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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2003 Commission file number: 0-16946 LabOne, Inc. 10101 Renner Blvd. Incorporated in Missouri I.R.S. Employer Identification Number: 43-1039532 Securities registered pursuant to Section 12(b) of the Act: None Common stock, $0.01 par value
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.
Lenexa, Kansas 66219
(913) 888-1770
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
The above securities are registered on the NASDAQ National Market
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Approximate aggregate market value of voting common equity held by non-affiliates of Registrant: $248,000,000 (based on closing price as of June 30, 2003, of $21.56). The non-inclusion of shares held by directors, executive officers and any beneficial owners of more than 10% of the outstanding stock shall not be deemed to constitute an admission that such persons are affiliates of the Registrant within the meaning of the Securities and Exchange Act of 1934.
Number of shares outstanding of the only class of Registrant's common stock as of February 27, 2004: $0.01 par value common - 16,969,518 shares.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be filed by April 30, 2004, are incorporated by reference into Part III. Such Proxy Statement, except for portions thereof that have been specifically incorporated by reference, shall not be deemed filed as part of this report on Form 10-K.
LabOne, Inc.
Form 10-K for the fiscal year ended December 31, 2003
Table of Contents
PART I. |
ITEM 1. Business |
ITEM 2. Properties |
ITEM 3. Legal Proceedings |
PART II. |
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters |
ITEM 6. Selected Financial Data |
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |
ITEM 7(A). Quantitative and Qualitative Disclosures about Market Risk |
ITEM 8. Financial Statements and Supplementary Data |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
ITEM 9(A). Controls and Procedures |
ITEM 10. Directors and Executive Officers of the Registrant |
ITEM 11. Executive Compensation |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
ITEM 13. Certain Relationships and Related Transactions |
ITEM 14. Principal Accountant Fees and Services |
PART IV. |
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K |
Forward Looking Statements
This Annual report on Form 10-K may contain "forward-looking statements," including, but not limited to, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements, and statements of the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "will be," "intended," "continue," "believe," "may," "hope," "anticipate," "goal," "forecast," "plan," "estimate" or variations thereof. Forward-looking statements are not guarantees of future performance or results. Forward-looking statements are based on estimates, forecasts and assumptions involving risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in such forward-looking statements. The uncertainties, risks and assumptions referred to above include, but are not limited to, those described under "Factors Affecting Future Performance" in Item 7.
PART I
ITEM 1. BUSINESS
LabOne, Inc., a Missouri corporation, is a diagnostic services provider. The services and information LabOne and its subsidiaries provide include: risk assessment information services for the insurance industry; diagnostic healthcare testing; and drugs of abuse testing services and related employee qualification products. LabOne's business plan is to be the premier provider of certified and accredited, cost effective laboratory and information services to life and health insurance companies, employers, third party administrators ("TPAs"), government agencies, hospitals, physician practices and occupational health clinics.
LabOne, Inc. and its wholly-owned subsidiaries are hereinafter collectively referred to as either LabOne or the Company. The Company's website can be found on the internet at www.LabOne.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free through the Company's website as soon as reasonably practicable after such reports and amendments are filed with the SEC, generally on the same day. These documents may also be found at the SEC's website at www.sec.gov.
Recent Developments
On January 5, 2004, the Company acquired, for cash, substantially all of the assets associated with the core laboratory operations of The Health Alliance of Greater Cincinnati (the "Health Alliance") for $42.4 million. The core laboratory operations acquired provide outreach laboratory testing services for physicians in the Greater Cincinnati area and reference laboratory testing for the six hospitals affiliated with the Health Alliance. In connection with the acquisition, the Company entered into a long-term service agreement for the Company to provide reference testing to the Health Alliance hospitals and management of their six immediate response laboratories. Anticipated annual revenues associated with this acquisition include $29.0 million of outreach revenues, $11.0 million of reference testing performed for the six hospitals in the Health Alliance and $8.5 million of fee revenue associated with the management of the six immediate response laboratories owned by the Health Alliance. The acquisitio n was financed through the Company's existing line of credit.
On March 1, 2004, the Company acquired for cash the assets of the drug testing division, Northwest Toxicology, from NWT Inc. for $10.0 million subject to adjustment based on net working capital at closing. The acquisition will result in additional urine and oral fluid testing volumes directed to LabOne's Lenexa, Kansas laboratory, and furthers the Company's capabilities to include drugs of abuse testing in blood, expanded specimen validity testing, medical professional and other esoteric drug testing. The acquisition is expected to add approximately $11.0 million in annual revenues. The acquisition was financed through the Company's existing line of credit.
Overview
LabOne's risk assessment services comprise underwriting support services including teleunderwriting, specimen collection and paramedical examinations, laboratory testing, telephone inspections, motor vehicle reports and medical record retrieval to the insurance industry. The laboratory tests performed and data gathered by the Company are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on specimens of individual life insurance policy applicants, but also includes specimens of individuals applying for individual and group medical and disability policies.
LabOne's clinical services include laboratory testing services for the healthcare industry as an aid in the diagnosis and treatment of patients. LabOne operates highly automated and centralized laboratory facilities, which the Company believes has significant economic advantages over other laboratory competitors. LabOne markets its clinical testing services to managed care companies, insurance companies, self-insured groups, hospitals and physicians.
LabOne's clinical services also include substance abuse testing ("SAT") provided to employers to support their drug free workplace programs. LabOne is certified by the Substance Abuse and Mental Health Services Administration ("SAMSHA") to perform substance abuse testing services for federally regulated employers and currently markets these services throughout the country to both regulated and nonregulated employers. Additionally, the Company can provide background checks, social security number verification and other pre-employment data required by employers. The Company's rapid turnaround times and multiple testing options help clients reduce downtime for affected employees and meet mandated drug screening guidelines.
Segment Information
The following table summarizes the Company's revenues and volumes from services provided to the risk assessment services and clinical segments:
Year ended December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in thousands) | ||||||
Revenues: | ||||||
Risk assessment services | ||||||
Insurance laboratory | $ 88,818 | 26% | $ 93,892 | 31% | $ 77,276 | 33% |
Paramedical services | 85,363 | 25% | 74,235 | 25% | 57,264 | 24% |
Other insurance services | 56,554 | 16% | 41,869 | 14% | 24,799 | 11% |
Total risk assessment services | 230,735 | 67% | 209,996 | 70% | 159,339 | 68% |
Clinical | ||||||
Healthcare services | 88,455 | 26% | 60,906 | 20% | 46,615 | 20% |
Substance abuse testing | 26,830 | 8% | 27,244 | 9% | 27,933 | 12% |
Total clinical | 115,285 | 33% | 88,150 | 30% | 74,548 | 32% |
Total | $ 346,020 | 100% | $ 298,146 | 100% | $ 233,887 | 100% |
(See Notes to Consolidated Financial Statements for operating
earnings and identifiable assets by segment.)
Services Provided by the Company
Risk Assessment Services:
Life insurance companies require an objective means of evaluating the insurance risk posed by policy applicants in order to establish the appropriate level of premium payments or to determine whether to issue a policy. Because decisions of this type are based on statistical probabilities of mortality and morbidity, insurance companies generally require quantitative data reflecting the applicant's general health. LabOne utilizes standardized specimen collection, medical questionnaires and laboratory testing, tailored to the needs of the insurance industry and reported in a uniform format. This information provides insurance companies with a consistent and efficient means of evaluating the mortality and morbidity risks posed by policy applicants.
The Company's involvement in the life underwriting process often begins when LabOne personnel conduct telephone interviews tailored to obtain the medical history for a new life insurance policy applicant. This teleunderwriting process includes a series of medical questions, which may result in additional questions based on an applicant's responses.
Following the completion of an individual's application for life insurance, a paramedical company may be contacted to arrange for collection of a blood and/or urine specimen. Through the Company's subsidiary, ExamOne World Wide, Inc. ("ExamOne"), or another paramedical company, paramedical contractors collect specimens from individual insurance applicants and perform paramedical examinations using custom-designed collection kits and containers. Insurance agents also collect oral fluid or urine specimens using LabOne's kits. These kits and containers are delivered to LabOne's laboratory via overnight delivery services or mail, bar coded for identification and tested according to each insurance company's specifications.
LabOne's insurance laboratory testing services consist of certain specimen profiles that provide insurance companies with specific information that may indicate liver or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial or viral infections and other health risks. The Company also offers tests to detect the presence of antibodies to the human immunodeficiency virus ("HIV"). Standardized laboratory testing can verify responses on a policy application to such questions as whether the applicant is a user of tobacco products, certain controlled substances or certain prescription drugs.
LabOne assists with the administration and tracking of data for applicants during the information gathering process. The Company can obtain medical records or attending physician statements so underwriters can review the complete medical history of applicants. Additional applicant information in the form of inspection reports can be gathered quickly and cost-effectively either by telephone or in the field. Motor vehicle reports are ordered automatically based on insurance company specifications or on demand by the underwriter. The Company can collect, process and provide imaged reports of these various pieces of information electronically through LabOne NET® directly to the insurance company's underwriting department.
CaseView, LabOne's proprietary requirements management software, allows underwriters to order laboratory testing and other services, check the status of those requests, review results electronically, request add-on tests or services based on the results and to manage the underwriting services they order through LabOne and its subsidiaries. Through its subsidiary, Intellisys, the Company also offers CaseOne®, a service that provides a single source solution for underwriting requirements management for insurance clients.
Clinical Services:
Clinical healthcare laboratory tests are generally requested by physicians to diagnose, determine treatment and monitor diseases and other medical conditions through the detection of substances in blood and other specimens. Laboratory testing is generally categorized as either clinical testing, which is performed on bodily fluids including blood and urine, or anatomic pathology testing, which is performed on tissue specimens. The most frequently requested tests include blood chemistry analyses, urinalyses, blood cell counts, Pap smears and infectious disease tests. Tests not performed at LabOne are sent out for testing, and the results of these outsourced tests are transmitted into the Company's computer system for reporting along with the results of testing completed by LabOne.
Additionally, LabOne has several exclusive and non-exclusive arrangements with managed care organizations. With these arrangements, the managed care organizations may direct testing for their members through LabOne. In conjunction with many of these agreements, LabOne provides utilization and disease management reporting to the managed care organizations.
The Company developed and provides the Lab Card® program as a method of marketing outpatient laboratory services directly to payors such as self-insured groups and insurance companies. It uses a unique benefit design that shares the cost savings with the patient and the payor by creating an incentive for the patient to direct laboratory work to LabOne. The patient generally incurs no out-of-pocket expense when the Lab Card is used, and the insurance company or self-insured group receives substantial savings on its laboratory charges.
Substance abuse testing is marketed to large employers, TPAs and occupational health providers. Certification by SAMHSA enables the Company to offer substance abuse testing services to federally regulated industries.
Specimens for substance abuse testing, both urine and oral fluid, are typically collected by independent agencies or employers that use LabOne's forms and collection supplies. Specimens are sealed with bar coded, tamper-evident seals and shipped overnight to the Company. Automated systems monitor the specimens throughout the screening and confirmation process. Negative results are typically reported within 12 hours of accessioning in the laboratory. Initial positive specimens are verified by the gas chromatography/mass spectrometry method, and confirmed positive results are generally reported within 72 hours of accessioning in the laboratory. Results can be transmitted electronically to the client's secured computer, printer or fax machine, or the client can use LabOne's LabLink software or secure web site to retrieve, store, search and print their drug testing results.
Operations
LabOne's principal operation is located in Lenexa, Kansas, where it operates a highly automated and centralized laboratory. In connection with the acquisition of the core laboratory operations of the Health Alliance, the Company leases space from the Health Alliance while it pursues construction of a new state-of-the-art laboratory facility in the Greater Cincinnati/Tri-State area. The Company anticipates that construction could be completed during 2004. The Company will continue all Cincinnati-based testing operations with the exception of certain toxicology and immunology tests, which will be directed to LabOne's facility in Lenexa. The Company intends to consolidate routine and esoteric laboratory testing in its core facilities while maintaining anatomic pathology and rapid response capabilities, as well as customer service, on a regional basis.
The Company's operations are designed to facilitate the testing of a large number of specimens and to report the results to clients, generally within 24 hours of receipt of the specimens. The Company has internally developed, custom-designed laboratory and business processing systems. This centralized network system provides an automated link between LabOne's testing equipment, data processing equipment and clients' computer systems thus providing clients with the ability to customize their initial testing and follow-up testing requirements to best meet their needs.
At many physician office clients, LabOne uses proprietary and non-proprietary technologies to facilitate secure electronic transmission of laboratory orders and results. The Company's connectivity solutions are often interfaced directly into a physician's practice management system to retrieve patient demographics from the physician's systems for transmission to the laboratory with the test order. These demographic interfaces streamline data entry for the physician offices and the laboratory, and allow LabOne to mandate that a physician office provides specific information necessary for billing. After testing, LabOne transmits results in a variety of formats to devices ranging from fax machines and dedicated printers to electronic medical reporting systems.
As a result of the significant number of tests it has performed over the past several years, LabOne has compiled and maintains a large statistical database of test results. These summary statistics are useful to the actuarial and underwriting departments of an insurance client in comparing that client's test results to the results obtained by the Company's entire client base. Company-specific and industry-wide reports are frequently distributed to clients on subjects such as coronary risk analysis, cholesterol and drugs of abuse. Additionally, the Company's statistical engineering department is capable of creating customized reports to assist managed care entities for required reporting, disease management and utilization tracking to help manage healthcare costs.
The Company considers the confidentiality of its test results and other personal data processed to be of primary importance and has established procedures to ensure that this information remains secure, in compliance with statutory regulations.
Substantially all of the test supplies and products used by the Company in conducting its testing are commercially purchased or internally developed and most, but not all, are available from multiple sources. Any interruption in the availability of test supplies or other products used by the Company to collect and test specimens could have an adverse impact on the Company's business.
Regulation
LabOne's business is subject to significant federal and state regulation. Changes in laws and regulations, including laws and regulations establishing reimbursement for laboratory services under government programs such as Medicare and Medicaid, could significantly increase the costs of doing business or limit revenues and have an adverse impact on the Company's results.
LabOne is licensed under the Clinical Laboratory Improvement Amendments of 1988 and maintains additional licenses in all states where such licenses are required. LabOne is certified by SAMSHA to perform testing to detect drugs of abuse in federal employees and in workers governed by federal regulations. The Company is subject to federal and state regulation relating to the handling and disposal of medical waste and hazardous waste and federal regulation by the Food and Drug Administration, the Occupational Safety and Health Administration related to workplace safety and several agencies related to the transportation of laboratory specimens. The loss of any of these licenses or certifications by the Company, or the failure of the Company to maintain compliance with federal and state requirements, could have an adverse impact on the Company's business.
Congress enacted the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). Pursuant to HIPAA, LabOne maintains administrative, technical and physical safeguards to protect the security and confidentiality of Protected Health Information against unauthorized use or disclosure. LabOne's compliance committee and security and privacy officers consistently monitor the Company's compliance with these requirements.
Compliance Program; Quality Improvement
LabOne's Regulatory Affairs department oversees quality programs to ensure that accurate and reliable test results are released to clients. This is accomplished by incorporating both internal and external quality improvement programs in each area of the laboratory. In addition, quality improvement specialists share the responsibility with all LabOne employees of an ongoing commitment to quality and safety in all laboratory operations. Internal quality and educational programs are designed to identify opportunities for improvement in laboratory services and to meet all required safety, training and education issues. These programs monitor the reliability and confidentiality of test results.
Procedure manuals in all areas of the laboratory are developed and written to help maintain uniformity and accuracy and follow regulatory guidelines. Tests on control samples with known results are performed frequently to maintain and verify accuracy in the testing process. Complete documentation provides record keeping for employee reference and meets regulatory requirements. All employees are trained to meet standards mandated by OSHA in order to maintain a safe work environment. The Superblind® Program is used to challenge every aspect of service at LabOne from account setup and specimen arrival to testing, reporting and through final billing. Approximately 500 sample kits are prepared and submitted anonymously each month. These samples have at least 15 different indicators each representing over 7,500 challenges to the testing, handling and reporting procedures.
LabOne participates in proficiency testing programs as required by state and federal licensing and accrediting agencies.
LabOne has appointed a Chief Compliance Officer and co-compliance officers representing corporate privacy, corporate security, operations, pathology, legal, human resources, regulatory affairs, billing, sales, finance, administration and information systems and technology functions within LabOne. Additionally, the Company has developed the LabOne Compliance Program, based on the Model Compliance Plan recommended by the Office of Inspector General of the Department of Health and Human Services, to monitor compliance with federally-funded programs where LabOne seeks reimbursement for laboratory testing services.
Sales and Marketing
LabOne's client base consists of insurance companies, managed care organizations, TPAs, government agencies, physician practices, hospitals and employers, primarily in North America. The Company believes that its ability to provide prompt and accurate results on a cost-effective basis and its responsiveness to customer needs have been important factors in servicing existing business.
LabOne is the national account manager for State Farm Insurance Companies ("State Farm") for teleunderwriting, collection and testing of specimens from its life and health insurance applicants. Under these arrangements, total revenue recognized by the Company from State Farm for the years ended December 31, 2003, 2002 and 2001 represented 10%, 12% and 13%, respectively, of total revenue. The loss of the State Farm account would have a material adverse effect on the Company's results.
All of the Company's sales representatives for the risk assessment market have significant business experience in the insurance and paramedical industry or clinical laboratory-related fields. These representatives call on major clients several times each year, usually meeting with a medical director or vice president of underwriting. An important part of the Company's marketing effort is directed toward providing its existing clients and prospects with information pertaining to the benefits of, and trends in, laboratory testing, applicant interviews and other medical information gathering. The Company's sales representatives and its senior management also attend and sponsor insurance industry underwriters' and medical directors' meetings.
The Company's sales representatives for clinical healthcare services are experienced in clinical laboratory-related fields, and each currently works in a specific geographic area. Marketing efforts are directed at insurance carriers, employers, TPAs, physician practices, hospitals and other organizations nationwide.
Marketing for substance abuse testing is primarily directed at Fortune 1000 companies, occupational health clinics and TPAs. The Company's strategy is to offer consistent, quality services, nationwide, at competitive prices. The Company's marketing focuses on LabOne's ability to offer multiple reporting methods, next-flight-out options, dedicated client service representatives and rapid reporting of results. The clinical SAT business is sensitive to economic conditions and levels of new employment. The Company has not experienced any appreciable organic revenue growth in this segment.
Competition
The Company believes that the risk assessment services market in the United States and Canada is approximately a $1 billion industry. The Company serves approximately 25% of this market. The primary competition in the market includes Hooper Holmes, Inc. and Examination Management Services, Inc. In this market, LabOne has developed long-term client relationships and a reputation for providing quality services at competitive prices tailored specifically to the insurance industry's needs. The Company continues to develop innovative data management services and technological solutions that differentiate its products from competitors. These services and solutions enable LabOne's clients to expedite the underwriting and claims processes, saving time and reducing underwriting costs.
The Company believes that the laboratory testing segment of the clinical market is a $35-40 billion industry, which is highly fragmented and very competitive. The Company faces competition from numerous independent clinical laboratories and hospital-owned or physician-owned laboratories. Two of the Company's competitors are significantly larger and have substantially greater financial resources than LabOne. The Company has established a solid client base through the use of Lab Card® and arrangements with managed care entities to provide laboratory services and information reporting.
LabOne competes in the employment substance abuse testing segment nationwide. There are currently 52 laboratories certified by SAMHSA. Two major clinical chains, which collectively perform the majority of the substance abuse testing, are the Company's major competitors. The Company's focus is fast turnaround with high-quality, low-cost service, with a strategic position of offering oral fluid based drug screening. The acquisition of the assets of Northwest Toxicology will result in additional urine and oral fluid testing volumes directed to LabOne's Lenexa laboratory, and furthers the Company's capabilities to include drugs of abuse testing in blood, expanded specimen validity testing, medical professional and other esoteric drug testing.
Foreign Markets
The Company derives revenues from risk assessment services, primarily laboratory testing, marketed to life insurance clients insuring residents of foreign countries. Substantially all of this laboratory testing is from Canada, but the Company also receives specimens from insurance applicants in Mexico and other foreign countries. The laboratory testing on these specimens is performed primarily in the United States. Total revenues from these sales were $14.1 million in 2003, $12.1 million in 2002 and $8.9 million in 2001, or approximately 4% of the Company's total revenues in each of these years. The Company does not maintain any significant long-lived assets in foreign countries.
Employees
After recent acquisitions, the Company has approximately 3,000 employees, including 250 part-time employees. None of the Company's employees are represented by a labor union. The Company believes its relations with employees are good.
ITEM 2. PROPERTIES
The Company's principal operations are located on 54 acres of land in Lenexa, Kansas, approximately 15 miles from Kansas City, Missouri. Its 268,000 square foot, custom-designed facility houses the Company's primary laboratory, administrative and warehouse functions. The facility is owned by the Company and financed through industrial revenue bonds issued by the City of Lenexa, Kansas. The laboratory has certain enhancements that improve the efficiency of operations. Conveyor systems transport inbound test kits through the opening and set-up process and remove waste. All automated testing equipment requiring purified water is linked directly to a centralized water-purification system. Over 50,000 square feet of raised flooring allows laboratory instruments and computer systems to be arranged or moved quickly and easily. The security system includes proximity card readers to control access and a ceiling detector system to prevent unauthorized access. In addition, three diesel generators and a UPS b attery system are on-line in the event of electrical power shortage. These back-up power sources allow specimen testing and data processing to continue until full power is restored, thus assuring LabOne's clients of continuous laboratory operation.
In conjunction with the acquisition of Central Plains Laboratories in December 2002, the Company leases two laboratories and office space in Hays, Kansas. These leases expire in 2006 and 2007. LabOne leases 24 locations in the Midwest, which serve as LabOne Service Centers. These facilities provide specimen collection services for patients and are typically located in medical office buildings. Lab One Canada Inc. leases office space in Ontario Canada, which is used for sales and client services. This lease expires in 2004. Additionally, Lab One Canada Inc. leases space in Quebec, Canada for assembly and distribution of specimen collection kits for Canadian insurance testing and insurance applicant interviews. This lease expires in 2005. LabOne leases a facility in Lee's Summit, Missouri, under lease until 2011, to perform teleunderwriting interviews and process physician statement reports. The Company also leases space in Earth City, Missouri to process physician statement reports. ExamOne has a five-year lease expiring in 2004 for a facility used as office space in Voorhees, New Jersey, and leases locations across the United States as regional paramedical offices.
In connection with the acquisition of the core laboratory operations of the Health Alliance, the Company leases space from the Health Alliance while it pursues construction of a new state-of-the-art laboratory facility in the Greater Cincinnati/Tri-State area. The Company anticipates that construction could be completed during 2004.
In conjunction with the acquisition of the assets of Northwest Toxicology, the Company leases space in Salt Lake City, Utah. The leases expire in 2005. The Northwest Toxicology laboratory will be maintained as a SAMHSA-certified laboratory.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, LabOne was the subject of certain lawsuits pending as of December 31, 2003. Although LabOne cannot predict the outcome of such proceedings or any other claims made against it, management believes that the ultimate resolution of these claims will not have a material adverse impact on the Company's financial position, results of operations and cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock trades on The Nasdaq Stock Market® under the symbol LABS. As of February 13, 2004, outstanding shares were held by approximately 8,600 shareholders either directly or in street name.
The Company did not pay a dividend on its common stock during 2003 or 2002. The Board of Directors will review the dividend policy on a periodic basis, but presently has no plans to pay a dividend in the near future. Additionally, the Company's line of credit includes a covenant restricting the payment of dividends on the Company's common stock.
The following are the high and low prices of LabOne's common stock for each quarter of 2003 and 2002:
2003 | 2002 | |||
High | Low | High | Low | |
1st Quarter | $ 20.86 | $ 17.38 | $ 18.45 | $ 15.00 |
2nd Quarter | 22.55 | 17.79 | 26.95 | 16.89 |
3rd Quarter | 25.24 | 19.91 | 26.40 | 15.77 |
4th Quarter | 32.50 | 21.04 | 19.75 | 12.10 |
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data regarding the Company. This information should be read in conjunction with ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and ITEM 15. (a) (1) and (2), CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE. The balance sheet data as of December 31, 2003, 2002, 2001, 2000 and 1999 and the statement of operations data for each of the years in the five-year period ended December 31, 2003, have been derived from the Company's Audited Consolidated Financial Statements.
Years Ended December 31, | |||||
2003 | 2002 | 2001 | 2000 | 1999 | |
(in thousands, except per share amounts) | |||||
Sales | $ 346,020 | $ 298,147 | $ 233,887 | $ 169,151 | $ 119,667 |
Operating earnings | 35,549 | 28,431 | 4,259 | 3,742 | 8,045 |
Net earnings (loss) | 20,732 | 14,840 | (1,043) | (524) | 2,859 |
Diluted earnings (loss) per common share | $ 1.23 | $ 0.91 | $ (0.18) | $ (0.05) | $ 0.27 |
Dividends per common share | | | | | 0.76 |
Total assets | $ 237,622 | $ 216,692 | $ 188,792 | $ 127,979 | $ 118,443 |
Long term debt | 56,094 | 63,050 | 55,833 | 38,677 | 29,615 |
Stockholders' equity | 145,701 | 120,060 | 101,591 | 64,711 | 71,029 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of operations should be read in conjunction with the accompanying financial statements and the related notes. This discussion may contain forward-looking statements. Please see "Forward-Looking Statements" and "Factors Affecting the Company's Future Performance" for a discussion of some, but not all, of the uncertainties, risks and assumptions associated with these statements.
RESULTS OF OPERATIONS
Year ended December 31, | ||||||
2003 | 2002 | 2001 | ||||
(in thousands) | ||||||
Revenues: | ||||||
Risk assessment services | ||||||
Insurance laboratory | $ 88,818 | 26% | $ 93,892 | 31% | $ 77,276 | 33% |
Paramedical services | 85,363 | 25% | 74,235 | 25% | 57,264 | 24% |
Other insurance services | 56,554 | 16% | 41,869 | 14% | 24,799 | 11% |
Total risk assessment services | 230,735 | 67% | 209,996 | 70% | 159,339 | 68% |
Clinical | ||||||
Healthcare services | 88,455 | 26% | 60,906 | 20% | 46,615 | 20% |
Substance abuse testing | 26,830 | 8% | 27,244 | 9% | 27,933 | 12% |
Total clinical | 115,285 | 33% | 88,150 | 30% | 74,548 | 32% |
Total | $ 346,020 | 100% | $ 298,146 | 100% | $ 233,887 | 100% |
Total laboratory services revenue | $ 204,103 | $ 182,042 | $ 151,824 | |||
Volumes: | ||||||
Risk assessment services | ||||||
Insurance laboratory | 5,165 | 5,610 | 4,642 | |||
Paramedical services | 1,124 | 985 | 752 | |||
Clinical | ||||||
Healthcare specimens | 2,518 | 1,839 | 1,570 | |||
Substance abuse testing | 2,221 | 2,276 | 2,399 |
2003 Compared to 2002
Revenue for the year ended December 31, 2003, was $346.0 million compared to $298.1 million in 2002. The increase of $47.9 million, or 16%, was due to increases in clinical healthcare revenue of $27.5 million and risk assessment revenue of $20.7 million, partially offset by a decrease in clinical SAT revenue of $0.4 million. Risk assessment revenue increased to $230.7 million from $210.0 million in 2002 due primarily to increases of $14.7 million of other insurance services and $11.1 million in paramedical services, partially offset by a decrease in insurance laboratory services of $5.1 million. Other insurance services increased due to growth in medical records retrieval services and teleunderwriting. Paramedical services revenue increased due to an increase in the number of paramedical exams performed from the addition of new customer accounts. Insurance laboratory revenue decreased 6% due to a decline in the total number of insurance applicants tested by the Company, partially offset by an inc rease in the average revenue per applicant. The number of insurance applicants tested decreased due to accounts lost as a result of pricing competition. Healthcare services revenue increased to $88.5 million in 2003 from $60.9 million in 2002 due to a 37% increase in testing volumes and a 6% increase in the average revenue per patient. Increased sales to new and existing healthcare customers accounted for 28% of the revenue increase, and the acquisition of Central Plains Laboratories, L.L.C. ("CPL") in December 2002 accounted for 17% of the revenue increase. SAT revenue decreased to $26.8 million in 2003 from $27.2 million in 2002 primarily due to a 2% decrease in testing volumes. Total laboratory services revenue from risk assessment and clinical was $204.1 million as compared to $182.0 million in 2002.
Cost of sales increased $31.2 million, or 15%, for the year compared to the prior year. This increase is primarily due to increases in paramedical services, payroll, material costs, medical records and motor vehicle reports. Risk assessment cost of sales increased to $166.0 million compared to $151.7 million during 2002 due to the growth of medical records retrieval services, paramedical examinations performed and teleunderwriting interviews, partially offset by the decrease in laboratory specimen volumes. Clinical healthcare cost of sales increased to $51.9 million compared to $33.7 million during 2002 due to increased specimen volumes. Clinical SAT cost of sales decreased to $19.2 million compared to $20.4 million during 2002 due to cost savings on material costs and payroll, and lower specimen volumes.
As a result of the above factors, gross profit increased $16.6 million, or 18%, to $108.9 million in 2003 from $92.3 million in 2002. Risk assessment gross profit increased $6.5 million, or 11%, to $64.7 million in 2003. Clinical healthcare gross profit improved $9.4 million to $36.5 million in 2003 from $27.1 million in 2002. Clinical SAT gross profit increased $0.7 million to $7.6 million in 2003 from $6.9 million last year.
Selling, general and administrative ("SGA") expenses increased $9.5 million, or 15%, in 2003 compared to 2002 primarily due to increases in payroll, consulting for software implementations, insurance, bad debt and amortization expenses. Payroll expenses increased $3.7 million, or 10%, due to increased headcount. Bad debt expense increased in conjunction with the increase in revenue. Risk assessment SGA increased to $17.4 million compared to $17.2 million in 2002 due to amortization and consulting expenses, partially offset by a decrease in payroll. Clinical healthcare SGA increased to $18.7 million compared to $15.3 million in 2002 due to an increase in payroll and bad debt expenses. Clinical SAT SGA decreased to $3.1 million in 2003 from $3.3 million. Corporate SGA increased to $34.2 million from $28.0 million in 2002 due to increases in payroll, insurance, consulting and audit expenses.
Operating income increased 25% to $35.5 million in 2003 from $28.4 million in 2002. Risk assessment services had operating income of $47.4 million compared to $41.0 million in 2002. Clinical healthcare services operating income increased to $17.7 million in 2003 from $11.9 million in 2002. Clinical SAT operating income improved to $4.6 million in 2003 from $3.6 million in 2002. Corporate operating expenses for the year were $34.2 million compared to $28.0 million in 2002.
Nonoperating expense decreased $1.3 million in 2003 compared to 2002, primarily due to decreased interest expense. Interest expense decreased from 2002 primarily due to refinancing the Company's subordinated debt through borrowings under the Company's line of credit. The effective tax rate during 2003 was 37% compared to 39% in 2002.
The combined effect of the above factors resulted in net income of $20.7 million, or $1.23 per diluted share, compared to net income of $14.8 million, or $0.91 per diluted share, in 2002.
2002 Compared to 2001
Revenue for the year ended December 31, 2002, was $298.1 million compared to $233.9 million in 2001. The increase of $64.2 million, or 27%, was due to increases in risk assessment revenue of $50.6 million and clinical healthcare revenue of $14.3 million, partially offset by a decrease in clinical SAT revenue of $0.7 million. Risk assessment revenue increased to $210.0 million from $159.3 million in 2001 due primarily to increases of $17.1 million of other insurance services revenue, $17.0 million in paramedical services and $16.6 million in laboratory testing. Other insurance services revenue increased due to growth in teleunderwriting and medical records retrieval services. Paramedical services revenue increased due to an increase in the number of paramedical exams performed. Insurance laboratory revenue increased primarily due to the acquisition of the Osborn Group, Inc. ("Osborn") on August 31, 2001 and a first quarter increase in applicant volumes. Healthcare services revenue increased to $60.9 m illion in 2002 from $46.6 million in 2001 due to a 17% increase in testing volumes and a 12% increase in the average revenue per patient. SAT revenue decreased to $27.2 million in 2002 from $27.9 million in 2001 primarily due to a 5% decrease in testing volumes. Total laboratory services revenue from risk assessment and clinical was $182.0 million as compared to $151.8 million in 2001.
Cost of sales increased $40.5 million, or 25%, for the year compared to the prior year. This increase is primarily due to increases in paramedical collections, payroll, material costs, medical records retrieval services and motor vehicle reports. Risk assessment cost of sales increased to $151.7 million compared to $113.1 million during 2001 due to the increase in paramedical exams, teleunderwriting interviews and laboratory specimen volumes. Clinical healthcare cost of sales increased to $33.7 million compared to $29.6 million during 2001 due to increased specimen volumes. Clinical SAT cost of sales decreased to $20.4 million compared to $22.6 million during 2001 due to cost savings on payroll and material costs, and lower specimen volumes.
As a result of the above factors, gross profit increased $23.7 million, or 35%, to $92.3 million in 2002 from $68.6 million in 2001. Risk assessment gross profit increased $12.0 million, or 26%, to $58.3 million in 2002. Clinical healthcare gross profit improved $10.1 million to $27.1 million in 2002 from $17.0 million in 2001. Clinical SAT gross profit increased $1.6 million to $6.9 million in 2002 from $5.3 million last year.
Selling, general and administrative expenses decreased $0.4 million, or 1%, in 2002 compared to 2001 primarily due to lower amortization expense of $7.9 million partially offset by increases in payroll and bad debt expenses. Amortization in 2001 included goodwill amortization of $4.2 million, non cash warrant amortization of $3.2 million related to the Welsh, Carson, Anderson and Stowe IX, L.P. ("WCAS") financing and non cash amortization of $0.6 million for warrants issued in exchange for an exclusive marketing arrangement. Payroll expenses increased $5.7 million, or 19%, primarily due to an investment in corporate information systems personnel and clinical healthcare and risk assessment commission expenses related to the higher testing volumes. Bad debt expenses increased in conjunction with the increase in revenue. Risk assessment SGA decreased to $17.2 million compared to $17.6 million in 2001 due to the elimination of $1.3 million of goodwill amortization, partially offset by increases in payroll , bad debt and sales expenses. Clinical healthcare SGA increased to $15.3 million compared to $13.6 million in 2001 due to an increase in bad debt and payroll expenses partially offset by savings on Lab Card production expenses. Clinical SAT SGA decreased to $3.3 million in 2002 from $4.1 million due to lower payroll expense and the one time warrant amortization of $0.6 million in 2001. Corporate SGA decreased to $28.0 million from $29.1 million in 2001 due to the elimination of goodwill amortization and the WCAS warrant amortization in 2001, partially offset by an increase in payroll expenses.
Operating income increased to $28.4 million in 2002 from $4.3 million in 2001. Risk assessment services had operating income of $41.0 million compared to $28.7 million in 2001. Clinical healthcare services operating income increased to $11.9 million in 2002 from $3.5 million in 2001. Clinical SAT operating income improved to $3.6 million in 2002 from $1.3 million in 2001. Corporate operating expenses decreased to $28.0 million from $29.1 million in 2001.
Nonoperating expense increased $2.0 million in 2002 compared to 2001 primarily due to increased interest expense. The effective tax rate during 2002 was 39% compared to 150% in 2001. The high effective tax rate in 2001 was due to goodwill amortization expenses, which were not deductible for tax purposes.
The combined effect of the above factors resulted in net income of $14.8 million, or $0.91 per diluted share, compared to a net loss of $1.0 million, or $0.18 per share, in 2001.
TRENDS
The risk assessment services market continues to be highly competitive. The primary focus of the competition has been on lower pricing for laboratory and paramedical services and expansion of services to compete with those offered by the Company. LabOne plans to maintain its focus on its long-standing commitment to customer service, provision of quality products and services at competitive prices and development of innovative data management services and technological solutions that offer customers faster sources of reliable underwriting information and differentiate LabOne from its competitors.
The Company anticipates that during 2004 the number of insurance applicants who undergo laboratory testing will remain relatively flat with 2003 and downward pressures on laboratory pricing will continue. Continued increases in the number and type of tests ordered per applicant tested are expected to continue, as is the willingness of life insurance companies to outsource other services such as case management and teleunderwriting. The Company should be uniquely positioned to capitalize on these anticipated trends.
During 2003, LabOne continued to expand its customer base of national life insurance carriers using the Company's teleunderwriting services. Under the terms of these contracts, LabOne personnel conduct telephone interviews relating to the medical histories of new life insurance policy applicants. The Company anticipates continued increases in revenues from these services during 2004.
Revenue from paramedical services increased $11.1 million in 2003, and the Company anticipates that this growth trend will continue during 2004 although at a slower pace. Paramedical services historically return a lower gross margin than LabOne's other business segments. In most cases, a substantial percentage of the revenue from a specimen collection is paid to a contractor who owns and operates an independent local office that arranges for the collection. If this revenue grows as a percentage of total LabOne revenue, its lower gross margins will add to the total profitability of LabOne but will reduce the average gross profit percentage of revenue.
In clinical healthcare, the Company serves approximately 800,000 managed care members under exclusive managed care outpatient laboratory service arrangements. The Company continues to add network approvals for healthcare plans in focused regional physician markets to increase penetration. Managed care organizations, and the physicians who are under their contracts, continue to choose LabOne for its quality controlled testing, disease management data capabilities and responsive customer service and support.
Development of new clinical tests and proprietary methodologies for use by healthcare providers continues to expand. Recent discoveries or potential technology breakthroughs could enable rapid acceleration of this development and subsequent demand for these tests. These tests are often characterized by higher processing costs or limited access through specific laboratories. LabOne's response to this trend has been to internalize methodologies for these tests, thus lowering costs, and to seek adequate reimbursement for these tests from payors and clients. The ability of outside firms to advance new tests and create demand for them, offset by the Company's ability to successfully limit the expense impact of such tests and to be adequately reimbursed, may pressure clinical healthcare gross margins in the future. Alternatively, LabOne's responsive strategy may create advantages over smaller, less equipped competition.
LabOne continues development of methods to internalize testing formerly referenced to esoteric laboratories. Additionally, internal cytology and anatomic pathology capacity has been added, which will reduce LabOne's dependence on commercial providers for these services and reduce costs. The integration of purchased laboratories, including Central Plains Laboratories, the core laboratory operations of the Health Alliance and Northwest Toxicology, will increase testing volumes at the Lenexa facility, improving capacity utilization and generating improved incremental margins on transferred testing.
The Company continues to market the Lab Card® Program to physician practices and managed care companies. Membership in the Lab Card Program is approximately 3.2 million members.
LIQUIDITY AND CAPITAL RESOURCES
LabOne's working capital position increased to $48.1 million as of December 31, 2003, from $40.4 million as of December 31, 2002. This increase is primarily due to increased net income for the year. Accounts receivable grew to $57.9 million as of December 31, 2003, from $48.7 million as of December 31, 2002, due to the increase in revenue. Total cash and cash equivalents as of December 31, 2003, were $4.7 million compared to $8.1 million as of December 31, 2002. Management expects to be able to fund operations from a combination of cash flow from operations and borrowings.
During 2003, the Company spent $13.3 million on acquisitions and $9.7 million for capital expenditures. Acquisitions for 2003 included ScanTech Solutions, L.L.C. for $5.9 million, the insurance testing laboratory of MetLife, Inc. for $5.1 million and $2.2 million for three paramedical affiliates. During 2002, the Company spent $17.2 million on acquisitions and $8.0 million for capital expenditures. Acquisitions for 2002 included CPL for $12.1 million and $4.6 million for several paramedical affiliates. During 2001, the Company spent $53.0 million on acquisitions and $8.6 million for capital expenditures. Acquisitions in 2001 included $50.6 million for Osborn and $2.4 million for several paramedical operations.
To finance the purchase of Osborn in 2001, LabOne issued $35 million of convertible preferred stock, 350,000 warrants to purchase LabOne stock at $0.01 per share and $15 million of subordinated debt to WCAS. The preferred stock earned a paid-in-kind dividend at a fixed rate of 8% compounded semiannually and was converted into LabOne common stock at a rate of $8.32 per share during the third and fourth quarters of 2003. The warrants were exercised in 2003. The $15 million of subordinated debt bore a fixed interest rate of 11% and was refinanced on December 31, 2002 from borrowings on the Company's line of credit.
Interest on the industrial revenue bonds issued to finance the construction of the Company's Lenexa facility is based on a taxable seven-day variable rate which, including letter of credit and remarketing fees, was approximately 2.1% as of February 1, 2004. The outstanding balance on the bonds was $10.8 million as of December 31, 2003 and the bonds mature over the next six years in increments of $1.8 million per year.
On June 11, 2002, the Company entered into a $100 million credit agreement with JPMorgan Chase Bank (administrative agent and collateral agent) and Wachovia Bank, N.A. (syndication agent). On December 3, 2003, the commitments under the credit agreement were increased to $150 million. The line of credit bears variable interest which, as of December 31, 2003, was 2.9% and requires a commitment fee of 0.5% on the unused portion of the commitment. The line of credit is due on June 11, 2005. As of December 31, 2003, prior to the acquisitions of the core laboratory operations of the Health Alliance and of Northwest Toxicology, $47 million was outstanding under the agreement and approximately $70 million of the remaining $103 million was available for borrowing.
Under the terms of the credit agreement, the Company must comply with certain financial covenants. A leverage covenant requires that the ratio of total indebtedness to the sum of four rolling quarters of earnings before interest, taxes, depreciation and amortization (EBITDA), as defined, be less than 2.75 times. An interest coverage covenant requires that the ratio of the sum of four rolling quarters of EBITDA be at least 4.0 times the net interest expense, as defined, for those quarters. Other covenants limit annual cash capital expenditures to thirty percent of EBITDA and require the maintenance of a certain level of consolidated net worth. As of December 31, 2003, the Company was in compliance with all financial covenants related to the line of credit.
The following table summarizes certain contractual obligations as of December 31, 2003:
Payments due by period | |||||
Contractual obligations | Total | Less than 1 year |
1-3 years | 4-5 years | After 5 years |
(in thousands) | |||||
Long-term debt | $58,087 | $ 1,984 | $50,703 | $ 3,600 | $ 1,800 |
Capital lease obligations | 72 | 30 | 28 | 14 | |
Operating leases | 10,420 | 3,331 | 3,398 | 1,592 | 2,099 |
Purchase obligations | | | | | |
Total contractual obligations | $68,579 | $ 5,345 | $54,129 | $ 5,206 | $ 3,899 |
RECENT ACCOUNTING DEVELOPMENTS
In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002. The adoption of FASB Interpretation No. 45 did not have a material impact on the Company's financial statements.
In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. The application of this Interpretation did not have a material impact on the Company's financial statements.
In December 2003, FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. This Interpretation replaces Interpretation 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which was issued in January 2003. The Company will be required to apply Interpretation No. 46R to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable interest entities created before January 1, 2004, Interpretation No. 46R will be applied beginning on January 1, 2005. The Company currently does not have any controlling financial interests that are within the scope of this Interpretation.
In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of SFAS No. 150.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
While many operational aspects are subject to complex federal, state and local regulations, the accounting for LabOne's business is generally straightforward. The Company recognizes revenues for its services when those services are provided to the customer. Revenues related to clinical healthcare billings include adjustments for revenue disallowances estimated at the time the revenue is recorded.
Allowance for Doubtful Accounts
The estimate of the allowance for doubtful accounts involves a standardized monthly review of the collectibility of receivables based on contractual obligations and the aging of accounts receivable. Contractual agreements, historical collection patterns and payor reimbursement experience are integral in the estimation of the allowance for doubtful accounts. In addition, the current state of billing functions is assessed in order to identify any known collection or reimbursement issues in order to assess the impact, if any, on reserve estimates, which involve judgment. Adjustments to the reserve for contractual agreements are reported as a reduction in revenues. Other adjustments are recorded to bad debt expense within selling, general and administrative expenses. The collection and reserves processes, along with the monitoring of billing processes, helps to reduce the risk associated with material revisions to estimates resulting from adverse changes in collection and reimbursement experience and bill ing functions.
Software Developed for Internal Use
Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with the American Institute of Certified Public Accountants' Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These capitalized costs are included in property, plant and equipment and are subject to amortization over their estimated useful lives beginning when the software project is put in service. The Company periodically reviews the lives and values of its capitalized software and makes adjustments if necessary.
Goodwill and Intangible Assets
The Company allocates the purchase price of acquired businesses in accordance with SFAS No. 141, Business Combinations. A portion of the purchase price is assigned to each individual asset acquired on the basis of its fair value. Intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights. If intangible assets do not arise from contractual or other legal rights, they are recognized as assets apart from goodwill only if they are capable of being separated from the acquired entity and sold, transferred, licensed, rented or exchanged. Intangible assets recognized apart from goodwill have a determinable life and are amortized accordingly. The excess of the purchase price over the sum of the amounts assigned to the tangible assets and any separately recognized intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company evaluates the recoverability and measures the potential impairment of goodwill under SFAS 142, Goodwill and Other Intangible Assets. The impairment test is a two-step process that begins with the estimation of the fair value of the reporting units to determine if any impairment exists. The second step measures the amount of the impairment, if any. The estimate of fair value considers publicly available information regarding the market capitalization of the Company, as well as the financial projections and future prospects of business, including growth opportunities and likely operational improvements, and comparable sales prices, if available. To assess potential impairment, the estimate of fair value for the Company is compared to the book value of the consolidated net assets. If the book value of the consolidated net assets is greater than the estimate of fair value, the Company then proceeds to the second step to measure the impairment, if any. The second step compares the impli ed fair value of goodwill with its carrying value. The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit's goodwill is greater than its implied fair value, an impairment loss will be recognized in the amount of the excess. The Company believes its estimation methods are reasonable and reflective of common valuation practices.
FACTORS AFFECTING THE COMPANY'S FUTURE PERFORMANCE
Investing in shares of LabOne common stock involves a risk of loss. Set forth below and elsewhere in this Report and in other documents the Company files with the Securities and Exchange Commission are risks and uncertainties that could cause the Company's actual results to differ materially from the results contemplated by the forward-looking statements contained in this Report and other public statements made by the Company.
If the Company cannot effectively implement its growth strategy, it would materially affect business and results of operations. LabOne's growth strategy assumes the Company will acquire additional risk assessment, laboratory testing or other related businesses and enter into new strategic alliances. The Company cannot assure that it will be able to continue to identify risk assessment, laboratory testing or other related service companies to acquire or enter into alliances with or otherwise negotiate acceptable terms with respect to any transaction. Furthermore, the Company may have difficulty integrating an acquired business with existing operations, retaining key customers or vendors or retaining key personnel of the acquired business. The acquisition and integration of an acquired business requires the dedication of significant management resources that could adversely affect business activities or customer service. In addition, the issuance of equity securities pursuant to these acquisitions or allian ces could be dilutive to existing shareholders.
LabOne derives a significant portion of revenue from risk assessment and laboratory testing services contracts, many of which are terminable at will or on short notice by customers. Other contracts are terminable or subject to significant penalties if performance standards are not met. Competition, interruption or deterioration in services or a change in management or ownership of a customer could result in a customer's decision to stop using LabOne's services in whole or in part.
Lower prices offered by competitors may undercut LabOne's competitive advantage and reduce profits. The Company has competed in the life insurance risk assessment business by offering a more complete suite of higher quality services than its competitors at competitive prices. Some competitors are offering lower prices. If these competitors continue to reduce prices and customers refuse to pay higher prices for LabOne's services, profits may be reduced. Competition from other providers of risk assessment, laboratory testing or other related services may materially harm LabOne's business and results of operations.
LabOne has numerous competitors, including two larger national laboratory companies with significantly greater financial and technical resources. These national laboratory companies also have national and regional contracts with managed care networks, some on an exclusive basis, and they also have exclusive arrangements for the distribution of certain esoteric tests applicable to the clinical market. The strategies and other efforts of the Company's competitors, if successful, may erode the Company's customer base, limit the Company's access to users and payors of laboratory services, reduce the Company's existing and future sources of revenue and access to local and regional markets, and cause the Company to reduce prices or increase its marketing and other costs of doing business, each of which could have a material adverse affect on the Company's business and results of operations.
Any adverse change in the number and types of tests ordered by life insurance companies could reduce profits. Currently, the largest and most profitable business segment for LabOne is providing risk assessment services to the life insurance industry. The level of demand for such services is influenced by a number of factors, including:
o the number of life insurance applications underwritten,
o the policy amount thresholds at which insurance companies order testing and other services,
o the type and costs of tests and other services requested,
o testing and specimen collection innovations approved by the Food and Drug Administration, and
o the extent to which insurance companies may create in-house testing facilities and provide other underwriting services in-house.
These factors are beyond the Company's control. Any adverse changes in life insurance industry demand for testing and other services the Company provides could significantly reduce profits.
Efforts by managed-care organizations, Medicare, Medicaid, insurance companies and other payors to reduce the cost and utilization of healthcare services, including laboratory testing services, could reduce the prices for laboratory testing services and harm the results of clinical laboratory operations.
Impairment of goodwill on LabOne's books could depress the stock price. As of December 31, 2003, the Company had $99.1 million of goodwill, including $23.6 million from the merger of LabOne, Inc. and Lab Holdings, Inc. in 1999, recorded on its balance sheet. If this goodwill is impaired in the future, the Company will be required to take a non-cash charge to earnings. This could depress the market price of LabOne stock if the stock price is influenced by investors that focus primarily on net earnings rather than on other financial measures.
The failure to provide accurate laboratory test results and other data or follow accepted procedures may result in claims that may not be covered by insurance. Clients rely on the accuracy of testing and other services to make significant insurance, treatment and employment decisions. In addition, federal and state laws regulate the disclosure of specimen testing results and other nonpublic personal information. If LabOne does not provide accurate test results using accepted scientific methods, does not provide other data accurately, or does not adequately protect the confidentiality and security of this information, the Company could incur significant liability. The Company has insurance to cover these types of claims, but cannot assure that this coverage is adequate or will continue to be available at reasonable prices.
Business could be harmed by disruption in express delivery service. LabOne generally relies on express couriers to transport specimens to its laboratories quickly and safely. A disruption in these couriers' businesses resulting from a labor dispute, natural disaster, malicious human acts or other event could harm business and results of operations.
The development of more attractive on-site rapid assay tests may reduce demand for laboratory testing services. LabOne serves customers through laboratory-based testing facilities. Although there are some on-site rapid assay testing products available in the marketplace, rapid assays have not achieved broad market acceptance due to the high cost of such assays, liability concerns, regulatory limitations, less accurate testing results and the absence of a broad testing menu. If more competitive assays become available, such products could be substituted for laboratory based testing and have an adverse impact on business and results of operations.
Business and results of operations could be adversely affected if the Company's primary testing facility is temporarily shut down or severely damaged because of a natural disaster, telecommunications failure or other serious event. The Company carries business interruption insurance to compensate for losses which might occur, but it cannot provide assurance that this insurance coverage will be enough to compensate for damages resulting from any such disruption to business.
LabOne's organizational documents and other agreements contain restrictions that might prevent a takeover or change in management. Provisions of the articles of incorporation and by-laws might have the effect of discouraging a potential acquirer from attempting a takeover on terms that some shareholders might favor, reducing the opportunity for shareholders to sell shares at a premium over then-prevailing market prices and preventing or frustrating attempts to replace or remove current management. These provisions include:
o a fair price provision,
o a requirement that the board of directors be classified,
o the authorization of a "blank check" preferred stock to be issued at the discretion of the board of directors, and
o a requirement that the Company receive advance notice of shareholder nominees for director and shareholder proposals.
In addition, the Company has a shareholder rights plan, which grants shareholders other than the acquiring person the right to purchase common stock at one-half of market price if any person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, subject to a number of exceptions set forth in the plan.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk exposure exists due to LabOne's variable interest rates associated with its liability of $47.0 million borrowing on its line of credit and $10.8 million in industrial revenue bonds as of December 31, 2003. The interest expense on the line of credit is based on the LIBOR rate plus a range of 125 to 225 basis points and is approximately 2.9% as of February 1, 2004. The interest expense incurred on the bonds is based on a taxable seven-day variable rate which, including letter of credit and remarketing fees, is approximately 2.1% as of February 1, 2004. Any future increase in interest rates would result in additional interest expense which could be material. Based on balances outstanding as of December 31, 2003, an assumed 10% increase in interest rates (representing approximately 30 basis points) would potentially increase interest expense on these instruments by $0.2 million annually.
A foreign currency risk exposure exists due to sales in Canada in Canadian dollars and the direct laboratory expenses associated with this revenue being incurred in US dollars. This exposure is not considered to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 15.(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9(A). CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed for information required to be disclosed in the Company's reports filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to be recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also are designed for such information to be accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.
Management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures as of December 31, 2003. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2003 to provide reasonable assurance that the control system's objectives would be met.
There were no changes in the Company's internal controls over financial reporting during the fourth quarter of fiscal 2003 that materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the captions entitled "Election of Directors" and "Management of LabOne" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 24, 2004, is incorporated into Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the caption entitled "Executive Compensation" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 24, 2004, is incorporated into Item 11 by reference, except the information contained in the Proxy Statement under the captions "Compensation Committee Report on Executive Compensation" and "Comparison of Five Year Cumulative Total Return Among LabOne, Nasdaq Composite Index and Peer Group" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information included under the captions entitled "Security Ownership of Management," "Security Ownership of Certain Beneficial Owners" and "Equity Compensation Plan Information" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 24, 2004, is incorporated into Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the caption entitled "Certain Relationships and Related Transactions" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 24, 2004, is incorporated into Item 13 by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information included under the caption entitled "Audit and Non-audit Fees" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its annual meeting of stockholders to be held May 24, 2004, is incorporated into Item 14 by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The following consolidated financial statements and schedule are attached as a separate section of this report entitled "Consolidated Financial Statements and Schedule":
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2003 and 2002
Consolidated Statements of Operations, Years Ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows, Years Ended
December 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
SCHEDULE:
Schedule II - Valuation and qualifying accounts
All other schedules are omitted because they are not applicable, not required or the information is included in the Consolidated Financial Statements or the notes thereto.
(b) Reports on Form 8-K
A Form 8-K current report dated October 8, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the Health Alliance had entered into negotiations with LabOne as its partner for the sale of its medical testing laboratory, Alliance Laboratory Services.
A Form 8-K current report dated October 10, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the completion of the closing process with MetLife to acquire the MetLife Insurance Testing Laboratory located in Elmsford, NY and initiation of a long-term agreement to provide laboratory testing services to MetLife, Inc. and its affiliated entities.
A Form 8-K current report dated November 12, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the content of the third quarter 2003 financial results conference call to investors.
A Form 8-K current report dated December 1, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the signing of a definitive agreement with the Health Alliance to acquire Alliance Laboratory Services and to provide laboratory testing services.
A Form 8-K current report dated December 3, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, the establishment of earnings guidance for 2004.
A Form 8-K current report dated December 11, 2003, was filed with the Commission reporting under Item 9. Regulation FD Disclosure, an increase in the amount available under the Company's revolving credit facility.
(c) Exhibits required by Item 601 of Regulation S-K
(Exhibits follow the Schedule):
2.1* | Distribution Agreement, dated December 20, 1996, between the Registrant and Syntroleum Corporation (formerly SLH Corporation) - attached as Exhibit 2(a) to Syntroleum Corporation's Form 10/A (Amendment No. 1) dated February 4, 1997 (File No. 0-21911). | |
2.2* | Blanket Assignment, Bill of Sale, Deed and Assumption Agreement, dated as of February 28, 1997, between the Registrant and Syntroleum Corporation (formerly SLH Corporation) - attached as Exhibit 2(b) to Syntroleum Corporation's Form 10/A (Amendment No. 1) dated February 4, 1997 (File No. 0-21911). | |
2.3* | Agreement and Plan of Merger by and between Lab Holdings, Inc. and LabOne, Inc., dated March 7, 1999 - attached as Appendix A to the Joint Proxy Statement/Prospectus filed as a part of the Registrant's Registration Statement on Form S-4, filed July 2, 1999 (File No. 333-76131). | |
2.4* | Stock Purchase Agreement, dated August 31, 2001, between the Registrant and ChoicePoint Inc. and ChoicePoint Services Inc. -- attached as exhibit 2. to the Current Report on Form 8-K filed September 14, 2001. | |
2.5* | Asset Purchase Agreement dated November 28, 2003 by and between LabOne, Inc. and the Health Alliance, for itself and on behalf of certain affiliated entities identified therein, including Amendment No. 1 to the Purchase Agreement dated December 31, 2003. -- attached as exhibit 2.1 to the Registrant's Current Report on Form 8-K filed January 20, 2004. | |
2.6 | Amendment No. 2 to the Purchase Agreement between LabOne, Inc. and the Health Alliance. | |
3.1* | Amended Articles of Incorporation - attached as Exhibit B to Appendix A to the Joint Proxy Statement/Prospectus filed as a part of the Registrant's Registration Statement on Form S-4, filed July 2, 1999 (File No. 333-76131). | |
3.2* | Certificate of Designations, Preferences, Qualifications and Rights of Series A Preferred Stock, dated February 11, 2000 - attached as Exhibit 3.2 to Annual Report on Form 10-K of LabOne, Inc., a Missouri corporation, for the year ended December 31, 1999. | |
3.3* | Amended and Restated Bylaws - attached as Exhibit C to Appendix A to the Joint Proxy Statement/Prospectus filed as a part of the Registrant's Registration Statement on Form S-4, filed July 2, 1999 (File No. 333-76131). | |
4.1* | Trust Indenture dated as of September 1, 1998, between the City of Lenexa, Kansas and Intrust Bank, N.A. related to the issuance of Taxable Industrial Revenue Bonds for the LabOne, Inc. Facility Project - attached as Exhibit 4.1 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware corporation, for the quarter ended September 30, 1998 (File No. 0-15975). | |
4.2* | Lease Agreement dated as of September 1, 1998, between the City of Lenexa, Kansas and LabOne, Inc. related to the Trust Indenture - attached as Exhibit 4.2 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware corporation, for the quarter ended September 30, 1998 (File No. 0-15975). | |
4.3* | Reimbursement Agreement dated as of September 1, 1998, between LabOne, Inc. and Commerce Bank, N.A. - attached as Exhibit 4.3 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware corporation, for the quarter ended September 30, 1998 (File No. 0-15975). | |
4.4 | Amended and Restated Credit Agreement dated December 3, 2003 between LabOne and JPMorgan Chase Bank and Wachovia Bank, National Association. | |
4.5* | Rights Agreement and attached exhibits A, B and C, dated as of February 11, 2000, between the Registrant and American Stock Transfer & Trust Company, - attached as Exhibit 4.1 to the Registrant's Form 8-K Current Report, filed February 14, 2000. | |
4.6* | Amendment No. 1 to Rights Agreement dated August 31, 2001 between LabOne, Inc. and American Stock Transfer & Trust Company - attached as exhibit 4.6 to the Registrant's Form 8-K Current Report, filed October 5, 2001. | |
4.7* | Warrant to Purchase Shares of Common Stock of LabOne, Inc., issued to Health Plan Services, Inc., dated April 1, 1999 - attached as Exhibit 10.19 to the Registrant's Registration Statement on Form S-4, filed July 2, 1999 (File No. 333-76131). | |
4.8* | Securities Purchase Agreement dated as of August 31, 2001 by and among LabOne, Inc., Welsh, Carson, Anderson and Stowe IX, L.P. and the other purchasers named on Schedule I to the Securities Purchase Agreement - attached as exhibit 4.1 to the Current Report on Form 8-K filed October 5, 2001. | |
4.9* | Letter Agreement dated December 10, 2001, clarifying the Securities Purchase Agreement dated August 31, 2001 - attached as exhibit 4.8 to the Current Report on Form 8-K filed December 11, 2001. | |
4.10* | Amendment 2 dated June 11, 2002 to the Securities Purchase Agreement between LabOne and Welsh Carson Anderson and Stowe - attached as exhibit 10.2 to the Quarterly Report on Form 10-Q of LabOne, Inc. for the quarter ended June 30, 2002. | |
4.11* | Release agreement dated May 20, 2002 related to the Stock Purchase Agreement between LabOne and Welsh Carson Anderson and Stowe - attached as exhibit 10.1 to the Quarterly Report on Form 10-Q of LabOne, Inc. for the quarter ended June 30, 2002. | |
4.12* | Amended Certificate of Designation for Series B-1 Cumulative Convertible Preferred Stock - attached as exhibit 4.2 to the Current Report on Form 8-K filed December 11, 2001. | |
4.13* | Amended Certificate of Designation for Series B-2 Cumulative Preferred Stock - attached as exhibit 4.4 to the Current Report on Form 8-K filed December 11, 2001. | |
4.14* | Form of Series A Senior Subordinated Note - attached as exhibit 4.5 to the Current Report on Form 8-K filed October 5, 2001. | |
4.15* | Warrant Agreement dated as of August 31, 2001 by and among LabOne, Inc., Welsh, Carson, Anderson and Stowe IX, L.P. and the other purchasers named on Schedule I to the Securities Purchase Agreement - attached as exhibit 4.3 to the Current Report on Form 8-K filed October 5, 2001. | |
4.16* | Registration Rights Agreement dated August 31, 2001 among LabOne, Inc., Welsh, Carson, Anderson and Stowe IX, L.P. and the other purchasers named on Schedule I to the Securities Purchase Agreement-- attached as exhibit 4.7 to the Current Report on Form 8-K filed October 5, 2001. | |
10.1* | Registrant's 1997 Directors' Stock Option Plan, as amended - attached as Exhibit 10.4 to the Registrant's Form 10-Q for the quarter ended September 30, 1998. *** | |
10.2* | Form of Option Agreement with Directors under the Directors' Stock Option Plan, as amended - attached as Exhibit 10.5 to the Registrant's Form 10-Q for the quarter ended September 30, 1998. *** | |
10.3* | 1987 Long-Term Incentive Plan of LabOne, Inc., approved May 16, 1991, with amendments adopted May 21, 1993 and November 9, 1993 - attached as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. ** | |
10.4* | Amendment to 1987 Long-Term Incentive Plan of LabOne, Inc., effective February 10, 1995 - attached as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for year ended December 31, 1995. ** | |
10.5* | Amendment to 1987 Long-Term Incentive Plan of LabOne, Inc., effective May 9, 1997 - attached as Exhibit 10.5 to the Annual Report on Form 10-K of LabOne, Inc., a Delaware corporation, for the year ended December 31, 1997 (File No. 0-15975). ** | |
10.6* | 1997 Long Term Incentive Plan of LabOne, Inc. - attached as Exhibit 10.1 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware corporation, for the quarter ended June 30, 1998 (File No. 0-15975). ** | |
10.7* | Form of Stock Option Agreement pursuant to the LabOne 1997 Long-Term Incentive Plan - attached as Exhibit 10.2 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Delaware corporation, for the quarter ended June 30, 1998 (File No. 0-15975). ** | |
10.8* | LabOne 2001 Long-Term Incentive Plan, as amended - attached as Appendix A to the Proxy Statement of LabOne, Inc. filed April 17, 2002.** | |
10.9* | Form of Stock Option Agreements pursuant to the LabOne 2001 Long-Term Incentive Plan - attached as Exhibit 10.8 to the Annual Report on Form 10-K of LabOne, Inc. for the year ended December 31, 2001.** | |
10.10* | LabOne, Inc. 2000 Stock Purchase Loan Program - attached as Exhibit 10 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Missouri corporation, for the quarter ended September 30, 2000. ** | |
10.11 | LabOne 2003 Incentive Plan. ** | |
10.12* | Form of Employment Agreement between LabOne, Inc. and its executive officers and certain key employees - attached as Exhibit 10.17 to the Annual Report on Form 10-K of LabOne, Inc. for the year ended December 31, 2001. ** | |
10.13* | Employment Agreement between LabOne, Inc. and W. Thomas Grant II, dated February 11, 2000 - attached as Exhibit 10.18 to the Annual Report on Form 10-K of LabOne, Inc., a Missouri corporation, for the year ended December 31. 2000. ** | |
10.14* | Employment Agreement between LabOne, Inc. and John W. McCarty - attached as Exhibit 10 to the Quarterly Report on Form 10-Q of LabOne, Inc., a Missouri corporation, for the quarter ended March 31, 2000. ** | |
10.15* | Employment Agreement between LabOne, Inc. and Gregg R. Sadler - attached as Exhibit 10.14 to the Annual Report on Form 10-K of LabOne, Inc., a Delaware corporation, for the year ended December 31, 1993 (File No. 0-15975). ** | |
10.16* | Amendment to Employment Agreement between LabOne, Inc. and Gregg R. Sadler - attached as Exhibit 10.13 to the Annual Report on Form 10-K of LabOne, Inc., a Delaware corporation, for the year ended December 31, 1995 (File No. 0-15975). ** | |
10.17* | Employment Agreement between LabOne, Inc. and Joseph C. Benage, dated May 11, 2001 - attached as Exhibit 10.16 to the Annual Report on Form 10-K of LabOne, Inc. for the year ended December 31. 2001. ** | |
10.18* | Form of Amended and Restated Indemnification Agreement between the Registrant and its directors - attached as Exhibit 10.10 to the Annual Report on Form 10-K of LabOne, Inc., a Missouri corporation, for the year ended December 31, 1999. | |
10.19* | Lease Agreement dated as of November 28, 2001, between Townsend Summit LLC and LabOne, Inc. - attached as Exhibit 10.1 to the Quarterly Report on Form 10-Q of LabOne, Inc. for the quarter ended March 31, 2002. | |
21 | Subsidiaries of Registrant | |
24 | Powers of Attorney. | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 'SS' 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is accompanying this Annual Report on Form 10-K and is not treated as filed in reliance on Section 601(b)(32) of Regulation S-K. | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 'SS' 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is accompanying this Annual Report on Form 10-K and is not treated as filed in reliance on Section 601(b)(32) of Regulation S-K. | |
99.1* | Transition Services Agreement between LabOne, Inc. and ChoicePoint Services Inc. dated August 31, 2001 - attached as exhibit 99. to the Current Report on Form 8-K filed September 14, 2001. |
* Incorporated by reference pursuant to Rule 12b-23
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
These exhibits may be obtained by stockholders of Registrant upon written
request to LabOne, Inc., 10101 Renner Blvd., Lenexa, KS 66219.
(d) Not applicable
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LabOne, Inc.
By: | /s/ John W. McCarty | By: | /s/ W. Thomas Grant II |
John W. McCarty | W. Thomas Grant II | ||
Title: | Executive V.P. and Chief | Chairman of the Board, President | |
Financial Officer | and Chief Executive Officer | ||
Date: | March 12, 2004 | Date: | March 12, 2004 |
By: | /s/ W. Thomas Grant II | By: | /s/ John W. McCarty |
W. Thomas Grant II | John W. McCarty | ||
Title: | Chairman of the Board, President | Title: | Executive V.P. and Chief |
and Chief Executive Officer | Financial Officer | ||
By: | */s/ W. Roger Drury | By: | */s/ D. Scott Mackesy |
W. Roger Drury | D. Scott Mackesy | ||
Title: | Director | Title: | Director |
By: | */s/ John P. Mascotte | By: | */s/ Paul B. Queally |
John P. Mascotte | Paul B. Queally | ||
Title: | Director | Title: | Director |
By: | */s/ James R. Seward | By: | */s/ Sean M. Traynor |
James R. Seward | Sean M. Traynor | ||
Title: | Director | Title: | Director |
By: | */s/ John E. Walker | *By: | /s/ Joseph C. Benage |
John E. Walker | Joseph C. Benage | ||
Title: | Director | Attorney-in-fact |
Independent Auditors' Report
The Board of Directors
LabOne, Inc.:
We have audited the accompanying consolidated balance sheets of LabOne, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LabOne, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. In addition, effective January 1, 2002, the Company ceased amortization of goodwill from business combinations consummated prior to July 1, 2001 and changed its method of determining impairment of goodwill as required by SFAS No. 142.
/s/ KPMG LLP
Kansas City, Missouri
March 1, 2004
LabOne, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2002
(in thousands, except share and per share data)
Assets | 2003 | 2002 |
Current assets: | ||
Cash and cash equivalents | $ 4,651 | $ 8,108 |
Accounts and note receivable, net of allowance for doubtful accounts of $8,045 in 2003 and $7,076 in 2002 |
57,928 | 48,669 |
Inventories | 5,472 | 4,739 |
Prepaid expenses and other current assets | 5,202 | 3,968 |
Deferred income taxes | 4,990 | 3,865 |
Total current assets | 78,243 | 69,349 |
Property, plant and equipment, net | 47,405 | 46,851 |
Goodwill | 99,103 | 96,309 |
Intangible assets, net | 11,345 | 1,967 |
Other long-term assets | 1,526 | 2,215 |
Total assets | $ 237,622 | $ 216,691 |
Liabilities and Stockholders' Equity | ||
Current liabilities: | ||
Accounts payable | $ 13,617 | $ 15,373 |
Accrued payroll and benefits | 11,769 | 9,148 |
Other accrued expenses | 2,787 | 2,455 |
Current portion of long-term debt | 2,014 | 2,006 |
Total current liabilities | 30,187 | 28,982 |
Deferred income taxes | 5,619 | 4,599 |
Long-term debt | 56,094 | 63,051 |
Other | 21 | |
Total liabilities | 91,921 | 96,632 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, $0.01 par value per share. Authorized 3,000,000 total shares; 38,865 shares of Series B-1 convertible preferred stock issued and outstanding in 2002 |
| 38,865 |
Common stock, $0.01 par value per share. Authorized 40,000,000 shares; issued 18,027,729 shares in 2003 and 13,050,020 shares in 2002 |
180 | 130 |
Additional paid-in capital | 84,066 | 48,866 |
Retained earnings | 76,250 | 58,217 |
Accumulated other comprehensive loss | (245) | (867) |
Treasury stock of 1,144,840 shares in 2003 and 1,756,027 shares in 2002, at cost |
(14,550) | (25,152) |
Total stockholders' equity | 145,701 | 120,059 |
Total liabilities and stockholders' equity | $ 237,622 | $ 216,691 |
See accompanying notes to consolidated financial statements.
LabOne, Inc. and Subsidiaries
Consolidated Statements of Operations
December 31, 2003, 2002 and 2001
(in thousands, except per share data)
2003 | 2002 | 2001 | |
Sales | $ 346,020 | $ 298,146 | $ 233,887 |
Cost of sales: | |||
Cost of sales expense | 232,602 | 201,840 | 162,389 |
Depreciation and amortization | 4,473 | 3,991 | 2,913 |
Total cost of sales | 237,075 | 205,831 | 165,302 |
Gross profit | 108,945 | 92,315 | 68,585 |
Selling, general and administrative: | |||
Selling, general and administrative expenses | 66,832 | 58,409 | 51,082 |
Depreciation and amortization | 5,570 | 5,280 | 5,112 |
Amortization of goodwill and intangibles | 994 | 195 | 8,132 |
Total selling, general and administrative | 73,396 | 63,884 | 64,326 |
Operating earnings | 35,549 | 28,431 | 4,259 |
Other income (expenses): | |||
Interest income | 117 | 300 | 510 |
Interest expense | (3,017) | (4,486) | (2,658) |
Other, net | 56 | 20 | (10) |
Total other expense, net | (2,844) | (4,166) | (2,158) |
Earnings before income taxes | 32,705 | 24,265 | 2,101 |
Provision for income taxes | 11,973 | 9,425 | 3,144 |
Net earnings (loss) | $ 20,732 | $ 14,840 | $ (1,043) |
Preferred stock dividends | $ (2,699) | $ (2,932) | $ (933) |
Net earnings (loss) available to common shareholders | $ 18,033 | $ 11,908 | $ (1,976) |
Earnings (loss) per common share: | |||
Basic | $ 1.44 | $ 1.04 | $ (0.18) |
Diluted | $ 1.23 | $ 0.91 | $ (0.18) |
Weighted average common shares outstanding: | |||
Basic | 12,476 | 11,453 | 10,881 |
Diluted | 16,893 | 16,237 | 10,881 |
See accompanying notes to consolidated financial statements.
LabOne, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
December 31, 2003, 2002 and 2001
(in thousands, except share data)
Preferred stock |
Common stock |
Additional paid-in capital |
Retained earnings |
Accumulated other comprehensive loss |
Treasury stock |
Comprehensive income (loss) |
Total stockholders' equity |
|
Balance as of December 31, 2000 | $   | $ 130 | $ 31,610 | $ 69,235 | $ (832) | $ (35,432) | $ 64,711 | |
Comprehensive loss: | ||||||||
Net loss |   |   |   | (1,043) |   |   | $ (1,043) | (1,043) |
Adjustment from foreign currency translation |   |   |   |   | (38) |   | (38) | (38) |
Comprehensive loss | $ (1,081) | |||||||
Issuance of preferred stock (35,000 shares) | 35,000 |   | (1,113) |   |   |   | 33,887 | |
Beneficial conversion feature of preferred stock |   |   | 20,950 | (20,950) |   |   |   | |
Issuance of warrants for purchase of common stock (350,000 shares) |   |   | 3,234 |   |   |   | 3,234 | |
Preferred stock dividends payable in kind | 933 |   |   | (933) |   |   |   | |
Stock options exercised (31,800 shares) |   |   | (390) |   |   | 632 | 242 | |
Tax benefit from exercise of options |   |   | 57 |   |   |   | 57 | |
Warrants exercised (50,000 shares) |   |   | (385) |   |   | 994 | 609 | |
Directors' stock compensation (3,171 shares) |   |   | (39) |   |   | 63 | 24 | |
Purchase of treasury stock (6,299 shares) |   |   |   |   |   | (93) | (93) | |
Balance as of December 31, 2001 | 35,933 | 130 | 53,924 | 46,309 | (870) | (33,836) | 101,590 | |
Comprehensive income: | ||||||||
Net earnings |   |   |   | 14,840 |   |   | $ 14,840 | 14,840 |
Adjustment from foreign currency translation |   |   |   |   | 3 |   | 3 | 3 |
Comprehensive income | $ 14,843 | |||||||
Preferred stock dividends payable in kind | 2,932 |   |   | (2,932) |   |   |   | |
Stock options exercised (661,491 shares) |   |   | (5,068) |   |   | 13,149 | 8,081 | |
Tax benefit from exercise of options |   |   | 2,485 |   |   |   | 2,485 | |
Warrants exercised (250,000 shares) |   |   | (2,477) |   |   | 4,970 | 2,493 | |
Directors' stock compensation (872 shares) |   |   | 2 |   |   | 17 | 19 | |
Purchase of treasury stock (422,391 shares) |   |   |   |   | | (9,452) | (9,452) | |
Balance as of December 31, 2002 | 38,865 | 130 | 48,866 | 58,217 | (867) | (25,152) | 120,059 | |
Comprehensive income: | ||||||||
Net earnings |   |   |   | 20,732 |   |   | $ 20,732 | 20,732 |
Adjustment from foreign currency translation |   |   |   |   | 622 |   | 622 | 622 |
Comprehensive income | $ 21,354 | |||||||
Preferred stock dividends payable in kind | 2,699 |   |   | (2,699) |   |   |   | |
Conversion of preferred stock (41,564 shares) to common stock (4,995,753 shares) | (41,564) | 50  | 41,295  |   |   | 219 |   | |
Stock options exercised (321,938 shares) |   |   | (168) |   |   | 4,999 | 4,831 | |
Tax benefit from exercise of options |   |   | 992 |   |   |   | 992 | |
Warrants exercised (350,000 shares) |   |   | (6,919) |   |   | 6,923 | 4 | |
Directors' stock compensation (872 shares) |   |   |   |   |   | 17 | 17 | |
Purchase of treasury stock (79,670 shares) |   |   |   |   | | (1,556) | (1,556) | |
Balance as of December 31, 2003 | $   | $ 180 | $ 84,066 | $ 76,250 | $ (245) | $ (14,550) | $145,701 |
See accompanying notes to consolidated financial statements.
LabOne, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
December 31, 2003, 2002 and 2001
2003 | 2002 | 2001 | |
Cash flows from operating activities: | |||
Net earnings (loss) | $ 20,732 | $ 14,840 | $ (1,043) |
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|||
Depreciation and amortization | 11,892 | 9,812 | 16,181 |
Provision for loss on accounts receivable | 6,250 | 5,638 | 3,955 |
Income tax benefit from exercise of stock options | 992 | 2,485 | 57 |
Deferred income taxes | (96) | 127 | 1,141 |
Directors' stock compensation | 17 | 19 | 24 |
(Gain) loss on sale of property, plant and equipment | (8) | (29) | 35 |
Changes in assets and liabilities, net of effects of acquisitions: | |||
Accounts and notes receivable | (14,371) | (10,064) | (12,123) |
Inventories | (733) | (54) | 223 |
Prepaid expenses and other current assets | (961) | 101 | 276 |
Accounts payable | (2,187) | 193 | (2,052) |
Accrued payroll and benefits | 2,621 | 145 | 7,066 |
Other accrued expenses | (359) | (1,469) | (62) |
Other | 65 | (585) | 325 |
Net cash provided by operations | 23,854 | 21,159 | 14,003 |
Cash flows from investing activities: | |||
Capital expenditures | (9,719) | (8,031) | (8,637) |
Acquisition of businesses | (13,273) | (17,244) | (52,979) |
Proceeds from sale of property, plant and equipment | 59 | 57 | 82 |
Acquisition of patents | (912) | | |
Purchase of investment | | (250) | |
Net cash used in investing activities | (23,845) | (25,468) | (61,534) |
Cash flows from financing activities: | |||
Net proceeds (payments) on line of credit | (5,000) | 24,000 | 5,000 |
Proceeds from issuance of subordinated debt | | | 15,000 |
Payments on subordinated debt | | (15,000) | |
Payments on other long-term debt | (2,020) | (1,923) | (2,098) |
Debt issue costs | (207) | (1,726) | |
Net proceeds from issuance of preferred stock | | | 33,887 |
Proceeds from exercise of stock options | 4,831 | 8,081 | 242 |
Purchase of treasury stock | (1,556) | (9,452) | (93) |
Proceeds from the exercise of stock warrants | 4 | 2,493 | 1 |
Net cash provided by (used in) financing activities | (3,948) | 6,473 | 51,939 |
Effect of foreign currency translation on cash | 482 | (6) | (30) |
Net increase (decrease) in cash and cash equivalents | (3,457) | 2,158 | 4,378 |
Cash and cash equivalents at beginning of year | 8,108 | 5,950 | 1,572 |
Cash and cash equivalents at end of year | $ 4,651 | $ 8,108 | $ 5,950 |
Supplemental disclosures of cash flow information: | |||
Cash paid during the year for: | |||
Income taxes | $ 12,666 | $ 7,038 | $ 946 |
Interest | 2,116 | 4,553 | 2,220 |
Supplemental schedule of non-cash investing and financing activities: |
|||
Preferred stock dividends payable in kind | $ 2,699 | $ 2,932 | $ 933 |
Details of acquisitions: | |||
Fair value of assets acquired | $ 14,484 | $ 19,344 | $ 55,815 |
Liabilities assumed | (1,211) | (1,612) | (2,604) |
Liabilities issued | | (488) | (232) |
Cash paid for acquisitions | $ 13,273 | $ 17,244 | $ 52,979 |
See accompanying notes to consolidated financial statements.
LabOne, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(1) Summary of Significant Accounting Policies
Description of Business
LabOne, Inc. ("LabOne" or the "Company") is a diagnostic services provider. The services and information LabOne and its subsidiaries provide include: risk assessment information services for the insurance industry; diagnostic healthcare testing; and drugs of abuse testing services and related employee qualification products.
Principles of Consolidation
The consolidated financial statements include the accounts of LabOne and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues for its services when those services are provided to the customer. Revenues related to clinical healthcare billings include adjustments for revenue disallowances estimated at the time the revenue is recorded.
Concentration of Business Risk
One risk assessment customer comprised 10%, 12% and 13% of total sales for 2003, 2002 and 2001, respectively. The Company has a contract with this customer for a ten-year period ending in 2010 that the customer may terminate prior to expiration if the Company encounters service level failures that materially impact the services provided.
Disclosures about Fair Value of Financial Instruments
Fair value of the Company's financial instruments, including cash and cash equivalents, receivables, payables and long-term debt, approximates carrying value. Fair values are based on quoted market values of comparable instruments.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits in banks, marketable securities with maturities of three months or less, money market investments and overnight investments that are stated at cost, which approximates market value.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The estimate of the allowance for doubtful accounts involves a standardized monthly review of the collectibility of receivables based on contractual obligations and the aging of accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.
Note Receivable
In 2002, the Company converted $1,999,999 of accounts receivable with a customer into a note receivable to secure its interest in the receivable. The note accrued interest at 8% per year and was secured by the debtor's accounts receivable and other assets. The note was repaid in 2003.
Inventories
Inventories consist of laboratory supplies, completed specimen collection kits for sale to clients and various materials used in the assembly of specimen collection kits. Inventory is valued at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which includes interest capitalized during construction, when material. Facilities leased pursuant to revenue bond financing transactions are accounted for as purchases, with the cost of the leased property included in property, plant and equipment and the related obligation included in long-term debt.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:
Building | 30 years |
Laboratory equipment | 3 - 5 years |
Data processing equipment and software | 3 - 6 years |
Office and transportation equipment | 5 - 7 years |
Leasehold improvements | 5 years or life of lease |
Software Developed for Internal Use
Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with the American Institute of Certified Public Accountants' Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These capitalized costs are included in property, plant and equipment and are subject to amortization over their estimated useful lives, beginning when the software project is put in service. The Company periodically reviews the lives and values of its capitalized software and makes adjustments if necessary.
Cost of Borrowings
Costs directly related to the issuance of debt are deferred and amortized over the period the debt is expected to be outstanding using the interest method. Unamortized costs of $883,000 and $1,523,000 as of December 31, 2003 and 2002, respectively, are included in other long-term assets.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Effective July 1, 2001, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The Company adopted the remaining provisions of SFAS No. 142 as of January 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. In addition, SFAS No. 142 requires that intangible assets with estimable useful lives be amortized over their useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
In connection with SFAS No. 142's transitional goodwill impairment evaluation and annually thereafter, the Statement requires the Company to perform an assessment of whether there is an indication that goodwill is impaired. To accomplish this, the Company is required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company is required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. The fair value of the reporting units exceeded the carrying amount based on the Company's analysis and the Company was not required to recognize an impairment loss in 2003 or 2002.
Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over periods of fifteen to twenty years and assessed for recoverability by determining whether the amortization of the goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows of the acquired operation. All other intangible assets were amortized on a straight-line basis from 3 to 5 years.
The following table reconciles previously reported net earnings as if the provisions of SFAS No. 142 were in effect in 2001:
2003 | 2002 | 2001 | |
(in thousands, except per share data) | |||
Reported net earnings (loss) | $ 20,732 | $ 14,840 | $ (1,043) |
Goodwill amortization | | | 3,464 |
Tax benefit | | | (119) |
Adjusted net earnings | $ 20,732 | $ 14,840 | $ 2,302 |
Basic earnings per share: | |||
As reported | $ 1.44 | $ 1.04 | $ (0.18) |
Pro forma | $ 1.44 | $ 1.04 | $ 0.13 |
Diluted earnings per share: | |||
As reported | $ 1.23 | $ 0.91 | $ (0.18) |
Pro forma | $ 1.23 | $ 0.91 | $ 0.13 |
Impairment of Long-lived Assets
In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Stock Option Plans
The Company applies the intrinsic-value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123, established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, as amended by SFAS No. 148, the Company has elected to continue to apply the intrinsic-value based method of accounting described above and has adopted only the disclosure requirements of SFAS No. 123.
The following table illustrates the effect on net earnings if the fair-value based method had been applied to all outstanding and unvested options in each period.
2003 | 2002 | 2001 | |
(in thousands, except per share data) | |||
Net earnings (loss), as reported | $ 20,732 | $ 14,840 | $ (1,043) |
Deduct total stock-based employee compensation expense determined under fair-value based method for all stock options, net of tax |
(1,485) | (1,211) | (511) |
Pro forma net earnings (loss) | $ 19,247 | $ 13,629 | $ (1,554) |
Basic earnings (loss) per share: | |||
As reported | $ 1.44 | $ 1.04 | $ (0.18) |
Pro forma | $ 1.33 | $ 0.93 | $ (0.23) |
Diluted earnings (loss) per share: | |||
As reported | $ 1.23 | $ 0.91 | $ (0.18) |
Pro forma | $ 1.14 | $ 0.84 | $ (0.23) |
The weighted average per share fair value of stock options granted during 2003, 2002 and 2001 was $11.20, $10.87 and $4.65, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2003 | 2002 | 2001 | |
Expected dividend yield | 0.0% | 0.0% | 0.0% |
Risk-free interest rate | 1.4% | 4.1% | 5.1% |
Expected volatility factor | 53.9% | 55.4% | 55.0% |
Expected life (years) | 4.4 | 5.5 | 6.0 |
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using net earnings (loss) available to common shareholders divided by the weighted average number of common shares outstanding. Diluted earnings per share includes the effects of outstanding stock options and common shares issuable upon conversion of convertible preferred stock, if dilutive. In addition, the related preferred stock dividends are added back to income since they would not be paid if the preferred stock were converted to common stock.
The following table reconciles the weighted average common shares used in the basic earnings per share calculation and the weighted average common shares and common share equivalents used in the diluted earnings per share calculation:
2003 | 2002 | 2001 | |
(in thousands) | |||
Weighted average common shares for basic earnings per share |
12,476 | 11,453 | 10,881 |
Dilutive effect of employee stock options | 300 | 290 | |
Dilutive effect of common shares issuable upon conversion of preferred stock |
4,117 | 4,494 | |
Weighted average common shares for dilutive earnings per share |
16,893 | 16,237 | 10,881 |
In 2001, incremental shares from stock options of 52,826 were excluded from the computation of diluted loss per share because they were anti-dilutive. In 2001, 1,424,833 shares of common stock and $933,000 of dividends from the assumed conversion of preferred stock were excluded from the computation of diluted loss per share because they were anti-dilutive.
Recently Issued and Adopted Accounting Standards
In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002. The adoption of FASB Interpretation No. 45 did not have a material impact on the Company's financial statements.
In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. The application of this Interpretation did not have a material impact on the Company's financial statements.
In December 2003, FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. This Interpretation replaces Interpretation 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which was issued in January 2003. The Company will be required to apply Interpretation No. 46R to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable interest entities created before January 1, 2004, Interpretation No. 46R will be applied beginning on January 1, 2005. The Company currently does not have any controlling financial interests that are within the scope of this Interpretation.
In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of SFAS No. 150.
Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.
(2) Acquisitions
2003 Acquisitions
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2003:
ScanTech | Lab Acquisition |
Paramedical Service Providers |
|
(in thousands) | |||
Current assets | $ 1,411 | $ | $ 5 |
Property, plant and equipment | 498 | 280 | 112 |
Goodwill | | 800 | 1,828 |
Intangible assets: | |||
Non compete agreements | 100 | | 160 |
Customer contracts | 5,000 | 4,000 | |
Customer lists | 143 | | 68 |
Total assets acquired | 7,152 | 5,080 | 2,173 |
Current liabilities | 1,149 | | |
Long-term debt | 62 | | |
Total liabilities assumed | 1,211 | | |
Net assets acquired | $ 5,941 | $ 5,080 | $ 2,173 |
ScanTech
On August 6, 2003, the Company acquired, for cash, ScanTech Solutions, L.L.C. ("ScanTech") from Protective Life Corporation. ScanTech is a leading provider of medical record retrieval services to life insurance carriers in the United States. In connection with the acquisition, the Company entered into long-term agreements to provide certain Protective Life affiliates with teleunderwriting, paramedical examination, laboratory testing and medical record retrieval services.
Lab Acquisition
On October 10, 2003, the Company acquired, for cash, the insurance testing laboratory of MetLife, Inc. In connection with the acquisition, the Company entered into a long-term agreement to provide laboratory testing services to MetLife, Inc. and its affiliated entities. Goodwill of $800,000 was assigned to the risk assessment services segment.
Paramedical Service Providers
During 2003, the Company acquired, for cash, three paramedical service companies located in Miami, Florida; New Orleans, Louisiana; and Colorado Springs, Colorado. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants. Goodwill of $1,828,000 was assigned to the risk assessment services segment.
2002 Acquisitions
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2002:
Central Plains | Paramedical Service |
|
Laboratories | Providers | |
(in thousands) | ||
Current assets | $ 2,385 | $ 5 |
Property, plant and equipment | 787 | 147 |
Goodwill | 9,371 | 4,830 |
Intangible assets: | ||
Non compete agreements | 600 | 119 |
Customer contract | 1,000 | |
Customer lists | 100 | |
Total assets acquired | 14,243 | 5,101 |
Current liabilities | 1,217 | 12 |
Deferred income taxes | 383 | |
Total liabilities assumed | 1,600 | 12 |
Net assets acquired | $ 12,643 | $ 5,089 |
Consideration: | ||
Cash | $ 12,643 | $ 4,601 |
Notes payable | | 488 |
Total | $ 12,643 | $ 5,089 |
Central Plains Laboratories
On December 1, 2002, the Company acquired Central Plains Laboratories, L.L.C. ("CPL") located in Hays, Kansas. HMC Services Corporation owned a 70% limited liability company interest and PCS Laboratory Services Group, Inc. ("PCS") owned a 30% limited liability company interest in CPL, constituting all of the issued and outstanding ownership interests of CPL. Pursuant to the Stock and Limited Liability Company Interest Purchase Agreement, the Company purchased all of the issued and outstanding shares of common stock of HMC Services Corporation from Hays Medical Center and purchased the remaining 30% limited liability company interest in CPL from PCS. The purchase price was $12,584,000 and transaction costs were $59,000. As a result of the transaction, CPL became a wholly owned subsidiary of the Company. Goodwill of $9,371,000 was assigned to the clinical-healthcare services segment.
The agreement also provides for the payment of contingent consideration based on a percentage of earnings before interest, taxes, depreciation and amortization of CPL, as defined, during 2003 and 2004. The 2003 contingent consideration was $127,000 and has been recorded to goodwill.
CPL owns two laboratory facilities, a clinical lab facility and an anatomic pathology lab facility. Hays Medical Center has the right to repurchase the assets of the facilities (both individually or combined) if either (1) the Laboratory Services Agreement between CPL and Hays Medical Center is terminated due to certain events or (2) at any time after December 1, 2004. The purchase price for the assets is an amount equal to the net book value of the tangible assets of the facility on the day prior to the closing of the sale.
Paramedical Service Providers
During 2002, the Company acquired ten paramedical service companies located in Boston, Massachusetts; Honolulu, Hawaii; St. Louis/Columbia, Missouri; Youngstown, Ohio; Springfield, Illinois; Hannibal, Missouri; Portland, Oregon; Salt Lake City, Utah; Boise, Idaho; and Hyannis, Massachusetts. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants. Goodwill of $4,830,000 was assigned to the risk assessment services segment.
2001 Acquisitions
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for businesses acquired during 2001:
Osborn | Paramedical Service |
|
Group | Providers | |
(in thousands) | ||
Current assets | $ 1,517 | $ 1 |
Property, plant and equipment | 1,702 | 98 |
Goodwill | 49,862 | 2,309 |
Intangible assets: | ||
Non compete agreements | 53 | 273 |
Total assets acquired | 53,134 | 2,681 |
Current liabilities | 2,582 | |
Long-term debt | | 22 |
Total liabilities assumed | 2,582 | 22 |
Net assets acquired | $ 50,552 | $ 2,659 |
Consideration: | ||
Cash | $ 50,552 | $ 2,427 |
Forgiveness of accounts receivable | | 19 |
Notes payable | | 213 |
Total | $ 50,552 | $ 2,659 |
Osborn Group
Pursuant to a Stock Purchase Agreement dated August 31, 2001, the Company purchased all of the outstanding capital stock of Osborn Group, Inc. ("Osborn") and subsidiaries, a leading provider of laboratory testing and other risk assessment services to the life insurance industry. The purchase price was $49,000,000 and transaction costs were $1,552,000. As a result of the transaction, Osborn became a wholly owned subsidiary of the Company. Goodwill of $49,862,000 was assigned to the risk assessment services segment.
Paramedical Services Providers
During 2001, the Company acquired six paramedical service companies located in Virginia Beach, Virginia; Cranston, Rhode Island; Seattle, Washington; Anchorage, Alaska; Salt Lake City, Utah; and Durham, North Carolina. The acquired businesses provide paramedical examinations that are used to assist life insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants. Goodwill of $2,309,000 was assigned to the risk assessment services segment.
All of the above acquisitions have been accounted for under the purchase method and, accordingly, the operating results of the acquired companies have been included in the consolidated statements of operations from the dates of acquisition.
(3) Property, Plant and Equipment
Property, plant and equipment consist of the following:
2003 | 2002 | |
(in thousands) | ||
Land | $ 2,576 | $ 2,545 |
Building | 28,966 | 28,954 |
Laboratory equipment | 24,699 | 23,066 |
Data processing equipment and software | 42,510 | 36,748 |
Office and transportation equipment | 14,199 | 12,434 |
Leasehold improvements | 1,840 | 1,564 |
Construction in progress | 1,839 | 1,635 |
  | 116,629 | 106,946 |
Less accumulated depreciation and amortization | 69,224 | 60,095 |
$ 47,405 | $ 46,851 |
(4) Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for 2003 and 2002 are as follows:
Risk assessment services |
Clinical - Healthcare services |
Total | |
(in thousands) | |||
Balance as of December 31, 2001 | $ 81,729 | $ | $ 81,729 |
Acquisitions | 4,829 | 9,371 | 14,200 |
Purchase accounting adjustments | 380 | | 380 |
Balance as of December 31, 2002 | 86,938 | 9,371 | 96,309 |
Acquisitions | 2,628 | | 2,628 |
Purchase accounting adjustments | (67) | 130 | 63 | Foreign currency translation adjustments | 103 | | 103 |
Balance as of December 31, 2003 | $ 89,602 | $ 9,501 | $ 99,103 |
The amount of goodwill acquired during 2003 and 2002 that is subject to deductible amortization for income tax purposes is $2,628,000 and $9,849,000, respectively.
Other Intangible Assets
Other intangible assets consist of the following:
December 31, 2003 | December 31, 2002 | ||||
Weighted average amortization period |
Gross carrying amount |
Accumulated amortization |
Gross carrying amount |
Accumulated amortization |
|
(in thousands) | |||||
Amortizing intangible assets: | |||||
Customer lists | 6.0 years | $ 310 | $ 23 | $ 100 | $ 1 |
Customer contracts | 5.4 years | 10,000 | 745 | 1,000 | 17 |
Non compete agreements | 4.9 years | 1,303 | 402 | 1,043 | 158 |
Acquired patents | 8.1 years | 912 | 10 | | |
$ 12,525 | $ 1,180 | $ 2,143 | $ 176 |
Aggregate amortization expense for amortizable intangible assets for 2003, 2002 and 2001 was $1,004,000, $195,000 and $887,000, respectively. Estimated amortization expense for the next five years is: $2,265,000 in 2004, $2,239,000 in 2005, $2,215,000 in 2006, $2,171,000 in 2007 and $1,445,000 in 2008.
(5) Long-term Debt
Long-term debt consists of the following:
2003 | 2002 | |
(in thousands) | ||
Taxable industrial revenue bonds, Series 1998A, principal payable annually in equal installments through September 1, 2009, interest payable monthly at a rate adjusted weekly based on short-term United States treasury obligations (2.1% as of December 31, 2003), secured by the Company's primary laboratory facility and an irrevocable bank letter of credit |
$ 10,800 | $ 12,600 |
Line of credit, variable interest rate (2.9% as of December 31, 2003), principal due June 11, 2005. |
47,000 | 52,000 |
Other | 359 | 517 |
Total long-term debt | 58,159 | 65,117 |
Less: | ||
Current portion | 2,014 | 2,006 |
Unamortized discount | 51 | 60 |
Long-term debt, net | $ 56,094 | $ 63,051 |
On June 11, 2002, the Company entered into a $100 million credit agreement with JPMorgan Chase Bank (administrative agent and collateral agent) and Wachovia Bank, N.A. (syndication agent). The credit agreement is secured by substantially all assets excluding the Company's primary laboratory facility. On December 3, 2003, the commitments under the credit agreement were increased to $150 million. The line of credit bears variable interest which, as of December 31, 2003, was 2.9% and requires a commitment fee of 0.5% on the unused portion of the commitment. The line of credit is due on June 11, 2005. As of December 31, 2003, $47 million was outstanding under the agreement and approximately $70 million of the remaining $103 million was available for borrowing.
Under the terms of the agreement, the Company must limit capital expenditures and maintain a certain level of consolidated net worth and certain other financial ratios. As of December 31, 2003, the Company was in compliance with all financial covenants related to the line of credit.
Aggregate maturities of long-term debt as of December 31, 2003 are as follows:
Bonds | Line of | |||
payable | credit | Other | Total | |
(in thousands) | ||||
2004 | $ 1,800 | $ | $ 214 | $ 2,014 |
2005 | 1,800 | 47,000 | 100 | 48,900 |
2006 | 1,800 | | 31 | 1,831 |
2007 | 1,800 | | 8 | 1,808 |
2008 | 1,800 | | 6 | 1,806 |
Thereafter | 1,800 | | | 1,800 |
$ 10,800 | $ 47,000 | $ 359 | $ 58,159 |
(6) Stockholders' Equity
Preferred Stock
To fund the acquisition of Osborn, the Company sold a total of $50,000,000 in preferred stock and subordinated debt to Welsh, Carson, Anderson & Stowe ("WCAS") pursuant to a Securities Purchase Agreement dated August 31, 2001. The Company issued $35,000,000 of convertible preferred stock and $15,000,000 of 11% subordinated debt to WCAS in exchange for $50,000,000 in cash. During 2002, the subordinated debt was refinanced from borrowings on the Company's line of credit.
The $35,000,000 of preferred stock consisted of two distinct series of stock in the original issuance: 14,000 shares of Series B-1 convertible preferred stock, par value of $1,000 per share, accruing paid-in-kind dividends at 8%; and 21,000 shares of Series B-2 preferred stock, par value $1,000, accruing paid-in-kind dividends at 18%. Upon shareholder approval, which occurred on January 31, 2002, the Series B-2 preferred stock was retroactively converted into Series B-1 convertible preferred stock with paid-in-kind dividends accruing at the Series B-1 rate of 8% beginning September 1, 2001.
As a result of the issuance of B-1 convertible preferred stock, the Company calculated the beneficial conversion feature related to the transactions. The issuance of the 14,000 shares of B-1 preferred stock on August 31, 2001 resulted in a beneficial conversion feature of $0.93 per share. The beneficial conversion feature per share equals the market price of LabOne stock at the date of issuance, August 31, 2001, less the conversion rate of $8.32 per share. The total intrinsic value of the conversion feature is equal to the 1,682,692 common shares into which the B-1 could be converted multiplied by the intrinsic value per share of $0.93 for a total amount of $1,565,000. Due to shareholder approval on January 31, 2002, the retroactive conversion of the 21,000 shares of B-2 stock into B-1 stock resulted in a beneficial conversion value of $7.68 per share. This beneficial conversion value is equal to the difference between the market price of LabOne stock of $16.00 at the January 31, 2002 conversion date, less the conversion rate of $8.32 per share. The total intrinsic value of the former B-2 stock conversion feature is equal to the 2,524,038 common shares into which the B-2 could be converted multiplied by the intrinsic value per share of $7.68 for a beneficial conversion value of $19,385,000. In each case, the intrinsic value of the conversion feature was charged to retained earnings, with a corresponding increase in paid-in capital.
The 35,000 shares of Series B-1 convertible preferred stock, plus accreted paid-in-kind dividends, was convertible into LabOne common stock at any time at the holder's option until August 31, 2008 at the rate of $8.32 per common share. During the third and fourth quarters of 2003, all outstanding shares of Series B-1 convertible preferred stock, plus accreted paid-in-kind dividends, were converted into 4,995,753 shares of LabOne common stock.
Stock Warrants
In addition to the issuance of B-1 convertible preferred stock on August 31, 2001, the Company issued 350,000 warrants with a strike price of $0.01 to the holders of the B-1 preferred stockholders. The warrants were exercisable immediately. The market price at the date of the grant was $9.25, resulting in an intrinsic value of $9.24 per warrant. Upon issuance, the Company recorded $3,234,000 in related warrant expense. These warrants were exercised in 2003.
During 1999, the Company issued 50,000 warrants in conjunction with a distribution agreement. These warrants were exercised in 2001, resulting in a warrant expense of $609,000.
The Company entered into marketing agreements with three companies during 1998 and 1999. In conjunction with these agreements, the Company granted warrants for the purchase of 1,500,000 shares of common stock at an exercise price equal to the fair value of the stock at the grant date (500,000 shares at $17.00, 500,000 shares at $15.44 and 500,000 shares at $12.375). During 2003, the warrants for shares valued at $15.44 expired. During 1999, the marketing agreement with shares valued at $17.00 was terminated. The remaining warrants may become exercisable each quarter through July 2004 provided certain conditions are met, including achievement of specified levels of revenues. The specified levels of revenue resulting from this agreement have not been met; thus, none of the warrants were exercisable as of December 31, 2003.
Stock Compensation
The Company has long-term incentive plans, which provide for granting awards, including stock options, to officers, directors and employees for shares of LabOne common stock. The Company has granted certain stock options which entitle the grantee to purchase shares for a price equal to the fair market value at date of grant with option terms of up to ten years. The stock options generally vest ratably over five years subject to early vesting upon the occurrence of defined events. As of December 31, 2003, there were 2,188,536 additional shares available for grant under the plans.
A summary of the Company's stock option plans as of December 31, 2003, 2002 and 2001 and changes during the years then ended is presented below:
2003 | 2002 | 2001 | ||||
Fixed options |
Number of shares |
Weighted average exercise price |
Number of shares |
Weighted average exercise price |
Number of shares |
Weighted average exercise price |
Outstanding at beginning of year | 1,910,509 | $ 16.91 | 1,557,140 | $ 12.54 | 1,970,577 | $ 12.87 |
Granted | 184,992 | 24.36 | 1,052,197 | 20.13 | 153,424 | 8.12 |
Exercised | (321,938) | 15.01 | (661,491) | 12.22 | (31,800) | 7.61 |
Forfeited | (24,473) | 18.57 | (37,337) | 8.44 | (535,061) | 12.78 |
Outstanding at end of year | 1,749,090 | $ 18.03 | 1,910,509 | $ 16.91 | 1,557,140 | $ 12.54 |
Options exercisable at year-end | 912,404 | $ 14.72 | 985,931 | $ 13.51 | 1,022,328 | $ 14.20 |
The following table summarizes information about stock options at December 31, 2003:
Options outstanding | Options exercisable | ||||
Weighted | |||||
average | Weighted | Weighted | |||
Range of | Number | remaining | average | average | |
exercise | out- | contractual | exercise | Number | exercise |
prices | standing | life (years) | price | exercisable | price |
$ 5.75 - $ 7.70 | 240,772 | 6.6 | $ 6.97 | 236,386 | $ 6.96 |
$ 8.90 - $ 12.22 | 82,513 | 4.4 | 11.67 | 81,109 | 11.72 |
$ 14.12 - $ 20.06 | 779,985 | 6.3 | 16.45 | 472,594 | 16.68 |
$ 20.40 - $ 24.15 | 529,121 | 8.3 | 24.09 | 115,616 | 24.01 |
$ 26.00 - $ 28.51 | 116,699 | 9.8 | 28.39 | 6,699 | 26.39 |
1,749,090 | 7.1 | $ 18.03 | 912,404 | $ 14.72 |
(7) Income Taxes
The components of earnings before income taxes are as follows:
2003 | 2002 | 2001 | |
(in thousands) | |||
Domestic | $ 30,054 | $ 24,592 | $ 2,377 |
Foreign | 2,651 | (327) | (276) |
Total | $ 32,705 | $ 24,265 | $ 2,101 |
The components of current and deferred income taxes are as follows:
2003 | 2002 | 2001 | |
(in thousands) | |||
Current: | |||
Federal | $ 10,604 | $ 8,285 | $ 1,686 |
State | 585 | 1,003 | 448 |
Foreign | 880 | 10 | (131) |
Total current | 12,069 | 9,298 | 2,003 |
Deferred: | |||
Federal | (83) | 113 | 917 |
State | (22) | (3) | 203 |
Foreign | 9 | 17 | 21 |
Total deferred | (96) | 127 | 1,141 |
$ 11,973 | $ 9,425 | $ 3,144 |
Total income taxes differ from the amounts computed by applying the federal statutory income tax rate of 35% to earnings before income taxes for the following items:
2003 | 2002 | 2001 | |
(in thousands) | |||
Application of statutory income tax rate | $ 11,447 | $ 8,493 | $ 714 |
Goodwill amortization | (12) | (8) | 1,073 |
Changes in valuation allowance and recomputation of deferred tax assets |
77 | (173) | (424) |
Foreign taxes, net | (39) | 141 | (17) |
State income taxes, net | 365 | 650 | 430 |
Other, net | 135 | 322 | 194 |
Warrant issuance and exercise | | | 1,174 |
$ 11,973 | $ 9,425 | $ 3,144 |
The tax effects of temporary differences that create significant portions of the deferred tax assets and deferred tax liabilities are as follows:
2003 | 2002 | |
(in thousands) | ||
Deferred current income tax assets (liabilities): | ||
Accrued vacation | $ 811 | $ 692 |
Accrued expenses not deducted for tax | 1,186 | 778 |
Allowance for doubtful accounts | 2,899 | 2,300 |
Other items | 94 | 95 |
Total deferred current income tax assets | 4,990 | 3,865 |
Deferred noncurrent tax assets (liabilities): | ||
Capital loss and net operating loss carryforward | | 149 |
Depreciation and amortization, including capitalized software | (3,990) | (3,927) |
Goodwill and other intangibles | (401) | 50 |
Other items | (1,228) | (722) |
Kansas High Performance Incentive Program credit carryforward, net |
2,883 | 5,879 |
(2,736) | 1,429 | |
Valuation allowance | (2,883) | (6,028) |
Total deferred noncurrent tax liabilities, net | (5,619) | (4,599) |
Total deferred income tax, net | $ (629) | $ (734) |
In conjunction with building its laboratory facility in Lenexa, Kansas, the Company received the Kansas High Performance Incentive Program ("HPIP") tax credit. The Company was certified by the State of Kansas to receive a credit allowing an offset against its Kansas income tax liability for Kansas income tax generated by operation of the facility. Any unused portion of the credit can be carried forward for a period of ten years, provided the Company continues to meet requirements of the program. The Kansas HPIP tax credit was used to offset Kansas income tax of $1,201,000 and $465,000 during 2003 and 2002, respectively. During 2002 and 2001, the Company offset its Kansas income tax by $497,000 and $222,000, respectively, with the Kansas business and jobs credit. A valuation allowance has been provided because the Company must maintain the requisite employee wage scale and other specified items before it may use the qualified credits already earned.
(8) Benefit Plans
The Company maintains a money purchase pension plan for all employees who have completed six months of service and have attained age twenty and one-half years. The plan is a defined contribution plan under which the Company contributes a percentage of a participant's annual compensation. The Company's contributions, net of forfeitures, to the plan were $4,265,000, $4,252,000 and $2,768,000 for 2003, 2002 and 2001, respectively.
The Company has a profit sharing (401(k)) plan for all employees who have completed six months of service and a minimum of five hundred hours of service and have attained the age of twenty and one-half years. The Company contributes on behalf of each participant an amount equal to 50% of the participant's annual contributions, but not in excess of 5% of the participant's annual compensation. The Company's contributions are invested in LabOne common stock. The Company's contributions, net of forfeitures, to the plan were $1,620,000, $1,568,000 and $1,085,000 for 2003, 2002 and 2001, respectively.
(9) Business Segment Information
The Company operates principally in two lines of business: risk assessment services, which is segregated into insurance laboratory, paramedical services and other insurance services, and clinical, which is segregated into healthcare services and substance abuse testing. Risk assessment services includes laboratory testing on policy applicants and specimen collection and paramedical examinations for life insurance companies. Risk assessment also includes other insurance services to the life insurance industry including teleunderwriting, telephone inspections, motor vehicle reports and medical record retrieval. Clinical includes laboratory testing services for the healthcare industry as an aid in the diagnosis and treatment of patients. The Company markets its clinical testing services to managed care companies, insurance companies, self-insured groups, hospitals and physicians. Clinical also includes substance abuse testing provided to employers to support their drug free workplace programs. The Compan y is certified by the Substance Abuse and Mental Health Services Administration to perform substance abuse testing for federally regulated employers and currently markets these services throughout the country to both regulated and nonregulated employers.
Operating earnings (loss) of each segment is computed as sales less directly identifiable expenses. In computing operating earnings (loss) of the segments, none of the following items have been allocated: general corporate expenses such as administrative, management and information systems expenses; amortization of acquired identifiable intangible assets and goodwill not associated with a specific segment; or total other expenses. General corporate assets are principally cash, fixed assets and goodwill not identified with a specific segment. The policies of the segments are the same as those of the Company as set forth in Note 1.
Following is a summary of segment information as of and for the years ended December 31, 2003, 2002, and 2001:
2003 | 2002 | 2001 | |
(in thousands) | |||
Sales: | |||
Risk assessment services: | |||
Insurance laboratory | $ 88,818 | $ 93,892 | $ 77,276 |
Paramedical services | 85,363 | 74,235 | 57,264 |
Other insurance services | 56,554 | 41,869 | 24,799 |
Total risk assessment services | 230,735 | 209,996 | 159,339 |
Clinical: | |||
Healthcare services | 88,455 | 60,906 | 46,615 |
Substance abuse testing | 26,830 | 27,244 | 27,933 |
Total clinical | 115,285 | 88,150 | 74,548 |
Total | $ 346,020 | $ 298,146 | $ 233,887 |
2003 | 2002 | 2001 | |
(in thousands) | |||
Operating earnings (loss): | |||
Risk assessment services: | |||
Insurance laboratory | $ 38,993 | $ 37,790 | $ 27,990 |
Paramedical services | 8,437 | 5,678 | 4,530 |
Other insurance services | 5,275 | 3,744 | 1,599 |
Risk assessment sales group | (5,368) | (6,228) | (5,440) |
Total risk assessment services | 47,337 | 40,984 | 28,679 |
Clinical: | |||
Healthcare services | 17,862 | 11,893 | 3,460 |
Substance abuse testing | 4,558 | 3,575 | 1,250 |
Total clinical | 22,420 | 15,468 | 4,710 |
General corporate expenses | (34,208) | (28,021) | (29,130) |
Total other expense, net | (2,844) | (4,166) | (2,158) |
Earnings before income taxes | 32,705 | 24,265 | 2,101 |
Provision for income taxes | 11,973 | 9,425 | 3,144 |
Net earnings (loss) | $ 20,732 | $ 14,840 | $ (1,043) |
2003 | 2002 | 2001 | |
(in thousands) | |||
Identifiable assets: | |||
Risk assessment services | $ 133,812 | $ 119,914 | $ 104,874 |
Clinical: | |||
Healthcare services | 37,101 | 28,004 | 13,682 |
Substance abuse testing | 10,731 | 10,504 | 10,931 |
Total clinical | 47,832 | 38,508 | 24,613 |
General corporate assets | 55,978 | 58,269 | 59,305 |
Total | $ 237,622 | $ 216,691 | $ 188,792 |
2003 | 2002 | 2001 | |
(in thousands) | |||
Capital expenditures: | |||
Risk assessment services: | |||
Insurance laboratory | $ 1,128 | $ 373 | $ 1,867 |
Paramedical services | 287 | 209 | 355 |
Other insurance services | 778 | 2,781 | 246 |
Risk assessment sales group | 21 | 13 | 10 |
Total risk assessment services | 2,214 | 3,376 | 2,478 |
Clinical: | |||
Healthcare services | 1,635 | 252 | 1,153 |
Substance abuse testing | 290 | 584 | 895 |
Total clinical | 1,925 | 836 | 2,048 |
General corporate | 5,580 | 3,819 | 4,111 |
Depreciation and amortization: | |||
Risk assessment services: | |||
Insurance laboratory | $ 2,140 | $ 1,430 | $ 2,233 |
Paramedical services | 811 | 604 | 709 |
Other insurance services | 1,655 | 1,505 | 1,161 |
Risk assessment sales group | 63 | 72 | 56 |
Total risk assessment services | 4,669 | 3,611 | 4,159 |
Clinical: | |||
Healthcare services | 1,957 | 1,166 | 944 |
Substance abuse testing | 924 | 1,052 | 1,531 |
Total clinical | 2,881 | 2,218 | 2,475 |
General corporate | 3,487 | 3,538 | 9,523 |
(10) Commitments and Contingencies
Litigation
The Company is a party to various claims or lawsuits related to services performed in the ordinary course of the Company's activities. The Company's management and legal counsel anticipate potential claims resulting from such matters that would not be covered by insurance and have appropriately provided for these claims in the consolidated financial statements. The Company believes that the ultimate resolution of these matters will not materially affect the consolidated financial statements of the Company.
Leases
The Company has several noncancelable operating leases, primarily for land and building, and other commitments that expire through 2012. Rental expense for these operating leases during 2003, 2002 and 2001 amounted to $4,114,000, $3,288,000 and $2,335,000, respectively.
Future minimum lease payments and other commitments under these agreements as of December 31, 2003 are:
(in thousands) | |
2004 | $ 3,331 |
2005 | 2,073 |
2006 | 1,325 |
2007 | 882 |
2008 | 710 |
2009 and thereafter | 2,099 |
$ 10,420 |
On August 10, 1999, the former LabOne, Inc. was merged into its parent corporation, Lab Holdings, Inc. (formerly Seafield Capital Corporation, formerly BMA Corporation) upon the approval of the shareholders of both companies. The combined company's name was then changed to LabOne, Inc. Prior to the merger, Lab Holdings, Inc. was subject to contingent obligations under leases and other instruments incurred in connection with real estate activities and other operations of its predecessor, BMA Corporation. The management of LabOne has assessed the risk related to the probability of default by third parties regarding its continuing obligations under certain land leases with two Hawaiian trusts relating to approximately 2.3 acres of land upon which the Hyatt Regency Waikiki Hotel is built and a land lease for a parking garage in Reno, Nevada.
The Hawaii obligations arise out of certain land leases and subleases that were entered into by Business Men's Assurance Company of America ("BMAA"), a subsidiary of BMA Corporation, and Bankers Life of Nebraska (now known as Ameritas Life) as tenants in common (jointly and severally liable - collectively the "Original Obligors") in connection with the development of the Hyatt Regency Waikiki Hotel. In the years following the initial leases, the improvements (hotel and convention center) were sold and re-sold to third parties. In connection with these sales, the land was subleased to the purchasing party. While the sublessee assumed all obligations, the Original Obligors and the subsequent obligors were not released by the land owners. During 1990, in connection with the sale of BMAA, Lab Holdings, Inc. gave an indemnity to the purchaser, Generali-Assicurazioni Generali S.p.A., against liabilities that may arise from the subject leases. Also during 1990, Lab Holdings, Inc. transferred its right title and interest to the subject leases to Scout Development Corporation ("Scout"), a subsidiary of Syntroleum Corporation. Scout assumed all of the liability and indemnified Lab Holdings, Inc. In the event that the Hyatt Regency Waikiki Hotel should fail to pay its rent and real estate taxes on the subject land, this default could trigger liability for LabOne, Scout and Ameritas Life. This liability is not recorded in the Company's balance sheets since the contingent liability is considered remote.
The current rent payments for the subject leases are $0.8 million per year plus real estate taxes of approximately $1.6 million for the most recent year available. The lease amount is fixed until the year 2006 at which time the lease calls for a negotiated increase. The formula for the increase is the product of the fair market value of the land times the market rate of return for similar land. The market rate of return to be used in the calculation has a floor of seven percent and the resulting base rent cannot decrease from the prior period. Based on current market values, the Company projects that in 2007, the annual lease obligations for the subject parcels would be approximately $5.8 million. There are subsequent renegotiations in 2017, 2027 and 2037 subject to the same formula. This lease expires in 2047. The Company believes the leasehold improvements are significantly more valuable than the lease obligations. In the event of default by the property owner, the risk of this lease would be shared wit h Scout and Ameritas Life.
The Company, through its predecessor Lab Holdings, Inc., is a lessee of a land lease for a parking garage in Reno, Nevada. The lease was assigned to Scout in August 1990. Lab Holdings, Inc. was not released from the land lease by the landowner. The property was sold in 2000. Minimum annual lease payments for the land lease are $0.3 million, adjusted for the Consumer Price Index, plus real estate taxes and insurance. The land lease expires in August 2023. Should the property owner default on its obligations under the land lease, Scout would have rights to claim the parking garage and sell the asset. Should Scout default on its obligations, LabOne would be obligated for the land lease payments. Management of the Company believes that the sale of the asset and the assignment of the land lease would cover the contingent liability exposure for this lease, and as such, no liability is recorded on the Company's balance sheet.
(11) Subsequent Event
On January 5, 2004, the Company acquired, for cash, substantially all of the assets associated with the core laboratory operations of The Health Alliance of Greater Cincinnati (the "Health Alliance") for $42.4 million. The core laboratory operations acquired provide outreach laboratory testing services for physicians in the Greater Cincinnati area and reference laboratory testing for the six hospitals affiliated with the Health Alliance. In connection with the acquisition, the Company entered into a long-term service agreement for the Company to provide reference testing to the Health Alliance hospitals and management of their six immediate response laboratories. The acquisition was financed through the Company's existing line of credit.
On March 1, 2004, the Company acquired, for cash, the assets of the drug testing division, Northwest Toxicology, from NWT Inc. for $10.0 million subject to adjustment based on net working capital at closing. The acquisition will result in additional urine and oral fluid testing volumes directed to LabOne's Lenexa, Kansas laboratory, and furthers the Company's capabilities to include drugs of abuse testing in blood, expanded specimen validity testing, medical professional and other esoteric drug testing. The acquisition was financed through the Company's existing line of credit.
(12) Quarterly Financial Data (Unaudited)
A summary of unaudited quarterly results of operations for 2003 and 2002 is as follows:
Three months ended | ||||
March 31 | June 30 | September 30 | December 31 | |
(in thousands, except per share data) | ||||
2003: | ||||
Sales | $ 81,928 | $ 83,963 | $ 88,115 | $ 92,014 |
Gross profit | 25,838 | 26,876 | 27,952 | 28,279 |
Earnings before income taxes | 7,278 | 7,931 | 8,540 | 8,956 |
Net earnings | 4,551 | 5,045 | 5,387 | 5,749 |
Basic earnings per share | $ 0.32 | $ 0.36 | $ 0.39 | $ 0.37 |
Diluted earnings per share | $ 0.27 | $ 0.30 | $ 0.32 | $ 0.33 |
2002: | ||||
Sales | $ 70,642 | $ 75,032 | $ 74,577 | $ 77,896 |
Gross profit | 21,414 | 23,298 | 22,717 | 24,887 |
Earnings before income taxes | 4,815 | 6,068 | 6,266 | 7,116 |
Net earnings | 3,099 | 3,635 | 3,747 | 4,359 |
Basic earnings per share | $ 0.21 | $ 0.26 | $ 0.26 | $ 0.31 |
Diluted earnings per share | $ 0.19 | $ 0.22 | $ 0.23 | $ 0.27 |
Schedule II | |||||
LabOne, Inc. and Subsidiaries | |||||
Valuation and Qualifying Accounts | |||||
Years ended December 31, 2003, 2002 and 2001 | |||||
Description | Balance at beginning of year |
Additions- charged to selling, general and administrative expenses |
Additions- reserve established in purchase accounting |
Deductions- uncollectible accounts |
Balance at end of year |
(in thousands) | |||||
Allowance for doubtful accounts: | |||||
Year ended December 31, 2003 | $ 7,076 | $ 6,250 | $ 3 | $ 5,284 | $ 8,045 |
Year ended December 31, 2002 | 3,571 | 5,638 | 1,561 | 3,694 | 7,076 |
Year ended December 31, 2001 | 4,407 | 3,955 | | 4,791 | 3,571 |
See accompanying independent auditors' report. |
Exhibit 2.6
AMENDMENT NO. 2 TO
ASSET PURCHASE AGREEMENT
This Amendment No. 2 to Asset Purchase Agreement (this "Amendment") is entered into on January 28, 2004, by and between LabOne, Inc., a Missouri corporation ("Buyer"), and THE HEALTH ALLIANCE OF GREATER CINCINNATI, (the "Seller") for itself and on behalf of The Christ Hospital ("TCH"), University Hospital, Inc. ("UH"), The St. Luke Hospitals, Inc. ("SLH"), Jewish Hospital Of Cincinnati, Inc. ("JHC") and The Fort Hamilton Hospital ("FHH") (TCH, UH, SLH, JHC and FHH shall be collectively referred to as the "Hospitals" and, Seller and Hospitals may individually be referred to herein as a "Selling Entity" and collectively referred to herein as the "Selling Entities") and on behalf of Jewish Health System, Inc. and Fort Hamilton Hospital Holding Company (sometimes individually referred to herein as a "Hospital Entity" and collectively referred to herein as the "Hospital Entities").
WHEREAS, the Buyer and the Selling Entities and the Hospital Entities are parties to that certain Asset Purchase Agreement dated November 28, 2003, and that certain Amendment No. 1 to Asset Purchase Agreement dated on or about December 31, 2003 ("Purchase Agreement");
WHEREAS, as of the Closing, the Selling Entities did not assign to Buyer an agreement with Anthem Blue Cross and Blue Shield ("Anthem"), which is a Major Managed Care Contract;
WHEREAS, since the Closing, Buyer has entered into an agreement with Anthem, and such agreement is a Replacement Managed Care Contract;
WHEREAS, the Parties acknowledge that Buyer has provided the Selling Entities with certain information with regard to Buyer's agreement with Anthem;
WHEREAS, the Parties acknowledge that the Selling Entities have provided Buyer with certain information with respect to the Inventory Value;
WHEREAS, in consideration for the Additional Payment (as defined herein), the Parties desire to waive their respective rights to a Post-Closing Adjustment for Major Managed Care Contracts and a Post-Closing Adjustment for Inventory by adjusting the Purchase Price as described herein;
WHEREAS, the Buyer and the Selling Entities and Hospital Entities desire to amend the Purchase Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, pursuant to Section 12(i) of the Purchase Agreement, the Parties agree to amend the Purchase Agreement as follows:
1. The foregoing Recitals are hereby incorporated by this reference.
2. In consideration of each party waiving its respective rights to a Post-Closing Adjustment for Major Managed Care Contracts and a Post-Closing Adjustment for Inventory, Buyer shall pay the Selling Entities an amount equal to Three Million Eight Hundred Fifty Thousand Dollars ($3,850,000)(the "Additional Payment"). The Additional Payment shall be paid by Buyer to Seller by wire transfer or delivery of immediately available funds within one (1) business day following the date of this Amendment.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on the date first above written.
LABONE, INC.
By: John W. McCarty
Name: John W. McCarty
Title: Executive Vice President & Chief Financial Officer
THE HEALTH ALLIANCE OF GREATER CINCINNATI
(for itself and on behalf of The Christ Hospital, University Hospital, Inc., The St. Luke Hospitals, Inc., Jewish Hospital Of Cincinnati, Inc., The Fort Hamilton Hospital, Jewish Health System, Inc. and Fort Hamilton Hospital Holding Company)
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
THE CHRIST HOSPITAL
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
UNIVERSITY HOSPITAL, INC.
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
THE ST. LUKE HOSPITALS, INC.
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
THE JEWISH HOSPITAL OF CINCINNATI, INC.
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
THE FORT HAMILTON HOSPITAL
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
JEWISH HEALTH SYSTEM, INC.
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
FORT HAMILTON HOSPITAL HOLDING COMPANY
By: The Health Alliance of Greater Cincinnati
By: Ronald Long
Ronald Long, Executive Vice President and Chief Financial Officer
Exhibit 4.4
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
December 3, 2003
among
LABONE, INC.
The Lenders Party Hereto
and
JPMORGAN CHASE BANK,
as Issuing Bank, Administrative Agent
and Collateral Agent
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Syndication Agent
___________________________
J.P. MORGAN SECURITIES INC.
and
WACHOVIA SECURITIES, INC.,
as Co-Lead Arrangers and Joint Bookrunners
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Defined Terms
SECTION 1.02. Classification of Loans and Borrowings
SECTION 1.03. Terms Generally
SECTION 1.04. Accounting Terms; GAAP
ARTICLE II
The Credits
SECTION 2.01. Commitments
SECTION 2.02. Loans and Borrowings
SECTION 2.03. Requests for Revolving Borrowings
SECTION 2.04. Competitive Bid Procedure
SECTION 2.05. Letters of Credit
SECTION 2.06. Funding of Borrowings
SECTION 2.07. Interest Elections
SECTION 2.08. Termination and Reduction of Commitments
SECTION 2.09. Repayment of Loans; Evidence of Debt
SECTION 2.10. Prepayment of Loans
SECTION 2.11. Fees
SECTION 2.12. Interest
SECTION 2.13. Alternate Rate of Interest
SECTION 2.14. Increased Costs
SECTION 2.15. Break Funding Payments
SECTION 2.16. Taxes
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs
SECTION 2.18. Mitigation Obligations; Replacement of Lenders
SECTION 2.19. Increase in Revolving Commitments
SECTION 2.20. Notice of Special Loans and Special Loan Exposures
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers
SECTION 3.02. Authorization; Enforceability
SECTION 3.03. Governmental Approvals; No Conflicts
SECTION 3.04. Litigation and Environmental Matters
SECTION 3.05. Compliance with Laws and Agreements
SECTION 3.06. ERISA
SECTION 3.07. Use of Proceeds and Letters of Credit
SECTION 3.08. Properties
SECTION 3.09. Taxes
SECTION 3.10. Financial Condition; No Material Adverse Change
SECTION 3.11. Collateral Document
SECTION 3.12. Investment and Holding Company Status
SECTION 3.13. Subsidiaries
SECTION 3.14. Insurance
SECTION 3.15. Disclosure
SECTION 3.16. Senior Indebtedness
SECTION 3.17. Labor Matters
ARTICLE IV
Conditions
SECTION 4.01. Restatement Effective Date
SECTION 4.02. Each Credit Event
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information
SECTION 5.02. Notices of Material Events
SECTION 5.03. Existence; Conduct of Business
SECTION 5.04. Maintenance of Properties
SECTION 5.05. Insurance
SECTION 5.06. Payment of Obligations
SECTION 5.07. Compliance with Laws
SECTION 5.08. Compliance with ERISA
SECTION 5.09. Books and Records; Inspection and Audit Rights
SECTION 5.10. Environmental Laws
SECTION 5.11. Further Assurances
SECTION 5.12. Information Regarding Collateral
SECTION 5.13. Casualty and Condemnation
SECTION 5.14. Use of Proceeds and Letters of Credit
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities
SECTION 6.02. Liens
SECTION 6.03. Sale and Leaseback Transactions
SECTION 6.04. Fundamental Changes
SECTION 6.05. Asset Sales
SECTION 6.06. Investments, Loans, Advances, Guarantees and Acquisitions
SECTION 6.07. Transactions with Affiliates
SECTION 6.08. Use of Proceeds
SECTION 6.09. Lease Obligations
SECTION 6.10. Restricted Payments; Certain Payments of Indebtedness
SECTION 6.11. Restrictive Agreements
SECTION 6.12. Amendment of Material Documents
SECTION 6.13. Change in Fiscal Year
SECTION 6.14. Interest Expense Coverage Ratio
SECTION 6.15. Leverage Ratio
SECTION 6.16. Consolidated Cash Capital Expenditures
SECTION 6.17. Consolidated Net Worth
ARTICLE VII
Events of Default
SECTION 7.01. Event of Default
SECTION 7.02. Remedies
ARTICLE VIII
The Agents
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices
SECTION 9.02. Waivers; Amendments
SECTION 9.03. Expenses; Indemnity; Damage Waiver
SECTION 9.04. Successors and Assigns
SECTION 9.05. Survival
SECTION 9.06. Counterparts; Integration; Effectiveness
SECTION 9.07. Severability
SECTION 9.08. Right of Setoff
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process
SECTION 9.10. WAIVER OF JURY TRIAL
SECTION 9.11. Headings
SECTION 9.12. Confidentiality
SECTION 9.13. Release of Grantors and Collateral
SECTION 9.14. Effect of Restatement
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 2.05 -- Issuing Banks
Schedule 3.04 -- Disclosed Matters
Schedule 3.08 -- Real Property
Schedule 3.13 -- Subsidiaries / Equity Interests in other Persons
Schedule 3.14 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.06 -- Existing Investments
Schedule 6.11 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Assumption
Exhibit B -- Form of Opinion of Stinson Morrison Hecker
Exhibit C -- Form of Subsidiary Guarantee Agreement
Exhibit D -- Form of Pledge Agreement
Exhibit E -- Form of Security Agreement
Exhibit F -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit G -- Form of Perfection Certificate
AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 3, 2003, among LABONE, INC., a Missouri corporation (the "Company"), the LENDERS from time to time party hereto, the ISSUING BANKS from time to time party hereto and JPMORGAN CHASE BANK, as Administrative Agent and Collateral Agent.
The Company, certain lenders (the "Existing Lenders") and JPMorgan Chase Bank, as Administrative Agent, are parties to a Credit Agreement dated as of June 11, 2002 (the "Existing Credit Agreement"), under which the Existing Lenders have extended and agreed to extend credit in the form of (i) Revolving Loans (such term and each other capitalized term used and not otherwise defined herein having the meaning assigned to it in Article I) from time to time prior to the Revolving Maturity Date in an aggregate principal amount not in excess of $100,000,000 at any time outstanding and (ii) Letters of Credit in an aggregate stated amount not in excess of $15,000,000 at any time. The Company has requested that the Required Lenders (as defined in the Existing Credit Agreement) amend and restate the Existing Credit Agreement in the form of this Agreement to permit the Lab Acquisition, to enable the Company to borrow Special Loans in an aggregate principal amount not in excess of $15,000,000 at any time outstand ing, to provide a procedure under which Lenders may bid on an uncommitted basis on short-term borrowings by the Company maturing on or prior to the Revolving Maturity Date and to effect certain other changes. The proceeds of Borrowings under the Existing Credit Agreement have been, and the proceeds of Borrowings hereunder are to be, used for general corporate purposes of the Company and the Subsidiaries, including for Permitted Acquisitions. The Letters of Credit have been and are to be used for general corporate purposes of the Company and the Subsidiaries.
The Company and the Required Lenders (as defined in the Existing Credit Agreement) have agreed to amend and restate the Existing Credit Agreement in the form of this Agreement. The amendment and restatement of the Existing Credit Agreement evidenced by this Agreement shall become effective as provided in the Amendment Agreement. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
"Acquisition Sub" means the newly formed Subsidiary of the Company formed to acquire the assets to be acquired in the Lab Acquisition.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means JPMorgan Chase Bank, in its capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
"Agents" means the Administrative Agent and the Collateral Agent.
"Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus one-half of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Amendment Fees" has the meaning assigned thereto in the Amendment Agreement.
"Amendment Agreement" means the Amendment Agreement dated as of December 1, 2003, amending and restating the Existing Credit Agreement in the form of this Agreement.
"Applicable Percentage" means, with respect to any Lender, the percentage of the aggregate Revolving Commitments represented by such Lender's Revolving Commitment. If the Revolving Commitments shall have been terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any ABR Revolving Loan or Eurodollar Revolving Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the Leverage Ratio as of the most recent determination date:
Leverage Ratio: |
ABR |
Eurodollar |
Commitment |
Category 1 |
0.75% |
1.75% |
0.50% |
Category 2 |
1.25% |
2.25% |
0.50% |
Category 3 |
1.75% |
2.75% |
0.50% |
For purposes of the foregoing, (i) the Leverage Ratio shall be determined as of the end of each fiscal quarter of the Company's fiscal year based upon the Company's consolidated financial statements delivered pursuant to Section 5.01(a) or (b) and (ii) each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that the Leverage Ratio shall be deemed to be in Category 3 at the option of the Administrative Agent or at the request of the Required Lenders if the Company fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a) or (b), during the period from the expiration of the time for delivery thereof until such consolidated financial statements are d elivered.
"Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
"Board" means the Board of Governors of the Federal Reserve System of the United States of America.
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect, or (c) a Special Loan.
"Borrowing Request" means a request by the Company for a Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
"Change of Control" means
(i) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of Equity Interests representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Company;
(ii) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (a) nominated by the board of directors of the Company nor (b) appointed by directors so nominated; or
(iii) at any time, the occurrence of a "change in control" or similar event, however denominated, under any Indebtedness with a principal amount in excess of $5,000,000 or any preferred stock or other Equity Interest of the Company or any Subsidiary.
"Change in Law" means (a) the adoption of any law, rule or regulation after the Effective Date, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Effective Date or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's or Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Effective Date.
"Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Competitive Loans, or Special Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Collateral" means any and all "Collateral", as defined in any applicable Security Document.
"Collateral Agent" means JPMorgan Chase Bank, in its capacity as collateral agent under the Security Documents.
"Collateral and Guarantee Requirement" means, at any time, that the following requirements shall be satisfied at and as of such time:
(a) the Subsidiary Guarantee Agreement (or a supplement thereto) shall have been executed by the Company and each US Subsidiary that is a Material Subsidiary existing at such time, shall have been delivered to the Collateral Agent and shall be in full force and effect;
(b) the Pledge Agreement (or supplements thereto) shall have been duly executed and delivered by the Company and each US Subsidiary that is a Material Subsidiary existing at such time, and there shall have been duly and validly pledged to the Collateral Agent thereunder as security for the Obligations (i) all the outstanding Equity Interests of any Material Subsidiary owned directly by the Company or any US Subsidiary that is a Material Subsidiary, provided that the Obligations shall not be required to be secured by more than 65% of the aggregate outstanding voting Equity Interests of any Non-US Subsidiary, and (ii) all Indebtedness (other than (x) Indebtedness owed by the Company or any Subsidiary to any other Loan Party that is not evidenced by a promissory note or (y) Indebtedness not owed by the Company or an Affiliate of the Company that is less than $100,000 or that is owed to any Loan Party by an employee of such Loan Party) of the Company, any Subsidiary or any other P erson owed to the Company or any US Subsidiary that is a Material Subsidiary; and any certificates, promissory notes or other instruments representing the Equity Interests or Indebtedness pledged under the Pledge Agreement, accompanied by stock powers or other instruments of transfer endorsed in blank, shall be in the actual possession of the Collateral Agent and all other steps required under applicable law or requested by the Collateral Agent to ensure that the Pledge Agreement creates valid, first priority, perfected Liens on all the Collateral subject thereto shall have been taken;
(c) the Security Agreement (or supplements thereto) shall have been duly executed and delivered by the Company and each US Subsidiary that is a Material Subsidiary existing at such time and there shall have been subjected to security interests thereunder as security for the Obligations all the assets of the Company and each US Subsidiary that is a Material Subsidiary in which a security interest can be created under the Uniform Commercial Code, and all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Collateral Agent to be filed, registered or recorded to create the Liens intended to be created by the Security Documents and perfect such Liens to the extent required by, and with the priority required by, the Security Documents, shall have been filed, registered or recorded or delivered to the Administrative Agent for filing, registration or recording;
(d) the Collateral Agent shall have received with respect to each Mortgaged Property, on or prior to the later of the Effective Date and the 45th day after the acquisition by the Company or any US Subsidiary that is a Material Subsidiary (or would be a Material Subsidiary immediately after such acquisition) of such Mortgaged Property, (i) a Mortgage with respect to such Mortgaged Property duly executed and delivered by the record owner thereof, and evidence of the recording thereof and the taking of all other actions necessary to perfect the Lien created thereby, (ii) a policy or policies of title insurance issued by a recognized title insurance company insuring the Lien of such Mortgage as a valid first Lien on the Mortgaged Property described therein, free of any other Liens except as expressly permitted by Section 6.02, together with such endorsements, coinsurance and reinsurance as the applicable Collateral Agent or the Required Lenders may reasonably request, and (iii) such surveys, ab stracts, appraisals, legal opinions and other documents as the Collateral Agent or the Required Lenders may reasonably request with respect to such Mortgage or Mortgaged Property;
(e) the Indemnity, Subrogation and Contribution Agreement (or a supplement thereto) shall have been executed by the Company and each US Subsidiary that is a Material Subsidiary party to the Guarantee Agreement or any Security Document, shall have been delivered to the Collateral Agent and shall be in full force and effect; and
(f) each Loan Party shall have obtained all consents and approvals required to be obtained by it under applicable law or any agreement or instrument to which it is party in connection with the execution and delivery of all Security Documents to which it is a party, the performance of its obligations thereunder and the granting by it of the Liens thereunder;
provided, that the foregoing definition shall not require the creation or perfection of pledges of or security interests in, or the obtaining of title insurance or legal opinions with respect to, particular assets of the Company and the Subsidiaries if and for so long as, in the judgment of the Collateral Agent, the cost of creating or perfecting such pledges or security interests in such assets or obtaining title insurance or legal opinions in respect of such assets shall be excessive in view of the benefits to be obtained by the Lenders therefrom. The Collateral Agent may grant extensions of time for the perfection of security interests in or the obtaining of title insurance or legal opinions with respect to particular assets (including extensions beyond the Effective Date for the perfection of security interests in the assets of the Company and the Subsidiaries on such date) where it determines that perfection cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement or the Security Documents.
"Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid.
"Competitive Bid Request" means a request by a Borrower for Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Competitive Loan Exposure" means, with respect to any Lender at any time, the aggregate principal amount of the outstanding Competitive Loans of such Lender.
"Consolidated Cash Capital Expenditures" means, for any period, the aggregate of all cash expenditures by the Company or any of the Subsidiaries during such period in respect of items that under GAAP would be, were or should have been included in "additions to property, plant and equipment" or similar items reflected in the consolidated statements of cash flows of the Company and the Subsidiaries for such period or any other period, and shall in any event include the principal component of payments during such period in respect of Capital Lease Obligations, but shall exclude expenditures made in connection with the replacement or restoration of assets, to the extent reimbursed or financed from insurance proceeds paid on account of the loss of or the damage to the assets being replaced or restored or from awards of compensation arising from the taking by condemnation or eminent domain of such assets being replaced.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of (i) consolidated interest expense for such period, (ii) consolidated income tax expense for such period, (iii) all amounts attributable to depreciation and amortization for such period and (iv) any extraordinary non-cash charges for such period, and minus (b) without duplication and to the extent included in determining such Consolidated Net Income, (x) any extraordinary gains for such period and (b) any cash payments during such period in respect of items reflected as non-cash charges during any earlier period, all determined on a consolidated basis in accordance with GAAP. For the purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters (each a "Reference Period") in connection with any determination of the Leverage Ratio, if during such Reference Period the Compan y or any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Acquisition had been completed, and any related Indebtedness had been incurred, on the first day of such Reference Period; provided that for purposes of such pro forma calculation, the contribution to Consolidated EBITDA of the acquired entity or assets shall be deemed to equal such contribution for the fiscal quarters in such Reference Period that commenced after the date of such Material Acquisition multiplied by a fraction of which the numerator is four and the denominator is the number of such fiscal quarters.
"Consolidated Net Income" means, for any period, the net income or loss of the Company and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded the income or loss of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or any Subsidiary or the date that such Person's assets are acquired by the Company or any Subsidiary.
"Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Company and the consolidated Subsidiaries determined as of such date in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.04.
"dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means June 11, 2002.
"Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Laws, or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental, placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from Property, whether or not owned by the Company or any Subsidiary.
"Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
"Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Company or any of i ts ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article VII.
"Event of Loss" means, with respect to any property, any of the following: (a) any loss, destruction or damage of such property; or (b) any condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property, or confiscation of such property or requisition of the use of such property.
"Excluded Taxes" means, with respect to the Administrative Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Company hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Company under Section 2.18(b)), any withholding tax that (i) is in effect and would apply to amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time it became a party to this Agreement, or at the time of designation of a new lending office, to receive additional amounts from the Company with respect to any withholding tax pursuant to Section 2.16, or (ii) is attributable to such Foreign Lender's failure to comply with Section 2.16(e).
"Existing Credit Agreement" has the meaning assigned to it in the preamble hereto.
"Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Company.
"Fixed Rate" means, with respect to any Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed Rate.
"Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Company is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means generally accepted accounting principles in the United States of America.
"Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. The "principal amount" of the obligations of the Company or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Company or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.
"Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured) by any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all Securitization Transactions of such Person, (j) all Synthetic Lease Obligations of such Person, (k) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (l) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and (m) all obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means an Indemnity, Subrogation and Contribution Agreement substantially in the form of Exhibit E among the Company, the Subsidiaries from time to time party thereto and the Collateral Agent, as the same may be amended, modified or supplemented from time to time in accordance with the provisions hereof.
"Industrial Revenue Bonds" means the $14,450,000 aggregate principal amount of City of Lenexa, Kansas Taxable Industrial Revenue Bonds (LabOne, Inc. Project) Series 1998A outstanding on the Effective Date.
"Information Memorandum" means the Confidential Information Memorandum dated March 2002 relating to the Company and the Transactions.
"Insolvency Proceeding" means with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under the laws of the United States or any other country, or any state, province, or political subdivision thereof.
"Interest Election Request" means a request by the Company to convert or continue a Revolving Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, (c) with respect to any Fixed Rate loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the a pplicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing and (d) with respect to any Special Loan, the date or dates agreed upon by the Company and the applicable Lender.
"Interest Period" means, (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Company may elect, (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than 7 days or more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request and (c) with respect to any Special Loan, the period commencing on the date of such Borrowing and ending on the date agreed upon between the Company and the applicable Lender; provided, that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next precedin g Business Day and (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
"Issuing Bank" means, at any time, JPMorgan Chase Bank and each other person that is listed on Schedule 2.05 or that shall have become an Issuing Bank hereunder as provided in Section 2.05(j) (other than any person that shall have ceased to be an Issuing Bank as provided in Section 2.05(j)), each in its capacity as an issuer of Letters of Credit hereunder. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
"Issuing Bank Agreement" shall have the meaning assigned to such term in Section 2.05(j).
"Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.11(b).
"Lab Acquisition" means the purchase of the laboratory testing and ancillary services business of the Health Alliance of Greater Cincinnati for cash in an amount not to exceed $50,000,000 pursuant to and in accordance with the terms of the Asset Purchase Agreement dated as of November 28, 2003, between the Health Alliance of Greater Cincinnati, as Seller, for itself and on behalf of The Christ Hospital, University Hospital, Inc., The St. Luke Hospitals, Inc., Jewish Hospital of Cincinnati, Inc. and The Fort Hamilton Hospital, and the Company, as Buyer.
"LC Commitment" means, as to each Issuing Bank, the commitment of such Issuing Bank to issue Letters of Credit pursuant to Section 2.05. The initial amount of each Issuing Bank's LC Commitment is specified on Schedule 2.05 or in the Issuing Bank Agreement pursuant to which it shall have become an Issuing Bank.
"LC Disbursement" means a payment made by an Issuing Bank pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Company at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.
"LC Participation Fee" shall have the meaning assigned to such term in Section 2.11(b).
"Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or as provided in Section 2.19, other than any such Person that shall have ceased to be a party hereto pursuant to an Assignment and Assumption.
"Letter of Credit" means any letter of credit issued pursuant to this Agreement.
"Leverage Ratio" means, on any date, the ratio of (a) Total Indebtedness as of such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters of the Company ended on or most recently prior to such date.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are off ered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
"Loan Documents" means this Agreement, the Subsidiary Guarantee Agreement, the Security Documents, the Letters of Credit and any related letter of credit applications and any notes delivered pursuant to Section 2.09.
"Loan Parties" means the Company and the US Subsidiaries.
"Loans" means the loans made by the Lenders to the Company pursuant to this Agreement, including all Revolving Loans Competitive Loans and Special Loans.
"Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid.
"Margin Stock" means "margin stock" as such term is defined in Regulation U of the Board.
"Material Acquisition" means any Permitted Acquisition that involves the payment of consideration by the Company and the Subsidiaries in excess of $2,000,000.
"Material Adverse Effect" means any change, event, condition, circumstance or effect (or aggregation of changes, events, conditions, circumstances or effects) that is or could reasonably be expected to (a) be materially adverse to the business, assets, financial condition, prospects or results of operation of the Company and the Subsidiaries taken as a whole; (b) materially impair the ability of the Company and the Subsidiaries to perform their obligations under any Loan Document; or (c) materially impair (i) the legality, validity, binding effect or enforceability against the Company or any Subsidiary of any Loan Document, or (ii) the perfection or priority of any Liens granted under any of the Security Documents which, individually or in the aggregate, relate to a material portion of the Collateral.
"Material Subsidiary" means, at any time, (a) the Company, (b) each Subsidiary that directly or indirectly owns any Equity Interest in any Material Subsidiary and (c) any other Subsidiary, the aggregate of the assets (excluding goodwill) plus Indebtedness (excluding Indebtedness of the Company to any Subsidiary and of any Subsidiary to the Company or any other Subsidiary) of which is greater than $1,000,000; provided that (a) notwithstanding the foregoing, Lab One Canada, Inc., a Subsidiary incorporated under the laws of the Province of Ontario shall not be a Material Subsidiary and (b) if at any time the aggregate amount of the assets (excluding goodwill) plus Indebtedness (excluding Indebtedness of the Company to any Subsidiary and of any Subsidiary to the Company or any other Subsidiary) of all Subsidiaries that are not Material Subsidiaries exceeds $5,000,000, the Company shall designate sufficient Subsidiaries as "Material Subsidiaries" to eliminate such excess (or if the Company shall have failed to designate such Subsidiaries within 10 Business Days, Subsidiaries shall automatically be deemed designated as Material Subsidiaries in descending order based on the amount of their aggregate assets (excluding goodwill) until such excess shall have been eliminated), and the Subsidiaries so designated or deemed designated shall for all purposes of this Agreement constitute Material Subsidiaries.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of leases and rents, leasehold mortgage or other security document granting a Lien on any Mortgaged Property to secure the Obligations. Each Mortgage shall be satisfactory in form and substance to the Collateral Agent.
"Mortgaged Property" means, at any time, each parcel of real property (other than the real properties situated at 10101 Renner Boulevard, Lenexa, KS 66219 and at 44 Yotzonot Drive Bloomington, IL 61704) and the improvements thereto owned by any Loan Party, including the parcels identified on Schedule 3.08 and each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.11.
"Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Net Interest Expense" means, for any period, the excess of (a) the sum (without double-counting) of (i) the interest expense (including imputed interest expense in respect of Capital Lease Obligations) of the Company and the Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, (ii) any interest accrued during such period in respect of Indebtedness of the Company or any Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP, plus (iii) any cash payments made during such period in respect of obligations referred to in clause (b)(iii) below that were amortized or accrued in a previous period, minus (b) the sum of (i) interest income of the Company and the Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, (ii) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization of financi ng costs paid in a previous period, plus (iii) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization of debt discounts or accrued interest payable in kind for such period.
"Net Proceeds" means, with respect to any event (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a casualty, insurance proceeds, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by the Company and the Subsidiaries to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made by the Company and the Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, and (iii) the amount of all taxes paid (or re asonably estimated to be payable) by the Company and the Subsidiaries, and the amount of any reserves established by the Company and the Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by the chief financial officer of the Company).
"Non-US Subsidiary" means any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia.
"Obligations" means (a) the due and punctual payment by the applicable Loan Parties of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Company under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, re gardless of whether allowed or allowable in such proceeding), of the Loan Parties to the Secured Parties under this Agreement and the other Loan Documents, (b) the due and punctual payment and performance of all covenants, agreements, obligations and liabilities of the Loan Parties, monetary or otherwise, under or pursuant to this Agreement and the other Loan Documents and (c) the due and punctual payment of all obligations of the Company or any Subsidiary under each Hedging Agreement entered into (i) prior to the Effective Date with any counterparty that shall have been a Lender (or an Affiliate thereof) on the Effective Date or (ii) on or after the Effective Date with any counterparty that shall have been a Lender (or an Affiliate thereof) at the time such Hedging Agreement was entered into.
"Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of designation or instrument relating to the rights of preferred shareholders of such corporation and any shareholder rights agreement.
"Other Taxes" means any and all present or future recording, stamp, documentary, excise, transfer, sales, property or similar taxes, charges or levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five plan years.
"Perfection Certificate" means a certificate in the form of Exhibit G or any other form approved by the Collateral Agent.
"Permitted Acquisition" shall mean any non-hostile acquisition (in a single transaction or a series of related transactions and including by means of any merger or consolidation in which the surviving entity is the Company or a Subsidiary) of (a) not less than 80% of the Equity Interests (other than directors' qualifying shares) of any person organized under the laws of the United States, any state thereof or the District of Columbia and engaged in a Related Business, (b) a division or similar business unit located in the United States and engaged in a Related Business or (c) all or substantially all the assets and business of any of the foregoing, provided that (i) the value of the consideration for any such acquisition shall not exceed $15,000,000, (ii) the aggregate value of the consideration for all Material Acquisitions shall not exceed $45,000,000, and (iii) prior to the date of each Material Acquisition, the Company shall have delivered to the Administrative Agent a certificate certi fying that (A) at the time of and immediately after giving effect to such acquisition, no Default or Event of Default shall have occurred and be continuing and (B) at the time of and immediately after giving effect to such acquisition, the Company shall be in pro forma compliance with Sections 6.14, 6.15 and 6.16 (as if such acquisition had occurred at the beginning of the applicable period described in each such Section) and clauses (i) and (ii) of this definition, and setting forth calculations in form and substance satisfactory to the Administrative Agent demonstrating the Company's pro forma compliance with such Sections and such clauses.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.03;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.03;
(c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (i) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Company or any Subsidiary;
(g) landlords' liens on fixtures and movable property located on premises leased by the Company or a Subsidiary in the ordinary course of business,
(h) zoning and planning restrictions, easements, permits and other restrictions or limitations affecting the use of such properties that do not materially detract from the value or materially impair the use of such properties, and
(i) minor imperfections of title, if any, not material in amount and not materially detracting from the value or materially impairing the use of the property subject thereto or materially impairing the operations or proposed operations of the Company and the Subsidiaries;
provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" means a Pledge Agreement substantially in the form of Exhibit D among the Company, the Subsidiaries from time to time party thereto and the Collateral Agent.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction or asset securitization) of any property or asset of the Company or any Subsidiary, other than (i) dispositions described in clauses (a) and (b) of Section 6.05 and (ii) other dispositions resulting in aggregate Net Proceeds during the term of this Agreement not exceeding $11,400,000; or
(b) any Event of Loss with respect to any property or asset of the Company or any Subsidiary, but only to the extent that the Net Proceeds therefrom in excess of $2,000,000 have not been applied to repair, restore or replace such property or asset within 180 days (or, if agreed to by the Administrative Agent pursuant to Section 5.05, a longer period of up to 270 days) after such event; or
(c) at any time the Leverage Ratio is greater than or equal to 2.00 to 1.00, the issuance by the Company or any Subsidiary of any Equity Interests, or the receipt by the Company or any Subsidiary of any capital contribution, other than any such issuance of Equity Interests to, or receipt of any such capital contribution from, the Company or a Subsidiary; or
(d) the incurrence by the Company or any Subsidiary of any Indebtedness, other than Indebtedness permitted to be incurred under clauses (i) through (xi) of Section 6.01(a).
"Prime Rate" means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
"RapidMed Acquisition" means the purchase of certain assets of RapidMed, a corporation incorporated under the laws of the Province of Ontario, Canada for cash in an amount not to exceed $3,000,000 (Canadian) pursuant to and in accordance with the terms of an agreement to be entered into between the Company and RapidMed.
"Register" has the meaning set forth in Section 9.04.
"Related Business" shall mean the business in which the Company and the Subsidiaries are engaged on the date hereof or any business reasonably related thereto.
"Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Exposures and unused Revolving Commitments representing more than 60% of the sum of the total Revolving Exposures and unused Revolving Commitments at such time; provided that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Revolving Commitments expire or terminate, "Required Lenders" will mean, at any time, Lenders having Revolving Exposures, outstanding Competitive Loans and outstanding Special Loans representing more than 60% of the sum of the total Revolving Exposures, outstanding Special Loans and outstanding Competitive Loans at such time.
"Responsible Officers" means the chief executive officer, chief financial officer, president, treasurer, controller, secretary and any executive vice president of the Company.
"Restatement Effective Date" has the meaning assigned to such term in the Amendment Agreement.
"Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Company or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancelation or termination of any Equity Interests in the Company or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Company or any Subsidiary.
"Revolving Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Revolving Maturity Date and the date of termination of the Revolving Commitments.
"Revolving Borrowing" means a Borrowing comprised of Revolving Loans.
"Revolving Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate permitted amount of such Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to Section 2.08 or Section 2.19 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders' Revolving Commitments is $100,000,000.
"Revolving Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.01.
"Revolving Maturity Date" means June 11, 2005.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.
"Secured Parties" means the Administrative Agent, the Collateral Agent, each Lender, each Issuing Bank and each other Person to which any of the Obligations is owed.
"Securities Purchase Agreement" means the Securities Purchase Agreement dated as of August 31, 2001, among the Company, Welsh Carson and the other purchasers named on Schedule I thereto, as in effect on the date hereof.
"Securitization Transaction" means any transfer by the Company or any Subsidiary of accounts receivable or interests therein (a) to a trust, partnership, corporation or other entity, which transfer is funded in whole or in part, directly or indirectly, by the incurrence or issuance by the transferee or any successor transferee of debt or other securities that are to receive payments from, or that represent interests in, the cash flow derived from such accounts receivable or interests, or (b) directly to one or more investors or other purchasers. The amount of any Securitization Transaction shall be deemed at any time to be the aggregate principal or stated amount of the Indebtedness or other securities referred to in the preceding sentence or, if there shall be no such principal or stated amount, the uncollected amount of the accounts receivable transferred pursuant to such Securitization Transaction net of any such accounts receivable that have been written off as uncollectible.
"Security Agreement" means a Security Agreement substantially in the form of Exhibit E among the Company, the Subsidiaries from time to time party thereto and the Collateral Agent.
"Security Documents" means the Security Agreements, the Pledge Agreements, the Mortgages and each other security agreement or other instrument or document executed and delivered pursuant to Section 5.11 to secure any of the Obligations.
"Series B-1 Preferred Shares" means the shares of Series B-1 Cumulative Convertible Preferred Stock of the Company issued pursuant to the Securities Purchase Agreement or upon the conversion of shares of Series B-2 Cumulative Convertible Preferred Stock of the Company.
"Series C-1 Preferred Shares" means any shares of Series C-1 Cumulative Convertible Preferred Stock of the Company issued pursuant to Section 6.04 of the Securities Purchase Agreement.
"Series C-2 Preferred Shares" means any shares of Series C-2 Cumulative Convertible Preferred Stock of the Company issued pursuant to Section 6.04 of the Securities Purchase Agreement.
"Solvent" means, as to any Person at any time, that (a) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code and, in the alternative, for purposes of the New York Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilit ies mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. For such purposes, any contingent liability (including, without limitation, pending litigation, guarantee obligations, pension plan liabilities and claims for Federal, state, local and foreign taxes, if any) shall be valued at the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
"Special Loans" has the meaning assigned to such term in Section 2.02(b).
"Special Loan Exposure" means, with respect to any Lender at any time, the aggregate principal amount of the outstanding Special Loans of such Lender.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee Agreement substantially in the form of Exhibit B among the Company, the Subsidiaries from time to time party thereto and the Collateral Agent, as the same may be amended, modified or supplemented from time to time in accordance with the provisions hereof.
"Syndication Agent" means Wachovia Bank, National Association.
"Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the transaction is considered indebtedness for borrowed money for Federal income tax reporting purposes but is classified as an operating lease in accordance with GAAP for financial reporting purposes.
"Synthetic Lease Obligations" means, with respect to any Synthetic Lease, at any time, an amount equal to the sum of (a) all remaining rental obligations of the lessee under such Synthetic Lease which are attributable to principal and, without duplication, (b) all rental and purchase price payment obligations under such Synthetic Lease assuming the lessee exercises the option to purchase the leased property at the end of the lease term.
"Synthetic Purchase Agreement" means any agreement pursuant to which the Company or a Subsidiary is or may become obligated to make (i) any payment in connection with the purchase by any third party from a person other than the Company or a Subsidiary of any Equity Interest or Indebtedness or (ii) any payment (other than on account of a permitted purchase by it of any Equity Interest or Indebtedness) the amount of which is determined by reference to the price or value at any time of any Equity Interest or Indebtedness of the Company or a Subsidiary; provided that no phantom stock or similar plan providing for payments only to current or former directors, officers or employees of the Company or the Subsidiaries (or to their heirs or estates) shall be deemed to be a Synthetic Purchase Agreement.
"Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.
"Total Indebtedness" means, as of any date, the aggregate Indebtedness of the Company and the Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP.
"Transactions" means the execution, delivery and performance by the Loan Parties of the Loan Documents, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, the creation and perfection of the Liens provided for in the Security Documents and the other transactions contemplated hereby.
"Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the Adjusted LIBO Rate or a Fixed Rate.
"Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
"US Subsidiary" means each Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia.
"Welsh Carson" means Welsh, Carson, Anderson & Stowe IX, L.P., a Delaware limited partnership and each other person named on Schedule 1 to the Securities Purchase Agreement.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of simil ar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Company from time to time during the Revolving Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment or (b) the sum of the total Revolving Exposure plus the total Competitive Loan Exposures and Special Loan Exposures exceeding the total Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Company may borrow, prepay and reborrow Revolving Loans. Revolving Loans repaid or prepaid after the Revolving Maturity Date may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans of the same Type made by the Lenders ratably in accordance with their respective Revolving Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.04. Each Special Loan shall be made in accordance with Section 2.02(b). The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Revolving Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.
(b) At any time, the Company and any Lender may agree that such Lender will make a loan (a "Special Loan") to the Company bearing interest at an agreed upon rate, for an interest period to be agreed upon and upon such other terms as the Company and Lender may agree; provided that (i) after giving effect to the making of any Special Loan, the sum of the total Revolving Exposure plus the Competitive Loan Exposures and Special Loan Exposures shall not exceed the total Revolving Commitments, (ii) no loan shall be a Special Loan unless the Company and the applicable Lender expressly agree at the time such loan is made, and notify the Administrative Agent, that such loan shall be a Special Loan for purposes of this Agreement and (iii) after giving effect to the making of any Special Loan, the aggregate amount of the Special Loan Exposures shall not exceed $15,000,000. At the time of the making of a Special Loan hereunder, the Company shall be deemed to represent that after giving eff ect to such Borrowing, the conditions set forth in clauses (i) and (iii) of the preceding sentence will be satisfied.
(c) Subject to Section 2.13, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Company may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Company may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Company to repay such Loan in accordance with the terms of this Agreement.
(d) At the commencement of each Interest Period for any Revolving Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each Competitive Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of five Eurodollar Borrowings outstanding.
(e) Notwithstanding any other provision of this Agreement, the Company shall not be entitled to request, or to elect to convert or continue, any Revolving Borrowing if the Interest Period requested with respect thereto would end after the Revolving Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving Borrowing, the Company shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e) may be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Company. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Company's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06.
If no election as to the Type of Revolving Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Company shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Revolving Availability Period the Company may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that (i) after giving effect to any Borrowing of Competitive Loans the sum of the total Revolving Exposure plus the total Competitive Loans and Special Loans shall not exceed the total Revolving Commitments and (ii) the aggregate Competitive Loan Exposure shall not exceed $15,000,000. To request Competitive Bids, the Company shall notify the Administrative Agent of such request by telephone or by telecopy, in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business D ay before the date of the proposed Borrowing; provided that the Company may submit up to (but not more than) five Competitive Bid Requests on the same day, but a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Company. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.02.
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period" and shall end no later than the Revolving Maturity Date; and
(v) the location and number of the Company's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06.
Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Company in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be in an aggregate amount at least equal to $1,000,000 and an integral multip le of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Company) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof.
The Administrative Agent shall promptly notify the Company by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid.
Subject only to the provisions of this paragraph, the Company may accept or reject any Competitive Bid. The Company shall notify the Administrative Agent by telecopy or by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of the Company to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Company shall not accept a Competitive Bid made at a particular Competitive Bid Rate if it rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Compe titive Bids accepted by the Company shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Company may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of at least $1,000,000 and an integral multiple of $1,000,000 in an amount less than $1,000,000 in a manner determined by the applicable Borrower. A notice given by the Company pursuant to this paragraph shall be irrevocable.
The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted.
If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Company at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.05. Letters of Credit. General. Subject to the terms and conditions set forth herein, the Company may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the applicable Issuing Bank, at any time and from time to time during the Revolving Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Company to, or entered into by the Company with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Company shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to an Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by an Issuing Bank, the Company also shall submit a letter of credit application on such Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Company shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the aggregate LC Exposure shall not exceed $15,000,000, (ii) the portion of LC Exposure attributable to Letters of Credit of the Issuing Bank requested to issue such Letter of Credit shall not exceed the LC Commitment of such Issuing Bank and (iii) the sum of the total Revolving Exposures plus the aggregate principal amount of outstanding Competitive Loans and Special Loans shall not exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Revolving Maturity Date.
(d) Participations. 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 applicable Issuing Bank or the Lenders, the applicable Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by each Issuing Bank and not reimbursed by the Company on the date due or financed with the proceeds of an ABR Revolving Borrowing as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Compa ny for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Company shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Company shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Company prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that the Company receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Company receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, if such LC Disbursement is not less than $2,000,000, the Company may, subject to the conditions to borrowing set forth herein, request (and if the Company fails to reimburse such LC Disbursement when due the Company shall be deemed to have requested) in accordance with Section 2.03 that such payment be financed with an ABR Revolving Borrowing (and the time for reimbursement of such LC Disbursement shall automatically be extended to the Business Day following such request or deemed request) in an equivalent amount and, to the extent so financed, the Company's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing. If the Company fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Company in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Company, in the same manner as pro vided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Company pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Banks or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and the Issuing Banks as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans as contemplated above) shall not constitute a Loan and shall not relieve the Company of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Company's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Company's obligations hereunder. None of the Administrative Agent, the Lenders nor the Issuing Banks, or any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the applicable Issuing Bank; provided that the foregoing shall not be construed to excuse an Issuing Bank from liability to the Company to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Company to the extent permitted by applicable law) suffered by the Company that are caused by such Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of an Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, each Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent and the Company by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Company of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Company shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Company reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Company fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.12(c) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse an Issuing Bank shall be for the account of such Lender to the extent of such payment.
(i) Resignation or Removal of an Issuing Bank. An Issuing Bank may resign at any time by giving 90 days' prior written notice to the Administrative Agent, the Lenders and the Company, and may be removed at any time by the Company by notice to such Issuing Bank, the Administrative Agent and the Lenders. Upon the resignation or removal of an Issuing Bank hereunder, such Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such resignation or removal shall become effective, the Company shall pay all fees accrued for the account of such Issuing Bank under Section 2.11(b) and not yet paid. After the resignation or removal of an Issuing Bank hereunder, such Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit.
(j) Designation of Additional Issuing Banks. From time to time, the Company may by notice to the Administrative Agent and the Lenders designate one or more Lenders as additional Issuing Banks. The acceptance by a Lender of any appointment as an Issuing Bank hereunder shall be evidenced by an agreement (an "Issuing Bank Agreement"), which shall be in a form satisfactory to the Company and the Administrative Agent, shall set forth the LC Commitment and Issuing Bank Fees of such Lender and shall be executed by such Lender, the Company and the Administrative Agent and, from and after the effective date of such agreement, (i) such Lender shall have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to include such Lender in its capacity as an Issuing Bank.
(k) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Company receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing a majority of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Company shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Company described in clause (f) or (g) of Article VII. Each such deposit shall be he ld by the Administrative Agent as collateral for the payment and performance of the obligations of the Company under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Company's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Banks for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Company for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing a majority of the total LC Exposure), be applied to satisfy other obligations of the Company under this Agreement. If the Company is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Company within three Business Days after all Events of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan (other than a Special Loan) to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Company by promptly crediting the amounts so received, in like funds, to an account of the Company maintained with the Administrative Agent in New York City and designated by the Company in the applicable Borrowing Request or Competitive Bid Request; provided that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the applicable Issuing Bank. Each Lender shall make each Special Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by the time and to the account agreed upon by the Company and the applicable Lender.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing (other than a Special Loan) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Company a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Company severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Company to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Company, the interest rate applicable to ABR Revolving Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Company may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Company may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings or to Special Loans, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Company shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Company were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Company.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Company shall be deemed to have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Company fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless previously terminated, the Revolving Commitments and the LC Commitments shall terminate on the Revolving Maturity Date.
(b) The Company may at any time terminate, or from time to time reduce, the Revolving Commitments; provided that, except as provided in paragraph (c), (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Company shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.10, the sum of the total aggregate Revolving Exposures plus the total Competitive Loan Exposures and Special Loan Exposures would exceed the total Revolving Commitments.
(c) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Company or any Subsidiary in respect of any Prepayment Event, the Company shall, promptly and in any event within three Business Days after such Net Proceeds are received, reduce the total Revolving Commitments by an aggregate amount equal to (i) in the case of Net Proceeds of an event referred to in clause (a), (b) or (d) of the definition of "Prepayment Event", 100% of such Net Proceeds, and (ii) in the case of Net Proceeds of an event referred to in clause (c) of the definition of "Prepayment Event", 50% of such Net Proceeds or, if less, an amount that will result in required prepayments under Section 2.10(b) sufficient to reduce the Leverage Ratio to less than 2.00 to 1.00; provided that, in the case of any event described in clause (c) of the definition of the term Prepayment Event, if the Company shall deliver to the Administrative Agent a certificate of a Financial Officer to the effect that the Company and the Subsidiaries intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 60 days after receipt of such Net Proceeds, to invest in another entity engaged in any of the businesses of the Company and its Subsidiaries on the Effective Date or in any businesses reasonably related thereto (including the acquisition from third parties of capital stock or all or substantially all of the assets of any such entity), and certifying that no Default has occurred and is continuing, then no reduction of the Revolving Commitments shall be required pursuant to this paragraph in respect of the Net Proceeds in respect of such event (or the portion of such Net Proceeds specified in such certificate, if applicable), except to the extent of any such Net Proceeds therefrom that have not been so applied so that such entity has become a Subsidiary of the Company by the end of such 60-day period, at which time a reduction of the Revolving Commitments s hall be required in an amount equal to such Net Proceeds that have not been so applied.
(d) The Company shall notify the Administrative Agent of any election to terminate or reduce the Revolving Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Revolving Commitments shall be permanent. Each reduction of the Revolving Commitments shall be made ratably among the Lenders in accordance with their respective Revolving Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the Administrative Agent for the account of each Lender the unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan and (iii) to the applicable Lender the principal amount of each Special Loan made to the Company on the date or dates agreed by the Company and such Lender (which date or dates shall not be more than ten Business Days from the date of such Borrowing).
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan (other than Special Loans) made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.10. Prepayment of Loans. (a) The Company shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section; provided that the Company shall not have the right to prepay any Competitive Loan without the prior consent of the Lender thereof.
(b) In the event and on each occasion that the sum of the Revolving Exposures plus the total Competitive Loan Exposures and Special Loan Exposures exceeds the total Revolving Commitments, the Company shall prepay Revolving Borrowings or Special Loans (or, if no such Borrowings are outstanding, deposit cash collateral in an account with the Administrative Agent pursuant to Section 2.05(k)) in an aggregate amount equal to such excess.
(c) Prior to any optional or mandatory prepayment of Borrowings hereunder, the Company shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (d) of this Section.
(d) The Company shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment; provided that, if a notice of optional prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12.
(e) The Company shall have the right at any time and from time to time to prepay any Special Loan upon such notice as shall have been agreed upon between the Company and the Lender that shall have made such Special Loan.
SECTION 2.11. Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the average daily unused amount of each Revolving Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which such Revolving Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the Effective Date. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees with respect to Revolving Commitments, a Revolving Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving Loans and LC Exposure of such Lender.
(b) The Company agrees to pay (i) to the Administrative Agent for the account of each Lender a fee (an "LC Participation Fee") with respect to its participations in Letters of Credit, which shall accrue at the Applicable Rate used to compute interest on Eurodollar Revolving Loans, on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing Bank, (A) a fronting fee, which shall accrue at the rate of 0.25% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to Letters of Credit issued by such Issuing Bank during the period from and including the Effective Date to but excluding the later of th e date of termination of the Revolving Commitments and the date on which all Letters of Credit have been canceled or have expired and (B) such Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder (the "Issuing Bank Fees"). LC Participation Fees and Issuing Bank Fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to an Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All LC Participation Fees and Issuing Bank Fees shall be computed on the bas is of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(c) The Company agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the applicable Issuing Bank, in the case of Issuing Bank Fees) for distribution, in the case of commitment fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances.
SECTION 2.12. Interest. (a) The Loans comprising each ABR Revolving Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) (i) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii) in the case of a Eurodollar Competitive Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate applicable to such Loan.
(d) Each Special Loan shall bear interest at a rate per annum and on a basis agreed upon between the Company and the applicable Lender.
(e) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Company hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(f) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that (i) interest accrued pursuant to paragraph (f) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(g) All interest hereunder (other than on Special Loans) shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Company for Eurodollar Competitive Borrowings may be made to Lenders that are not affected thereby and (B) if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type or Borrowings shall be permitted.
SECTION 2.14. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or
(ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement, Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or otherwise), then the Company will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's or such Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation; provided that the Company shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 120 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lender's or such Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 120-day period referred to above shall be extended to include the period of retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made.
SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan or Fixed 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 Eurodollar Revolving Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(d) and is revoked in accordance therewith), (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.18, then, in any such event, the Company shall compensate each Lender for the loss, cost and ex pense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate or LIBO Rate in the case of any Competitive Loan that would have been applicable to such Loan, 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 for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account of any obligation of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if a Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Loan Party shall make such deductions and (iii) the Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) The Company shall indemnify the Administrative Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Lender or an Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manif est error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Loan Party to a Governmental Authority, the Company shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Loan Party is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to such Loan Party (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by such Loan Party as will permit such payments to be made without withholding or at a reduced rate, provided that such Foreign Lender has received written notice from such Loan Party advising it of the availability of such exemption or reduction and supplying all applicable documentation.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Except as agreed by the Company and the applicable Lenders with respect to Special Loans, the Company shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 12:00 noon, New York City time), on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time (or any other applicable time agreed by the Company and the applicable Lenders with respect to Special Loans) on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Issuing Banks as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is r ecovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Company pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Company consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Company rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Company in the amount of such participatio n.
(d) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Banks hereunder that the Company will not make such payment, the Administrative Agent may assume that the Company has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Banks, as the case may be, the amount due. In such event, if the Company has not in fact made such payment, then each of the Lenders or each of the Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by th e Administrative Agent in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(d) or (e), 2.06(b), 2.17(d) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Company is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or if the Company is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans or Special Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, each Issuing Bank), which consent s hall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans and Special Loans) and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply.
SECTION 2.19. Increase in Revolving Commitments. The Company may, by written notice to the Administrative Agent (which shall promptly deliver a copy to the Lenders), executed by the Company and one or more financial institutions (any such financial institution referred to in this Section being called an "Increasing Lender"), which may include any Lender, cause Revolving Commitments to be extended by the Increasing Lenders (or cause the Revolving Commitments of the Increasing Lenders to be increased, as the case may be) in an amount not less than $5,000,000 and in an aggregate amount that is an integral multiple of $1,000,000 for each Increasing Lender set forth in such notice, provided, however, that (a) the aggregate amount of all new Revolving Commitments and increases in existing Revolving Commitments pursuant to this paragraph during the term of this Agreement shall in no event exceed $25,000,000, (b) each Increasing Lender, if not already a Lender hereunder, shall be s ubject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and (c) each Increasing Lender, if not already a Lender hereunder, shall become a party to this Agreement by completing and delivering to the Administrative Agent a duly executed accession agreement in a form satisfactory to the Administrative Agent and the Company (an "Accession Agreement"). New Revolving Commitments and increases in Revolving Commitments pursuant to this Section shall become effective on the date specified in the applicable notices delivered pursuant to this Section. Upon the effectiveness of any Accession Agreement to which any Increasing Lender is a party, (i) such Increasing Lender shall thereafter be deemed to be a party to this Agreement and shall be entitled to all rights, benefits and privileges accorded a Lender hereunder and subject to all obligations of a Lender hereunder and (ii) Schedule 2.01 shall be deemed to have been amended to reflect the Commitment of such Incre asing Lender as provided in such Accession Agreement. Upon the effectiveness of any increase pursuant to this Section in the Revolving Commitment of a Lender already a party hereto, Schedule 2.01 shall be deemed to have been amended to reflect the increased Revolving Commitment of such Lender. Notwithstanding the foregoing, no increase in the aggregate Revolving Commitments (or in the Revolving Commitment of any Lender) shall become effective under this Section unless, on the date of such increase, the Administrative Agent shall have received a certificate, dated as of the effective date of such increase and executed by a Financial Officer of the Company, to the effect that the conditions set forth in paragraphs (a) and (b) of Section 4.02 shall be satisfied (with all references in such paragraphs to a Borrowing being deemed to be references to such increase). Following any extension of a new Revolving Commitment or increase of a Lender's Revolving Commitment pursuant to this Section 2.18, any Revolving L oans outstanding prior to the effectiveness of such extension or increase shall continue outstanding until the ends of the respective Interest Periods applicable thereto, and shall then be repaid or refinanced with new Revolving Loans made pursuant to Section 2.01.
SECTION 2.20. Notice of Special Loans and Special Loan Exposures. At any time the Administrative Agent so requests, the Company shall promptly notify the Administrative Agent of the aggregate amount of the Special Loan Exposures at such time.
ARTICLE III
Representations and Warranties
The Company represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Company and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to own or lease and operate its properties and assets and to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions are within such Loan Party's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Company and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of the Company or such Loan Party (as the case may be), enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any of the Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Company or any of the Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Company or any of the Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Company or any of the Subsidiaries, except Liens created under the Loan Documents.
SECTION 3.04. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Company nor any of the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.
(c) Since the Effective Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.
SECTION 3.05. Compliance with Laws and Agreements. Each of the Company and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 3.06. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $3,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $3,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 3.07. Use of Proceeds and Letters of Credit. The proceeds of the Loans will be used and Letters of Credit will be issued only for the purposes set forth in the preamble to this Agreement. None of the Company or any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.
SECTION 3.08. Properties. (a) Each of the Company and the Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business (including its Mortgaged Properties), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Company and the Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Company and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 3.08 sets forth the address of each real property that is owned or leased by the Company or any of the Material Subsidiaries as of the Restatement Effective Date.
(d) As of the date hereof, neither the Company nor any of the Subsidiaries has received notice of, or has knowledge of, any pending or contemplated condemnation proceeding affecting any Mortgaged Property or any sale or disposition thereof in lieu of condemnation. Neither any Mortgaged Property nor any interest therein is subject to any right of first refusal, option or other contractual right to purchase such Mortgaged Property or interest therein.
SECTION 3.09. Taxes. Each of the Company and the Subsidiaries has timely filed or caused to be filed (or has requested and has been granted not more than one extension in respect of the filing of) all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) any Taxes that are being contested in good faith by appropriate proceedings and for which the Company or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. Financial Condition; No Material Adverse Change. (a) The Company has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows as of and for the fiscal year ended December 31, 2002, reported on by KPMG LLP, independent public accountants. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Company and the consolidated Subsidiaries as of such date and for such fiscal year in accordance with GAAP.
(b) Since December 31, 2002, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole.
SECTION 3.11. Collateral Documents. The provisions of each of the Security Documents are effective to create in favor of the Collateral Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority security interest in all right, title and interest of the Company and the Subsidiaries party thereto in the Collateral described therein, subject to Liens expressly permitted by Section 6.02 hereof and to the making of the filings referred to in the Perfection Certificate or the taking possession and control of certificates representing Equity Interests pledged under the Pledge Agreement.
SECTION 3.12. Investment and Holding Company Status. Neither the Company nor any of the Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth the name of, and the ownership interest of the Company and any Subsidiary in, each Subsidiary and identifies each Subsidiary that is a US Subsidiary and each Subsidiary that is a Material Subsidiary, in each case as of the Restatement Effective Date.
SECTION 3.14. Insurance. Schedule 3.14 sets forth a description of all insurance maintained by or on behalf of the Company and the Subsidiaries as of the Restatement Effective Date. As of the date hereof, all premiums in respect of such insurance have been paid.
SECTION 3.15. Disclosure. Neither the Information Memorandum nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Company represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.16. Labor Matters. As of the Restatement Effective Date, there are no strikes, lockouts or slowdowns against the Company or any Subsidiary pending or, to the knowledge of the Company, threatened. The hours worked by and payments made to employees of the Company and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Company or any Subsidiary, or for which any claim may be made against the Company or any Subsidiary, 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 the Company or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Company or any Subsidiary is bound.
SECTION 3.18. Solvency. The Company is Solvent.
ARTICLE IV
Conditions
SECTION 4.01. Restatement Effective Date. On the Restatement Effective Date:
(a) The Amendment Agreement shall have been executed and delivered by the Company and the Required Lenders (as defined in the Existing Credit Agreement).
(b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent, the Collateral Agent and the Lenders and dated the Restatement Effective Date) of Stinson Morrison Hecker, counsel for the Company, substantially in the form of Exhibit B. The Company hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received a certificate, dated the Restatement Effective Date and signed by the President, a Vice President or a Financial Officer of the Company, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02.
(d) The Administrative Agent and the Syndication Agent shall have received all fees accrued but unpaid prior to the Restatement Effective Date and all other fees and other amounts due and payable on or prior to the Restatement Effective Date, including, the Amendment Fees and, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder or under any other Loan Document.
(e) The Collateral and Guarantee Requirement shall continue to be satisfied.
The Administrative Agent shall notify the Company and the Lenders of the Restatement Effective Date, and such notice shall be conclusive and binding. It is understood and agreed that the Existing Credit Agreement shall continue in full force and effect in the form applicable prior to the amendment and restatement provided for herein until the Restatement Effective Date shall occur.
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Banks to issue, amend, renew or extend any Letter of Credit, is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Company on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Company covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The Company will furnish to the Administrative Agent and each Lender:
(a) within 95 days after the end of each fiscal year of the Company, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Company (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.14, 6.15 and 6.16 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the Company's audited financial statements referred to in Section 3.10 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);
(e) prior to the commencement of each fiscal year of the Company, a detailed consolidated budget for such fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flow as of the end of and for such fiscal year and setting forth the assumptions used for purposes of preparing such budget) and, promptly when available, any significant revisions of such budget;
(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Company or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Company to its shareholders generally, as the case may be; and
(g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Company or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Company will furnish to the Administrative Agent, which upon receipt shall provide to each Lender, prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Company or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and its Subsidiaries in an aggregate amount exceeding $3,000,000;
(d) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate, and deliver to the Administrative Agent and each Lender a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event:
(i) an ERISA Event that could reasonably be expected to create a material liability of the Company;
(ii) a material increase in the Unfunded Pension Liability of any Pension Plan;
(iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability;
(e) (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing against the Company or any Subsidiary or any of their respective properties pursuant to any applicable Environmental Laws which could reasonably be expected to be adversely determined and which, if so determined, could reasonably be expected to give rise to a potential liability of the Company and its Subsidiaries of $3,000,000 in the aggregate in excess of amounts reserved for or reasonably available from insurance or third parties, (ii) all other Environmental Claims which could reasonably be expected to be adversely determined and which, if so determined, could reasonably be expected to give rise to a potential liability of the Company and its Subsidiaries of $3,000,000 in the aggregate in excess of amounts reserved for or reasonably available from insurance or third parties, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Company or any Subsidiary that could reasonably be anticipated to cause such property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws, except for any such restrictions which would not affect such Person's ability to continue its previous use of such property; and
(f) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Company will, and will cause each of the Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04.
SECTION 5.04. Maintenance of Properties. The Company will, and will cause each of its Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted.
SECTION 5.05. Insurance. In addition to insurance requirements set forth in the Security Documents, the Company shall maintain, and shall cause each of the Subsidiaries to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including workers' compensation insurance, public liability and property and casualty insurance. All casualty insurance maintained by the Company shall name the applicable Collateral Agent as loss payee and all liability insurance shall name the Collateral Agent as additional insured for the benefit of the Lenders, as their interests may appear. Upon request of the Administrative Agent (which, if requested by any Lender, shall make such request), the Company shall furnish the Adm inistrative Agent, with sufficient copies for each Lender, at reasonable intervals (but not more than once per calendar year) a certificate of a Responsible Officer of the Company (and, if requested by the Administrative Agent, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company and the Subsidiaries in accordance with this Section or any Security Documents.
SECTION 5.06. Payment of Obligations. The Company will, and will cause each of the Subsidiaries to, pay its Indebtedness and other obligations, including Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Company or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation and (d) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.07. Compliance with Laws. The Company will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code, unless and until any such Plan is terminated, and its liabilities discharged, in accordance with applicable law.
SECTION 5.09. Books and Records; Inspection and Audit Rights. The Company will, and will cause each of the Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Company will, and will cause each of the Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers, employees, accountants, customers, suppliers and landlords, all at such reasonable times and as often as reasonably requested by the Administrative Agent or by such Lenders through the Administrative Agent.
SECTION 5.10. Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws except where any non-compliance could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.11. Further Assurances. (a) The Company will, and will cause each US Subsidiary to, execute and deliver any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other instruments and documents), which may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to cause the Collateral and Guarantee Requirement to be and remain satisfied at all times, all at the expense of the Loan Parties. The Company also agrees to provide to the Administrative Agent from time to time upon request evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.
(b) If any material assets (including any real property or improvements thereto or any interest therein) are acquired by the Company or any US Subsidiary after the Effective Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien of the Security Agreement upon acquisition thereof), the Company will notify the Administrative Agent and the Lenders thereof and, if requested by the Administrative Agent or the Required Lenders, will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause the US Subsidiaries to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Loan Parties.
(c) The Company shall cause newly organized or acquired Subsidiary to provide the Agents with such additional instruments or documents, including, without limitation, opinions of counsel, certified resolutions, incumbency certificates, third party consents and other evidences of authority, with respect to such Subsidiary's ratification of, and assumption of all obligations of an obligor under, the Subsidiary Guarantee Agreement or any Security Document, as either Agent shall reasonably request.
SECTION 5.12. Information Regarding Collateral. (a) The Company will furnish to the Administrative Agent prompt written notice of any change (i) in any Loan Party's corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in such Loan Party's jurisdiction of organization or chief executive office or in any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in any Loan Party's identity or corporate structure or (iv) in any Loan Party's Federal Taxpayer Identification Number. The Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. The Company also agrees promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) of Section 5.01, the Company shall deliver to the Administrative Agent a certificate signed on behalf of the Company by a Financial Officer and the chief legal officer of the Company (i) setting forth the information required pursuant to the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Effective Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pu rsuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Such certificate shall be deemed not to be incorrect to the extent that, notwithstanding the Company's reasonable investigations and diligence, it contains any inaccuracies affecting immaterial portions of the Collateral that were not known to the Company on the date that such certificate is delivered to the Administrative Agent.
SECTION 5.13. Casualty and Condemnation. The Company (a) will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of any Collateral or the commencement of any action or proceeding for the taking of any Collateral or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of this Agreement and the Security Documents.
SECTION 5.14. Use of Proceeds and Letters of Credit. The Company will, and will cause of each of the Subsidiaries to, use the proceeds of the Loans and obtain Letters of Credit only for the purposes set forth in the preamble to this Agreement.
ARTICLE VI
Negative Covenants
Until the Revolving Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Company covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The Company will not, and will not permit any Subsidiary to, create, incur, assume or suffer or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents, and any Indebtedness incurred to refinance any such Indebtedness or under a credit facility that replaces in whole or in part the credit facility established hereby, but only to the extent the Commitments are permanently reduced by the amount so refinanced or by the amount of such replacement facility, as the case may be;
(ii) up to $15,000,000 aggregate principal amount of Series B Notes (as defined in the Securities Purchase Agreement) issued to finance one or more acquisitions permitted under the terms of this Agreement;
(iii) Indebtedness existing on the Effective Date and set forth in Schedule 6.01, and any extensions, renewals or replacements of any such Indebtedness to the extent the principal amount of such Indebtedness is not increased, the final maturity of such Indebtedness is not earlier than that of the Indebtedness replaced, the weighted average life to maturity of such Indebtedness is not decreased, such Indebtedness, if subordinated to the Obligations, remains so subordinated on terms not less favorable to the Lenders and the original obligors in respect of such Indebtedness remain the only obligors thereon;
(iv) obligations of the Company in respect of the Industrial Revenue Bonds;
(v) Indebtedness under Hedging Agreements entered into to protect the Company and its Subsidiaries from interest or currency exchange rate risks to which they are exposed in the ordinary course of their businesses and not for speculative purposes;
(vi) Indebtedness of the Company or any of its Subsidiaries in connection with trade or standby letters of credit or performance, surety or appeal bonds issued in the ordinary course of business;
(vii) Indebtedness of any Person acquired by the Company or any Subsidiary in a transaction permitted hereunder and existing at the time of such acquisition; provided that (A) such Indebtedness shall not have been incurred in contemplation of such acquisition and (B) neither the Company nor any Subsidiary (other than such Person and its subsidiaries) shall be directly or indirectly liable in respect of such Indebtedness;
(viii) Indebtedness of the Company to any Subsidiary and of any Subsidiary to the Company or any other Subsidiary; provided that (A) no such Indebtedness shall be transferred to any Person other than the Company or a Subsidiary and (B) any such Indebtedness of any Subsidiary that is not a Loan Party to the Company or any US Subsidiary shall have been incurred in compliance with Section 6.01;
(ix) Guarantees by the Company of Indebtedness or other obligations of any Subsidiary and by any Subsidiary of Indebtedness or other obligations of the Company or any other Subsidiary; provided that Guarantees by the Company or any US Subsidiary of Indebtedness of any Subsidiary that is not a Loan Party shall be subject to Section 6.06;
(x) Indebtedness of the Company or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; provided that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (B) the aggregate principal amount of any such Indebtedness does not exceed 90% of the purchase price or the cost of construction or improvement of the related assets and (C) the aggregate principal amount of all Indebtedness permitted by this clause (x) shall not exceed $5,000,000 at any time outstanding;
(xi) Indebtedness that is incurred and used to repurchase all of the outstanding Series B Notes (as defined in the Securities Purchase Agreement) or to redeem all of the outstanding Series C-2 Preferred Shares pursuant to obligations of the Company existing on the date hereof to effect such repurchases or redemptions; provided that the final maturity of such Indebtedness is not earlier than the maturity date of, or the mandatory repurchase date for, the Indebtedness or preferred shares repurchased, the weighted average life to maturity of such Indebtedness is not less than that of the Indebtedness or preferred shares repurchased and the original obligors in respect of such Indebtedness remain the only obligors thereon; and
(xii) other unsecured Indebtedness of the Company incurred without violation of the Securities Purchase Agreement or any other agreement to which the Company or any Subsidiary is party; provided that the aggregate principal amount of all Indebtedness permitted by this clause (xii) shall not exceed $5,000,000 at any time outstanding.
(b) The Company will not issue any preferred stock or other preferred Equity Interests other than Series C-1 Preferred Shares and the Series C-2 Preferred Shares in an aggregate stated amount not greater than $15,000,000, and will not permit any Subsidiary to issue any Equity Interests other than to the Company or another Subsidiary, or other than in accordance with Section 6.05(c).
SECTION 6.02. Liens. The Company will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except the following:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Company or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Company or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof;
(d) any Lien existing on any property or asset prior to the acquisition thereof by the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any other property or assets of the Company or any Subsidiary and (C) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be;
(e) Liens on fixed or capital assets acquired, constructed or improved by the Company or any Subsidiary; provided that (A) such security interests secure Indebtedness permitted by clause (x) of Section 6.01(a), (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (C) such security interests shall not apply to any other property or assets of the Company or any Subsidiary;
(f) Liens granted by a Subsidiary to secure Indebtedness or other obligations owing to the Company or a wholly-owned Subsidiary;
(g) Liens that (i) restrict in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license, conveyance or similar contract or (ii) exist by virtue of any transfer of, agreement to transfer, option or right with respect to, any property or assets of the Company or any Subsidiary that has not been entered into to provide security for the payment of Indebtedness and that is not otherwise prohibited hereunder;
(h) Liens deemed to exist in connection with operating leases;
(i) Liens existing on the Effective Date in respect of the Industrial Revenue Bonds; and
(j) other Liens arising after the Effective Date in the ordinary course of business so long as the value of the property secured thereby does not exceed $500,000 in the aggregate.
SECTION 6.03. Sale and Leaseback Transactions. The Company will not, and will not permit any Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.
SECTION 6.04. Fundamental Changes. (a) The Company will not, nor will it permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) the Company may make Permitted Acquisitions in compliance with Section 6.06(e), (ii) any Subsidiary may merge into the Company in a transaction in which the Company is the surviving corporation, (iii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary (and, if any party to such merger is a US Subsidiary, is a US Subsidiary) and (iv) any Subsidiary may liquidate or dissolve if the Company determines in good faith that such liquidation or dissolution is in the best interests of the Company and is not materially disadvantageous to the Lenders; provided th at any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.06.
(b) The Company will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Company and its Subsidiaries on the Effective Date and businesses reasonably related thereto.
SECTION 6.05. Asset Sales. The Company will not, and will not permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, except:
(a) sales of inventory, used or surplus equipment and Permitted Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Company or a Subsidiary; provided that any such sales, transfers or dispositions involving a Subsidiary that is not a US Subsidiary shall be made in compliance with Section 6.07
(c) members of the management of Health Alliance of Greater Cincinnati may receive in the aggregate up to 10% of the issued and outstanding Equity Interests of the Acquisition Sub; and
(d) sales, transfers and other dispositions of assets (other than Equity Interests in a Subsidiary) that are not permitted by any other clause of this Section; provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (c) shall not exceed $500,000 in respect of any single transaction or series of related transactions or $1,000,000 in the aggregate;
provided that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by clause (b) above that involve US Subsidiaries) shall be made for fair value.
SECTION 6.06. Investments, Loans, Advances, Guarantees and Acquisitions. The Company will not, and will not permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any Equity Interests in or evidences of indebtedness or other securities (including any options, warrants or other rights to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all the foregoing being collectively referred to as "Investments"), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit or that are substantial in relation to the Company and the Subsidiaries taken as a whole, except:
(a) Permitted Investments;
(b) Investments existing on the Effective Date and set forth on Schedule 6.06;
(c) Investments by the Company and the Subsidiaries in Equity Interests of their respective Subsidiaries (including capital contributions to such Subsidiaries); provided that (i) any such Investments held by a Loan Party shall be pledged pursuant to the Security Documents to the extent required in order for the Collateral and Guarantee Requirement to be satisfied and (ii) the aggregate amount of Investments by Loan Parties in Subsidiaries that are not Loan Parties (including all such Investments existing on the date hereof) shall not exceed $1,000,000 at any time outstanding;
(d) loans or advances made by the Company to any Subsidiary and made by any Subsidiary to the Company or any other Subsidiary, and Guarantees by the Company of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Company or any other Subsidiary; provided that the aggregate amount, without duplication, of such loans and advances made by Loan Parties to Subsidiaries that are not Loan Parties, and all such Guarantees by Loan Parties of the Indebtedness of Subsidiaries that are not Loan Parties, shall not exceed $5,000,000 at any time outstanding;
(e) the Company may make any Permitted Acquisition, provided that the Company complies, and causes any acquired entity to comply, with the applicable provisions of Section 5.11 and the Security Documents with respect to the Person or assets so acquired;
(f) Guarantees (other than Guarantees by the Company or any Subsidiary of Indebtedness of the Company or any Subsidiary) constituting Indebtedness permitted by Section 6.01; provided that a Subsidiary shall not Guarantee the Series B Notes (as defined in the Securities Purchase Agreement);
(g) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;
(h) the Company or its permitted assigns may consummate the Lab Acquisition; provided that promptly following the completion thereof, the Collateral and Guarantee Requirement shall be satisfied as to the Acquisition Sub and the assets acquired in such transaction;
(i) the Company may purchase Equity Interests of Acquisition Sub that are owned by the management of the Health Alliance of Greater Cincinnati;
(j) the Company may consummate the RapidMed Acquisition; provided that promptly following the completion thereof, the Collateral and Guarantee Requirement shall be satisfied as to the assets acquired in such transaction;
(k) subject to the proviso to paragraph (l), loans or advances less than $100,000 made by the Company or any Subsidiary in the ordinary course of business; and
(i) loans or advances made by any Loan Party to an employee of such Loan Party; provided that the aggregate loans and advances under this paragraph (l) shall not exceed $500,000.
SECTION 6.07. Transactions with Affiliates. The Company will not, nor will it permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions in the ordinary course of business that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Company and the US Subsidiaries not involving any other Affiliate and (c) Restricted Payments permitted by Section 6.10.
SECTION 6.08. Use of Proceeds. The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the proceeds of the Loans, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock or (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X.
SECTION 6.09. Lease Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Company and of Subsidiaries in existence on the Effective Date;
(b) operating leases entered into by the Company or any Subsidiary after the Effective Date in the ordinary course of business; and
(c) Capital Leases, to the extent the Indebtedness deemed to exist in connection therewith is permitted under Section 6.01.
SECTION 6.10. Restricted Payments; Certain Payments of Indebtedness. (a) The Company will not, nor will it permit any Subsidiary to, declare or make, or agree to make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that the Company or any Subsidiary may:
(i) declare and make dividend payments or other distributions payable solely in its common stock or in options, warrants, or other rights to purchase common stock;
(ii) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares from officers, directors and employees in connection with the termination of their relationships with the Company and the Subsidiaries for consideration not exceeding $100,000 in the aggregate in any calendar year;
(iii) in the case of a Subsidiary, declare and pay dividends and other distributions ratably to the holders of its Equity Interests; and
(iv) make payments not to exceed $250,000 in the aggregate to holders of its Series B-1 Preferred Shares, Series C-1 Preferred Shares or Series C-2 Preferred Shares in lieu of the issuance of fractional shares of its capital stock.
(b) The Company will not, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, defeasance, retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of the Obligations;
(ii) payment of scheduled interest and principal payments as and when due in respect of any Indebtedness, other than payments in respect of the Series B Notes (as defined in the Securities Purchase Agreement) or other subordinated Indebtedness prohibited by the subordination provisions thereof;
(iii) refinancings of Indebtedness to the extent the Indebtedness resulting therefrom is permitted by Section 6.01;
(iv) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; and
(v) payments which correspond to scheduled payments of principal on the Industrial Revenue Bonds.
(c) Neither the Company nor any Subsidiary shall enter into or be party to, or make any payment under, any Synthetic Purchase Agreement, except that the Company may enter into any Synthetic Purchase Agreement related to any Equity Interest of the Company or a Subsidiary.
SECTION 6.11. Restrictive Agreements. The Company will not, nor will it permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Company or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its Equity Interests or to make or repay loans or advances to the Company or any other Subsidiary or to Guarantee Indebtedness of the Company or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the Effective Date identified on Schedule 6.11 (but shall apply to any amendment or modification expanding the scope of, any such restriction or condition), (ii i) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof.
SECTION 6.12. Amendment of Material Documents. The Company will not, nor will it permit any Subsidiary to, amend or modify, or waive any of its rights under, (a) any instrument or document evidencing or governing the Series B Subordinated Notes or any other Indebtedness subordinated to the Obligations or any portion thereof or (b) its certificate of incorporation, by-laws or other organizational documents or any other material agreement to which it is party if, in any such case, such amendment, modification or waiver would be adverse in any material respect to the rights or interests of the Lenders.
SECTION 6.13. Change in Fiscal Year. The Company will not change the fiscal year of the Company to end on any date other than December 31.
SECTION 6.14. Interest Expense Coverage Ratio. The Company will not permit the ratio of (a) Consolidated EBITDA to (b) Net Interest Expense, for any period of four consecutive fiscal quarters ending after the date hereof, to be less than 4.00 to 1.00.
SECTION 6.15. Leverage Ratio. The Company will not permit the Leverage Ratio as of any date to exceed 2.75 to 1.00.
SECTION 6.16. Consolidated Cash Capital Expenditures. The Company will not permit Consolidated Cash Capital Expenditures during any period set forth or referred to below to exceed the percentage set forth opposite such period of Consolidated EBITDA for such period:
Period |
Percentage of Consolidated EBITDA |
January 1, 2002 through December 31, 2002 |
40.0% |
Each period of four fiscal quarters ending on December 31 in any year thereafter |
30.0% |
SECTION 6.17. Consolidated Net Worth. The Company will not permit Consolidated Net Worth to be less than (x) $86,000,000 plus (y) 50% of Consolidated Net Income for each fiscal quarter ending on or after December 31, 2001 (excluding any fiscal quarter for which Consolidated Net Income is negative). The Company shall be deemed to be in compliance with this Section 6.17 at any time so long as the then most recent financial statements prepared by the Company (for internal use or otherwise) and made available to the Lenders show such compliance and no Responsible Officer has obtained any information that causes or should have caused such Responsible Officer to reasonably conclude that the Company is not in compliance with this Section 6.17.
ARTICLE VII
Events of Default
SECTION 7.01. Event of Default. Any of the following shall constitute an "Event of Default":
(a) Non-Payment. Company fails to make, (i) when and as required to be made hereunder, any payment of principal of any Loan or any reimbursement due in respect of such LC Disbursement, or (ii) within five days after the same becomes due, any payment of any interest, fee or any other amount payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty made or deemed made in or in connection with any Loan Document or the Borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; or
(c) Specific Defaults. The Company or any Subsidiary (to the extent that such term, covenant or agreement relates to such Subsidiary) fails to perform or observe any term, covenant or agreement contained in Section 5.02, 5.03 (insofar as such section relates to the Company) or 5.14, in Article VI or in the last sentence of Section 9.02(b); or
(d) Other Defaults. The Company or any Subsidiary (to the extent that such term or covenant relates to such Subsidiary) fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the date upon which written notice thereof is given to the Company by the Administrative Agent or any Lender; or
(e) Cross-Default. The Company or any Subsidiary (to the extent that any failure referred to in clause (i) or (ii) below relates to such Subsidiary) (i) fails to make any payment in respect of any Indebtedness, Hedging Agreement or Equity Interest (but only to the extent that such Equity Interest could be required, immediately or with the passage of time or the giving of notice or both, to be redeemed or repurchased by reason of such failure), having an aggregate principal or stated amount of more than $3,000,000, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the expiration of any applicable grace period; or (ii) fails to perform or observe any other condition or covenant and such failure continues after the expiration of any applicable grace period, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or any such Hedging Agreement or Equity Interest referred to in clause (i), if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or Equity Interest or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, such Indebtedness or Equity Interest to be declared to be or to become due and payable, or to be required to be redeemed or repurchased, prior to its stated maturity, or such Hedging Agreement to be terminated; or
(f) Insolvency; Voluntary Proceedings. The Company or any Material Subsidiary (i) voluntarily ceases to conduct its business in the ordinary course; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-US law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $3,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $3,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $3,000,000; or
(i) Judgments. One or more judgments for the payment of money in an aggregate amount in excess of $2,000,000 (except to the extent covered by insurance as to which the insurer has acknowledged such coverage in writing) shall be rendered against the Company, any of the Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Company or any of the Subsidiaries to enforce any such judgment; or
(j) Change of Control. There occurs any Change of Control; or
(k) Loss of Licenses. Any Governmental Authority revokes or fails to renew any license, permit or franchise of the Company or any Subsidiary, or the Company or any Subsidiary for any reason loses any license, permit or franchise, or the Company or any Subsidiary suffers the imposition of any restraining order, escrow, suspension or impound of funds in connection with any proceeding (judicial or administrative) with respect to any license, permit or franchise and all appeal periods with respect to such revocation shall have expired except for any of the foregoing which could not reasonably be expected to have a Material Adverse Effect; or
(l) Subsidiary Guarantee Agreement and Security Documents. Any Guarantee purported to be created by the Subsidiary Guarantee Agreement shall cease to be, or shall be asserted by the Company or any other Loan Party not to be, a valid and enforceable Guarantee of the Obligations, or any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Company or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the Collateral covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to (i) maintain possession of certificates representing securities pledged under the Pledge Agreement or (ii) file or record any financing statement or Mortgage delivered to the Collateral Agent by the Company or any Subsidiary.
SECTION 7.02. Remedies. If any Event of Default occurs, the Administrative Agent shall, at the request of the Required Lenders, (a) declare the commitment of each Lender to make Loans and any obligation of each Issuing Bank to issue Letters of Credit to be terminated, whereupon such commitments and obligations shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kin d, all of which are hereby expressly waived by the Company; and (c) exercise or direct the Collateral Agent to exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (f) or (g) of Section 7.01, the obligation of each Lender to make Loans and any obligation of each Issuing Bank to issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent, any Issuing Bank or any Lender.
ARTICLE VIII
The Agents
Each of the Lenders and each of the Issuing Banks hereby irrevocably appoints the Agents as its agents and authorizes the Agents to take such actions on its behalf and to exercise such powers as are delegated to the Agents by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent and Collateral Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent or Collateral Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent or Collateral Agent hereunder.
The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agents shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agents shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Agents are required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents (including any provision that expressly provides that either Agent has received information for, or on the instructions of, any Lender), the Agents shall not have any duty to disclose, and shall not be liable for the failure to disclose, any infor mation relating to the Company or any of its Subsidiaries that is communicated to or obtained by them or their Affiliates in any capacity. The Agents shall not be liable for any action taken or not taken by them with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of their own gross negligence or wilful misconduct. The Agents shall not be deemed not to have knowledge of any Default unless and until written notice thereof is given to them by the Company or a Lender, and the Agents shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other ter ms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or the Collateral Agent.
The Agents shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by them to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for the Company), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Each Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by it. Each Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through its respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent or Collateral Agent.
Subject to the appointment and acceptance of a successor, as provided in this paragraph, either Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Company. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Company, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company t o a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After an Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent.
Each Lender acknowledges that it has, independently and without reliance upon either Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon either Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.
Each party to this Agreement acknowledges that the Syndication Agent shall have no duties, responsibilities, obligations or authority under this Agreement or any other Loan Document in such capacity.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Company, to it at 10101 Renner Boulevard, Lenexa, KS 66219, Attention of John McCarty (Telecopy No. (913) 859 6804);
(b) if to the Administrative Agent, to JPMorgan Chase Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Monica Mikolayczyk (Telecopy No. (212) 552 7500), with a copy to JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017, Attention of Robert Bottamedi (Telecopy No. (212) 270 3279); and
(c) if to any other Lender or Issuing Bank, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Banks and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpo se for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Revolving Commitment of any Lender or the LC Commitment of any Issuing Bank without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the maturity of any Loan or the required date of reimbursement of any LC Disbursement, or any date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Revolving Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change the percentage set forth in the definition of "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender, (vi) release all or substantially all the US Subsidiaries from their obligations under the Subsidiary Guarantee Agreement (except as expressly provided herein or in the Subsidiary Guarantee Agreement), or limit their liability in respect of such obligations, without the written cons ent of each Lender, or (vii) release all or substantially all of the Collateral from the Liens of the Security Documents without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or any Issuing Bank without the prior written consent of the Administrative Agent or the Issuing Banks, as the case may be. Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by the Company, the Required Lenders and the Administrative Agent (and, if their rights or obligations are affected thereby, the Issuing Banks) if (i) by the terms of such agreement the Revolving Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (ii) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Company shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of external counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of any external counsel for the Administrative Agent, the Collateral Agent, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights or the rights of the Lenders in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) The Company shall indemnify the Administrative Agent, the Collateral Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any external counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the doc uments presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any Mortgaged Property or any other property currently or formerly owned or operated by the Company or any of its Subsidiaries, or any Environmental Liability related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence, wilful misconduct or manifest bad faith of such Indemnitee or for the breach by such Indemnitee of any of its agreements set forth herein or in any other Loan Document. P>
(c) To the extent that the Company fails to pay any amount required to be paid by it to the Administrative Agent, the Collateral Agent or any Issuing Bank (or their Related Parties) under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Collateral Agent or such Issuing Bank (or their Related Parties), as the case may be, such Lender's pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Collateral Agent or such Issuing Bank in its capacity as such (or against the Related Parties of such person). For purposes hereof, a Lender's "pro rata share" shall be determined based upon its share of the sum of the total Revolving Exposures and unused Revolving Commitments at the time.
(d) To the extent permitted by applicable law, the Company shall not assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable not later than 10 days after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that (i) the Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Company without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and , to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Collateral Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Company, provided that no consent of the Company shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default under clause (a), (b), (f) or (g) of Article VII has occurred and is continuing, any other assignee; and
(B) the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender's obligations in respect of its LC Exposure, the Issuing Banks), provided that no consent of the Administrative Agent or the Issuing Banks shall be required for an assignment to an assignee that is a Lender, an Affiliate of a Lender or an Approved Fund;
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Revolving Commitment or Loans, the amount of the Revolving Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Company and the Administrative Agent otherwise consent, provided that (i) in the event of concurrent assignments to two or more assignees that are Affiliates of one another, or to two or more Approved Funds managed by the same investment advisor or by affiliated investment advisors, all such concurrent assignments shall be aggregated in determining compliance with this subsection and (ii) no such consent of the Company shall be required if an Event of Default under clause (a), (b), (f) or (g) of Article VII has occurred and is conti nuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that in the event of concurrent assignments to two or more assignees that are Affiliates of one another, or to two or more Approved Funds managed by the same investment advisor or by affiliated investment advisors, only one such fee shall be payable;
(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and
(E) in the case of an assignment by a Lender to a CLO (as defined below) administered or managed by such Lender or an Affiliate of such Lender, unless such assignment shall have been approved by the Company (the Company hereby agreeing that such approval, if requested, will not be unreasonably withheld or delayed), the assigning Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such CLO.
For the purposes of this Section 9.04(b), the terms "Approved Fund" and "CLO" have the following meanings:
"Approved Fund" means (a) with respect to any Lender, a CLO managed by such Lender or by an Affiliate of such Lender or (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"CLO" means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lend er of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Revolving Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Company, the Administrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c)(i) Any Lender may, without the consent of the Company, the Administrative Agent or any Issuing Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Revolving Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Company, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modificat ion or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Company agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Company, to comply with Section 2.16(e) as though it were a Lender.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) By executing and delivering an Assignment and Assumption, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Revolving Commitments and the outstanding balances of its Revolving Loans, in each case without giving effect to assignments thereof that have not become effective, are as set forth in such Assignment and Assumption; (ii) except as set forth in clause (i) above, 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 any other Loan Document or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the foregoing, or the financial condition of the Loan Parties or the performance or observance by the Loan Parties of any of their obligations under this Agreement or under any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (iii) each of the assignee and the assignor represents and warrants that it is legally authorized to enter into such Assignment and Assumption; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of any amendments or consents entered into prior to the date of such Assignment and Assumption and copies of the most recent financial statements delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (v) such assignee will independently and without reliance upon the Agents, such assigning Lender or any ot her 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; (vi) such assignee appoints and authorizes the Agents to take such action as agents on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to them by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations that by the terms of this Agreement are required to be performed by it as a Lender.
SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Revolving Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Revolving Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and th eir respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Company against any of and all the obligations of the Company now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) The Company hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Company or its properties in the courts of any jurisdiction.
(c) The Company hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. (a) Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Company or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than the Company. For the purposes of this Section, "Information" means all information received from the Company relating to the Company or its business, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Company; provided that, in the case of information received from the Company after the date hereof, such information is clearly identified at the time of delivery as confidential. A ny Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
(b) Notwithstanding anything herein to the contrary, any party subject to confidentiality obligations hereunder or otherwise (and any Affiliate thereof and any employee, representative or other agent of such party or such Affiliate) may disclose to any and all persons, without limitation of any kind, the tax treatment and the tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to it relating to such tax treatment and tax structure. For this purpose, the tax treatment of the transactions contemplated hereby is the purported or claimed U.S. federal tax treatment of such transactions and the tax structure of such transactions in any fact that may be relevant to understanding the purported or claimed U.S. federal tax treatment of such transactions.
SECTION 9.13. Release of Grantors and Collateral. (a) Notwithstanding any contrary provision herein or in any other Loan Document, if the Company shall request the release under the Subsidiary Guarantee Agreement and Security Agreement or any other Security Document of any Subsidiary or any Collateral to be sold or otherwise disposed of (including through the sale or disposition of any Subsidiary owning any such Subsidiary or Collateral) to a Person other than the Company or a Subsidiary in a transaction permitted under the terms of this Agreement and shall deliver to the Collateral Agent a certificate to the effect that such sale or other disposition and the application of the proceeds thereof will comply with the terms of this Agreement, the Collateral Agent, if satisfied that the applicable certificate is correct, shall, without the consent of any Lender, execute and deliver all such instruments, releases, financing statements or other agreements, and take all such further actions, as shal l be necessary to effectuate the release of such Subsidiary or such Collateral substantially simultaneously with or at any time after the completion of such sale or other disposition. Any such release shall be without recourse to, or representation or warranty by, the Collateral Agent and shall not require the consent of any Lender. The Collateral Agent shall execute and deliver all such instruments, releases, financing statements or other agreements, and take all such further actions, as shall be necessary to effectuate the release of Collateral required by this paragraph.
(b) Without limiting the provisions of Section 9.03, the Company shall reimburse the Collateral Agent for all costs and expenses, including attorneys' fees and disbursements, incurred by it in connection with any action contemplated by this Section 9.13.
SECTION 9.14 Effect of Restatement. This Agreement shall, except as otherwise expressly set forth herein, supersede the Existing Credit Agreement from and after the Restatement Effective Date with respect to the transactions hereunder and with respect to the Loans and Letters of Credit outstanding under the Existing Credit Agreement as of the Restatement Effective Date. The parties hereto acknowledge and agree, however, that (i) this Agreement and all other Loan Documents executed and delivered herewith do not constitute a novation, payment and reborrowing or termination of the Obligations under the Existing Credit Agreement and the other Loan Documents as in effect prior to the Restatement Effective Date, (ii) such Obligations are in all respects continuing with only the terms being modified as provided in this Agreement and the other Loan Documents, (iii) the liens and security interests in favor of the Collateral Agent for the benefit of the Secured Parties securing payment of such Obligati ons are in all respects continuing and in full force and effect with respect to all Obligations and (iv) all references in the other Loan Documents to the Credit Agreement shall be deemed to refer without further amendment to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
LABONE, INC.,
by /s/ John W. McCarty
Name: John W. McCarty
Title: Chief Financial Officer
JPMORGAN CHASE BANK, individually and as Issuing Bank, Administrative Agent and Collateral Agent,
by /s/ Robert Bottamedi
Name: Robert Bottamedi
Title: Vice President
WACHOVIA BANK, NATIONAL ASSOCIATION, individually and as Syndication Agent,
by /s/ Douglas T. Davis
Name: Douglas T. Davis
Title: Director
Exhibit 10.11
LabOne 2003 Incentive Plan
The Annual Incentive Plan is designed to motivate and reward the accomplishment of targeted operating results. The Compensation Committee and management establish operating goals under the Plan based upon the judgment of reasonable productivity improvements and targeted earnings per share. The size of the incentive pool increases pursuant to a formula established by the Committee based on increased earnings per share thresholds. The incentive pool based on productivity improvements is paid in cash during the year as certain targeted objectives are obtained by non-management personnel. The incentive pool for designated managers and officers is distributed in cash ratably at year end according to a pre-established weighting. The weighting is based upon senior management's potential contribution to the Company's financial and strategic goals for the year, and is reviewed and approved by the Committee.
Exhibit 21
LabOne, Inc.
A Missouri Corporation
Subsidiaries
LabOne L.L.C. Kansas - Single member LLC
Lab One Canada, Inc. Canada - C Corp.
Systematic Business Services, Inc. Missouri - C Corp.
ScanTech Solutions, LLC Missouri - Single member LLC
ExamOne World Wide, Inc. Pennsylvania - C Corp.
ExamOne World Wide of NJ, Inc. New Jersey - C Corp.
Osborn Group, Inc. Delaware - C Corp.
Intellisys, Inc. Georgia - C Corp.
Central Plains Holdings, Inc. Kansas - C Corp.
Central Plains Laboratories, L.L.C. Kansas - Single member LLC
Exhibit 24
Power of Attorney
The undersigned hereby appoint Joseph C. Benage as attorney-in-fact, to execute in name and on behalf of the undersigned the Form 10-K Annual Report of LabOne, Inc., to be filed with the Securities and Exchange Commission for its fiscal year ended December 31, 2003.
Dated: February 19, 2004
/s/ W. Roger Drury
W. Roger Drury, Director
/s/ D. Scott Mackesy
D. Scott Mackesy, Director
/s/ John P. Mascotte
John P. Mascotte, Director
/s/ Paul B. Queally
Paul B. Queally, Director
/s/ James R. Seward
James R. Seward, Director
/s/ Sean M. Traynor
Sean M. Traynor, Director
/s/ John E. Walker
John E. Walker, Director
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, W. Thomas Grant II, certify that:
1.) I have reviewed this annual report on Form 10-K of LabOne, 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 report;
3.) Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have:
a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5.) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors;
a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004
By /s/ W. Thomas Grant II
W. Thomas Grant II, Chairman of the Board,
President and Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John W. McCarty, certify that:
1.) I have reviewed this annual report on Form 10-K of LabOne, 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 report;
3.) Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have:
a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5.) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors;
a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004
By /s/ John W. McCarty
John W. McCarty, Executive V.P. and Chief
Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. the Annual Report on Form 10-K of LabOne, Inc. for the year ending December 31, 2003 (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 results of operations of LabOne, Inc.
LabOne, Inc.
Date: March 12, 2004
By /s/ W. Thomas Grant II
W. Thomas Grant II, Chairman of the Board,
President and Chief Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LabOne, Inc., and will be retained by LabOne, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. the Annual Report on Form 10-K of LabOne, Inc. for the year ending December 31, 2003 (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 results of operations of LabOne, Inc.
LabOne, Inc.
Date: March 12, 2004
By /s/ John W. McCarty
John W. McCarty, Executive V.P. and Chief
Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LabOne, Inc., and will be retained by LabOne, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.