- Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin and (ii) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin. The foregoing notwithstanding, at no time shall any portion of the Obligations (other than Bank Product Obligations) bear interest on the Daily Balance thereof at a per annum rate less than 4.75%. To the extent that interest accrued hereunder at the rate set forth herein would be less than the foregoing minimum daily rate, the interest rate chargeable hereunder for such day automatically shall be deemed increased to the minimum rate. (b) Letter of Credit Fee. Borrowers shall pay Agent (for the ratable benefit of the Lenders, subject to any letter agreement between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.11(e)) which shall accrue at --------------- a rate equal to 2% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit. (c) Default Rate. Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders), (i) all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 3 percentage points above the per annum rate otherwise applicable hereunder, and (ii) the Letter of Credit fee provided for above shall be increased to 3 percentage points above the per annum rate otherwise applicable hereunder. (d) Payment. Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Commitments are outstanding. Borrowers hereby authorize Agent, from time to time, without prior notice to Borrowers, to charge such interest and fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.11(e) (as --------------- and when accrued or incurred), the fees and costs provided for in Section 2.10 ------------ (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document (including any amounts due and payable to Wells Fargo or its Affiliates in respect of Bank Products up to the amount of the then extant Bank Products Reserve) to Borrowers' Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded by being charged to Borrowers' Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans hereunder. (e) Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest -38- hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrowers and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained -------- ------- herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.6 Cash Management. --------------- (a) On or before the time required by Section 3.2(c), Borrowers shall (i) establish and maintain cash management services of a type and on terms reasonably satisfactory to Agent at one or more of the banks set forth on Schedule 2.6(a) (each a "Cash Management Bank"), and shall request in writing - --------------- -------------------- and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including, without limitation, (A) those sent directly by Account Debtors to a Cash Management Bank, (B) the proceeds of any sale or other disposition of the assets or Stock of VHC, Scientific Exchange, Promotech, Imedex or the Foreign Subsidiaries, (C) the proceeds of any disposition of the equity of RxCentric.com, Inc., and (D) funds released from that certain deposit account described in clause (n) of the definition of Permitted Liens) into a bank account in Agent's name (a "Cash Management Account") at one of the Cash Management Banks. (b) Each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and Borrowers, in form and substance acceptable to Agent. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account, other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it will remit all proceeds received therein to the Agent's Account at all times after the Agent has provided a notice (a "Triggering Event Notice") to the applicable Cash Management Bank. The ----------------------- Agent may provide a Triggering Event Notice to the applicable Cash Management Bank if either (1) an Event of Default has occurred and is continuing hereunder, or (2) Borrowers' Excess Availability plus Unrestricted Cash is less than $25,000,000 in the aggregate. Upon the terms and subject to the conditions set forth in the Cash Management Agreements, from and after the receipt by a Cash Management Bank of a Triggering Event -39- Notice, all amounts received in the applicable Cash Management Account, shall be wired each Business Day into the Agent's Account. (c) So long as no Default or Event of Default has occurred and is continuing, Administrative Borrower may amend Schedule 2.6(a) to add or replace --------------- a Cash Management Account Bank or Cash Management Account; provided, however, -------- ------- that (i) such prospective Cash Management Bank shall be reasonably satisfactory to Agent and Agent shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank, and (ii) prior to the time of the opening of such Cash Management Account, Borrowers and such prospective Cash Management Bank shall have executed and delivered to Agent a Cash Management Agreement. Borrowers shall close any of their Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Agent that the creditworthiness of any Cash Management Bank is no longer acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent's reasonable judgment. (d) The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Borrowers are hereby deemed to have granted a Lien to Agent. 2.7 Crediting Payments; Float Charge. The receipt of any payment item -------------------------------- by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Agent's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day. From and after the Closing Date, Agent shall be entitled to charge Borrowers for 1 Business Day of 'clearance' or 'float' at the rate applicable to Base Rate Loans under Section 2.5 on all Collections that are received by Borrowers (regardless ----------- of whether forwarded by the Cash Management Banks to Agent). This across-the-board 1 Business Day clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrowers and shall apply irrespective of whether or not there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging 1 Business Day of interest on such Collections. The parties acknowledge and agree that the economic benefit of the foregoing provisions of this Section 2.7 shall be for the exclusive benefit of ----------- Agent. -40- 2.8 Designated Account. Agent is authorized to make the Advances, and ------------------ Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.5(d). Administrative Borrower agrees to establish and maintain the - -------------- Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrowers and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Administrative Borrower, any Advance, Agent Advance, or Swing Loan requested by Borrowers and made by Agent or the Lenders hereunder shall be made to the Designated Account. 2.9 Maintenance of Loan Account; Statements of Obligations. Agent ------------------------------------------------------ shall maintain an account on its books in the name of Borrowers (the "Loan ---- Account") on which Borrowers will be charged with all Advances (including Agent - ------- Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrowers or for Borrowers' account, the Letters of Credit issued by Issuing Lender for Borrowers' account, and with all other payment Obligations hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.7, the Loan Account will be credited with all payments ----------- received by Agent from Borrowers or for Borrowers' account, including all amounts received in the Agent's Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Administrative Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate absent manifest error and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after receipt thereof by Administrative Borrower, Administrative Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. 2.10 Fees. Borrowers shall pay to Agent the following fees and ---- charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter) and shall be apportioned among the Lenders in accordance with the terms of letter agreements between Agent and individual Lenders: (a) Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in the amount equal to 0.375% per annum times the result of (1) prior to the date that Agent approves the initial Advances requested by Administrative Borrower under the Unbilled Subline, (a) the Billed Subline, less (b) the sum of (i) the average Daily Balance of Advances made under the Billed Subline that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, and (2) from and after the date that there are one or more Lenders, in addition to Foothill, that have aggregate commitments of $20,000,000 or more under this Agreement, (a) the Maximum Revolver Amount, less (b) the sum of (c) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (d) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, (b) Fee Letter Fees. As and when due and payable under the terms of the Fee Letter, Borrowers shall pay to Agent the fees set forth in the Fee Letter, and -41- (c) Audit, Appraisal, and Valuation Charges. For the separate account of Agent, audit, appraisal, and valuation fees and charges as follows, (i) a fee of $850 per day, per auditor, plus out-of-pocket expenses for each financial audit of a Borrower performed by personnel employed by Agent, (ii) if implemented, a one time charge of $3,000 plus out-of-pocket expenses for expenses for the establishment of electronic collateral reporting systems, and (iii) the actual charges paid or incurred by Agent if it elects to employ the services of one or more third Persons to perform financial audits of Borrowers, to appraise the Collateral, or any portion thereof, or to assess a Borrower's business valuation; provided, that so long as no Event of Default has occurred -------- and is continuing, Borrowers shall only be obligated to pay for fees and charges incurred for financial audits performed no more frequently than four (4) times per calendar year. 2.11 Letters of Credit. ----------------- (a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrowers (each, an "L/C") or to purchase participations or execute indemnities or --- reimbursement obligations (each such undertaking, an "L/C Undertaking") with --------------- respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrowers. To request the issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking), Administrative Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be amended, renewed, or extended, the date of issuance, amendment, renewal, or extension, the date on which such L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name and address of the beneficiary thereof (or of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by the Issuing Lender, Borrowers also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue an L/C if any of the following would result after giving effect to the requested L/C: (i) the Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $5,000,000, or (iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the then extant amount of outstanding Advances, or (iv) the Letter of Credit Usage would exceed the Billed Subline less the then extant amount of outstanding Advances made under the Billed Subline, or -42- (v) the Letter of Credit Usage would exceed the difference between (A) EBITDA for the most recent twelve month period times 2 and (B) the then extant amount of outstanding Advances. Borrowers and the Lender Group acknowledge and agree that certain Underlying Letters of Credit may be issued to support letters of credit that already are outstanding as of the Closing Date. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the applicable Borrower and the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under an L/C, Borrowers immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Administrative Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Administrative Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on (i) the Business Day that Administrative Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances that are Base Rate Loans under Section 2.5. To the extent an L/C ----------- Disbursement is deemed to be an Advance hereunder, Borrowers' obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Subject to the applicable standards of liability set forth in this Agreement, any reimbursement payments made by a Borrower with respect to a Letter of Credit Disbursement (including by way of an Advance) shall be without prejudice to, and shall not constitute a waiver of, any right any Borrower may have or might acquire as a result of any payment by the Issuing Bank or the Underlying Issuer under or with respect to a Letter of Credit, the reimbursement thereof by such Borrower or any action taken or omitted to be taken by such Issuing Bank or Underlying Issuer under or in connection with a Letter of Credit. Promptly following receipt by Agent of any payment from Borrowers pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section ------- 2.11(c) to reimburse the Issuing Lender, then to such Lenders and the Issuing - ------- Lender as their interest may appear. (b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.11(a), each Lender agrees to fund its Pro Rata Share of --------------- any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrowers had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders, the Issuing Lender shall be deemed to have granted to each Lender, and each Lender shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, -43- such Lender's Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrowers on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to Borrowers for any reason. Each Lender acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant to this Section 2.11(b) shall be --------------- absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 hereof. If any such Lender fails to --------- make available to Agent the amount of such Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full. (c) Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any L/C; provided, however, that no Borrower shall be obligated -------- ------- hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Each Borrower agrees to be bound by the Underlying Issuer's regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender's interpretations of any L/C issued by Issuing Lender to or for such Borrower's account, even though this interpretation may be different from such Borrower's own, and each Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrowers' instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Each Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrowers against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group's indemnification of any Underlying Issuer; provided, however, that no Borrower shall be obligated hereunder to -------- ------- indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group or the Underlying Issuer. (d) Each Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender's instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application. (e) Any and all charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrowers to Agent for the account of the Issuing Lender; it being acknowledged and agreed by each Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is .825% per annum times the face amount of each Underlying Letter of Credit, that such issuance charge -44- may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (f) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or (ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto; and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Administrative Borrower, and Borrowers shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the day after such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. 2.12 LIBOR Option. ------------ (a) Interest and Interest Payment Dates. In lieu of having interest charged at the rate based upon the Base Rate, Borrowers shall have the option (the "LIBOR Option") to have interest on all or a portion of the Advances ------------ be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the occurrence of an Event of Default in consequence of which the Required Lenders or Agent on behalf thereof elect to accelerate the maturity of all or any portion of the Obligations, or (iii) termination of this Agreement pursuant to the terms hereof. On the last day of each applicable Interest Period, unless Administrative Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing, Borrowers no longer shall have the option to request that Advances bear interest at the LIBOR Rate and Agent shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder -45- (b) LIBOR Election. (i) Administrative Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of Administrative -------------- Borrower's election of the LIBOR Option for a permitted portion of the Advances and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day. Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the Lenders. (ii) Each LIBOR Notice shall be irrevocable and binding on Borrowers. In connection with each LIBOR Rate Loan, each Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense incurred by Agent or any Lender as a result of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses, collectively, "Funding Losses"). Funding Losses shall, -------------- with respect to Agent or any Lender, be deemed to equal the amount determined by Agent or such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period therefor), minus (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which Agent or such Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Agent or a Lender delivered to Administrative Borrower setting forth any amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section shall be conclusive absent manifest error. (iii) Borrowers shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrowers only may exercise the LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000 in excess thereof. (c) Prepayments. Borrowers may prepay LIBOR Rate Loans at any time, without premium or penalty except as otherwise provided in this Section ------- 2.12 and Section 3.6; provided, however, that in the event that LIBOR Rate Loans - ---- ----------- -------- ------- are prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Collections in accordance with Section 2.3(b) or for any other reason, including early termination of the term - -------------- of this -46- Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, each Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with clause (b) above. (d) Special Provisions Applicable to LIBOR Rate. (i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, the affected Lender shall give Administrative Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Administrative Borrower may, by notice to such affected Lender (y) require such Lender to furnish to Administrative Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under clause (b)(ii) above). (ii) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Advances or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Administrative Borrower and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrowers shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so. (e) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its Participants had match funded any Obligation as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. -47- 2.13 Capital Requirements. If, after the date hereof, any Lender -------------------- determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender may notify Administrative Borrower and Agent thereof. Following receipt of such notice, Borrowers agree to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. 2.14 Joint and Several Liability of Borrowers. ---------------------------------------- (a) Each of Borrowers is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Agent and the Lenders under this Agreement, for the mutual benefit, directly and indirectly, of each of Borrowers and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations. (b) Each of Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this Section 2.14), it being the ------------ intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Person composing Borrowers without preferences or distinction among them. (c) If and to the extent that any of Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Persons composing Borrowers will make such payment with respect to, or perform, such Obligation. (d) The Obligations of each Person composing Borrowers under the provisions of this Section 2.14 constitute the absolute and unconditional, full ------------ recourse Obligations of each Person composing Borrowers enforceable against each such Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever. -48- (e) Except as otherwise expressly provided in this Agreement, each Person composing Borrowers hereby waives notice of acceptance of its joint and several liability, notice of any Advances or Letters of Credit issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Person composing Borrowers hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Person composing Borrowers in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Person composing Borrowers. Without limiting the generality of the foregoing, each of Borrowers assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Person composing Borrowers to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.14 afford ------------ grounds for terminating, discharging or relieving any Person composing Borrowers, in whole or in part, from any of its Obligations under this Section ------- 2.14, it being the intention of each Person composing Borrowers that, so long as - ---- any of the Obligations hereunder remain unsatisfied, the Obligations of such Person composing Borrowers under this Section 2.14 shall not be discharged ------------ except by performance and then only to the extent of such performance. The Obligations of each Person composing Borrowers under this Section 2.14 shall not ------------ be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Person composing Borrowers or any Agent or Lender. The joint and several liability of the Persons composing Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, constitution or place of formation of any of the Persons composing Borrowers or any Agent or Lender. (f) Each Person composing Borrowers represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Person composing Borrowers further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Person composing Borrowers hereby covenants that such Borrower will continue to keep informed of Borrowers' financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations. (g) The provisions of this Section 2.14 are made for the benefit ------------ of the Agent, the Lenders and their respective successors and assigns, and may be enforced by it or -49- them from time to time against any or all of the Persons composing Borrowers as often as occasion therefor may arise and without requirement on the part of any such Agent, Lender, successor or assign first to marshal any of its or their claims or to exercise any of its or their rights against any of the other Persons composing Borrowers or to exhaust any remedies available to it or them against any of the other Persons composing Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.14 shall remain in ------------ effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by any Agent or Lender upon the insolvency, bankruptcy or reorganization of any of the Persons composing Borrowers, or otherwise, the provisions of this Section 2.14 will forthwith be reinstated in effect, as ------------ though such payment had not been made. (h) Each of the Persons composing Borrowers hereby agrees that it will not enforce any of its rights of contribution or subrogation against the other Persons composing Borrowers with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to the Agent or the Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor. (i) Each of the Persons composing Borrowers hereby agrees that, after the occurrence and during the continuance of any Default or Event of Default, the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for the Agent, and the Agent shall deliver any such amounts to the Administrative Agent for application to the Obligations in accordance with Section 2.3(b). -------------- 3. CONDITIONS; TERM OF AGREEMENT. 3.1 Conditions Precedent to the Closing Date and the Initial Extension ------------------------------------------------------------------ of Credit. The obligation of the Lender Group (or any member thereof) to make - --------- the initial Advance (or otherwise to make an initial extension of credit provided for hereunder), is subject -50- to the fulfillment, to the satisfaction of Agent, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before March 31, 2002; (b) Agent shall have received the UCC Filing Authorization Letter duly executed by each Borrower and Guarantor and Agent shall have received satisfactory evidence of the filing of all financing statements on Form UCC-1 in such office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the security interests purported to be created by each applicable Loan Document; (c) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect: (i) the Control Agreement with respect to the Initial Advance Account; (ii) the Disbursement Letter, (iii) the Due Diligence Letter, (iv) the Fee Letter, (v) the Guaranty, (vi) the Officers' Certificate, (vii) the Pledge Agreement, together with (i) all certificates representing the shares of Stock pledged thereunder (other than Stock referenced in Section 3.2(d)), as well as Stock powers with -------------- respect thereto endorsed in blank, and (ii) all promissory notes pledged thereunder, as well as allonges thereto or other appropriate transfer certificates endorsed in blank, (viii) the Trademark Security Agreement, (ix) the Intercompany Subordination Agreement, (x) the Contribution Agreement, and (xi) the Guarantor Security Agreement; (d) Agent shall have received a certificate from the Secretary of each Borrower attesting to the resolutions of such Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which such Borrower is a party and authorizing specific officers of such Borrower to execute the same; (e) Agent shall have received copies of each Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the -51- Secretary of such Borrower and, as of a recent date not more than 30 days prior to the Closing Date, by an appropriate official of the state of organization of such Borrower; (f) Agent shall have received a certificate of status with respect to each Borrower, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Borrower, which certificate shall indicate that such Borrower is in good standing in such jurisdiction; (g) Agent shall have received certificates of status with respect to each Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Borrower is in good standing in such jurisdictions; (h) Agent shall have received a certificate from the Secretary of each Guarantor attesting to the resolutions of such Guarantor's Board of Directors authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same; (i) Agent shall have received copies of each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor and, as of a recent date not more than 30 days prior to the Closing Date, by an appropriate official of the state of organization of such Guarantor; (j) Agent shall have received a certificate of status with respect to each Guarantor, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that such Guarantor is in good standing in such jurisdiction; (k) Agent shall have received certificates of status with respect to each Guarantor, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Guarantor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Guarantor is in good standing in such jurisdictions; (l) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.7, the form ----------- and substance of which shall be reasonably satisfactory to Agent; (m) Agent shall have received opinions of Borrowers' counsel in form and substance satisfactory to Agent; (n) Agent shall have received satisfactory evidence (including a certificate of the chief financial officer of Parent) that all tax returns required to be filed by Borrowers have been timely filed and all taxes upon Borrowers or their properties, assets, -52- income, and franchises (including Real Property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (o) Agent shall have received a certificate from the chief financial officer of each Borrower certifying as to the truth and accuracy of the representations and warranties of Borrowers contained in Article 5 and as to the absence of any Defaults or Events of Default; (p) Borrowers shall have the Required Availability after giving effect to the initial extensions of credit hereunder and the payment of all fees and expenses required to be paid by Borrowers on the Closing Date under this Agreement and the other Loan Documents and Borrowers' trade payables shall be at a level and aged consistent with Borrowers' historical practices; (q) Agent shall have received Borrowers' Closing Date Business Plan; (r) Borrowers shall pay all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement; (s) Agent shall have received copies of each of the Material Contracts, together with a certificate of the Secretary of the applicable Borrower certifying each such document as being a true, correct, and complete copy thereof; (t) The outstanding standby letter of credit no. 3030258 issued by Bank of America, N.A. with an undrawn amount not to exceed $1,500,000 shall be cash collateralized in accordance with the terms of the Pay-Off Letter; (u) Borrowers shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrowers of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; and (v) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance reasonably satisfactory to Agent. 3.2 Conditions Subsequent to the Closing Date. The obligation of the ----------------------------------------- Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrowers to so perform or cause to be performed constituting an Event of Default): (a) within 30 days of the Closing Date, deliver to Agent certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.7, the form and substance of which shall ----------- be satisfactory to Agent and its counsel; (b) upon the earlier to occur of (i) 30 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial -53- Advance made on the Closing Date) is made, the delivery to Agent of an updated Schedule 5.6(c), which shall include all information required by Section 5.6(c) - --------------- -------------- with respect to all Foreign Subsidiaries and an updated Schedule II to the Pledge Agreement, which shall include all information required by the Pledge Agreement with respect to the Foreign Subsidiaries; (c) upon the earlier to occur of (i) 60 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the delivery to Agent of fully-executed Cash Management Agreements and Control Agreements; (d) upon the earlier to occur of (i) 30 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the delivery to Agent of certificates representing 66-2/3% of the outstanding shares of Stock of Sliver Blue, Ventiv Health Germany GmbH and Ventiv Holding UK, together with Stock powers (or other appropriate share transfer forms) with respect thereto, undated and endorsed in blank; (e) upon the earlier to occur of (i) 30 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the delivery to Agent of Collateral Access Agreements with respect to the following locations: 1114 Avenue of the Americas, New York, New York and 200 Cottontail Lane, Vantage Court North, Somerset, New Jersey; (f) upon the earlier to occur of (i) 30 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the delivery to Agent of Uniform Commercial Code, tax and judgment lien searches for Snyder HCP Acquisition, Inc., the results of which are reasonably satisfactory to Agent; (g) upon the earlier to occur of (i) 60 days after the Closing Date and (ii) the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the delivery to the Agent of evidence reasonably satisfactory to Agent that U.S. Sales is qualified to do business in each states in which it is located and each state in which the Account Debtor with respect to any of its Accounts is located; (h) upon the earlier to occur of (i) Friday, April 5, 2002 and (ii) the date the Initial Advance is made, the delivery to Agent of the Pay-Off Letter and each item set forth on Schedule 3.2(h); --------------- (i) on or before the date upon which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, the completion by Agent of its take-over audit, the results of which shall be satisfactory to Agent; and (j) on the date on which the first Advance or other extension of credit (other than the Initial Advance made on the Closing Date) is made, Borrowers shall have the -54- Required Availability after giving effect to the Initial Advance and the extensions of credit to be made on such date. 3.3 Conditions Precedent to all Extensions of Credit. The obligation ------------------------------------------------ of the Lender Group (or any member thereof) to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, Agent, any Lender, or any of their Affiliates; (d) no Material Adverse Change shall have occurred; and (e) if pursuant to Section 7.19(a)(i) or 7.19(a)(ii) EBITDA and ------------------ ----------- U.S. EBIT have not been required to be tested for the immediately preceding month or quarter, as applicable, EBITDA and U.S. EBIT shall be in compliance with the minimum amounts set forth in such Sections for the immediately preceding month or quarter, as applicable. 3.4 Term. This Agreement shall become effective upon the execution and ---- delivery hereof by Borrowers, Agent, and the Lenders and shall continue in full force and effect for a term ending on March 31, 2005 (the "Maturity Date"). The ------------- foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 Effect of Termination. On the date of termination of this --------------------- Agreement, all Obligations (other than contingent reimbursement obligations of Borrowers with respect to any outstanding L/C or Underlying Letters of Credit, provided that the Borrowers have provided cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, and other than Bank Products Obligations, provided that the Borrowers have provided cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to such Bank Products Obligations) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrowers of their duties, Obligations, or covenants hereunder and the Agent's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit under the Loan -55- Documents have been terminated irrevocably, Agent will, at Borrowers' sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent's Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations. 3.6 Early Termination by Borrowers. Borrowers have the option, at any ------------------------------ time upon 90 days prior written notice by Administrative Borrower to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium (to be allocated based upon letter agreements between Agent and individual Lenders). If Administrative Borrower has sent a notice of termination pursuant to the provisions of this Section, then the Commitments shall terminate and Borrowers shall be obligated to repay the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, reorganization or compromise of the Obligations by the confirmation of a plan of reorganization, or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrowers shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon letter agreements between Agent and individual Lenders), measured as of the date of such termination. Notwithstanding anything to the contrary contained herein, Borrowers shall not be obligated to pay any Applicable Prepayment Premium if this Agreement is terminated as a direct result of a refinancing by Wells Fargo or any of its Affiliates. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Each Borrower hereby grants to Agent, -------------------------- for the benefit of the Lender Group, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrowers of -56- each of their covenants and duties under the Loan Documents. The Agent's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Agent or Borrowers. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrowers have no authority, express or implied, to dispose of any item or portion of the Collateral. 4.2 Negotiable Collateral. In the event that any Collateral, including --------------------- proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Agent's security interest is dependent on or enhanced by possession, the applicable Borrower, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent. 4.3 Collection of Accounts, General Intangibles, and Negotiable ----------------------------------------------------------- Collateral. At any time after the occurrence and during the continuation of an - ---------- Event of Default, Agent or Agent's designee may (a) notify Account Debtors of Borrowers that the Accounts, chattel paper, or General Intangibles have been assigned to Agent or that Agent has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Each Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that it receives and immediately will deliver said Collections to Agent or a Cash Management Bank in their original form as received by the applicable Borrower. 4.4 Filing of Financing Statements; Commercial Tort Claims; Delivery of Additional Documentation Required. (a) Each Borrower authorizes Agent to file any financing statement required hereunder, and any continuation statement or amendment with respect thereto, in any appropriate filing office without the signature of such Borrower where permitted by applicable law. Each Borrower hereby ratifies the filing of any financing statement, and any continuation statement or amendment with respect thereto, filed without the signature of such Borrower prior to the date hereof. (b) If any Borrower acquires any commercial tort claims after the date hereof, such Borrower shall promptly (but in any event within 3 Business Days after such acquisition) deliver to Agent a written description of such commercial tort claim and shall deliver a written agreement, in form and substance reasonably satisfactory to Agent, pursuant to which such Borrower shall pledge and collaterally assign all of its right, title and interest in and to such commercial tort claim to Agent, for the benefit of the Lender Group, as security for the Obligations (a "Commercial Tort Claim Assignment"). -------------------------------- (c) At any time upon the request of Agent, Borrowers shall execute and deliver to Agent, and cause its Subsidiaries to execute and deliver to Agent, any and all financing statements, original financing statements in lieu of continuation statements, amendments to financing statements, fixture filings, security agreements, pledges, assignments, Commercial Tort Claim Assignments, endorsements of certificates of title, and all other documents (collectively, the "Additional Documents") that Agent may request in its -------------------- Permitted Discretion, in form and substance reasonably satisfactory to Agent, to perfect and continue -57- perfected or better perfect the Agent's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Agent in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, each Borrower authorizes Agent to execute any such Additional Documents in the applicable Borrower's name and authorize Agent to file such executed Additional Documents in any appropriate filing office. To the maximum extent permitted by applicable law, each Borrower authorizes the filing of any such Additional Documents without the signature of such Borrower in any appropriate filing office. In addition, on such periodic basis as Agent shall reasonably require, Borrowers shall (i) provide Agent with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Borrowers during the prior period, (ii) cause all patents, copyrights, and trademarks acquired or generated by Borrowers that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrowers' ownership thereof, (iii) cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder, and (iv) comply with all applicable provisions of the Patent Security Agreement, Copyright Security Agreement and Trademark Security Agreement relating to the foregoing. 4.5 Power of Attorney. Each Borrower hereby irrevocably makes, ----------------- constitutes, and appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as such Borrower's true and lawful attorney, with power to (a) if such Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of such Borrower on ----------- any of the documents described in Section 4.4, (b) at any time that an Event of ----------- Default has occurred and is continuing, sign such Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse such Borrower's name on any Collection item that may come into the Lender Group's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as each Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group's obligations to extend credit hereunder are terminated. 4.6 Right to Inspect. Agent and each Lender (through any of their ---------------- respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify Borrowers' financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. -58- 4.7 Control Agreements. Each Borrower agrees that it will not transfer ------------------ assets out of any Securities Accounts other than as permitted under Section 7.18 ------------ and, if to another securities intermediary, unless each of the applicable Borrower, Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Borrowers without the prior written consent of Agent. Upon the occurrence and during the continuance of a Default or Event of Default, Agent may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent's Account. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 No Encumbrances. Each Borrower has good and indefeasible title to --------------- its Collateral and the Real Property, free and clear of Liens except for Permitted Liens. 5.2 Eligible Accounts. The Eligible Billed Accounts and Eligible ----------------- Unbilled Accounts are bona fide existing payment obligations of Account Debtors created by the rendition of services to such Account Debtors in the ordinary course of Borrowers' business, owed to Borrowers without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Account that is identified by Administrative Borrower as an Eligible Billed Account or a proposed Eligible Unbilled Account in a borrowing base report submitted to Agent, such Account is not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Billed Accounts (other than, in the case of an Eligible Unbilled Account, the requirement that the applicable Account Debtor be billed for the services giving rise to such Account). 5.3 Equipment. All of the Equipment is used or held for use in --------- Borrowers' business and is fit for such purposes. 5.4 Location of Equipment. The Equipment is not stored with a bailee, --------------------- warehouseman, or similar party and is located only at the locations identified on Schedule 5.4, as the same may have been amended in accordance with Section ------------ -------- 6.8. - --- 5.5 State of Incorporation; Location of Chief Executive Office; FEIN; ---------------------------------------------------------------- Organizational ID Number; Commercial Tort Claims. - ------------------------------------------------- (a) The state of incorporation of each Borrower is set forth in Schedule 5.5(a). - --------------- -59- (b) As of the date hereof, the chief executive office of each Borrower is located at the address indicated in Schedule 5.5(b). -------------- (c) Each Borrower's FEIN and organizational identification number, if any, are identified in Schedule 5.5(c). --------------- (d) None of the Borrowers holds any commercial tort claims as of the date hereof, except as set forth in Schedule 5.5(d). --------------- 5.6 Due Organization and Qualification; Subsidiaries. ------------------------------------------------ (a) Each Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) [Intentionally Omitted.] (c) As of the date hereof, set forth on Schedule 5.6(c), is a -------------- complete and accurate list of Parent's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization; (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Parent. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. (d) Except as set forth on Schedule 5.6(c), there are no --------------- subscriptions, options, warrants, or calls relating to any shares of Parent's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Neither Parent nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of Parent's Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock. 5.7 Due Authorization; No Conflict. ------------------------------ (a) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Borrower. (b) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Borrower, the Governing Documents of any Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on any Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of any Borrower's interestholders or any approval or consent of any Person under any Material Contract of any Borrower. -60- (c) Other than the filing of financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by each Borrower of this Agreement and the Loan Documents to which such Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) As to each Borrower, this Agreement and the other Loan Documents to which such Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Agent's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens (f) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of Guarantor. (g) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Guarantor, the Governing Documents of any Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on any Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Guarantor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of any Guarantor, other than Permitted Liens, or (iv) require any approval of any Guarantor's interestholders or any approval or consent of any Person under any Material Contract of any Guarantor. (h) The execution, delivery, and performance by each Guarantor of the Loan Documents to which such Guarantor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (i) The Loan Documents to which each Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. 5.8 Litigation. Other than those matters disclosed on Schedule 5.8, ---------- there are no actions, suits, or proceedings pending or, to the knowledge of Borrowers, threatened against Borrowers, or any of their Subsidiaries, as applicable, except for (a) matters that are fully -61- covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Borrowers, or any of their Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 5.9 No Material Adverse Change. All financial statements relating to -------------------------- Borrowers or Guarantors that have been delivered by Borrowers or Guarantors to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrowers' (or Guarantors', as applicable) financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change) since the date of the latest financial statements submitted to the Lender Group on or before the Closing Date. 5.10 Fraudulent Transfer. ------------------- (a) each Borrower and each Guarantor is Solvent. (b) No transfer of property is being made by any Borrower and no obligation is being incurred by any Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrowers. 5.11 Employee Benefits. None of Borrowers, any of their Subsidiaries, ----------------- or any of their ERISA Affiliates maintains or contributes to any Benefit Plan. 5.12 Environmental Condition. Except as set forth on Schedule 5.12, ----------------------- ------------- (a) to Borrowers' knowledge, none of Borrowers' properties or assets has ever been used by Borrowers or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Borrowers' knowledge, none of Borrowers' properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) none of Borrowers have received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrowers, and (d) none of Borrowers have received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by any Borrower resulting in the releasing or disposing of Hazardous Materials into the environment. 5.13 Brokerage Fees. Borrowers have not utilized the services of any -------------- broker or finder in connection with Borrowers' obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by Borrowers in connection herewith. 5.14 Intellectual Property. Each Borrower owns, or holds valid --------------------- licenses in, all Intellectual Property that is necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.14 is a true, ------------- correct, and complete listing as of the date hereof of -62- all Registered or otherwise material patents, trademarks and copyrights as to which each Borrower is the owner or is an exclusive licensee. 5.15 Leases. Borrowers enjoy peaceful and undisturbed possession under ------ all leases material to the business of Borrowers and to which Borrowers are a party or under which Borrowers are operating. All of such leases are valid and subsisting and no material default by Borrowers exists under any of them. 5.16 DDAs. Set forth on Schedule 5.16 are all of the DDAs as of the ---- ------------- date hereof of each Borrower, including, with respect to each depository (i) the name and address of that depository, and (ii) the account numbers of the accounts maintained with such depository. 5.17 Complete Disclosure. All factual information (taken as a whole) ------------------- furnished by or on behalf of Borrowers in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrowers in writing to the Agent or any Lender 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 fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Projections represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent Borrowers' good faith best estimate of its future performance for the periods covered thereby, based on the assumptions stated therein. 5.18 Indebtedness. Set forth on Schedule 5.18 is a true and complete ------------ ------------- list of all Indebtedness of each Borrower outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof. 5.19 Regulation U. No Borrower is or will be engaged in the business ------------- of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.20 Permits, Etc. Each Borrower has, and is in compliance with, all ------------ permits, licenses, authorizations, approvals, entitlements and accreditations required for such Person lawfully to own, lease, manage or operate, or to acquire, the business currently owned, leased, managed or operated, or to be acquired, by such Person except for such permits, licenses, authorizations, approvals, entitlements and accreditations the absence of which could not reasonably be expected to result in a Material Adverse Change. To each Borrower's knowledge, no condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such permit, license, authorization, approval, entitlement or accreditation, and there is no claim that any thereof is not in full force and effect. -63- 5.21 Material Contracts. Set forth on Schedule 5.21 is a complete and ------------------ ------------- accurate list as of the date hereof of all Material Contracts of each Borrower and each Subsidiary of Borrowers, showing the parties and amendments and modifications thereto. Each such Material Contract (i) is in full force and effect and is binding upon and enforceable against each Borrower or Subsidiary that is party thereto and, to the best of such Borrowers' knowledge after diligent inquiry, all other parties thereto in accordance with its terms except to the extent terminated in accordance with its terms after the date hereof and except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally, (ii) has not been otherwise amended or modified, and (iii) is not in default due to the action of any Borrower or Subsidiary that is party thereto or, to Borrowers' knowledge, any other party thereto. 5.22 Customers. Except as set forth on Schedule 5.22, there exists no --------- ------------- actual or, to Borrowers' knowledge, threatened termination, cancellation or limitation of, or modification to or change in, the business relationship between any Borrower, on the one hand, and any municipality, customer or any group thereof, on the other hand, which termination, cancellation, limitation, modification or change could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. 5.23 Properties. (a) Each Borrower has good and marketable title to, ---------- or valid leasehold interests in, all property and assets material to its business, free and clear of all Liens except Permitted Liens. The properties are in good working order and condition, ordinary wear and tear excepted. (b) Schedule 5.23 sets forth a complete and accurate list as of the ------------- Closing Date of the location, by state and street address, of all real property owned or leased by each Borrower. 5.24 Employee and Labor Matters. Except as set forth on Schedule 5.24, -------------------------- ------------- there is (a) to the knowledge of Borrowers, no unfair labor practice complaint pending or, to Borrowers' knowledge, threatened against any Borrower or any of its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding pending or threatened against any Borrower or any of its Subsidiaries which arises out of or under any collective bargaining agreement, (b) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or, to the knowledge of Borrowers, threatened against any Borrower or any of its Subsidiaries and (c) to the knowledge of Borrowers, no union representation question existing with respect to the employees of any Borrower or any of its Subsidiaries and no union organizing activity taking place with respect to any of the employees of any of them. Neither any Borrower nor any ERISA Affiliate of any Borrower has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act ("WARN") or similar state law, which remains unpaid or unsatisfied. The hours worked and payments made to employees of each Borrower or their Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements. All material payments due from any Borrower and its Subsidiaries on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of such Borrower or such Subsidiaries. -64- 5.25 Certain Subsidiaries. Neither MMD, Inc. nor Clinical -------------------- Communications UK Ltd. (i) conducts any business, (ii) owns any material assets, or (iii) except as set forth on Schedule 5.25, has any Indebtedness. Except as ------------- set forth on Schedule 5.25, there are no Liens on the assets or property of MMD, ------------- Inc. or Clinical Communications UK Ltd. and they are not a party to any agreement or contract. 5.26 HPR UK Ltd. HPR UK Ltd. does not (i) except as set forth on ---------- Schedule 5.26, conduct any business, (ii) own any assets with a value greater - ------------- than $100,000, or (iii) have any Indebtedness. There are no Liens on the assets or property of HPR UK Ltd. and, except as set forth on Schedule 5.26, it is not ------------- a party to any agreement or contract. 5.27 Obligations to Snyder. Except as disclosed to the Agent in --------------------- writing on or prior to the Closing Date, neither the Parent nor any of its Subsidiaries has incurred, or is reasonably likely to incur, any obligation for the payment of money in excess of $100,000 under the Tax Sharing Agreement and/or the Distribution Agreement. 6. AFFIRMATIVE COVENANTS. Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrowers shall and shall cause each of their respective Subsidiaries, as applicable, to do all of the following: 6.1 Accounting System. Maintain a system of accounting that enables ----------------- Borrowers to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. 6.2 Collateral Reporting. (i) Prior to the date of the first Advance -------------------- or extension of credit hereunder (other than the Initial Advance), provide Agent (and, if so requested by Agent, with copies for each Lender) monthly (not later than the 20th day of each month) with a summary aging, by total, of the Accounts, in form satisfactory to Agent, and (ii) after the making of the first Advance or other extension of credit hereunder (other than the Initial Advance), provide Agent (and, if so requested by Agent, with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: - -------------------------------------------------------------------------------- Daily (a) [Reserved] - -------------------------------------------------------------------------------- Weekly (b) a sales journal, collection journal, and credit register since the last such schedule and a calculation of the Borrowing Base as of such date, and (c) notice of all disputes or claims. ------------------------------------------------------------------------------- -65- - -------------------------------------------------------------------------------- Monthly (not (d) a detailed calculation of the Borrowing Base (including later than the detail regarding those Accounts that are not Eligible 20th day of each Billed Accounts or Eligible Unbilled Accounts), month) (e) a detailed aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent, (f) a summary aging, by vendor, of Borrowers' accounts payable and any book overdraft, (g) a calculation of Dilution for the prior month, and (h) a summary report of all customer contracts that constitute Material Contracts. - -------------------------------------------------------------------------------- Quarterly (i) a detailed list of each Borrower's customers, (j) a report regarding each Borrower's accrued, but unpaid, ad valorem taxes, and (k) evidence reasonably satisfactory to Agent establishing the payment of any payroll taxes required to be paid by Borrowers and Guarantors. - -------------------------------------------------------------------------------- Upon request by (l) copies of invoices in connection with the Accounts, Agent credit memos, remittance advices and deposit slips, in connection with the Accounts and, for Equipment, and (m) such other reports as to the Collateral, or the financial condition of Borrowers as Agent may reasonably request. - -------------------------------------------------------------------------------- In addition, each Borrower agrees to cooperate fully with Agent to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 Financial Statements, Reports, Certificates. Deliver to Agent, ------------------------------------------- with copies to each Lender: (a) as soon as available, but in any event within 30 days (45 days in the case of a month that is the end of one of the first 3 fiscal quarters in a fiscal year) after the end of each month during each of Parent's fiscal years, (i) a company prepared consolidated balance sheet and income statement covering Parent's and its Subsidiaries' operations during such period, -66- (ii) a certificate signed by the chief financial officer of Parent to the effect that: A. the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Parent and its Subsidiaries, B. the representations and warranties of Borrowers contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and C. there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrowers have taken, are taking, or propose to take with respect thereto), and (iii) for each month that is the date on which a financial covenant in Section 7.19 is to be tested, a Compliance Certificate ------------ demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.19, ------------ (b) as soon as available, but in any event within 45 days (or 90 days in the case of the fourth fiscal quarter in a fiscal year) after the end of each fiscal quarter during each of Parent's fiscal years, a company prepared statement of cash flow covering Parent's and its Subsidiaries' operations during such period, (c) as soon as available, but in any event within 90 days after the end of each of Parent's fiscal years, (i) financial statements of Parent and its Subsidiaries for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), (ii) a certificate of such accountants addressed to Agent and the Lenders stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.19, ------------ -67- (d) as soon as available, but in any event within 30 days prior to the start of each of Parent's fiscal years, (i) copies of Borrowers' Projections, in the form delivered to Agent on or before the Closing Date and in substance (including as to scope and underlying assumptions) satisfactory to Agent, in its sole discretion, for the forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by month, certified by the chief financial officer of Parent as being such officer's good faith best estimate of the financial performance of Parent and its Subsidiaries during the period covered thereby, (e) if and when filed by any Borrower, (i) 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other filings made by any Borrower with the SEC, and (iii) any other information that is provided by Parent to its shareholders generally, (f) if and when filed by any Borrower and as requested by Agent, reasonably satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (i) any Borrower conducts business or is required to pay any such excise tax, (ii) where any Borrower's failure to pay any such applicable excise tax would result in a Lien on the properties or assets of any Borrower, or (iii) where any Borrower's failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change, (g) upon the request of Agent, copies of Borrowers' federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, (h) within 5 Business Days of receipt thereof, copies of any notices delivered to Parent or any of its Subsidiaries indicating any liability or potential liability under the Tax Sharing Agreement or the Distribution Agreement, (i) as soon as a Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrowers propose to take with respect thereto, (j) as soon as available but in any event within 10 days of the date of (i) any change in the information contained in Schedules 5.6(c), 5.14 and 5.16 to this Agreement or (ii) any facts or circumstances that would require a change in Schedules 5.6(c), 5.14 and 5.16 to this Agreement if such facts or circumstances had occurred on or before the date of this Agreement, notice of such change in information, facts or circumstances, and (k) upon the request of Agent, any other report reasonably requested relating to the financial condition of Borrowers. -68- In addition to the financial statements referred to above, Borrowers agree to deliver financial statements prepared on both a consolidated and consolidating basis and that no Borrower, or any Subsidiary of a Borrower, will have a fiscal year different from that of Parent. Borrowers agree that their independent certified public accountants are authorized to communicate with Agent and to release to Agent whatever financial information concerning Borrowers that Agent reasonably may request. Each Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Agent pursuant to or in accordance with this Agreement, and agree that Agent may contact directly any such accounting firm or service bureau in order to obtain such information. 6.4 Guarantor Reports. Cause each Guarantor to deliver its annual ----------------- financial statements at the time when Parent provides its audited financial statements to Agent and, to the extent requested by the Agent, copies of all federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law. 6.5 Maintenance of Properties. Maintain and preserve all of its ------------------------- properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases necessary or useful in the proper conduct of its business to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder. 6.6 Taxes. Cause all assessments and taxes, whether real, personal, or ----- otherwise, due or payable by, or imposed, levied, or assessed against Borrowers or any of their assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrowers will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof reasonably satisfactory to Agent indicating that the applicable Borrower has made such payments or deposits. Borrowers shall deliver reasonably satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which any Borrower is required to pay any such excise tax. 6.7 Insurance. --------- (a) At Borrowers' expense, maintain insurance respecting its property and assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrowers also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Borrowers shall deliver copies of all such policies to Agent with a satisfactory lender's loss payable endorsement naming Agent as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever. -69- (b) Administrative Borrower shall give Agent prompt notice of any loss covered by such insurance. Agent shall have the exclusive right to adjust any losses payable under any such insurance policies in excess of (i) $500,000 absent an Event of Default or (ii) $50,000 after the occurrence and during the continuance of an Event of Default, in each case, without any liability to Borrowers whatsoever in respect of such adjustments. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Agent to be applied at the option of the Required Lenders either to the prepayment of the Obligations or shall be disbursed to Administrative Borrower under staged payment terms reasonably satisfactory to the Required Lenders for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction. (c) Borrowers shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.7, unless Agent is included thereon as named insured with the loss payable to Agent under a lender's loss payable endorsement or its equivalent. Administrative Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Agent. 6.8 Location of Equipment. Keep the Equipment only at the locations --------------------- identified on Schedule 5.4; provided, however, that Administrative Borrower may ------------ -------- ------- amend Schedule 5.4 so long as such amendment occurs by written notice to Agent ------------ not less than 30 days prior to the date on which the Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written notification, the applicable Borrower provides any financing statements necessary to perfect and continue perfected the Agent's Liens on such assets and, if required by Agent, also provides to Agent a Collateral Access Agreement. 6.9 Compliance with Laws. Comply with the requirements of all -------------------- applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 6.10 Leases. Pay when due all rents and other amounts payable under ------ any leases to which any Borrower is a party or by which any Borrower's properties and assets are bound, unless such payments are (i) the subject of a Permitted Protest or (ii) in an aggregate amount of not more than $100,000 in any calendar year. 6.11 Brokerage Commissions. Pay any and all brokerage commission or --------------------- finders fees incurred in connection with or as a result of Borrowers' obtaining financing from the Lender Group under this Agreement. Borrowers agree and acknowledge that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Borrowers, and each Borrower agrees to indemnify, defend, and hold Agent and the Lender Group harmless -70- from and against any claim of any broker or finder arising out of actions by Borrowers and their Subsidiaries in connection with Borrowers' obtaining financing from the Lender Group under this Agreement. 6.12 Existence. At all times preserve and keep in full force and --------- effect each Borrower's valid existence and good standing and any rights and franchises material to Borrowers' businesses. 6.13 Environmental. ------------- (a) Keep any property either owned or operated by any Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material of any reportable quantity from or onto property owned or operated by any Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of any Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Borrower, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change. 6.14 Commercial Tort Claims; Organizational ID Number. Promptly, but ------------------------------------------------ in any event with 3 Business Days, upon obtaining any commercial tort claim, deliver an updated Schedule 5.5(d) and the other documents required under -------------- Section 4.4. Promptly, but in any event with 3 Business Days, upon obtaining an - ----------- organizational identification number (to the extent that any Borrower has not been issued such number on or prior to the Closing Date), notify Agent in writing and deliver an updated Schedule 5.5(c). -------------- 6.15 Other Disclosure Updates. Promptly and in no event later than 5 ------------------------ Business Days after obtaining knowledge thereof, (a) notify Agent if any written information, exhibit, or report furnished to the Lender Group contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof. 7. NEGATIVE COVENANTS. Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrowers will not and will not permit any of their respective Subsidiaries to do any of the following: -71- 7.1 Indebtedness. Create, incur, assume, permit, guarantee, or ------------ otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to the Issuing Lender with respect to L/C's and to Underlying Issuers with respect to Underlying Letters of Credit; (b) Indebtedness set forth on Schedule 5.18; ------------- (c) Permitted Purchase Money Indebtedness; (d) Bank Product Obligations; (e) Unsecured Indebtedness in respect of indemnities provided by Borrowers in connection with dispositions permitted under clause (d) of the definition of the term "Permitted Disposition", (f) Unsecured Indebtedness that is contractually subordinated to the Obligations pursuant to documentation in form and substance reasonably acceptable to Agent in an aggregate principal amount outstanding at any time not exceeding $20,000,000; (g) Unsecured Indebtedness not otherwise described in the preceding clauses (a) through (f) in an aggregate principal amount outstanding at any time not exceeding $2,500,000; (h) Refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or ----------- renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Agent's Permitted Discretion, materially impair the prospects of repayment of the Obligations by Borrowers or materially impair Borrowers' creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions, that, taken as a whole, are materially more burdensome or restrictive to the applicable Borrower, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must be include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness; (i) Indebtedness composing Permitted Investments; (j) Indebtedness secured by the Lien described in clause (n) of the definition of Permitted Liens; and (k) Capital Lease Obligations in connection with automobile leases to the extent permitted by Section 7.19(b)(ii). -72- 7.2 Liens. Create, incur, assume, or permit to exist, directly or ----- indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(h) and so long as the replacement Liens only encumber -------------- those assets that secured the refinanced, renewed, or extended Indebtedness). 7.3 Restrictions on Fundamental Changes. ----------------------------------- (a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock. (b) Other than a Permitted Dissolution, liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Other than Permitted Dispositions or Permitted Dissolutions, convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets. 7.4 Disposal of Assets. Other than Permitted Dispositions, convey, ------------------ sell, lease, license, assign, transfer, or otherwise dispose of any of the assets of any Borrower. 7.5 Change Name. Change any Borrower's name, FEIN, corporate structure ----------- or identity, or add any new fictitious name; provided, however, that a Borrower -------- ------- may change its name upon at least 30 days prior written notice by Administrative Borrower to Agent of such change and so long as, at the time of such written notification, such Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected Agent's Liens. 7.6 Guarantee. Guarantee or otherwise become in any way liable with --------- respect to the obligations of any third Person except (i) by endorsement of instruments or items of payment for deposit to the account of Borrowers or which are transmitted or turned over to Agent, (ii) guarantees of operating lease obligations of Foreign Subsidiaries organized in the United Kingdom, provided that, the aggregate amount of the operating lease obligations so guaranteed does not exceed $2,500,000 at any one time outstanding, (iii) guarantees of rental obligations in connection with the subleasing of real property by any of its Subsidiaries, provided that, the aggregate amount of such rental obligations so guaranteed does not exceed $5,000,000 at any one time outstanding, and (iv) guarantees of indemnity, purchase price adjustments and similar obligations relating to Permitted Dispositions. 7.7 Nature of Business. Make any change in the principal nature of ------------------ Borrowers' business. 7.8 Prepayments and Amendments. -------------------------- (a) Except in connection with a refinancing permitted by Section 7.1(h), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Borrower, other than the Obligations in accordance with this Agreement, -73- (b) Except in connection with a refinancing permitted by Section -------- 7.1(h), directly or indirectly, amend, modify, alter, increase, or change any of - ----- the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections -------- 7.1(b), (c), (f), or (g), except to the extent that any such amendment, - ----- --- --- --- modification, alteration or change (i) would not be adverse to the rights or interests of Agent or any Lender, (ii) would not impair any Borrower's ability to conduct any aspect of its business or perform or satisfy any representation, warranty or covenant contained in this Agreement or any other Loan Document, or (iii) would not adversely affect the financial condition of any Borrower or any Guarantor, and (c) (i) Amend, modify or otherwise change its Governing Documents, including, without limitation, by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it with respect to any of its Stock (including any shareholders' agreement), or enter into any new agreement with respect to any of its Stock, or (ii) amend, modify or otherwise change any Material Contract, except any such amendments, modifications or changes or any such new agreements or arrangements pursuant to this paragraph (c) that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Change. 7.9 Change of Control. Cause, permit, or suffer, directly or ----------------- indirectly, any Change of Control. 7.10 Distributions. Other than distributions or declaration and ------------- payment of dividends by a Borrower or Guarantor to another Borrower or Guarantor that owns 100% of the equity interests of such Borrower or Guarantor, or from a Foreign Subsidiary to another Foreign Subsidiary or a Guarantor make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any of any Borrower's or Guarantor's Stock, of any class, whether now or hereafter outstanding; provided that Imedex may make distributions or declare and pay -------- dividends directly or indirectly to HPR. 7.11 Accounting Methods. Modify or change its method of accounting ------------------ (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrowers' accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding the Collateral or Borrowers' financial condition. 7.12 Investments. Except for Permitted Investments and equity ----------- investments in Cellegy and VIS to the extent permitted by Section 7.19(b)(iii) -------------------- and 7.19(b)(iv), directly or indirectly, make or acquire any Investment, or ----------- incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Administrative Borrower and its -------- ------- Subsidiaries shall not have Permitted Investments (other than in the Cash Management Accounts) in deposit accounts or Securities Accounts in excess of $250,000 outstanding at any one time unless the Administrative Borrower or any of its Subsidiaries, as applicable, and the applicable securities intermediary or bank have entered into Control Agreements or similar arrangements governing such Permitted Investments, as Agent shall -74- determine in its Permitted Discretion, to perfect (and further establish) the Agent's Liens in such Permitted Investments. 7.13 Transactions with Affiliates. Directly or indirectly enter into ---------------------------- or permit to exist any transaction with any Affiliate of any Borrower except for (i) transactions that are in the ordinary course of Borrowers' business, upon fair and reasonable terms, that are fully disclosed to Agent, and that are no less favorable to Borrowers than would be obtained in an arm's length transaction with a non-Affiliate, (ii) Permitted Investments and (iii) transactions between Borrowers or between Borrowers and Guarantors to the extent otherwise permitted by the terms of this Agreement. 7.14 Suspension. Other than a Permitted Disposition or a Permitted ---------- Dissolution, suspend or go out of a substantial portion of its business. 7.15 [Intentionally Omitted]. ----------------------- 7.16 Use of Proceeds. Use the proceeds of the Advances for any purpose --------------- other than (a) on the Closing Date, to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes, including, without limitation, for the general working capital purposes of Borrowers, which shall include joint ventures, new product launches and capital expenditures. 7.17 Change in Location of Chief Executive Office; Equipment with ------------------------------------------------------------ Bailees. Relocate its chief executive office to a new location without - ------- Administrative Borrower providing 30 days prior written notification thereof to Agent and so long as, at the time of such written notification, the applicable Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens and, if required by Agent, also provides to Agent a Collateral Access Agreement with respect to such new location. The Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Agent's prior written consent. 7.18 Securities Accounts. Establish or maintain any Securities Account ------------------- unless Agent shall have received a Control Agreement in respect of such Securities Account. Borrowers agree to not transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred -------- ------- and is continuing or would result therefrom, Borrowers may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement. 7.19 Financial Covenants. ------------------- (a) Fail to maintain: (i) Minimum EBITDA. (A) EBITDA, measured on a month-end basis for the cumulative period from January 1, 2002 through the end of each month set forth below and thereafter on a rolling twelve month basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto: -75- --------------------------------------------------------------------------- Applicable Amount Applicable Period --------------------------------------------------------------------------- $338,000 1 month ending January 31, 2002 --------------------------------------------------------------------------- $630,000 2 months ending February 28, 2002 --------------------------------------------------------------------------- $2,300,000 3 months ending March 31, 2002 --------------------------------------------------------------------------- $2,343,000 4 months ending April 30, 2002 --------------------------------------------------------------------------- $3,036,000 5 months ending May 31, 2002 --------------------------------------------------------------------------- $3,944,000 6 months ending June 30, 2002 --------------------------------------------------------------------------- $5,542,000 7 months ending July 31, 2002 --------------------------------------------------------------------------- $7,139,000 8 months ending August 31, 2002 --------------------------------------------------------------------------- $8,737,000 9 months ending September 30, 2002 --------------------------------------------------------------------------- $10,334,000 10 months ending October 31, 2002 --------------------------------------------------------------------------- $11,932,000 11 months ending November 30, 2002 --------------------------------------------------------------------------- $13,529,000 12 months ending December 31, 2002 --------------------------------------------------------------------------- , provided that, upon receipt of the Projections for the 2003 and 2004 calendar -------- years required to be delivered to Agent pursuant to Section 6.3(d), Parent and -------------- Agent shall negotiate in good faith to determine the minimum EBITDA for the 12 month period ending each calendar month in the 2003 and 2004 calendar years and, in the event Parent and Agent are unable to agree upon such amounts on or before January 15 of each such year, the minimum EBITDA for the 12 month period ending each calendar month in the 2003 and 2004 calendar years shall not be less than $13,529,000. (B) Notwithstanding the foregoing, (x) at all times during which the aggregate, the Excess Availability under the Billed Subline and Unrestricted Cash is greater than $20,000,000, EBITDA will be tested on a calendar quarter-end basis rather than a month-end basis and (y) if no Advances or Letters of Credit (which are not cash collateralized on terms and conditions reasonably satisfactory to Agent) are outstanding at the time EBITDA is required to be tested under this Section 7.19(a)(i) EBITDA will not be tested at such ------------------ time. (C) For purposes of calculating EBITDA for this Section ------- 7.19(a)(i) (x) EBITDA will be calculated without giving effect to expenses for - ---------- Borrowers' initial investments in Cellegy and VIS, each up to a maximum of $10,000,000, (y) to the extent that the $1,800,000 Reliant compensation adjustment accrual has not been reversed in March 2002, then the "Applicable Amount" for the 3 months ending March 31, 2002 and the 4 months ending April 30, 2002, each as set forth above, will be reduced by $1,800,000; provided that, the -------- "Applicable Amount" will then be increased by $1,800,000 upon the earlier to occur of (1) the month when the $1,800,000 Reliant compensation adjustment is reversed and (2) May 2002, and (z) to the extent that the $1,300,000 Bayer settlement is not completed in May 2002, then the -76- "Applicable Amount" for each Applicable Period set forth above that includes May 2002, will be reduced by $1,300,000 only until such time as the Bayer settlement is completed. (ii) Minimum U.S. EBIT. (A) U.S. EBIT, measured on a month-end basis for the cumulative period from January 1, 2002 through the end of each month set forth below and thereafter on a rolling twelve month basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto: --------------------------------------------------------------------------- Applicable Amount Applicable Period --------------------------------------------------------------------------- ($1,409,000) 1 month ending January 31, 2002 --------------------------------------------------------------------------- ($2,763,000) 2 months ending February 28, 2002 --------------------------------------------------------------------------- ($997,000) 3 months ending March 31, 2002 --------------------------------------------------------------------------- ($2,791,000) 4 months ending April 30, 2002 --------------------------------------------------------------------------- ($2,946,000) 5 months ending May 31, 2002 --------------------------------------------------------------------------- ($2,011,000) 6 months ending June 30, 2002 --------------------------------------------------------------------------- ($1,210,000) 7 months ending July 31, 2002 --------------------------------------------------------------------------- ($410,000) 8 months ending August 31, 2002 --------------------------------------------------------------------------- $391,000 9 months ending September 30, 2002 --------------------------------------------------------------------------- $1,192,000 10 months ending October 31, 2002 --------------------------------------------------------------------------- $1,992,000 11 months ending November 30, 2002 --------------------------------------------------------------------------- $2,793,000 12 months ending December 31, 2002 --------------------------------------------------------------------------- , provided that, upon receipt of the Projections for the 2003 and 2004 calendar -------- years required to be delivered to Agent pursuant to Section 6.3(d), Parent and -------------- Agent shall negotiate in good faith to determine the minimum U.S. EBIT for the 12 month period ending each calendar month in the 2003 and 2004 calendar years and, in the event Parent and Agent are unable to agree upon such amounts on or before January 15 of each such year, the minimum U.S. EBIT for the 12 month period ending each calendar month in the 2003 and 2004 calendar years shall not be less than $2,793,000. (B) Notwithstanding the foregoing (x) at all times during which the aggregate Excess Availability under the Billed Subline and Unrestricted Cash is greater than $20,000,000, U.S. EBIT will be tested on a calendar quarter-end basis rather than a month-end basis and (y) if no Advances or Letters of Credit (which are not cash collateralized on terms and conditions reasonably satisfactory to Agent) are outstanding at the time EBITDA is required to be tested under this Section 7.19(a)(ii), U.S. EBIT will not be tested at such ------------------- time. -77- (C) For purposes of calculating U.S. EBIT for this Section 7.19(a)(ii) (x) U.S. EBIT will be calculated without giving effect to expenses for Borrowers' initial investments in Cellegy and VIS, each up to a maximum of $10,000,000, (y) to the extent that the $1,800,000 Reliant compensation adjustment accrual has not been reversed in March 2002, then the "Applicable Amount" for the 3 months ending March 31, 2002 and the 4 months ending April 30, 2002, each set forth above, will be reduced by $1,800,000; provided that, the "Applicable Amount" will then be increased by $1,800,000 upon the earlier to occur of (1) the month when the $1,800,000 Reliant compensation adjustment is reversed and (2) May 2002, and (z) to the extent that the $1,300,000 Bayer settlement is not completed in May 2002, then the "Applicable Amount" for each Applicable Period set forth above that includes May 2002 will be reduced by $1,300,000, only until such time as the Bayer settlement is completed. (b) Make: (i) Capital Expenditures. Capital expenditures (other than (x) equity investments in Cellegy and VIS and (y) capital expenditures in respect of automobile leases) in calendar year 2002 in excess of $5,800,000; provided that, upon receipt of Projections for the 2003 and -------- 2004 calendar years required to be delivered to Agent pursuant to Section ------- 6.3(d), Parent and Agent shall negotiate in good faith to determine the ------ maximum capital expenditures for the 2003 and 2004 calendar years and, in the event that Parent and Agent are unable to agree upon such amounts on or before January 15 of each such year, the maximum capital expenditures for the 2003 and 2004 calendar years shall not exceed $7,500,000. (ii) Annual Lease Payments in respect of Automobile Leases. Lease payments in respect of automobile leases entered into by Borrowers and their Subsidiaries after the Closing Date in excess of $6,000,000 in any calendar year; provided that upon written request from the -------- Administrative Borrower to Agent, the maximum amount of lease payments permitted under this Section 7.19(b)(ii) in any calendar year may be ------------------- increased by the amount requested by Administrative Borrower; provided -------- further that on the date of such increase, the minimum EBITDA amounts set ------- forth in Section 7.19(a)(i) for each period set forth therein shall be ------------------ increased by an amount equal to 1.5 times the amount of the requested increase in such maximum annual lease payment amount. (iii) Equity Investments in Cellegy. Revolving equity investments in Cellegy at any one time outstanding in excess of $10,000,000, provided that, no such investments shall be made if, after -------- giving effect to such investment, aggregate Excess Availability under the Billed Subline and Unrestricted Cash would be less than $10,000,000. (iv) Equity Investments in VIS. Revolving equity investments in VIS at any one time outstanding in excess of $10,000,000, provided that, -------- no such investments shall be made (A) if after giving effect to such investment, aggregate Excess Availability under the Billed Subline and Unrestricted Cash would be less than $15,000,000 and (B) without the prior written approval of Agent which may be withheld in its sole discretion, provided further that, at any time that there are no Advances or -------- ------- -78- Letters of Credit outstanding (other than Letters of Credit that are cash collateralized on terms and conditions satisfactory to Agent), revolving equity investments in VIS may be made without the prior written approval of Agent in an amount not to exceed $7,500,000 outstanding at any one time, if after giving effect to such investments, aggregate Excess Availability under the Billed Subline and Unrestricted Cash would not be less than $22,500,000. Notwithstanding the foregoing, if equity investments in Cellegy are paid down to less than $10,000,000 by Cellegy contributions, then, with the prior written approval of Agent, and if there is aggregate Excess Availability under the Billed Subline and Unrestricted Cash of not less than $15,000,000 after giving effect to such investments, equity investments in VIS at any one time outstanding may be increased beyond $10,000,000 by an amount equal to the difference between (x) $10,000,000 and (y) the actual amount of outstanding equity investments in Cellegy. (v) Settlement Charges to Account Debtors. Payments of settlement charges to any Account Debtor under any contract in excess of the amounts set forth on Schedule 7.19(b)(v), without the prior written ------------------- approval of Agent, which approval will not be unreasonably withheld. 7.20 Certain Subsidiaries. Permit MMD, Inc. or Clinical Communications -------------------- UK Ltd. to (i) conduct any business, (ii) own any material assets, (iii) except as set forth on Schedule 5.25, incur any Indebtedness or grant or suffer to ------------- exist any Lien on its assets or property or (iv) enter into any agreement or contract. 7.21 HPR UK Ltd. Permit HPR UK Ltd. to (i) except as set forth on ---------- Schedule 5.26, conduct any business, (ii) own any assets with a value of greater - ------------- than $100,000, (iii) incur any Indebtedness or grant or suffer to exist any Lien on its assets or property, or (iv) enter into any agreement or contract that is not in effect on the Closing Date. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: ---------------- 8.1 If Borrowers fail to pay when due and payable or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations); 8.2 (i) If Borrowers fail to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.1, 6.4, ------------ --- 6.5, 6.11, 6.14, and 6.15 of this Agreement, or comparable provisions of the - --- ---- ---- ---- other Loan Documents, within 15 days of the date when required, (ii) if Borrowers fail to perform, keep, or observe any term, provision, condition, covenant or agreement contained in Sections 6.2 (but only up to three times ------------ during any 12-month period), 6.3, 6.8 and 6.10 of this Agreement, or comparable --- --- ---- provisions of the other Loan Documents, within 5 days of the date when required, or (iii) if a Borrower or Guarantor -79- otherwise fails to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement or in any of the other Loan Documents; 8.3 If any material portion of any Borrower's or any of its Subsidiaries' assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; 8.4 If an Insolvency Proceeding is commenced by any Borrower or any of its Subsidiaries; 8.5 If an Insolvency Proceeding is commenced against any Borrower, or any of its Subsidiaries, and any of the following events occur: (a) the applicable Borrower or the Subsidiary consents to the institution of the Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of their obligation to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, any Borrower or any of its Subsidiaries, or (e) an order for relief shall have been entered therein; 8.6 If any Borrower or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 If one or more notices of Lien, levy, or assessment securing or otherwise with respect to Indebtedness or an obligation for the payment of money in an aggregate amount in excess of $250,000 is filed of record with respect to any Borrower's or any of its Subsidiaries' assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any Borrower's or any of its Subsidiaries' assets and the same is not paid on the payment date thereof; 8.8 If one or more judgments or other claims for an aggregate amount in excess of $250,000 becomes a Lien or encumbrance upon any material portion of any Borrower's or any of its Subsidiaries' properties or assets; 8.9 If there is a default in any material agreement to which any Borrower or any of its Subsidiaries is a party and such default (a)(i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of the applicable Borrower's or its Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein, and (b) involved Indebtedness or an obligation for the payment of money in an aggregate amount in excess of $250,000; -80- 8.10 If any Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 8.11 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or Record made to the Lender Group by any Borrower, its Subsidiaries, or any officer, employee, agent, or director of any Borrower or any of its Subsidiaries; 8.12 If the obligation of any Guarantor under its Guaranty is limited or terminated by operation of law or by such Guarantor thereunder; 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral with an aggregate value in excess of $250,000 covered hereby or thereby; or 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Borrower, or a proceeding shall be commenced by any Borrower, or by any Governmental Authority having jurisdiction over any Borrower, seeking to establish the invalidity or unenforceability thereof, or any Borrower shall deny that any Borrower has any liability or obligation purported to be created under any Loan Document. 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 Rights and Remedies. Upon the occurrence, and during the ------------------- continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrowers: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement, under any of the Loan Documents, or under any other agreement between Borrowers and the Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting any of the Agent's Liens in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit the Loan Account with only the net amounts received by Agent in payment of such -81- disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Without notice to or demand upon any Borrower or any Guarantor, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral. Each Borrower agrees to assemble the Personal Property Collateral if Agent so requires, and to make the Personal Property Collateral available to Agent at a place that Agent may designate which is reasonably convenient to both parties. Each Borrower authorizes Agent to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Borrowers' Loan Account therefor. With respect to any of Borrowers' owned or leased premises, each Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; (f) Without notice to any Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of any Borrower held by the Lender Group (including any amounts received in the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of any Borrower held by the Lender Group; (g) Hold, as cash collateral, any and all balances and deposits of any Borrower held by the Lender Group, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations; (h) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and such Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; (i) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers' premises) as Agent determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (j) Agent shall give notice of the disposition of the Personal Property Collateral as follows: (i) Agent shall give Administrative Borrower (for the benefit of the applicable Borrower) a notice in writing of the time and place of public sale, or, if -82- the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Administrative Borrower as provided in Section 12, at ---------- least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (k) Agent, on behalf of the Lender Group may credit bid and purchase at any public sale; (l) Agent may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (m) The Lender Group shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; and (n) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrowers. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Administrative Borrower (for the benefit of the applicable Borrower). 9.2 Remedies Cumulative. The rights and remedies of the Lender Group ------------------- under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If any Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its sole discretion and without prior notice to any Borrower, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrowers' Loan Account as Agent deems necessary to protect the Lender Group from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.7 hereof, obtain and maintain insurance policies of the ----------- type described in Section 6.7 and take any action with respect to such policies ----------- as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses and any such payments shall not constitute an agreement by the Lender -83- Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest; etc. Each Borrower waives demand, protest, --------------------- notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which any such Borrower may in any way be liable. 11.2 The Lender Group's Liability for Collateral. Each Borrower hereby ------------------------------------------- agrees that: (a) so long as the Lender Group complies with its obligations, if any, under the Code, Agent shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrowers. 11.3 Indemnification. Each Borrower shall pay, indemnify, defend, and --------------- hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") ------------------ harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, ----------------------- Borrowers shall have no obligation to any Indemnified Person under this Section ------- 11.3 with respect to any Indemnified Liability that a court of competent - ---- jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrowers were required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrowers with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART -84- CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by Borrowers or Agent to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Administrative Borrower or Agent, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrowers in care of Administrative Borrower or to Agent, as the case may be, at its address set forth below: If to Administrative Borrower: VENTIV HEALTH, INC. Vantage Court North 200 Cottontail Lane Somerset, New Jersey 08873 Attn: John Emery Fax No. 732-537-4999 with copies to: WOLLMUTH MAHER & DEUTSCHE LLP 500 Fifth Avenue New York, New York 10110 Attn: Kenneth G. Alberstadt, Esq. Fax No. 212-382-0500 If to Agent: FOOTHILL CAPITAL CORPORATION One Boston Place Suite 1800 Boston, Massachusetts 02108 Attn: Business Finance Division Manager Fax No. 617-523-1697 with copies to: SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, New York 10022 Attn: Frederic L. Ragucci, Esq. Fax No. 212-593-5955 Agent and Borrowers may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, ---------- other than notices by Agent in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received (i) if sent by registered or certified mail, return receipt requested, when received or -85- three (3) Business Days after mailing, whichever first occurs, (ii) if telecopied, when transmitted and confirmation is received, provided same is on a Business Day and, if not, on the next Business Day, (iii) if sent by overnight courier, one Business Day after being deposited with an overnight courier, (iv) if delivered, upon delivery, provided same is on a Business Day and, if not, on the next Business Day, or (v) if sent by electronic mail, when transmitted so long as no message indicating delivery failure is received, provided same is on a Business Day and, if not, on the next Business Day. Each Borrower acknowledges and agrees that notices sent by the Lender Group in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW RULES OF SUCH STATE. (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT -------- ------- AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ----- --- ---------- ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b). ------------ BORROWERS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWERS AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF -86- LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 14.1 Assignments and Participations. ------------------------------ (a) Any Lender may, with the written consent of Agent (provided that no written consent of Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Transferee), assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part -------- of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000; provided, however, that Borrowers and Agent may continue to deal -------- ------- solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Administrative Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Administrative Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has paid to Agent for Agent's separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender. (b) From and after the date that Agent notifies the assignor Lender (with a copy to Administrative Borrower) that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its ------------ obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Borrowers and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility -87- with respect to the financial condition of Borrowers or the performance or observance by Borrowers of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender 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 decisions in taking or not taking action under this Agreement, (5) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto, and (6) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time, with the written consent of Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests ----------- in its Obligations, the Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents ------------------ (provided that no written consent of Agent shall be required in connection with any sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the Originating Lender shall remain a -------- ------- "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrowers, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums; and (v) all amounts payable by Borrowers hereunder shall be -88- determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrowers, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may, subject to Section 16.17, disclose all documents and information which it now or hereafter may have relating to Borrowers or Borrowers' business. (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR Section.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 14.2 Successors. This Agreement shall bind and inure to the benefit of ---------- the respective successors and assigns of each of the parties; provided, however, -------- ------- that Borrowers may not assign this Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release any Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to ------------ Section 14.1 hereof, no consent or approval by any Borrower is required in - ------------ connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1 Amendments and Waivers. No amendment or waiver of any provision ---------------------- of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrowers therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and Administrative Borrower (on behalf of all Borrowers) and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, -------- however, that no such waiver, amendment, or consent shall, unless in writing and - ------- signed by all of the Lenders affected thereby and Administrative Borrower (on behalf of all Borrowers) and acknowledged by Agent, do any of the following: (a) increase or extend any Commitment of any Lender, -89- (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document, (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document, (d) change the percentage of the Commitments that is required to take any action hereunder, (e) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders, (f) release Collateral other than as permitted by Section 16.12, ------------- (g) change the definition of "Required Lenders", (h) contractually subordinate any of the Agent's Liens, (i) release any Borrower or any Guarantor from any obligation for the payment of money, or (j) change the definition of Borrowing Base or the definitions of Eligible Billed Accounts, Eligible Unbilled Accounts, Maximum Revolver Amount, Billed Subline, Unbilled Subline or change Section 2.1(b); or -------------- (k) amend any of the provisions of Section 16. ---------- and, provided further, however, that no amendment, waiver or consent shall, ---------------- ------- unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrowers, shall not require consent by or the agreement of Borrowers. 15.2 Replacement of Holdout Lender. If any action to be taken by the ----------------------------- Lender Group or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its consent, authorization, or agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Lenders (each, a "Replacement Lender"), and the Holdout Lender shall have not right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given. -90- Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 14.1. Until such time as ------------- the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender's Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit. 15.3 No Waivers; Cumulative Remedies. No failure by Agent or any ------------------------------- Lender to exercise any right, remedy, or option under this Agreement or, any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Borrowers of any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have. 16. AGENT; THE LENDER GROUP. 16.1 Appointment and Authorization of Agent. Each Lender hereby -------------------------------------- designates and appoints Foothill as its representative under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. ---------- The provisions of this Section 16 are solely for the benefit of Agent, and the ---------- Lenders, and Borrowers shall have no rights as a third party beneficiary of any of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only, that Foothill is merely the representative of the Lenders, and only has the contractual duties set forth herein. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. -91- Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management accounts as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrowers, the Obligations, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 16.2 Delegation of Duties. Agent may execute any of its duties under -------------------- this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 16.3 Liability of Agent. None of the Agent-Related Persons shall (i) ------------------ be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any Subsidiary or Affiliate of any Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall 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 any other Loan Document, or to inspect the Books or properties of Borrowers or the books or records or properties of any of Borrowers' Subsidiaries or Affiliates. 16.4 Reliance by Agent. Agent shall be entitled to rely, and shall be ----------------- fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it 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 counsel to Borrowers or counsel to any Lender), independent accountants and other experts selected by -92- Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 16.5 Notice of Default or Event of Default. Agent shall not be deemed ------------------------------------- to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Administrative Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action with respect to such Default or Event - ------------ of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such - --------- -------- ------- request, 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. 16.6 Credit Decision. Each Lender acknowledges that none of the --------------- Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person 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 the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, -93- property, financial and other condition or creditworthiness of Borrowers and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 16.7 Costs and Expenses; Indemnification. Agent may incur and pay ----------------------------------- Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrowers are obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections received by Agent, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for -------- ------- the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent. 16.8 Agent in Individual Capacity. Foothill and its Affiliates may ---------------------------- make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrowers and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Foothill were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Foothill or its Affiliates may receive information regarding Borrowers or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such -94- information to them. The terms "Lender" and "Lenders" include Foothill in its individual capacity. 16.9 Successor Agent. Agent may resign as Agent upon 45 days notice to --------------- the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 16 shall ---------- inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 45 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 16.10 Lender in Individual Capacity. Any Lender and its respective ----------------------------- Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrowers and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrowers or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the sub-agent of the Agent. 16.11 Withholding Taxes. ----------------- (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Administrative Borrower: (i) if such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception, (a) a statement of the Lender, signed under -95- penalty of perjury, that it is not a (I) a "bank" as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the IRC), or (III) a controlled foreign corporation described in Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN, before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the first payment of any interest is due under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (iv) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Agent and Administrative Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrowers to such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrowers to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts -96- paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. (e) All payments made by Borrowers hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of a Lender, or (ii) to the extent that such tax results from a change in the circumstances of the Lender, including a change in the residence, place of organization, or principal place of business of the Lender, or a change in the branch or lending office of the Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, ----- each Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section ------- 16.11(e) after withholding or deduction for or on account of any Taxes, will not - -------- be less than the amount provided for herein; provided, however, that Borrowers -------- ------- shall not be required to increase any such amounts payable to Agent or any Lender (i) that is not organized under the laws of the United States, if such Person fails to comply with the other requirements of this Section 16.11 ------------- establishing a complete exemption from or reduction of U.S. withholding tax, or (ii) if the increase in such amount payable results from Agent's or such Lender's own willful misconduct or gross negligence. Borrowers will furnish to Agent as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrowers. 16.12 Collateral Matters. ------------------ (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrowers of all Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Administrative Borrower certifies to Agent that the sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Agent may rely - ----------- conclusively on any such certificate, without further inquiry), (iii) constituting property in which no Borrower owned any interest at the time the security interest was granted or at any time thereafter, or (iv) constituting property leased to a Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of -97- the Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or Administrative Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent shall not be ------------- -------- ------- required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrowers in respect of) all interests retained by Borrowers, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrowers or is cared for, protected, or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 16.13 Restrictions on Actions by Lenders; Sharing of Payments. ------------------------------------------------------- (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to Borrowers or any deposit accounts of Borrowers now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's ratable portion of all such distributions by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the -98- Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 16.14 Agency for Perfection. Agent hereby appoints each other Lender --------------------- as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the UCC can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. 16.15 Payments by Agent to the Lenders. All payments to be made by -------------------------------- Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest of the Obligations. 16.16 Concerning the Collateral and Related Loan Documents. Each ---------------------------------------------------- member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 16.17 Field Audits and Examination Reports; Confidentiality; ------------------------------------------------------ Disclaimers by Lenders; Other Reports and Information. By becoming a party to - ----------------------------------------------------- this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by Agent, and ------ ------- Agent shall so furnish each Lender with such Reports, (b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report, (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrowers and will rely significantly upon the Books, as well as on representations of Borrowers' personnel, (d) agrees to keep all Reports and other material, non-public information regarding Borrowers and their Subsidiaries and their operations, assets, and existing -99- and contemplated business plans in a confidential manner; it being understood and agreed by Borrowers that in any event such Lender may make disclosures (a) to counsel for and other advisors, accountants, and auditors to such Lender, (b) reasonably required by any bona fide potential or actual Assignee or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or Participants, or (d) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless -------- ------- prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Administrative Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof, and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrowers; and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrowers to Agent that has not been contemporaneously provided by Borrowers to such Lender, and, upon receipt of such request, Agent shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrowers, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Administrative Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Administrative Borrower, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Administrative Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 16.18 Several Obligations; No Liability. Notwithstanding that certain --------------------------------- of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall -100- confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section ------- 16.7, no member of the Lender Group shall have any liability for the acts or any - ---- other member of the Lender Group. No Lender shall be responsible to any Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 17. GENERAL PROVISIONS. 17.1 Effectiveness. This Agreement shall be binding and deemed ------------- effective when executed by Borrowers, Agent, and each Lender whose signature is provided for on the signature pages hereof. 17.2 Section Headings. Headings and numbers have been set forth herein ---------------- for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 17.3 Interpretation. Neither this Agreement nor any uncertainty or -------------- ambiguity herein shall be construed or resolved against the Lender Group or Borrowers, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 17.4 Severability of Provisions. Each provision of this Agreement -------------------------- shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 17.5 Amendments in Writing. This Agreement only can be amended by a --------------------- writing in accordance with Section 15.1. ------------ 17.6 Counterparts; Telefacsimile Execution. This Agreement may be ------------------------------------- executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 17.7 Revival and Reinstatement of Obligations. If the incurrence or ---------------------------------------- payment of the Obligations by any Borrower or any Guarantor or the transfer to the Lender Group of any property should for any reason subsequently be declared to be void or voidable under any state or -101- federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group is required to ----------------- repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrowers or Guarantors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 17.8 Integration. This Agreement, together with the other Loan ----------- Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 17.9 Parent as Agent for Borrowers. Each Borrower hereby irrevocably ----------------------------- appoints Ventiv Health, Inc. as the borrowing agent and attorney-in-fact for all Borrowers (the "Administrative Borrower") which appointment shall remain in full ----------------------- force and effect unless and until Agent shall have received prior written notice signed by each Borrower that such appointment has been revoked and that another Borrower has been appointed Administrative Borrower. Each Borrower hereby irrevocably appoints and authorizes the Administrative Borrower (i) to provide Agent with all notices with respect to Advances and Letters of Credit obtained for the benefit of any Borrower and all other notices and instructions under this Agreement and (ii) to take such action as the Administrative Borrower deems appropriate on its behalf to obtain Advances and Letters of Credit and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is understood that the handling of the Loan Account and Collateral of Borrowers in a combined fashion, as more fully set forth herein, is done solely as an accommodation to Borrowers in order to utilize the collective borrowing powers of Borrowers in the most efficient and economical manner and at their request, and that Lender Group shall not incur liability to any Borrower as a result hereof. Each Borrower expects to derive benefit, directly or indirectly, from the handling of the Loan Account and the Collateral in a combined fashion since the successful operation of each Borrower is dependent on the continued successful performance of the integrated group. To induce the Lender Group to do so, and in consideration thereof, each Borrower hereby jointly and severally agrees to indemnify each member of the Lender Group and hold each member of the Lender Group harmless against any and all liability, expense, loss or claim of damage or injury, made against the Lender Group by any Borrower or by any third party whosoever, arising from or incurred by reason of (a) the handling of the Loan Account and Collateral of Borrowers as herein provided, (b) the Lender Group's relying on any instructions of the Administrative Borrower, or (c) any other action taken by the Lender Group hereunder or under the other Loan Documents, except that Borrowers will have no liability to the relevant Agent-Related Person or Lender-Related Person under this Section 17.9 with respect to any liability that has been finally determined ------------ by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of such Agent-Related Person or Lender-Related Person, as the case may be. [Signature page to follow.] -102- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. VENTIV HEALTH, INC., a Delaware corporation By: --------------------------------------------- Name: Title: VENTIV HEALTH U.S. SALES LLC, a New Jersey limited liability company By: --------------------------------------------- Name: Title: FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent and as a Lender By: --------------------------------------------- Name: Title: -103- TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND CONSTRUCTION.......................................................................1 1.1 Definitions........................................................................................1 1.2 Accounting Terms..................................................................................26 1.3 Code..............................................................................................26 1.4 Construction......................................................................................26 1.5 Schedules and Exhibits............................................................................27 2. LOAN AND TERMS OF PAYMENT.........................................................................27 2.1 Revolver Advances.................................................................................27 2.2 Borrowing Procedures and Settlements..............................................................28 2.3 Payments..........................................................................................35 2.4 Overadvances......................................................................................37 2.5 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.......................37 2.6 Cash Management...................................................................................39 2.7 Crediting Payments; Float Charge..................................................................40 2.8 Designated Account................................................................................41 2.9 Maintenance of Loan Account; Statements of Obligations............................................41 2.10 Fees..............................................................................................41 2.11 Letters of Credit.................................................................................42 2.12 LIBOR Option......................................................................................45 2.13 Capital Requirements..............................................................................48 2.14 Joint and Several Liability of Borrowers..........................................................48 3. CONDITIONS; TERM OF AGREEMENT.....................................................................50 3.1 Conditions Precedent to the Closing Date and the Initial Extension of Credit......................50 3.2 Conditions Subsequent to the Closing Date.........................................................53 3.3 Conditions Precedent to all Extensions of Credit..................................................55 3.4 Term..............................................................................................55 3.5 Effect of Termination.............................................................................55 3.6 Early Termination by Borrowers....................................................................56 4. CREATION OF SECURITY INTEREST.....................................................................56 4.1 Grant of Security Interest........................................................................56 4.2 Negotiable Collateral.............................................................................57 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral............................57 4.4 Filing of Financing Statements; Commercial Tort Claims; Delivery of Additional Documentation Required..........................................................................57 4.5 Power of Attorney.................................................................................58 4.6 Right to Inspect..................................................................................58 4.7 Control Agreements................................................................................59
-i- 5. REPRESENTATIONS AND WARRANTIES....................................................................59 5.1 No Encumbrances...................................................................................59 5.2 Eligible Accounts.................................................................................59 5.3 Equipment.........................................................................................59 5.4 Location of Equipment.............................................................................59 5.5 State of Incorporation; Location of Chief Executive Office; FEIN; Organizational ID Number; Commercial Tort Claims..................................................................59 5.6 Due Organization and Qualification; Subsidiaries..................................................60 5.7 Due Authorization; No Conflict....................................................................60 5.8 Litigation........................................................................................61 5.9 No Material Adverse Change........................................................................62 5.10 Fraudulent Transfer...............................................................................62 5.11 Employee Benefits.................................................................................62 5.12 Environmental Condition...........................................................................62 5.13 Brokerage Fees....................................................................................62 5.14 Intellectual Property.............................................................................62 5.15 Leases............................................................................................63 5.16 DDAs..............................................................................................63 5.17 Complete Disclosure...............................................................................63 5.18 Indebtedness......................................................................................63 5.19 Regulation U......................................................................................63 5.20 Permits, Etc......................................................................................63 5.21 Material Contracts................................................................................64 5.22 Customers.........................................................................................64 5.23 Properties........................................................................................64 5.24 Employee and Labor Matters........................................................................64 5.25 Certain Subsidiaries..............................................................................65 5.26 HPR UK Ltd........................................................................................65 5.27 Obligations to Snyder.............................................................................65 6. AFFIRMATIVE COVENANTS.............................................................................65 6.1 Accounting System.................................................................................65 6.2 Collateral Reporting..............................................................................65 6.3 Financial Statements, Reports, Certificates.......................................................66 6.4 Guarantor Reports.................................................................................69 6.5 Maintenance of Properties.........................................................................69 6.6 Taxes.............................................................................................69 6.7 Insurance.........................................................................................69 6.8 Location of Equipment.............................................................................70 6.9 Compliance with Laws..............................................................................70 6.10 Leases............................................................................................70 6.11 Brokerage Commissions.............................................................................70 6.12 Existence.........................................................................................71 6.13 Environmental.....................................................................................71 6.14 Commercial Tort Claims; Organizational ID Number..................................................71 6.15 Other Disclosure Updates..........................................................................71
-ii- 7. NEGATIVE COVENANTS................................................................................71 7.1 Indebtedness......................................................................................72 7.2 Liens.............................................................................................73 7.3 Restrictions on Fundamental Changes...............................................................73 7.4 Disposal of Assets................................................................................73 7.5 Change Name.......................................................................................73 7.6 Guarantee.........................................................................................73 7.7 Nature of Business................................................................................73 7.8 Prepayments and Amendments........................................................................73 7.9 Change of Control.................................................................................74 7.10 Distributions.....................................................................................74 7.11 Accounting Methods................................................................................74 7.12 Investments.......................................................................................74 7.13 Transactions with Affiliates......................................................................75 7.14 Suspension........................................................................................75 7.15 [Intentionally Omitted]...........................................................................75 7.16 Use of Proceeds...................................................................................75 7.17 Change in Location of Chief Executive Office; Equipment with Bailees..............................75 7.18 Securities Accounts...............................................................................75 7.19 Financial Covenants...............................................................................75 7.20 Certain Subsidiaries..............................................................................79 7.21 HPR UK Ltd........................................................................................79 8. EVENTS OF DEFAULT.................................................................................79 9. THE LENDER GROUP'S RIGHTS AND REMEDIES............................................................81 9.1 Rights and Remedies...............................................................................81 9.2 Remedies Cumulative...............................................................................83 10. TAXES AND EXPENSES................................................................................83 11. WAIVERS; INDEMNIFICATION..........................................................................84 11.1 Demand; Protest; etc..............................................................................84 11.2 The Lender Group's Liability for Collateral.......................................................84 11.3 Indemnification...................................................................................84 12. NOTICES...........................................................................................85 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................................................86 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS........................................................87 14.1 Assignments and Participations....................................................................87 14.2 Successors........................................................................................89 15. AMENDMENTS; WAIVERS...............................................................................89 15.1 Amendments and Waivers............................................................................89 15.2 Replacement of Holdout Lender.....................................................................90 15.3 No Waivers; Cumulative Remedies...................................................................91
-iii- 16. AGENT; THE LENDER GROUP...........................................................................91 16.1 Appointment and Authorization of Agent............................................................91 16.2 Delegation of Duties..............................................................................92 16.3 Liability of Agent................................................................................92 16.4 Reliance by Agent.................................................................................92 16.5 Notice of Default or Event of Default.............................................................93 16.6 Credit Decision...................................................................................93 16.7 Costs and Expenses; Indemnification...............................................................94 16.8 Agent in Individual Capacity......................................................................94 16.9 Successor Agent...................................................................................95 16.10 Lender in Individual Capacity.....................................................................95 16.11 Withholding Taxes.................................................................................95 16.12 Collateral Matters................................................................................97 16.13 Restrictions on Actions by Lenders; Sharing of Payments...........................................98 16.14 Agency for Perfection.............................................................................99 16.15 Payments by Agent to the Lenders..................................................................99 16.16 Concerning the Collateral and Related Loan Documents..............................................99 16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information.....................................................................99 16.18 Several Obligations; No Liability................................................................100 17. GENERAL PROVISIONS...............................................................................101 17.1 Effectiveness....................................................................................101 17.2 Section Headings.................................................................................101 17.3 Interpretation...................................................................................101 17.4 Severability of Provisions.......................................................................101 17.5 Amendments in Writing............................................................................101 17.6 Counterparts; Telefacsimile Execution............................................................101 17.7 Revival and Reinstatement of Obligations.........................................................101 17.8 Integration......................................................................................102 17.9 Parent as Agent for Borrowers....................................................................102
-iv- EXHIBITS AND SCHEDULES Exhibit A-1 Form of Assignment and Acceptance Exhibit C-1 Form of Compliance Certificate Exhibit G-1 Form of Guarantor Security Agreement Exhibit G-2 Form of Guaranty Exhibit I-1 Form of Intercompany Subordination Agreement Exhibit L-1 Form of LIBOR Notice Exhibit O-1 Form of Officers' Certificate Exhibit P-1 Form of Pledge Agreement Schedule A-1 Agent's Account Schedule C-1 Commitments Schedule D-1 Designated Account Schedule P-1 Permitted Liens Schedule R-1 Real Property Collateral Schedule 2.6(a) Cash Management Banks Schedule 3.2(h) Post-Closing Deliveries Schedule 5.4 Locations of Equipment Schedule 5.5(a) State of Incorporation Schedule 5.5(b) Chief Executive Office Schedule 5.5(c) FEIN; Organizational ID Number Schedule 5.5(d) Commercial Tort Claims Schedule 5.6(c) Capitalization of Parent's Subsidiaries Schedule 5.8 Litigation Schedule 5.12 Environmental Matters Schedule 5.14 Intellectual Property Schedule 5.16 Demand Deposit Accounts Schedule 5.18 Permitted Indebtedness Schedule 5.21 Material Contracts Schedule 5.22 Customer Contract Cancellations Schedule 5.23 Real Property Schedule 5.24 Labor Matters Schedule 5.25 Indebtedness and Liens of Certain Subsidiaries Schedule 5.26 HPR UK Ltd. Business Schedule 7.19(b)(v) Settlement Charges to Account Debtors -v- Schedule A-1 ------------ Agent's Account An account at a bank designated by Agent from time to time as the account into which Borrowers shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Administrative Borrower and the Lender Group to the contrary, Agent's Account shall be that certain deposit account bearing account number 323-266193 and maintained by Agent with JPMorgan Chase Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021000021. Schedule C-1 ------------ Commitments - ------------------------------------------------- Lender Commitment - ------------------------------------------------- Foothill Capital Corporation $50,000,000 - ------------------------------------------------- All Lenders $50,000,000 - ------------------------------------------------- Schedule D-1 ------------ Designated Account Account number 134-718623 of Administrative Borrower maintained with Administrative Borrower's Designated Account Bank, or such other deposit account of Administrative Borrower (located within the United States) that has been designed as such, in writing, by Administrative Borrower to Agent. "Designated Account Bank" means The Chase Manhattan Bank, whose office ----------------------- is located at 1166 Avenue of the Americas, New York, NY 10036, and whose ABA number is 021000021. EX-10.11 6 dex1011.txt EMPLOYMENT AGREEMENT, DATED APRIL 8, 2002 EXHIBIT 10.11 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of April 8, 2002 (the "Effective Date") between Ventiv Health, Inc., a Delaware corporation with its principal place of business at 200 Cottontail Lane (the "Company"), and Terrell Herring residing at 110 Windsong Drive Doylestown, Pennsylvania 18901 (the "Executive"). WITNESSETH: WHEREAS, the Company desires to employ the Executive as its President, U.S. Sales of Ventiv Health U.S. Sales and the Executive desires to accept such employment, all on the terms and conditions specified herein; and WHEREAS, the Executive and the Company desire to set forth in writing all of their respective duties, rights and obligations with respect to the Executive's employment by the Company; and NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby offers to employ the Executive, and the Executive hereby accepts employment by the Company, in the capacity and upon the terms and conditions hereinafter set forth. 2. Duties. The Executive shall serve as the Company's President, U.S. Sales, and shall perform such duties, functions and responsibilities as are associated with and incident to that position and as the Company may, from time to time, require of him. The Executive shall serve the Company faithfully, conscientiously and to the best of the Executive's ability and shall promote the interests and reputation of the Company. Unless prevented by sickness or disability, the Executive shall devote all of the Executive's time, attention, knowledge, energy and skills, during normal working hours, and at such other times as the Executive's duties may require, to the duties of the Executive's employment. The principal place of employment of the Executive shall be at Employer's Somerset, NJ area office and/or such other location as shall be necessary for the Executive to discharge the Executive's duties hereunder. The Executive acknowledges that in the course of employment the Executive may be required, from time to time, to travel on behalf of the Company. 3. Compensation and Benefits. As full and complete compensation for the Executive's execution and delivery of this Agreement and performance of any services hereunder, the Company shall pay, grant or provide the Executive, and the Executive agrees to accept, the following compensation and benefits: 4/8/02 Terrell Herring April 8, 2002 a. Base Salary. The Company shall pay the Executive a base salary at an annual rate of $230,000 payable at such times and in accordance with the Company's customary payroll practices as they may be adopted or modified from time to time. On an annual basis or at such other times as the Company may determine, the Company may review the Executive's performance and determine whether, in its sole discretion, the Company will increase (but not decrease) the Executive's base salary. At no time during the pendency of this agreement shall the Company, without the written consent of the Executive, decrease the Executive's base pay. b. Fringe Benefits. The Company shall afford the opportunity to participate in any health care, dental, disability insurance, retirement, savings and any other employee benefits plans, policies or arrangements which the Company maintains for its employees in accordance with the written terms of such plans, policies or arrangements. Nothing in this Agreement shall require the Company or its affiliates to establish, maintain or continue any benefit plans, policies or arrangements or restrict the right of the Company or any of its affiliates to amend, modify or terminate any such benefit plan, policy or arrangement. c. Bonus. The Executive shall be eligible for a bonus in each calendar year, based on the Executive's success in reaching or exceeding performance objectives as determined by the Chief Executive Officer or his/her designee, the amount of such bonus, if any, to be determined in the discretion of the Company. Notwithstanding the foregoing, if the Executive remains employed by the Company through the bonus payout date, the Executive shall be entitled to a bonus range of 0 - 80% of the Executive's then current base salary, with the amount of such bonus, if any, remaining subject to the discretion of the Company. d. Expenses. The Executive shall be entitled to reimbursement or payment of reasonable business expenses in accordance with the Company's policies, as the same may be amended from time to time in the Company's sole discretion, following the Executive's submission of appropriate receipts, bills and/or expense reports to the Company in accordance with such policies. e. Vacations, Holidays or Temporary Leave: The Executive shall be entitled to take four (4) weeks of vacation per year, without loss or diminution of compensation in accordance with Companies policies. Such vacation shall be taken at such time or times consistent with the needs of the Company's business. The Executive shall further be entitled to the number of paid holidays, and leaves for illness or temporary disability in accordance with the Company's policies as such policies may be amended from time to time or terminated in the Company's sole discretion. f. Car allowance: During the period of the Executive's employment by the Company, the Company shall pay to the Executive as a car allowance the net amount of $ 500 per month. g. Additional Payments: If there is a Change in Control (as defined in paragraph 5(e) herein) by April 8, 2003, and the Executive is employed by the Company upon the Change in Control, and, in the sole judgment and discretion of the 4/8/02 2 Terrell Herring April 8, 2002 Company, the Executive has satisfactorily performed all assigned duties, including using his best efforts to facilitate a Change in Control, the Company shall award the Executive up to fifty-two (52) weeks base pay, minus such deductions as may be required by law or reasonably requested by the Executive. The payment provided for in this paragraph 3(g) shall be payable in two equal installments, the first installment of twenty-six (26) weeks shall be paid to the Executive within thirty (30) days following the Change in Control, and the second installment of twenty-six (26) weeks shall be paid to the Executive on the earlier of (i) the six (6) month anniversary of the Change in Control or (ii) upon the termination Without Cause of the Executive's employment by the Company; provided however, that no second installment payment shall be made hereunder in the Executive's employment with the surviving or resulting entity is terminated for any reason or than by the Company Without Cause. If the Executive's employment hereunder is terminated Without Cause within the two months immediately preceding the Change in Control, the Executive shall be entitled to twenty-six (26) weeks base pay pursuant to this paragraph 3(g), minus such deductions as may be required by law or reasonably requested by the Executive, and any payment to which the Executive my be entitled pursuant to paragraph 6 (c) of this Agreement; provided however, that no payment shall be made hereunder if the Executive's employment is terminated for any reason other than Without Cause or if, in the sole judgment and discretion of the Company, The Executive fails to satisfactorily perform all assigned duties, including using his best efforts to facilitate a Change in Control. The Executive acknowledges that the payments provided for in this paragraph 3(g) are in lieu of (and not in addition to) any other payments or benefits to which the Executive might otherwise be entitled due to a change in control, including but not limited to, any stay bonuses, severance payments or termination benefits of any kind offered to employees in connection with a change in control, whether pursuant to a plan, arrangement, policy or otherwise; provided however, that nothing herein shall effect the Executive's right to payment pursuant to paragraph 6 (c) of this agreement. 4. Non-Competition, Confidentiality, Discoveries and Works: a. Non-Competition: During the period of The Executive's employment at the Company and for twelve (12) months following the termination, for any reason, of The Executive's employment, the Executive agrees not to compete in any manner, either directly or indirectly, whether for compensation or otherwise, with the Company, or to assist any other person or entity to compete with the Company either: (i) by producing, developing or marketing, or assisting others to produce, develop or market, or (ii) by accepting employment from or having any other relationship (including, without limitation, through owning, managing, operating, controlling or consulting) with any entity which produces, develops or markets, a product, process, or service which is competitive with those products, processes, or services of the Company, whether existing or planned for in the future, on which the Executive has worked, or concerning which the Executive has in any manner acquired knowledge of or had access to Confidential Information (as defined in Section 4(e)(iii) 4/8/02 3 Terrell Herring April 8, 2002 below), during the five (5) years preceding termination of the Executive's employment, provided, however, that it shall not be a violation of this Agreement for The Executive to seek and/or accept employment directly with a fully integrated pharmaceutical or bio-tech company (i.e. one that discovers, develops, manufactures, and promotes drugs) or to have beneficial ownership of less than 1% of the outstanding amount of any class of securities listed on a national securities exchange or quoted on an inter-dealer quotation system. b. Non-Solicitation: During the period of the Executive's employment at the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on The Executive's own behalf or on behalf of any other person or entity (other than for the benefit of the Company), directly or indirectly, (i) solicit any person or entity that is a customer of the Company, or has been a customer of the Company during the prior twelve (12) months, to purchase any products or services the Company provides to the customer, or (ii) interfere with any of the Company's business relationships. c. No-Hire: During the period of the Executive's employment at the Company and for twelve (12) months following the termination, for any reason, of the Executive's employment, the Executive agrees that the Executive will not, either on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, hire, solicit or encourage to leave the employ of or engagement by the Company any person who is then an employee or contractor of the Company or who was an employee or contractor of the Company within twelve (12) months of the date of such hiring, soliciting, or encouragement to leave the Company. d. Geographic Scope: The foregoing restrictions shall apply in the "Restricted Area" which means (i) the geographic sales region(s) assigned to the Executive by the Company and/or serviced by the Executive during the twelve (12) month period prior to termination of the Executive's employment and the fifty (50) mile radius around any office of the Company out of which the Executive worked, provided services to or provided supervision over, and (ii) any location, storefront, address or place of business where a Covered Customer is present and available for solicitation. The Executive will not circumvent the purpose of any restriction contained in Sections 4(a), 4(b) or 4(c) by engaging in business outside the geographic region covered by the above definition through remote means like telephone, correspondence or computerized communication. "Covered Customer" means those customers, entities and/or persons who did business with the Company and that the Executive either (x) received Confidential Information about in the course of his/her duties, (y) had contact with within the last twelve (12) month period of employment by the Company, or (z) supervised contact with within the last twelve (12) month period of employment with the Company. 4/8/02 4 Terrell Herring April 8, 2002 e. Confidentiality: (i) During the period of the Executive's employment at the Company and for all time following the termination, for any reason, of the Executive's employment, the Executive shall hold all Confidential Information of the Company in a fiduciary capacity and agrees not to take any action which would constitute or facilitate the Unauthorized use or disclosure of Confidential Information. The Executive further agrees to take all reasonable measures to prevent the Unauthorized use and disclosure of Confidential Information and to prevent Unauthorized persons or entities from obtaining or using Confidential Information. The terms "Confidential Information" and "Unauthorized" shall have the meanings set forth in Sections 4(e)(iii) and (iv) of this Agreement respectively. (ii) Promptly upon termination, for any reason, of the Executive's employment with the Company, the Executive agrees to deliver to the Company all property and materials within the Executive's possession or control which belong to the Company or which contain Confidential Information. (iii) As used in this Agreement, the term "Confidential Information" shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials, owned, developed or possessed by the Company, its parents, subsidiaries or affiliates, their respective predecessors and successors, whether in tangible or intangible form, that is not generally known to the public. Confidential Information includes, but is not limited to, (a) financial information, (b) products, (c) product and service costs, prices, profits and sales, (d) new business ideas, (e) business strategies, (f) product and service plans, (g) marketing plans and studies, (h) forecasts, (i) budgets, (j) projections, (k) computer programs, (l) data bases and the documentation (and information contained therein), (m) computer access codes and similar information, (n) software ideas, (o) know-how, technologies, concepts and designs, (p) research projects and all information connected with research and development efforts, (q) records, (r) business relationships, methods and recommendations, (s) existing or prospective client, customer, vendor and supplier information (including, but not limited to, identities, needs, transaction histories, volumes, characteristics, agreements, prices, identities of individual contacts, and spending, preferences or habits), (t) training manuals and similar materials used by the Company in conducting its business operations, (u) skills, responsibilities, compensation and personnel files of Company employees, directors and independent contractors, (v) competitive analyses, (w) contracts with other parties, and (x) other confidential or proprietary information that has not been made available to the general public by the Company's senior management. (iv) As used in this Agreement, the term "Unauthorized" shall mean: (a) in contravention of the Company's policies or procedures; (b) otherwise inconsistent with the Company's measures to protect its interests in the Confidential Information; (c) in contravention of any lawful instruction or directive, either written or oral, of a Company employee empowered to issue such instruction or directive; (d) in contravention of any duty existing under law or contract; or (e) to the detriment of the Company. 4/8/02 5 Terrell Herring April 8, 2002 (v) In the event that the Executive is requested by any governmental or judicial authority to disclose any Confidential Information, the Executive shall give the Company prompt notice of such request (including, by giving the Company a copy of such request if it is in writing), such that the Company may seek a protective order or other appropriate relief, and in any such proceeding the Executive shall disclose only so much of the Confidential Information as is required to be disclosed. f. Discoveries and Works: All discoveries and works made or conceived by the Executive during and in the course of his/her employment by the Company, jointly or with others, that relate to the Company's activities shall be owned by the Company. The terms "discoveries and works" include, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings, and works of authorship, including all educational and sales materials or other publications which relate to Company's current business. The Executive shall promptly notify and make full disclosure to, and execute and deliver any documents requested by, the Company to evidence or better assure title to such discoveries and works by the Company, assist the Company in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection and other protection of any and all such discoveries and works, and promptly execute, whether during his/her employment or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Company and to protect its title thereto. Any discoveries and works which, within six (6) months after the termination of the Executive's employment hereunder, are made, disclosed, reduce to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with, and in his/her capacity as an Executive of, the Company shall, as between the Executive and the Company presumed to have been made during the Executive's employment by the Company. g. Representations, Warranties and Acknowledgements (i) The Executive acknowledges that (a) the Company considers Confidential Information to be commercially and competitively valuable to the Company and critical to its success; (b) Unauthorized use or disclosure of Confidential Information would cause irreparable harm to the Company; and (c) by this Agreement, the Company is taking reasonable steps to protect its legitimate interests in its Confidential Information. (ii) The Executive also acknowledges that businesses that are competitive with the Company include, but are not limited to, any business involving marketing, consulting to or contract sales, detailing and marketing support or any other marketing services for pharmaceutical or any other related health care or biotechnology companies, including competitive e-health businesses. (iii) The Executive represents and warrants to the Company that he/she is not a party to any agreement, or non-competition or other covenant or restriction contained in any agreement, commitment, arrangement or understanding (whether oral or written), that in any way conflicts with or limits the 4/8/02 6 Terrell Herring April 8, 2002 Executive's ability to commence or continue to render services to the Company or that would otherwise limit the Executive's ability to perform all responsibilities in accordance with the terms and subject to the conditions of the Executive's employment. (iv) The Executive acknowledges that certain accounts are national and international in scope and the location of the Company's customers is not dependent on the geographic location of the Executive or the Company. (v) The Executive consents and agrees that, during the Executive's employment with Company and thereafter, the Company may review, audit, intercept, access and disclose all communications created, received or sent over the electronic mail and internet access system provided by Company with or without notice to the Executive and that such review, audit, interception, access, or disclosure may occur during or after working hours. The Executive further consents and agrees that the Company may, at any time, access and review the contents of all computers, computer disks, other data storage equipment and devices, files, desks, drawers, closets, cabinets and work stations which are either on Company's premises or which are owned or provided by Company. h. Remedies: In the event of breach or threatened breach by the Executive of any provision of Section 4 hereof, the Company shall be entitled to obtain (i) temporary, preliminary and permanent injunctive relief, in each case without the posting of any bond or other security, (ii) damages and an equitable accounting of all earnings, profits and other benefits arising from such breach, or threatened breach, (iii) recovery of all attorney's fees and costs incurred by the Company in obtaining such relief, (iv) repayment of any severance benefits paid to the Executive pursuant to this Agreement or any severance benefit agreement, plan or arrangement of the Company, and (v) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which Company may incur as a result of said breach or threatened breach. Pending arbitration pursuant to Section 7 of the Agreement, the Company shall be entitled to cease making any payments or providing any benefits to the Executive and to obtain temporary and preliminary injunctive relief as described in Section 4(h)(i) from a court of competent jurisdiction. The Company may pursue any remedy available, including declaratory relief, concurrently or consecutively, in any order, and the pursuit of one such remedy at any time will not be deemed an election of remedies or waiver of the right to pursue any other remedy. i. Early Resolution Conference: This Agreement is understood to be clear and enforceable as written and is executed by both parties on that basis. However, should the Executive later challenge any provision as unclear, unenforceable, or inapplicable to activity that the Executive intends to engage in, the Executive will first notify Company in writing and meet with a Company representative and a neutral mediator (if the Company elects to retain one at its expense) to discuss resolution of any disputes between the parties. The Executive will provide this notification at least fourteen (14) days before the Executive engages in any activity on behalf of a competing business or engages in other activity that could foreseeably fall within a questioned restriction. The failure to comply with this requirement shall waive the Executive's right to challenge the reasonable scope, clarity, applicability, or enforceability of the 4/8/02 7 Terrell Herring April 8, 2002 Agreement and its restrictions at a later time. All rights of both parties will be preserved if the Early Resolution Conference requirement is complied with even if no agreement is reached in the conference. 5. Termination of Employment: a. The Executive is an employee at-will, and either the Executive or the Company may terminate the employment relationship at any time for any reason with or without Cause (as defined below). The date upon which the termination of the Executive's employment becomes effective pursuant to this Agreement shall be referred to herein as the "Termination Date." The Termination Date shall be the date upon which any of the following events shall occur: (i) the death of the Executive; (ii) the Disability (as defined below) of the Executive; (iii) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment for Cause (as defined below); (iv) the Company's delivery of a written notice to the Executive of a termination of the Executive's employment Without Cause (as defined below); or (v) the Executive's delivery of a written notice to the Company of a termination of the Executive's employment for Good Reason (as delivered below); or (v) resignation by the Executive. For purposes of this Agreement, the Executive's employment will not be deemed to have automatically terminated upon a Change in Control (as defined below). b. For purposes of this Agreement, the "Disability" of the Executive shall mean the Executive's inability, because of mental or physical illness or incapacity, whether total or partial, to perform one or more of the primary duties of the Executive's employment with or without reasonable accommodation, and which continues for a length of time that exceeds any period of leave following which the Executive may have a right to be restored to the same job or to an equivalent job under federal, state or local law. c. For purposes of this Agreement, the term "Cause" shall mean the Executive's (i) conviction or entry of a plea of guilty or nolo contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty; (iii) violation of any term of this Agreement or any written policy of the Company; or (iv) inability to meet the performance objectives for the respective position. 4/8/02 8 Terrell Herring April 8, 2002 d. For purposes of this Agreement, "Without Cause" shall mean for any reason(s) whatsoever (other than the reasons described in Sections 5(a)(i), 5(a)(ii), 5(a)(iii), and 5(a)(v) hereof). e. For purposes of this Agreement, "Good Reason" shall mean (i) a significant diminution in the Executive's duties or title; (ii) substantial reduction is the Executive's compensation or benefits; (iii) the relocation of the offices of Ventiv Health U.S. Sales more than one hundred (100) miles from the Company's Somerset, New Jersey office; (iv) a material breach of the Agreement by the Company not cured within thirty (30) days written notice. f. For purposes of this Agreement, a "Change in Control" of the Company means a sale, transfer or other disposition of all or substantially all of the assets of the Company, or the consummation of a merger or consolidation of the Company or a sale or exchange of capital stock of the Company, in either case as a result of which the stockholders of the Company immediately prior to such transaction own, in the aggregate, less than a majority of the outstanding voting capital stock or equity interests of the surviving or resulting entity. 6. Payments Upon Termination of Employment. a. Death or Disability. If the Executive's employment hereunder is terminated due to the Executive's death or Disability pursuant to Sections 5(a)(i) or (ii) hereof, the Company shall pay or provide to the Executive, the Executive's designated beneficiary or to the Executive's estate (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof (including, but not limited to, life insurance and disability insurance) in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. b. Termination for Cause or Resignation. If the Executive's employment hereunder is terminated by the Company for Cause pursuant to Section 5(a)(iii) or due to the Executive's resignation pursuant to Section 5(a)(v), the Company shall pay or provide to the Executive (i) all base salary pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(d) hereof, in each case which has been earned but unpaid as of the Termination Date; and (ii) any benefits to which the Executive may be entitled under any employee benefits plan, policy or arrangement pursuant to Section 3(b) hereof in which he/she is a participant in accordance with the written terms of such plan, policy or arrangement up to and including the Termination Date. c. Termination Without Cause or for Good Reason. If the Executive's employment hereunder is terminated by the Company Without Cause pursuant to Section 5(a)(iv) above or For Good Reason pursuant to Section 5 (a)(v) the Company shall award the Executive severance benefits, subject to the terms and 4/8/02 9 Terrell Herring April 8, 2002 conditions of this Agreement and of The Ventiv Health, Inc. Severance Benefit Plan, if applicable. A lump sum payment of twenty-six (26) weeks of the Executive's base pay, minus such deductions as may be required by law or reasonably requested by the Executive to be paid out immediately. In order to be eligible to receive any Severance Payment pursuant to this paragraph 6, the Executive must sign, prior to receiving such Severance Payment, a valid release and waiver of all claims against the Company relating to the executive's employment or the termination thereof, in a format to be determined by the Company. No payment shall be made hereunder until at least eight (8) days following the execution and delivery by the Executive of the valid release and waiver. d. No Other Payments. Except as provided in this Section 6, the Executive shall not be entitled to receive any other payments or benefits from the Company due to the termination of the Executive's employment, including but not limited to, any employee benefits under any of the Company's employee benefits plans or arrangements (other than at the Executive's expense under the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the written terms of any pension benefit plan in which the Executive is a participant in which the Company may have in effect from time to time) or any right to severance benefits. 7. Arbitration. a. Any controversy or claim arising out of or relating to this Agreement, the employment relationship between the Executive and the Company, or the termination thereof, including the arbitrability of any controversy or claim, which cannot be resolved amicably after a reasonable attempt to negotiate such a resolution (including by exhaustion of all grievance or claims procedures made available by the Company or any employee benefit plan of the Company) shall be submitted to arbitration under the auspices of the American Arbitration Association in accordance with its Commercial Dispute Resolution Procedures and Rules, as such rules may be amended from time to time, and at its office nearest to the Company's place of business where the Executive works or to which the Executive reports. The award of the arbitrator shall be final and binding upon the parties, and judgment may be entered with respect to such award in any court of competent jurisdiction. Any arbitration under this Agreement shall be governed by and subject to the confidentiality restrictions set forth in Section 4(e) of this Agreement. The Executive acknowledges reading, prior to the signing of this agreement, the Commercial Dispute Resolution Procedures and Rules of the American Arbitration Association, which are available via the internet at http://www.adr.org. Notwithstanding the foregoing, any controversy or claim arising out of or relating to any claim by the Company for temporary or preliminary relief with respect to Section 4 of this Agreement need not be resolved in arbitration and may be resolved in accordance with Section 4(h) of this Agreement. b. The Executive acknowledges that this agreement to submit to arbitration includes all controversies or claims of any kind (e.g., whether in contract or in tort, statutory or common law, legal or equitable) now existing or hereafter arising under any federal, state, local or foreign law (except claims by the Company for temporary or preliminary injunctive relief pursuant to Section 4 as set forth above), including, but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act 4/8/02 10 Terrell Herring April 8, 2002 of 1964, the Civil Rights Act of 1866, the Family and Medical Leave Act, the Employee Retirement Income Security Act, and the Americans With Disabilities Act, and all similar state laws, and the Executive hereby waives all rights there under to have a judicial tribunal resolve such claims. 8. Deductions and Withholding. The Executive agrees that the Company shall withhold from any and all compensation payable under this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld under applicable statutes and/or regulations from time to time in effect and all amounts required to be deducted in respect of the Executive's coverage by and participation in applicable Executive benefit plans, policies or arrangements. 9. Entire Agreement. This Agreement embodies the entire agreement of the parties with respect to the Executive's employment and supersedes any other prior oral or written agreements between the Executive and the Company and its affiliates. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. 10. Waiver. The waiver by the Company of a breach of any provision of this Agreement by the Executive shall not operate or be construed as a waiver of any subsequent breach by the Executive. The waiver by the Executive of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company. 11. Governing Law. Because Ventiv is incorporated in the state of Delaware, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law rules of any state or where the Executive is in fact required to work. 12. Jurisdiction. Any legal suit, action or proceeding against any party hereto arising out of or relating to this Agreement that is not subject to arbitration pursuant to Section 7 of this Agreement shall be instituted in a New Jersey federal or state court in the County of Somerset and each party hereto waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding and each party hereto irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. 13. Assignability. The obligations of the Executive may not be delegated and, except as expressly provided in Section 6(a) relating to the designation of beneficiaries, the Executive may not, without the Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest therein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Executive agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to and may be assumed by and become binding upon and may inure to the benefit of any affiliate of or successor to the Company. The term "successor" shall mean (with respect to the Company or any of its subsidiaries) any other corporation or other business entity, which, by merger, consolidation, purchase of the 4/8/02 11 Terrell Herring April 8, 2002 assets, or otherwise, acquires all or a material part of the assets of the Company. Any assignment by the Company of its rights or obligations hereunder to any affiliate of or successor to the Company shall not be a termination of employment for purposes of this Agreement. 14. Severability. If any provision of this Agreement as applied to either party or to any circumstances shall be adjudged by a court of competent jurisdiction or arbitrator to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability of this Agreement. If any court or arbitrator construes any of the provisions of Section 4 hereof, or any part thereof, to be unreasonable because of the duration of such provision or the geographic or other scope thereof, such court or arbitrator may reduce the duration or restrict the geographic or other scope of such provision and enforce such provision as so reduced or restricted. 15. Notices. All notices to the Executive hereunder shall be in writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: Terrell Herring 110 Windsong Drive Doylestown, Pennsylvania 18901 All notices to the Company hereunder shall be in writing and shall be delivered personally, sent by overnight courier or sent by registered or certified mail, return receipt requested, to: Ventiv Health, Inc. 200 Cottontail Lane Somerset, NJ 08873 Attention: Executive Director, Human resources Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party. 16. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. 18. Voluntary Agreement. The Executive acknowledges that before entering into this Agreement, the Executive has had the opportunity to consult with any attorney or other advisor of his/her choice, and that this Section 18 of this Agreement constitutes advice from the Company to do so if he/she chooses. The Executive further acknowledges that he/she has entered into this Agreement of his/her own free will, and that no promises or representations have been made to him/her by any person to induce 4/8/02 12 Terrell Herring April 8, 2002 him/her to enter into this Agreement other than the express terms set forth herein. The Executive further acknowledges that he/she has read this Agreement and understands all of its terms, including the waiver of the right to have all disputes with and claims against the Company decided in a judicial forum set forth in Section 7. The Executive may take up to seven (7) days from today to consider, sign and return this Agreement. In addition, the Executive may revoke this Agreement after signing it, but only by delivering a signed revocation notice to the Company within seven (7) days of signing this Agreement. Such a revocation shall automatically terminate the Executive's employment due to resignation pursuant to Section 5(a)(v). IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. VENTIV HEALTH, INC. By: /s/ Eran Broshy ---------------------------- Eran Broshy Chief Executive Officer /s/[ILLEGIBLE] ---------------------------- Executive signature /s/ Terrell G. Herring ---------------------------- Print Executive's Name 4/8/02 13 EX-21.1 7 dex211.txt SUBSIDIARIES OF VENTIV HEALTH, INC. Exhibit 21.1 21.1 Subsidiaries As of December 31, 2002, all of the below listed direct or indirect subsidiaries of Ventiv Health, Inc. and their direct and indirect subsidiaries will be, either directly or indirectly, 100% owned by Ventiv Health, Inc.
Legal Entity Incorporation State Country - ------------ ------------------- ------- Health Products Research, Inc. New Jersey US Imedex USA, Inc. Georgia US MMD, Inc. New Jersey US PromoTech Research Associates, Inc. Colorado US Scientific Exchange, Inc. Connecticut US Ventiv Health Communications, Inc. Delaware US Ventiv Health U.S. Sales, Inc. New Jersey US Halliday Jones Sales Limited UK Health Products Research (UK) Limited UK Kestrel Healthcare Limited UK Rapid Deployment Group Limited UK Rapid Deployment Limited UK Ventiv Healthcare Services UK Ventiv Limited UK Houdstermaatschappij Boussauw Holding, B.V. Netherlands Imedex Holding, B.V. Netherlands Imedex Netherlands Netherlands Silver Blue Holding, B.V. Netherlands RDL Magyarorszag KFT Hungary Actipharm SARL France Laboratorie Socopharm SARL France Marques Pharma S.A. France S.A. Hotel Royal Navarin France S.A. Sogesphar France Ventiv Health Services France France Ventiv Medical Services France France
1 EX-23 8 dex23.txt CONSENT OF DELOITTE & TOUCHE LLP. Exhibit 23 Independent Auditors' Consent We consent to the incorporation by reference in Registration Statement No. 333-90239 of Ventiv Health Inc.'s Form S-8, of our report dated March 31, 2003, appearing in this Annual Report on Form 10-K of Ventiv Health, Inc. for the year ended December 31, 2002. Deloitte & Touche New York, New York March 31, 2003 EX-99.1 9 dex991.txt CHIEF EXECUTIVE OFFICER'S CERTIFICATION OF FINANCIAL STATEMENTS Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Ventiv Health, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eran Broshy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Eran Broshy - --------------- Chief Executive Officer March 31, 2003 EX-99.2 10 dex992.txt CHIEF FINANCIAL OFFERICER'S CERTIFICATION OF FINANCIAL STATEMENTS Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Ventiv Health, Inc. (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Emery, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John R. Emery - ----------------- Chief Financial Officer March 31, 2003 -----END PRIVACY-ENHANCED MESSAGE-----