-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K27Pgg2sETegnMoSPtx58Bncp2oySzSEn9tbUHKJwX9Klv1TjmR6+23562JsXAiX Bq1xu/ZHfrMrqSlPx+0+eg== 0000950144-98-003288.txt : 19980327 0000950144-98-003288.hdr.sgml : 19980327 ACCESSION NUMBER: 0000950144-98-003288 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCARE HOLDINGS INC CENTRAL INDEX KEY: 0000882235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 510331330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19946 FILM NUMBER: 98574260 BUSINESS ADDRESS: STREET 1: 19337 US 19 N STE 500 CITY: CLEARWATER STATE: FL ZIP: 34624 BUSINESS PHONE: 8135307700 MAIL ADDRESS: STREET 1: 19337 US 19 NORTH STE 500 CITY: CLEARWATER STATE: FL ZIP: 34624 10-K 1 LINCARE FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-19946 LINCARE HOLDINGS INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0331330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 19337 US 19 NORTH, SUITE 500 33758 CLEARWATER, FLORIDA (Zip Code) (Address of principal executive office)
Registrant's telephone number, including area code: (813) 530-7700 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Title of Class Common Stock, $.01 par value per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's common stock, $.01 par value, held by non-affiliates of the registrant, based on the closing sale price of the common stock on February 28, 1998, as reported in the NASDAQ National Market System, was approximately $1,866,431,419. As of February 28, 1998, there were 28,755,915 outstanding shares of the registrant's common stock, par value $.01, which is the only class of capital stock of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the 1998 Annual Meeting of Stockholders of Lincare Holdings Inc. which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL Lincare Holdings Inc. and subsidiaries ("Lincare" or the "Company") is one of the nation's largest providers of oxygen and other respiratory therapy services to patients in the home. The Company's customers typically suffer from chronic obstructive pulmonary disease ("COPD"), such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to alleviate the symptoms and discomfort of respiratory dysfunction. Lincare currently serves over 140,000 customers in 39 states through 308 operating centers. On November 30, 1990, the Company acquired the outstanding capital stock of Lincare Inc., a subsidiary of Union Carbide Corporation. The Company was formed by investment partnerships affiliated with the venture capital firms of Welsh, Carson, Anderson & Stowe and Summit Partners, Dean Witter Capital Corporation, and members of the management of Lincare Inc. THE HOME RESPIRATORY MARKET The Company estimates that the home respiratory therapy market (including home oxygen equipment and respiratory therapy services) had revenues of approximately $3.3 billion in 1997, having grown by an estimated 8% to 10% per year over the last five years. This growth reflects the significant increase in the number of persons afflicted with COPD, which is attributable, to a large extent, to the increasing proportion of the population over the age of 65. Growth in the home respiratory market is further driven by the continued trend towards treatment of patients in the home as a lower cost alternative to the acute care setting. BUSINESS STRATEGY The Company's strategy is to increase its market share through internal growth and acquisitions. Lincare focuses primarily on growth within its existing geographic markets, which the Company believes is generally more profitable than adding additional operating centers in new markets. In addition, the Company expands into new geographic markets on a selective basis, either through acquisitions or by opening new operating centers, when it believes such expansion will enhance its business. In 1997, Lincare acquired 24 local and regional competitors with combined annual revenues of approximately $53.0 million. These acquisitions established Lincare in one new state and expanded its presence in the states where the Company had existing locations. Revenue growth will be dependent upon the overall growth rate of the home respiratory care market, as well as on opportunities to increase market share through effective marketing efforts and selective acquisitions of local or regional competitors. The Company believes that the growing cost containment efforts of government and private insurance reimbursement programs and an increasingly competitive environment have accelerated consolidation trends within the home health care industry. The Company will continue to concentrate on providing oxygen and other respiratory therapy services to patients in the home and to provide home medical equipment and other services where it believes such services will enhance the Company's primary business. In 1997, oxygen and other respiratory therapy services accounted for approximately 90% of the Company's revenues. PRODUCTS AND SERVICES OF LINCARE Lincare primarily provides oxygen and other respiratory therapy services to patients in the home. Lincare also provides a variety of infusion therapies in certain geographic markets. When a patient is referred to one of the Company's operating centers by a physician, hospital discharge planner or other source, the Company's customer representative obtains the necessary medical and insurance coverage information and coordinates the delivery of patient care. The prescribed therapy is administered by one of the Company's representatives in the customer's home, where instructions and training are given to the customer and the customer's family 1 3 regarding appropriate equipment use and maintenance and the therapy to be administered. Following the initial setup, Company representatives make periodic visits to the customer's home, the frequency of which is dictated by the type of therapy. The Company's services are coordinated with the customer's physician. During the period that the Company performs services for a customer, the customer remains under the physician's care and medical supervision. The Company employs respiratory therapists and nurses to perform certain training and other functions in connection with the Company's services. The respiratory therapists and nurses are licensed where required by applicable law. HOME OXYGEN EQUIPMENT. The major types of oxygen delivery equipment are liquid oxygen systems and oxygen concentrators. Each method of delivery has different characteristics that make it more or less suitable to specific patient applications. Liquid oxygen systems are thermally insulated containers of liquid oxygen, consisting of a stationary unit and a portable unit, which are most commonly used by ambulatory patients. Oxygen concentrators are stationary units that provide a continuous flow of oxygen by filtering ordinary room air. Concentrators are most commonly used by patients confined to the home or with only minimal mobility. OTHER RESPIRATORY THERAPY SERVICES. Other respiratory therapy services offered by the Company include the following: Nebulizers and associated respiratory medications provide aerosol therapy for patients suffering from COPD and asthma; Non-invasive ventilation provides nocturnal ventilatory support for neuromuscular and COPD patients. This therapy improves daytime function and decreases incidents of acute illness; Apnea monitors provide respiratory alarm systems for infants at risk for sudden infant death syndrome; Ventilators support respiratory function in severe cases of respiratory failure where the patient can no longer sustain the mechanics of breathing without the assistance of a machine; Continuous positive airway pressure devices maintain open airways in patients suffering from obstructive sleep apnea by providing airflow at prescribed pressures during sleep; INFUSION THERAPY. Lincare provides a variety of infusion therapies including the following: Parenteral nutrition involves the intravenous feeding of life-sustaining nutrients to patients with impaired or altered digestive tracts or conditions that prohibit adequate oral nutritional support; Intravenous antibiotic therapy is the infusion of anti-infective medications into the patient's bloodstream for the treatment of a variety of infectious diseases; Enteral nutrition is administered to patients who cannot eat as a result of an obstruction to the upper gastrointestinal tract or other medical condition; Chemotherapy is the administration of cytotoxic drugs to patients suffering from various types of cancer; Dobutamine infusions are provided to patients to treat chronic end stage congestive heart failure that has not responded to standard drug therapy. These patients require a long-term venous access device and frequent blood chemistry monitoring; Immune globulin (IVIG) therapy is utilized for a variety of immune disorders such as B-cell and T-cell immune deficiency, acute infections, post transplant immunodeficiency and burns; Continuous pain management is the administration of analgesic drugs to patients suffering from acute or chronic pain; 2 4 Central catheter management provides monitoring and supplies to patients requiring access via a peripherally inserted line into the superior vena cava. Lincare also supplies home medical equipment, such as hospital beds, wheelchairs and other supplies that may be required by patients. COMPANY OPERATIONS Management. The Company is managed at the executive level as a portfolio of local businesses. Decentralization of managerial decision-making enables the Company's operating centers to respond promptly and effectively to local market demands and opportunities. The Company believes that the personalized nature of customer requirements and referral relationships characteristic of the home health care business mandates the Company's localized operating structure. Each of the Company's 308 operating centers is managed by a center manager who has responsibility and accountability for the operating and financial performance of the center. Service and marketing functions are performed at the local operating level, while strategic development, financial control and operating policies are administered at the executive level. Reporting mechanisms are in place at the operating center level to monitor performance and ensure field accountability. A regional management team consisting of 32 area managers directly supervises individual operating center managers, serving as an additional mechanism for assessing and improving performance of the Company's operations. The Company's operating centers are served by 15 billing centers which control all of the Company's billing and reimbursement functions. MIS Systems. The Company believes that the proprietary management information systems developed by the Company are one of its key competitive advantages and provide management with a critical asset in measuring and evaluating performance levels throughout the Company. Management reviews monthly reports containing information critical to the evaluation process, including revenues and profitability by individual center, accounts receivable and cash collection management, equipment controls and utilization, customer activity, and manpower trends. The Company has a staff of 14 full-time computer programmers which permits the Company to continually enhance its computer systems in order to provide timely financial and operational information and to respond promptly to changes in reimbursement regulations and policies. Accounts Receivable Management. The Company derives a majority of its revenues from reimbursement by third party payors. The Company accepts assignment of insurance benefits from customers and, in most instances, invoices and collects payments directly from Medicare, Medicaid and private insurance carriers, as well as directly from customers under co-insurance provisions. The following table sets forth, for the periods indicated, the Company's payor mix.
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 PAYORS ----- ----- ----- Medicare and Medicaid programs.............................. 63% 61% 60% Private insurance........................................... 25 27 24 Direct payment.............................................. 12 12 16 --- ---- ---- 100% 100% 100% === ==== ====
Reimbursement is a complicated process which involves submission of claims to multiple payors, each having its own claims requirements. To operate effectively in this environment, the Company has designed and implemented proprietary computer systems to decrease the time required for the submission and processing of third party payor claims. The Company's systems are capable of tailoring the submission of claims to the specifications of the individual payors. The Company's in-house MIS capability also enables it to adjust quickly to any regulatory or reimbursement changes. These features serve to decrease the processing time of 3 5 claims by payors, resulting in a more rapid turnover of accounts receivable. In addition, the Company is capable of submitting claims electronically to any Medicare carrier or other third party payor that can receive electronic claims submissions. The Company's net accounts receivable in terms of days sales outstanding was 52 days as of December 31, 1997 and 48 days as of December 31, 1996. SALES AND MARKETING Favorable trends affecting the U.S. population and home health care have created an environment which should produce increasing demand for the services provided by Lincare. The average age of the American population is increasing and, as a person ages, more health care services are required. Well-documented changes occurring in the health care industry show a trend of more services being provided in the home and less in institutions. Sales activities are generally carried out by the Company's full-time sales representatives located at the Company's operating centers with assistance from the center managers. In addition to promoting the high quality of the Company's services, the sales representatives are trained to provide information concerning the advantages of home respiratory care. Sales representatives are often licensed respiratory therapists who are highly knowledgeable in the provision of supplemental oxygen. The Company primarily acquires new customers through referrals. The Company's principal sources of referrals are physicians, hospital discharge planners, prepaid health plans, clinical case managers and nursing agencies. The Company's sales representatives maintain continual contact with these medical professionals in order to strengthen these relationships. The Company's current base of referral sources recognizes the Company's reputation for providing high-quality service to patients and provides a steady flow of customers. While the Company views its referral sources as fundamental to its business, no single referral source accounts for more than 1.0% of the Company's revenues. The Company has more than 140,000 active customers, and the loss of any single customer or group of customers would not materially impact the Company's business. Joint Commission on Accreditation of Healthcare Organizations, ("JCAHO"). The Company has received accreditation from the JCAHO, a private not-for-profit organization that has established voluntary standards for the provision of home health care services, for all its operating centers. Accreditation by the JCAHO represents a marketing benefit to the Company's operating centers and provides for a recognized quality assurance program throughout the Company. Several proposals have been made to require health care providers to be accredited or licensed by independent agencies in order to participate in government reimbursement programs, and such a requirement has been adopted by certain private payors. ACQUISITIONS In 1997, the Company acquired, in unrelated acquisitions, certain operating assets of 16 local and regional competitors and the common stock of eight companies. The operations acquired in 1997 had aggregate annualized revenues of approximately $53.0 million at the time of acquisition. These acquisitions resulted in the addition of 19 new operating centers. In 1996, the Company acquired, in unrelated acquisitions, certain operating assets of eight local and regional competitors, the common stock of seven companies and, in two separate transactions, the common stock and certain assets of two related companies and the common stock and certain assets of three related companies. The operations acquired in 1996 had aggregate annualized revenues of approximately $44.0 million at the time of acquisition. These acquisitions resulted in the addition of 30 new operating centers. 4 6 QUALITY CONTROL The Company is committed to providing consistently high quality products and services. The Company's quality control procedures are designed to promote greater responsiveness and sensitivity to individual customer needs and to provide the highest level of quality assurance and convenience to the referring physician. Licensed respiratory therapists and registered nurses provide professional health care support and assist in the Company's sales and marketing efforts. SUPPLIERS The Company purchases its oxygen and equipment from a variety of suppliers. The Company is not dependent upon any single supplier and believes that its oxygen and equipment needs can be provided by several manufacturers. COMPETITION The home respiratory care market is a fragmented and highly competitive market that is served by the Company and other national providers and, by Company estimates, over 2,000 regional and local companies. Quality of service is the single most important competitive factor within the home respiratory care market. The relationships between a home respiratory care company and its customers and referral sources are highly personal. There is no incentive for either the physician or the patient to alter this relationship so long as the home respiratory care company is providing responsive, professional and high-quality service. Other key competitive factors are strength of local ties to the referral community and efficiency of reimbursement and accounts receivable management systems. Home respiratory care companies normally compete based on service. Reimbursement levels are established by the fee schedules promulgated by Medicare, Medicaid or by the individual determinations of private insurance companies. Furthermore, marketing efforts by home respiratory care companies are directed toward referral sources which do not share financial responsibility for the payment of services provided to customers. MEDICARE REIMBURSEMENT As a supplier of home oxygen and other respiratory therapy services for the home health care market, the Company participates in Medicare Part B, the Supplementary Medical Insurance Program, which was established by the Social Security Act of 1965. Suppliers of home oxygen and other respiratory therapy services have historically been heavily dependent on Medicare reimbursement due to the high proportion of elderly suffering from respiratory disease. On August 5, 1997, the Balanced Budget Act of 1997 ("BBA") was signed into law. The legislation, among other things, reduces Medicare expenditures by $115 billion over five years. The BBA reduces Medicare payment amounts for oxygen and oxygen equipment furnished after January 1, 1998, to 75 percent of the fee schedule amounts in effect during 1997. Payment amounts for oxygen and oxygen equipment furnished after January 1, 1999, and each subsequent year thereafter are reduced to 70 percent of the fee schedule amounts in effect during 1997. The BBA freezes the Consumer Price Index (U.S. urban average) update for covered items of durable medical equipment for each of the years 1998 through 2002 while limiting fees for parenteral and enteral nutrients, supplies and equipment to 1995 reasonable charge levels over the same period. The BBA reduces payment amounts for covered drugs and biologicals to 95 percent of the average wholesale price of such covered items for each of the years 1998 through 2002. The BBA authorizes the Department of Health and Human Services to conduct up to five competitive bidding demonstration projects for the acquisition of durable medical equipment and requires that one such project be established for oxygen and oxygen equipment. Each demonstration project is to be operated over a three-year period and is to be conducted in not more than three competitive acquisition areas. The BBA also 5 7 includes provisions designated to reduce health care fraud and abuse including a surety bond requirement for durable medical equipment providers. On August 10, 1993, Congress passed the Omnibus Reconciliation Act of 1993 ("OBRA 93"). The OBRA 93 legislation, among other things, provided for consumer price index updates to Medicare fee schedule amounts for durable medical equipment for 1995 and 1996. A Medicare fee schedule update of 2.8% was established for durable medical equipment provided in 1997. Federal and state budgetary and other cost-containment pressures will continue to impact the home respiratory care industry. The Company cannot predict what new federal and state budgetary proposals will be adopted and, if adopted, what effect, if any, such proposals would have on the Company's business. GOVERNMENT REGULATION The federal government and all states in which the Company currently operates regulate various aspects of its business. In particular, the Company's operating centers are subject to federal laws covering the repackaging and dispensing of drugs (including oxygen) and regulating interstate motor-carrier transportation. The Company's locations also are subject to state laws governing, among other things, pharmacies, nursing services and certain types of home health agency activities. Certain of the Company's employees are subject to state laws and regulations governing the ethics and professional practice of respiratory therapy, pharmacy and nursing. As a supplier of services under the Medicare and Medicaid programs, the Company is subject to the Medicare and Medicaid fraud and abuse laws. These laws, among other things, prohibit any payment, kickback or rebate in return for the referral of patients receiving benefits from Medicare, Medicaid or other federally funded health care programs. Violations of these provisions may result in civil and criminal penalties and exclusion from participation in such programs. Health care is an area of rapid regulatory change. Changes in the law or new interpretations of existing laws can have an effect on permissible activities, the relative costs associated with doing business, and the amount of reimbursement by government and third party payors. The Company cannot predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, and of possible changes in national health care policies, including those pertaining to managed care organizations. Future legislative and regulatory changes could have an adverse impact on the Company. YEAR 2000 REMEDIATION PROGRAM The Company has assessed the impact of the upcoming change in the century and has begun converting many of its computer software programs and information systems to be Year 2000 compliant. The cost to the Company of converting its existing computer systems is not material in nature and the Company does not expect the Year 2000 issue, with respect to the remediation of its own systems, to have a material effect on its future financial results. However, the Company is highly dependent upon government and private third party payors for payment of claims for services and equipment. The Company cannot be assured of the timely remediation of third party claims processing and reimbursement systems. The failure by a significant government or private payor to correct Year 2000 systems issues, to the extent that such issues delay or prevent timely or appropriate payment of claims, could have a material impact on the Company's cash flow from operations. The Company is monitoring the Year 2000 progress of Medicare payors and other significant government agencies and private payors to determine the potential impact to the Company. INSURANCE The Company currently has in force general liability and product liability insurance, each with a coverage limit of $10.0 million. In addition, the Company has professional liability insurance with a coverage limit of $1.0 million per occurrence and $3.0 million in the aggregate. The Company's product liability insurance provides coverage on a claims-made basis, while its general and professional liability insurance are on an 6 8 occurrence basis. All policies are subject to annual renewal and the Company anticipates adequate amounts of insurance coverage to be available at such renewal dates. EMPLOYEES As of February 28, 1998, the Company had approximately 3,500 employees. None of the Company's employees are currently covered by collective bargaining agreements. The Company believes that the relations between the Company's management and its employees are good. ENVIRONMENTAL MATTERS Management believes that the Company is currently in compliance, in all material respects, with applicable federal, state and local statutes and ordinances regulating the discharge of hazardous materials into the environment. Management does not believe it will be required to expend any material amounts in order to remain in compliance with these laws and regulations or that such compliance will materially affect its capital expenditures, earnings or competitive position. ITEM 2. PROPERTIES All but one of the Company's 308 operating center locations are leased from third parties. Each operating center is a combination warehouse and office, with warehouse space generally comprising approximately 50% of the facility. Warehouse space is used for storage of adequate supplies of equipment necessary to conduct the Company's business. The Company also leases a headquarters facility and 15 separate billing centers. ITEM 3. LEGAL PROCEEDINGS The Company is involved in certain other claims and legal actions arising in the ordinary course of business. In the opinion of the Company, the ultimate disposition of all matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1997. 7 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market System under the symbol LNCR. The following table sets forth the high and low closing sale prices as reported by NASDAQ for the periods indicated.
HIGH LOW ------ ------ 1997 First quarter............................................... $44.25 $36.00 Second quarter.............................................. 44.50 35.25 Third quarter............................................... 53.75 40.00 Fourth quarter.............................................. 59.00 50.00 1996 First quarter............................................... $34.00 $24.75 Second quarter.............................................. 43.50 32.75 Third quarter............................................... 42.25 36.00 Fourth quarter.............................................. 42.88 35.25
There were approximately 232 holders of record of the common stock as of February 28, 1998. The Company has not paid any cash dividends on its capital stock and does not anticipate paying cash dividends in the foreseeable future. It is the present intention of the Company's Board of Directors to retain all earnings in the Company in order to support the future growth of the Company's business. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below under the caption "Statements of Operations Data" for the years ended December 31, 1997, 1996, 1995, 1994, and 1993 are derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. 8 10 The data set forth below is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net revenues................................ $443,181 $348,870 $274,800 $201,142 $154,506 Cost of goods and services.................. 65,932 53,711 41,329 29,058 21,115 Operating expenses.......................... 93,830 75,158 60,272 44,347 34,388 Selling, general and administrative expenses.................................. 90,225 71,259 57,275 43,249 34,623 Bad debt expense............................ 4,432 3,472 2,190 1,546 1,832 Depreciation expense........................ 27,603 20,790 16,511 13,403 11,764 Amortization expense........................ 14,229 13,128 11,099 7,281 4,695 Non-recurring expense(1).................... 15,557 3,932 1,921 -- -- -------- -------- -------- -------- -------- Operating income............................ 131,373 107,420 84,203 62,258 46,089 Interest income............................. 202 153 294 434 611 Interest expense............................ 1,161 497 892 473 387 Gain (loss) on disposal of property and equipment................................. (93) (80) 68 101 233 -------- -------- -------- -------- -------- Income before income taxes.................. 130,321 106,996 83,673 62,320 46,546 Income tax expense.......................... 50,173 40,422 32,634 24,367 18,294 -------- -------- -------- -------- -------- Net income available for common............. $ 80,148 $ 66,574 $ 51,039 $ 37,953 $ 28,252 ======== ======== ======== ======== ======== Income per common share: Basic..................................... $ 2.82 $ 2.38 $ 1.86 $ 1.43 $ 1.09 ======== ======== ======== ======== ======== Diluted................................... $ 2.73 $ 2.31 $ 1.79 $ 1.34 $ 1.01 ======== ======== ======== ======== ======== Weighted average number of common shares outstanding............................... 28,419 27,998 27,511 26,629 25,852 ======== ======== ======== ======== ======== Weighted average number of common shares and common share equivalents outstanding...... 29,328 28,863 28,567 28,294 27,881 ======== ======== ======== ======== ========
- --------------- (1) In 1997 the Company recorded a non-recurring expense of $15,557,000 of which $11,849,000 was related to the write-off of obsolete capital equipment and $3,708,000 was related to an impairment write down of intangible assets (see Note 11 to the consolidated financial statements). In 1996 the Company recorded a non-recurring expense of $3,932,000 of which $2,682,000 was related to the restructuring of certain senior management employment agreements and $1,250,000 was related to the resolution of an investigation and associated legal expenses. In 1995 the Company recorded a non-recurring expense of $1,921,000 related to the abandoned merger between the Company and Coram Healthcare Corporation. Such non-recurring expense was comprised of (a) $1,448,000 of professional fees, (b) $199,000 of printing and mailing expenses, (c) $153,000 of filing fees, and (d) $121,000 of other direct costs.
AT DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............................. $ 42,106 $ 23,633 $ 16,510 $ 18,517 $ 35,642 Total assets................................ 440,388 347,408 260,206 195,778 147,084 Long-term obligations, excluding current installments.............................. 4,602 8,234 7,383 6,717 7,512 Stockholders' equity........................ 393,067 299,248 221,383 162,088 117,058
9 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company continues to pursue its strategy of focusing on increasing market share within its existing geographical markets, through internal growth and through selective acquisitions of regional or local competitors. In addition, the Company will continue to expand into new geographical markets on a selective basis, either through acquisitions or by opening new operating centers, when the Company believes it will enhance its business. The Company's focus remains primarily on oxygen and other respiratory therapy services, which represents approximately 90% of the Company's revenues. NET REVENUES The following table sets forth for the periods indicated a summary of the Company's net revenues by source:
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Oxygen and other respiratory therapy................... $397,390 $316,816 $250,287 Home medical equipment and other....................... 45,791 32,054 24,513 -------- -------- -------- Total........................................ $443,181 $348,870 $274,800 ======== ======== ========
Net revenues for the year ended December 31, 1997 increased by $94,311,000 (or 27.0%) over 1996. Net revenues for the year ended December 31, 1996 increased by $74,070,000 (or 27.0%) over 1995. The increases are attributable to the Company's sales and marketing efforts that emphasize quality and customer service, and the effect of the acquisitions completed by the Company. The Company estimates that approximately $45,561,000 of the increase in revenues for year ended December 31, 1997, and $37,905,000 of the increase in revenues for the year ended December 31, 1996, were attributable to the acquired businesses. Approximately $41,950,000 of the net revenue increase for the year ended December 31, 1997 and $31,265,000 for the year ended December 31, 1996, were attributable to volume growth in the Company's business. The Company experienced price increases in each of the years 1997, 1996, and 1995 from Medicare consumer price index updates for durable medical equipment of 2.8%, 3.0%, and 2.5%, respectively. The company estimates that price increases from Medicare and other third party payors increased revenue by $6,800,000, $4,900,000, and $3,100,000 in the years 1997, 1996, and 1995, respectively. The Balanced Budget Act of 1997 ("BBA") was signed into law on August 5, 1997. The legislation, among other things, reduces Medicare expenditures by $115 billion over five years. The BBA reduces Medicare payment amounts for oxygen and oxygen equipment furnished after January 1, 1998, to 75 percent of the fee schedule amounts in effect during 1997. Payment amounts for oxygen and oxygen equipment furnished after January 1, 1999, and each subsequent year thereafter are reduced to 70 percent of the fee schedule amounts in effect during 1997. The BBA freezes the Consumer Price Index (U.S. urban average) update for covered items of durable medical equipment for each of the years 1998 through 2002 while limiting fees for parenteral and enteral nutrients, supplies and equipment to 1995 reasonable charge levels over the same period. The BBA reduces payment amounts for covered drugs and biologicals to 95 percent of the average wholesale price of such covered items for each of the years 1998 through 2002. COST OF GOODS AND SERVICES Cost of goods and services as a percentage of net revenues was 14.9% for the year ended December 31, 1997 and was 15.4% and 15.0% for the years ended December 31, 1996 and 1995, respectively. The decrease in 1997 is attributable to the maturity of the Company's respiratory pharmacy operations which commenced operations in the fourth quarter of 1996. 10 12 OPERATING AND OTHER EXPENSES The Company continues to maintain a cost structure that, with increased net revenues, has permitted the Company to spread its fixed operating expenses and overhead over a larger base of revenues, resulting in improvement in operating income. Operating expenses expressed as a percentage of net revenues for the years ended December 31, 1997, 1996, and 1995 were 21.2%, 21.5%, and 21.9%, respectively. Selling, general and administrative expenses expressed as a percentage of net revenues for the years ended December 31, 1997, 1996, and 1995 were 20.4%, 20.4%, and 20.8%, respectively. Bad debt expense as a percentage of net revenues was 1.0% for the years ended December 31, 1997 and 1996 and 0.8% for the year ended December 31, 1995. Depreciation expense as a percentage of net revenues increased to 6.2% for the year ended December 31, 1997 compared with 6.0% for the years ended December 31, 1996 and 1995. The Company's increased depreciation expense reflects increased capital expenditures primarily for additional oxygen and respiratory therapy equipment to service the Company's growing customer base. AMORTIZATION EXPENSE The Company's net intangible assets were $253,731,000 as of December 31, 1997. Of this total, $5,262,000 (consisting of the value assigned to customer lists) is being amortized over a period of 3 years, $2,869,000 (consisting of various covenants not to compete) over a period of three to five years, and $245,600,000 (consisting of goodwill) over a period of 40 years. During 1997, the Company amortized $14,229,000 of its intangible assets compared to $13,128,000 in 1996 and $11,099,000 in 1995. OPERATING INCOME As shown in the table below, operating income before non-recurring expense for the year ended December 31, 1997 increased by $35,578,000 over 1996. In 1997, the Company recorded a non-recurring expense of $15,557,000 relating to the write-off of obsolete capital equipment and an impairment write down of intangible assets. Operating income before non-recurring expense for the year ended December 31, 1996 increased by $25,228,000 over 1995. In 1996, the Company recognized a non-recurring charge of $3,932,000 related to the restructuring of certain senior management employment agreements and the resolution of an investigation. The percentage increases in operating income are attributable to the Company's continued revenue growth, while maintaining effective control over expenses.
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Operating income before non-recurring expense.............. $146,930 $111,352 $ 86,124 Percentage of net revenues................................. 33.2% 31.9% 31.3%
INTEREST EXPENSE Interest expense for the year ended December 31, 1997 was $1,161,000, compared to $497,000 and $892,000 for the years ended December 31, 1996 and 1995, respectively. The respective increase or decrease in interest expense for the years 1997, 1996, and 1995 is primarily attributable to fluctuations in the average borrowings outstanding under the Company's then effective loan agreements. INCOME TAXES The Company's effective income tax rate was 38.5% for the year ended December 31, 1997, 37.8% for 1996 and 39.0% for 1995. 11 13 ACQUISITIONS In 1997, the Company acquired, in unrelated acquisitions, certain operating assets of 16 local and regional competitors and the common stock of eight companies. The operations acquired in 1997 had aggregate annualized revenues of approximately $53.0 million at the time of acquisition. The cost of these acquisitions was $79.7 million and was allocated to acquired assets as follows: $4.5 million to current assets, $3.8 million to property and equipment, $6.9 million to intangible assets, and $64.5 million to goodwill. These acquisitions resulted in the addition of 19 new operating centers. In 1996, the Company acquired, in unrelated acquisitions, certain operating assets of eight local and regional competitors, the common stock of seven companies and, in two separate transactions, the common stock and certain assets of two related companies and the common stock and certain assets of three related companies. The operations acquired in 1996 had aggregate annualized revenues of approximately $44.0 million at the time of acquisition. The cost of these acquisitions was $73.1 million and was allocated to acquired assets as follows: $6.4 million to current assets, $3.2 million to property and equipment, $6.4 million to intangible assets, and $57.1 million to goodwill. These acquisitions resulted in the addition of 30 new operating centers. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company's working capital was $42,106,000, as compared to $23,633,000 at December 31, 1996, and $16,510,000 at December 31, 1995. Net cash provided by operating activities was $126,550,000 for the year ended December 31, 1997, compared with $106,883,000 for the year ended December 31, 1996, and $79,523,000 for the year ended December 31, 1995. A significant portion of the Company's assets consists of accounts receivables from third party payors that provide reimbursement for the services provided by the Company. Because of the Company's ability to collect its accounts receivable on a timely basis, the Company has not been required to obtain interim financing of its accounts receivable to satisfy operating needs. Net cash used in investing and financing activities amounted to $124,013,000, $106,351,000 and $94,537,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Activity in the year ended December 31, 1997 included the Company's investment of $66,249,000 in business acquisitions, investment in capital equipment of $50,676,000, proceeds of $100,500,000 from its revolving credit loan and other long-term obligations, and payments of $115,073,000 related to long-term obligations. As of December 31, 1997, the Company's principal sources of liquidity consisted of $42,106,000 of working capital and $96,000,000 available under its revolving credit loan and line of credit. On November 25, 1997, the Company entered into a new revolving credit loan and line of credit, increasing its borrowing capacity from $50,000,000 to $100,000,000. The Company believes that internally generated funds, together with funds that may be borrowed under such credit facility, will be sufficient to meet the Company's anticipated capital requirements for the foreseeable future. The Company anticipates that capital expenditures for 1998 will be approximately $60,000,000. The Company believes that it will be able to generate sufficient funds internally to meet its short-term and long-term capital expenditure requirements. The Company's future liquidity will continue to be dependent upon its operating cash flow and management of accounts receivable. The Company is not aware of any impact on liquidity due to pending litigation arising in the ordinary course of business. NEW ACCOUNTING STANDARDS For 1998 the Company will be required to adopt Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", No. 131 "Disclosures About Segments of An Enterprise and Related Information", and No. 132 "Employers' Disclosure about Pensions and Other Postretirement Benefits." Statement 130 establishes rules for reporting and displaying comprehensive income. Comprehensive income is 12 14 defined as essentially all changes in stockholders' equity exclusive of transactions with owners. The Company has no items to be reported as comprehensive income; therefore, adoption of this standard is not expected to have a material effect on the Company's financial statements. Statement No. 131 requires the disclosure of selected information about operating segments based on a "management approach." Under the management approach, the operating segments are determined based on the organization units that the Company's management uses internally to monitor performance and make operating decisions. The Company operates in one segment and does not expect the implementation of this standard to have a significant effect on future financial statement disclosures. Statement No. 132 standardizes the disclosure requirements of previous Statements No. 87 (Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits), and No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions). Statement No. 132 disclosure requirements for the Company's defined contribution plan are substantially unchanged; therefore, adoption of this standard is not expected to have a significant effect on future financial statement disclosures. INFLATION The Company has not experienced large increases in either the cost of supplies or operating expenses due to inflation. Because of restrictions on reimbursement by government and private medical insurance programs and the pressures to contain the costs of such programs, the Company bears the risk that reimbursement rates set by such programs will not keep pace with inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are listed in Item 14(a)(1) and are submitted at the end of this Annual Report on Form 10-K. The supplementary data required by this Item is included on page S-1. The financial statements and supplementary data are herein incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this item is included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 11, 1998, under "Information Regarding the Board of Directors and Executive Officers" and is herein incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION The response to this item is included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 11, 1998, under "Executive Compensation" and is herein incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this item is included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 11, 1998, under "Security Ownership of Principal Stockholders and Management" and is herein incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 13 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of Lincare Holdings Inc. and subsidiaries are filed as part of this Form 10-K starting at page F-1: Independent Auditors' Report Consolidated Balance Sheets -- December 31, 1997 and 1996 Consolidated Statements of Operations -- Years ended December 31, 1997, 1996, and 1995. Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements (2) The following consolidated financial statement schedule of Lincare Holdings Inc. and subsidiaries is included in this Form 10-K at page S-1: Schedule VIII -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits included or incorporated herein: See Exhibit Index. (b) The Company did not file a Current Report on Form 8-K during the three months ended December 31, 1997. 14 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LINCARE HOLDINGS INC. /s/ PAUL G. GABOS ------------------------------------- Paul G. Gabos Secretary, Chief Financial and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE POSITION DATE --------- -------- ---- /s/ JAMES T. KELLY Chairman of the Board March 26, 1998 - ------------------------------------------------ James T. Kelly /s/ JOHN P. BYRNES Director, President and Chief March 26, 1998 - ------------------------------------------------ Executive Officer John P. Byrnes /s/ PAUL G. GABOS Secretary, Chief Financial and March 26, 1998 - ------------------------------------------------ Principal Accounting Officer Paul G. Gabos /s/ CHESTER B. BLACK Director March 26, 1998 - ------------------------------------------------ Chester B. Black /s/ FRANK T. CARY Director March 26, 1998 - ------------------------------------------------ Frank T. Cary /s/ WILLIAM F. MILLER, III Director March 26, 1998 - ------------------------------------------------ William F. Miller, III /s/ ANDREW M. PAUL Director March 26, 1998 - ------------------------------------------------ Andrew M. Paul /s/ THOMAS O. PYLE Director March 26, 1998 - ------------------------------------------------ Thomas O. Pyle
15 17 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Lincare Holdings Inc.: We have audited the consolidated financial statements of Lincare Holdings Inc. and subsidiaries as listed in the index on page 14. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule listed in the index on page 14. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, and significant estimates made, by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lincare Holdings Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related consolidated 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. KPMG PEAT MARWICK LLP St. Petersburg, Florida January 28, 1998 F-1 18 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 4,078 $ 1,541 Accounts and notes receivable (note 2).................... 68,383 51,090 Income taxes receivable................................... 2,530 187 Inventories............................................... 1,542 1,689 Prepaid expenses.......................................... 516 466 -------- -------- Total current assets.............................. 77,049 54,973 -------- -------- Property and equipment (notes 3 and 4)...................... 181,438 150,598 Less accumulated depreciation............................... 73,148 57,068 -------- -------- Net property and equipment........................ 108,290 93,530 -------- -------- Other assets: Goodwill, less accumulated amortization of $16,954 in 1997 and $11,135 in 1996.................................... 245,600 184,817 Intangible assets, less accumulated amortization of $36,457 in 1997 and $30,036 in 1996.................................... 5,262 8,867 Covenants not to compete, less accumulated amortization of $9,531 in 1997 and $7,543 in 1996..................................... 2,869 4,478 Other..................................................... 1,318 743 -------- -------- Total other assets................................ 255,049 198,905 -------- -------- $440,388 $347,408 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term obligations (note 5).... $ 8,580 $ 5,783 Accounts payable.......................................... 14,390 16,958 Accrued expenses: Compensation and benefits.............................. 8,781 6,895 Other.................................................. 3,192 1,704 -------- -------- Total current liabilities......................... 34,943 31,340 -------- -------- Long-term obligations, excluding current installments (note 5)........................................................ 4,602 8,234 Deferred income taxes (note 6).............................. 6,861 7,681 Minority interest........................................... 915 905 Stockholders' equity (notes 6, 7, and 8): Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 28,720,545 in 1997 and 28,254,996 in 1996..................................... 287 282 Additional paid-in capital................................ 111,001 97,335 Retained earnings......................................... 281,779 201,631 -------- -------- Total stockholders' equity........................ 393,067 299,248 Commitments and contingencies (notes 4 and 14).............. -------- -------- $440,388 $347,408 ======== ========
See accompanying notes to consolidated financial statements. F-2 19 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues (note 9).................................. $443,181 $348,870 $274,800 -------- -------- -------- Costs and expenses: Cost of goods and services........................... 65,932 53,711 41,329 Operating expenses................................... 93,830 75,158 60,272 Selling, general and administrative expenses......... 90,225 71,259 57,275 Bad debt expense..................................... 4,432 3,472 2,190 Depreciation expense................................. 27,603 20,790 16,511 Amortization expense................................. 14,229 13,128 11,099 Non-recurring expense (note 11)...................... 15,557 3,932 1,921 -------- -------- -------- 311,808 241,450 190,597 -------- -------- -------- Operating income............................. 131,373 107,420 84,203 -------- -------- -------- Other income (expenses): Interest income...................................... 202 153 294 Interest expense..................................... (1,161) (497) (892) Net gain (loss) on disposal of property and equipment......................................... (93) (80) 68 -------- -------- -------- (1,052) (424) (530) -------- -------- -------- Income before income taxes................... 130,321 106,996 83,673 Income tax expense (note 6)............................ 50,173 40,422 32,634 -------- -------- -------- Net income................................... $ 80,148 $ 66,574 $ 51,039 ======== ======== ======== Income per common share (note 10): Basic................................................ $ 2.82 $ 2.38 $ 1.86 ======== ======== ======== Diluted.............................................. $ 2.73 $ 2.31 $ 1.79 ======== ======== ======== Weighted average number of common shares outstanding... 28,419 27,998 27,511 ======== ======== ======== Weighted average number of common shares and common share equivalents outstanding........................ 29,328 28,863 28,567 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 20 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
ADDITIONAL TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY ------ ---------- -------- ------------- (DOLLARS IN THOUSANDS) Balances at December 31, 1994........................ $271 $ 77,799 $ 84,018 $162,088 Exercise of stock options (note 8)................... 6 2,800 -- 2,806 Tax benefit related to exercise of employee stock options (notes 6 and 8)............................ -- 5,450 -- 5,450 Net income........................................... -- -- 51,039 51,039 ---- -------- -------- -------- Balances at December 31, 1995........................ 277 86,049 135,057 221,383 Exercise of stock options (note 8)................... 5 4,895 -- 4,900 Tax benefit related to exercise of employee stock options (notes 6 and 8)............................ -- 6,391 -- 6,391 Net income........................................... -- -- 66,574 66,574 ---- -------- -------- -------- Balances at December 31, 1996........................ 282 97,335 201,631 299,248 Exercise of stock options (note 8)................... 5 7,113 -- 7,118 Tax benefit related to exercise of employee stock options (notes 6 and 8)............................ -- 6,553 -- 6,553 Net income........................................... -- -- 80,148 80,148 ---- -------- -------- -------- Balances at December 31, 1997........................ $287 $111,001 $281,779 $393,067 ==== ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 21 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995 --------- --------- --------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income................................................ $ 80,148 $ 66,574 $ 51,039 Adjustments to reconcile net income to net cash provided by operating activities: Increase in provision for losses on accounts and notes receivable........................................... (750) (1,433) (1,989) Depreciation expense................................... 27,603 20,790 16,511 Loss (gain) on disposal of property and equipment...... 93 80 (68) Amortization expense................................... 14,229 13,128 11,099 Amortization of imputed interest....................... 22 80 130 Deferred income taxes.................................. (1,549) 1,090 2,369 Minority interest in net earnings of subsidiary........ 254 252 196 Non-recurring expense (note 11)........................ 15,557 -- -- Change in operating assets and liabilities: Increase in accounts and notes receivable............ (13,698) (6,883) (5,524) Decrease (increase) in inventories................... 441 (256) (53) (Increase) decrease in prepaid expenses.............. (118) 81 78 (Decrease) increase in accounts payable.............. (2,568) 6,743 336 Increase (decrease) in accrued expenses.............. 2,676 (339) 1,927 Decrease in income taxes............................. 4,210 6,976 3,472 --------- --------- --------- Net cash provided by operating activities......... 126,550 106,883 79,523 --------- --------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment.............. 127 276 1,269 Capital expenditures...................................... (50,676) (38,241) (30,148) Increase in other assets.................................. (575) (524) (13) Business acquisitions, net of cash acquired (note 13)..... (66,249) (64,764) (58,590) --------- --------- --------- Net cash used by investing activities............. (117,373) (103,253) (87,482) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term obligations....................... 101,559 58,000 44,506 Payment of long-term obligations.......................... (115,073) (65,772) (54,247) Decrease in minority interest............................. (244) (226) (120) Proceeds from issuance of common stock.................... 7,118 4,900 2,806 --------- --------- --------- Net cash used by financing activities............. (6,640) (3,098) (7,055) --------- --------- --------- Net increase (decrease) in cash................... 2,537 532 (15,014) Cash and cash equivalents, beginning of year................ 1,541 1,009 16,023 --------- --------- --------- Cash and cash equivalents, end of year...................... $ 4,078 $ 1,541 $ 1,009 ========= ========= =========
See accompanying notes to consolidated financial statements. F-5 22 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996, AND 1995 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Lincare Holdings Inc. and subsidiaries (the "Company") provides oxygen, respiratory therapy services, and infusion therapy services to the home health care market and also supplies home medical equipment, such as hospital beds, wheelchairs and other medical supplies. The Company's customers are located in 39 states. The Company's supplies are readily available and the Company is not dependent on a single supplier or even a few suppliers. (b) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Significant estimates included in these financial statements are related to the allowance for uncollectible accounts and self-insurance accruals. Actual results could differ from those estimates. (c) Principles of Consolidation The consolidated financial statements include the accounts of Lincare Holdings Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (d) Revenue Recognition Revenues are recognized on an accrual basis in the period in which services and related products are provided to patients and are recorded at net realizable amounts estimated to be received from patients and third party payors. (e) Financial Instruments The Company believes the book value of its cash equivalents, accounts and notes receivable, income taxes receivable, accounts payable and accrued expenses approximates fair value due to their short-term nature. The book value of the Company's credit facility and long-term obligations approximates their fair value as the current interest rates approximate rates at which similar types of borrowing arrangements could be currently obtained by the Company. The Company had no derivative financial instruments at December 31, 1997 or 1996. (f) Inventories Inventories, consisting of equipment, supplies and replacement parts, are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. (g) Property and Equipment Property and equipment is stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets as set forth in the table below. Land improvements........................................... 15 years Buildings and improvements.................................. 5 to 40 years Equipment and furniture..................................... 3 to 11 years
F-6 23 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or estimated useful life of the asset. Amortization is included with depreciation expense. (h) Other Assets Goodwill results from the excess of cost over net assets of acquired businesses and is amortized on a straight-line basis over 40 years. Intangible assets (customer base) are amortized on a straight-line basis over the estimated life of three years. Covenants not to compete are amortized on a straight-line basis over the life of the respective covenants, three to five years. The Company annually evaluates goodwill and other intangible assets by utilizing an operating income realization test. In addition, the Company considers the effects of external changes to the Company's business environment, including competitive pressures, market changes and technological and regulatory changes. (i) Income Taxes Deferred income taxes 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 be recovered or settled. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date. (j) Pension Plan The Company has a defined contribution pension plan covering substantially all employees. The Company makes monthly contributions to the plan equal to the amount accrued for pension expense. Employer contributions (net of applied forfeitures) were approximately $1,895,000 in 1997, $1,362,000 in 1996, and $1,271,000 in 1995. (k) Statement of Cash Flows For purposes of the statements of cash flows, the Company considers all short-term investments with a purchased maturity of three months or less to be cash equivalents. (l) Stock Options Prior to January 1, 1995, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1995, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25, and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. F-7 24 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (m) New Accounting Standards In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". It replaces the standards for computing earnings per share (EPS) under APB Opinion No. 15, "Earnings Per Share" and makes the computations comparable to international EPS standards. The Company adopted this statement for financial statements issued for the period ending December 31, 1997 and restated all prior period EPS data presented accordingly. Also in 1997, the Company adopted Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", which designates certain disclosure requirements for public entities. The Company adopted this statement for financial statements issued for the period ended December 31, 1997. As the Company already disclosed any information required by SFAS No. 129, adoption of this statement did not have any effect on the financial disclosures of the Company. (2) ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable at December 31, 1997 and 1996 consist of:
1997 1996 ------- ------- (IN THOUSANDS) Trade....................................................... $76,161 $56,697 Other....................................................... 173 310 ------- ------- 76,334 57,007 Less allowance for uncollectible accounts................... 7,951 5,917 ------- ------- $68,383 $51,090 ======= =======
(3) PROPERTY AND EQUIPMENT Property and equipment at December 31, 1997 and 1996 consist of:
1997 1996 -------- -------- (IN THOUSANDS) Land and improvements....................................... $ 85 $ 85 Building and improvements................................... 1,151 1,344 Equipment and furniture..................................... 180,202 149,169 -------- -------- $181,438 $150,598 ======== ========
Rental equipment of approximately $138,667,000 in 1997 and $118,719,000 in 1996 are included with equipment and furniture. (4) LEASES The Company has several noncancelable operating leases, primarily for buildings, office equipment and vehicles, that expire over the next five years and provide for purchase or renewal options. Operating lease expense was approximately $16,012,000 in 1997, $12,617,000 in 1996, and $9,781,000 in 1995. F-8 25 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under noncancelable operating leases as of December 31, 1997 are as follows:
(IN THOUSANDS) 1998........................................................ $13,219 1999........................................................ 9,237 2000........................................................ 5,571 2001........................................................ 2,341 2002........................................................ 563 ------- Total minimum lease payments...................... $30,931 =======
(5) LONG-TERM OBLIGATIONS Long-term obligations at December 31, 1997 and 1996 consist of:
1997 1996 ------ ------ (IN THOUSANDS) Borrowings under revolving credit portion of bank credit agreement bearing interest at the Interbank Offered Rate (5.96% at December 31, 1997), adjusted for changes in reserve requirements, plus an applicable margin based upon the Company's consolidated leverage ratio (consolidated funded indebtedness to consolidated EBITDA) payable in 2000...................................................... $4,000 $9,000 Unsecured, deferred acquisition obligations net of imputed interest, payable in various installments through 1998.... 8,225 4,890 Computer equipment purchases financed through installment loans; interest (4.17% to 4.52%) and principal are payable monthly through 2000...................................... 957 127 ------ ------ Total long-term obligations....................... 13,182 14,017 Less: current installments........................ 8,580 5,783 ------ ------ Long-term debt, excluding current installments.... $4,602 $8,234 ====== ======
The credit agreement with a commercial bank dated November 25, 1997 permits the Company to borrow amounts up to $75,000,000 on a revolving credit facility and $25,000,000 on a line of credit facility. The revolving credit facility has a termination date of three years from the date of the credit agreement (November 24, 2000) and the line of credit has a termination date of 364 days from the date of the credit agreement (November 24, 1998). Outstanding borrowings under the line of credit at the termination date of the facility may be converted to a term loan at the option of the Company and shall mature on the revolving credit facility termination date. At December 31, 1997, there were no borrowings outstanding on the line of credit. Upon entering into the credit agreement, an origination fee of $150,000 was paid and is being amortized over three years. Commitment fees on the unused portion of the facilities (.175% on the revolving credit facility and .125% on the line of credit at December 31, 1997) are based upon the Company's consolidated leverage ratio for the most recent four fiscal quarters. Interest accrued on the outstanding principal balance that is not termed for repayment is payable quarterly. The credit agreement contains several financial and other covenants and is secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings Inc. Unamortized imputed interest on the deferred acquisition obligations and installment loans at 4.17% to 8.25% was $103,000 in 1997 and $4,000 in 1996. F-9 26 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The aggregate maturities of long-term obligations for each of the five years subsequent to December 31, 1997 are as follows:
(IN THOUSANDS) 1998........................................................ $ 8,580 1999........................................................ 344 2000........................................................ 4,258 2001........................................................ -- 2002........................................................ -- ------- $13,182 =======
(6) INCOME TAXES The tax effects of temporary differences that account for significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below:
1997 1996 -------- ------- (IN THOUSANDS) Deferred tax assets: Accounts receivable, principally due to allowance for uncollectible accounts............................................... -- $(1,748) Accrued expenses, principally due to deferral for income tax reporting purposes................................. (3,388) (2,311) Intangible assets and covenants not to compete, principally due to differences in amortization......... (7,927) (4,431) Net operating loss carryforward........................... (220) (489) -------- ------- Total gross deferred tax assets................... (11,535) (8,979) -------- ------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation........................................... 9,524 9,291 Goodwill, principally due to differences in amortization........................................... 6,415 4,232 Other..................................................... 2,457 3,137 -------- ------- Total gross deferred tax liabilities.............. 18,396 16,660 -------- ------- Net deferred tax liability........................ $ 6,861 $ 7,681 ======== =======
There is no valuation allowance for deferred tax assets. The Company expects that the results of future operations will generate sufficient taxable income to allow for the utilization of deferred tax assets. F-10 27 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense attributable to operations consists of:
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Current: Federal................................................. $44,641 $35,149 $27,164 State................................................... 7,081 4,183 3,102 ------- ------- ------- Total current................................... $51,722 $39,332 $30,266 Deferred: Federal................................................. (1,347) 959 2,072 State................................................... (202) 131 296 ------- ------- ------- Total deferred.................................. (1,549) 1,090 2,368 ------- ------- ------- Total income tax expense........................ $50,173 $40,422 $32,634 ======= ======= ======= Total income tax expense was allocated: Income from operations.................................. $50,173 $40,422 $32,634 Stockholders' equity for compensation expense for tax purposes............................................. (6,553) (6,391) (5,450) ------- ------- ------- $43,620 $34,031 $27,184 ======= ======= =======
Total income tax expense differs from the amounts computed by applying a U.S. federal income tax rate of 35% to income before income taxes as a result of the following:
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Computed "expected" tax expense........................... $45,612 $37,449 $29,286 State income taxes, net of federal income tax benefit..... 4,471 2,804 2,209 Other..................................................... 90 169 1,139 ------- ------- ------- Total income tax expense........................ $50,173 $40,422 $32,634 ======= ======= =======
(7) STOCKHOLDERS' EQUITY The Company has 4,879,238 authorized shares of preferred stock, all of which are unissued. The Board of Directors has the authority to issue up to such number of shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof without any further vote or action by the stockholders. (8) STOCK OPTIONS The Company has four stock option plans that provide for the grant of options to directors, officers and employees. To date, stock options have been granted with an exercise price equal to the stock's fair value at the date of grant. Stock options generally have ten-year terms and generally vest over four years. The Company has reserved a total of 2,973,768 shares of common stock for issuance under its Non-Qualified Stock Option Plan (the "Plan"). At December 31, 1997, there were options for 110,371 shares outstanding and options for 980 shares available for issuance under the Plan. The Company has reserved a total of 1,600,000 shares of common stock for issuance under its 1991 Stock Plan (the "1991 Plan"). At December 31, 1997 there were options for 563,500 shares outstanding and options for 16,800 shares available for issuance under the 1991 Plan. The Company has reserved a total of 500,000 shares of common stock for F-11 28 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) issuance under its 1994 Stock Plan (the "1994 Plan"). At December 31, 1997, there were options for 447,000 shares outstanding and options for 20,000 shares available for issuance under the 1994 Plan. The Company has reserved a total of 1,000,000 shares of common stock for issuance under its 1996 Stock Plan (the "1996 Plan"). At December 31, 1997, there were options for 847,000 shares outstanding and options for 153,000 shares available for issue under the 1996 Plan. The per share weighted average fair value of stock options granted during 1997, 1996, and 1995 was $22.71, $17.48 and $11.56 on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions: 1997 -- expected dividend yield 0%, risk-free interest rate of 5.71%, expected life of 9 years, and volatility of 39.9%; 1996 -- expected dividend yield 0%, risk-free interest rate of 6.2%, expected life of 7 years, and volatility of 42.2%; 1995 -- expected dividend yield 0%, risk-free interest rate of 6.2%, expected life of 6 years, and volatility of 43.5%. The Company applies APB Opinion No. 25 in accounting for its stock plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income: As reported..................................... $80,148 $66,574 $51,039 ======= ======= ======= Pro forma....................................... $75,843 $64,093 $49,775 ======= ======= ======= Income per common share: Basic -- as reported............................ $ 2.82 $ 2.38 $ 1.86 ======= ======= ======= Diluted -- as reported.......................... $ 2.73 $ 2.31 $ 1.79 ======= ======= ======= Basic -- pro forma.............................. $ 2.67 $ 2.29 $ 1.81 ======= ======= ======= Diluted -- pro forma............................ $ 2.59 $ 2.22 $ 1.74 ======= ======= =======
Pro forma net income reflects only options granted in 1997, 1996, and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income or per share amounts presented above because compensation cost is reflected over the options vesting period of four years and compensation cost for options granted prior to January 1, 1995 is not considered. F-12 29 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information related to the plans is as follows:
NUMBER OF WEIGHTED AVERAGE OPTIONS EXERCISE PRICE --------- ---------------- Outstanding at December 31, 1994........................... 2,155,062 $10.49 Exercised in 1995.......................................... (562,704) 4.99 Canceled in 1995........................................... (91,379) 3.83 Options issued in 1995..................................... 542,000 25.05 --------- Outstanding at December 31, 1995........................... 2,042,979 16.17 Exercised in 1996.......................................... (568,159) 8.74 Canceled in 1996........................................... (29,400) 15.78 Options issued in 1996..................................... 530,000 32.44 --------- Outstanding at December 31, 1996........................... 1,975,420 22.67 Exercised in 1997.......................................... (465,549) 15.15 Canceled in 1997........................................... (16,000) 29.38 Options issued in 1997..................................... 474,000 38.26 --------- Outstanding at December 31, 1997........................... 1,967,871 $28.15 =========
At December 31, 1997, the range of exercise prices and weighted average remaining contractual life of outstanding options was as follows:
OPTIONS WEIGHTED OUTSTANDING AS OF AVERAGE RANGE OF DECEMBER 31, REMAINING EXERCISE PRICES 1997 CONTRACTUAL LIFE --------------- ----------------- ---------------- $ 0.25-$19.00.......................................... 498,871 4.5 years $24.63-$25.25 ......................................... 615,000 6.2 years $28.75-$37.81 ......................................... 675,000 7.1 years $39.00-$39.00 ......................................... 179,000 8.9 years --------- $ 0.25-$39.00 ......................................... 1,967,871 6.3 years =========
At December 31, 1997, 1996 and 1995 the number of options exercisable was 700,371, 825,920, and 1,074,152, respectively, and the weighted average exercise price of those options was $19.39, $15.62, and $13.25, respectively. In connection with the exercise of certain stock options, the Company receives a tax deduction for the difference between the fair value of the common stock at the date of exercise and the exercise price. The related income tax benefit of approximately $6,553,000 in 1997, $6,391,000 in 1996, and $5,450,000 in 1995 has been recorded as a reduction of income taxes payable and an increase to additional paid-in capital. (9) NET REVENUES Included in the Company's net revenues is reimbursement from the federal government under the Medicare, Medicaid and other federally funded programs, which aggregated approximately 63% in 1997, 61% in 1996, and 60% in 1995 of such net revenues. F-13 30 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) INCOME PER COMMON SHARE A reconciliation of the numerators and the denominators of the basic and diluted per common share computations is as follows:
INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997 Basic: Income available to common stockholders.... $80,148 28,419 $2.82 ===== Effect of Dilutive Securities: Stock Options.............................. -- 909 ------- ------ Diluted: Income available to common stockholders and holders of dilutive securities........... $80,148 29,328 $2.73 ======= ====== ===== YEAR ENDED DECEMBER 31, 1996 Basic: Income available to common stockholders.... $66,574 27,998 $2.38 ===== Effect of Dilutive Securities: Stock Options.............................. -- 865 ------- ------ Diluted: Income available to common stockholders and holders of dilutive securities........... $66,574 28,863 $2.31 ======= ====== ===== YEAR ENDED DECEMBER 31, 1995 Basic: Income available to common stockholders.... $51,039 27,511 $1.86 ===== Effect of Dilutive Securities: Stock Options.............................. -- 1,056 ------- ------ Diluted: Income available to common stockholders and holders of dilutive securities........... $51,039 28,567 $1.79 ======= ====== =====
(11) NON-RECURRING EXPENSE In 1997, the Company recorded a non-recurring expense of $15,557,000 of which $11,849,000 was related to the write-off of obsolete oxygen rental equipment and $3,708,000 was related to the impairment write down of certain customer list intangible assets. The charges were intended to adjust the carrying value of certain assets affected by provisions contained in the Balanced Budget Act of 1997. This legislation reduces Medicare reimbursement for home oxygen equipment and services by 30 percent over the next two years. The Company is disposing of the obsolete equipment without proceeds; accordingly, the carrying value was reduced to zero. The fair value of the customer list was determined based on discounted cash flows taking into account the reduced reimbursement rates. In 1996, the Company recorded a non-recurring expense of $3,932,000 of which $2,682,000 was related to the restructuring of certain senior management employment agreements. The remainder of the charge related to the resolution of an investigation in the amount of $1,000,000, together with related legal fees of $250,000. In 1995, the Company recorded a non-recurring expense of $1,921,000 related to the abandoned merger between the Company and Coram Healthcare Corporation. Such non-recurring F-14 31 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expense was comprised of (a) $1,448,000 of professional fees, (b) $199,000 of printing and mailing expenses, (c) $153,000 of filing fees, and (d) $121,000 of other direct costs. (12) SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Cash paid for: Interest.................................................. $ 1,139 $ 414 $ 762 ======= ======= ======= Income taxes.............................................. $47,512 $31,566 $25,036 ======= ======= =======
(13) BUSINESS COMBINATIONS During 1997, the Company acquired the outstanding stock or certain assets of 24 businesses in 24 separate transactions. During 1996, the Company acquired the outstanding stock or certain assets of 17 businesses in 17 separate transactions. Consideration for the acquisitions generally included cash, unsecured non-interest bearing obligations and the assumption of certain liabilities. None of the businesses acquired were related to the Company prior to acquisition. Each acquisition during 1997 and 1996 was accounted for as a purchase. The results of operations of the acquired companies are included in the accompanying consolidated statement of operations since the respective date of acquisition. Each of the acquired companies conducted operations similar to that of the Company. The aggregate cost of the acquisitions described above was as follows:
1997 1996 ------- ------- (IN THOUSANDS) Cash........................................................ $66,597 $64,764 Deferred acquisition obligations............................ 11,583 7,905 Assumption of liabilities................................... 1,475 383 ------- ------- $79,655 $73,052 ======= =======
The aggregate purchase price of the acquisitions described above was allocated as follows:
1997 1996 ------- ------- (IN THOUSANDS) Current assets (including cash acquired of $348 in 1997 and $275 in 1996)............................................. $ 4,547 $ 6,362 Property and equipment...................................... 3,755 3,205 Intangible assets........................................... 6,904 6,379 Goodwill.................................................... 64,449 57,106 ------- ------- $79,655 $73,052 ======= =======
F-15 32 LINCARE HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following unaudited pro forma supplemental information on the results of operations for the years ended December 31, 1997 and 1996 include the acquisitions as if they had been combined at the beginning of the respective years.
1997 1996 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues................................................ $466,040 $399,630 ======== ======== Net income.................................................. $ 84,721 $ 76,803 ======== ======== Basic -- income per common share............................ $ 2.98 $ 2.74 ======== ======== Diluted -- income per common share.......................... $ 2.89 $ 2.66 ======== ========
This unaudited pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had the transactions been effected at the beginning of the respective years or of future results of operations of the combined companies. (14) CONTINGENCIES The Company is involved in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of all matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. (15) QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of quarterly financial results for the years ended December 31, 1997 and 1996:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997: Net revenues................................ $101,012 $108,702 $114,772 $118,695 ======== ======== ======== ======== Operating income(1)......................... $ 32,825 $ 35,995 $ 38,498 $ 24,055 ======== ======== ======== ======== Net income(1)............................... $ 20,055 $ 21,843 $ 23,548 $ 14,702 ======== ======== ======== ======== Income per common share: Basic....................................... $ .71 $ .77 $ .83 $ .51 ======== ======== ======== ======== Diluted..................................... $ .69 $ .75 $ .80 $ .50 ======== ======== ======== ======== 1996: Net revenues................................ $ 79,772 $ 84,970 $ 89,633 $ 94,495 ======== ======== ======== ======== Operating income (2)........................ $ 25,138 $ 27,581 $ 28,787 $ 25,914 ======== ======== ======== ======== Net income (2).............................. $ 15,424 $ 16,945 $ 17,637 $ 16,568 ======== ======== ======== ======== Income per common share: Basic....................................... $ .56 $ .61 $ .63 $ .59 ======== ======== ======== ======== Diluted..................................... $ .54 $ .59 $ .61 $ .57 ======== ======== ======== ========
- --------------- (1) The 1997 fourth quarter operating income included a non-recurring expense of $15,557,000 ($9,568,000 after-tax) (see note 11). (2) The 1996 fourth quarter operating income included a non-recurring expense of $3,932,000 ($1,649,000 after-tax) (see note 11). F-16 33 SCHEDULE VIII LINCARE HOLDINGS INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD ----------- ---------- ---------- ---------- ---------- ------------- (IN THOUSANDS) YEAR ENDED DECEMBER 31, 1997 Deducted from asset accounts: Allowance for uncollectible accounts......................... $5,917 $4,432 $3,724(1) $6,122(2) $7,951 ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 1996 Deducted from asset accounts: Allowance for uncollectible accounts......................... $4,535 $3,472 $2,788(1) $4,878(2) $5,917 ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 1995 Deducted from asset accounts: Allowance for uncollectible accounts......................... $4,723 $2,190 $1,713(1) $4,091(2) $4,535 ====== ====== ====== ====== ======
- --------------- (1) To record allowance on business combinations (2) To record write-offs S-1 34 INDEX OF EXHIBITS
Sequentially Exhibit Numbered Number Exhibit Page - ------ ------- ---- +3.1- Amended and Restated Certificate of Incorporation of Lincare Holdings Inc. . . . . +3.2- Amended and Restated By-Laws of Lincare Holdings Inc. . . . . . . . . . . . . . . . +10.6- Purchase Agreement dated as of September 25, 1991 among the Registrant and the several purchasers named therein . . . . . . . . . . . . . . . . . . . . . . . . . +10.10- Non-Qualified Stock Option Plan of Registrant . . . . . . . . . . . . . . . . . . . +10.11- Lincare Holdings Inc. 1991 Stock Plan . . . . . . . . . . . . . . . . . . . . . . . +10.12- Non-Qualified Stock Option Agreements dated as of November 30, 1990, as amended, between the Registrant and James T. Kelly . . . . . . . . . . . . . . . . . . . . . +10.13- Non-Qualified Stock Option Agreements dated as of November 30, 1990, as amended, between the Registrant and Howard R. Deutsch . . . . . . . . . . . . . . . . . . . +10.14- Non-Qualified Stock Option Agreements dated as of November 30, 1990, as amended, between the Registrant and James M. Emanuel . . . . . . . . . . . . . . . . . . . . +10.15- Lincare Inc. 401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +10.19- Asset Purchase Agreement dated as of September 25, 1991, between Lincare Inc. and Glasrock Home Health Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . ++10.20- Asset Purchase Agreement dated as of October 2, 1992, among Lincare Inc., Advance Home Health Services, Inc. and Diversified Diagnostics Inc., Richard Levy and Michael D. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +++10.21- Amendment to Non-Qualified Stock Option Agreement dated December 2, 1992, between the Registrant and James T. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . +++10.22- Amendment to Non-Qualified Stock Option Agreement dated December 2, 1992, between the Registrant and Howard R. Deutsch . . . . . . . . . . . . . . . . . . . . . . .
35
Sequentially Exhibit Numbered Number Exhibit Page - ------ ------- ---- +++10.23- Amendment to Non-Qualified Stock Option Agreement dated December 2, 1992, between the Registrant and James M. Emanuel . . . . . . . . . . . . . . . . . . . ++++10.24- Asset Purchase Agreement effective March 31, 1993, between Lincare Inc. and T2 Medical, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *10.26- Loan Agreement dated February 10, 1995, between Registrant and NationsBank of Florida, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *10.27- Employment Agreement dated as of November 1, 1993 between Lincare Holdings Inc. and James T. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *10.28- Employment Agreement dated as of November 1, 1993 between Lincare Holdings Inc. and Howard R. Deutsch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *10.29- Employment Agreement dated as of November 1, 1993 between Lincare Holdings Inc. and James M. Emanuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . **10.30- Asset Purchase Agreement dated as of May 24, 1995 between Lincare Inc. and PrimaCare Health Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . ***10.31- Non-Qualified Stock Option Agreements dated as of January 23, 1995, between the Registrant and James T. Kelly . . . . . . . . . . . . . . . . . . . . . . . . ***10.32- Non-Qualified Stock Option Agreements dated as of January 23, 1995, between the Registrant and Howard R. Deutsch . . . . . . . . . . . . . . . . . . . . . . ***10.33- Non-Qualified Stock Option Agreements dated as of January 23, 1995, between the Registrant and James M. Emanuel . . . . . . . . . . . . . . . . . . . . . . . 10.34- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and John P. Byrnes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 ****10.35- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and James T. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ****10.36- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and Howard R. Deutsch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ****10.37- Employment Agreement dated as of January 1, 1997 between Lincare Holdings Inc. and James M. Emanuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ****10.38- Non-Qualified Stock Option Agreements dated as of January 26, 1996, between the Registrant and John P. Byrnes . . . . . . . . . . . . . . . . . . . . . . . . ****10.39- Non-Qualified Stock Option Agreements dated as of July 15, 1996 between the Registrant and John P. Byrnes . . . . . . . . . . . . . . . . . . . . . . . . 10.40- Employment Agreement dated as of June 1, 1997 between Lincare Holdings Inc. and Paul G. Gabos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.41- Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.42- Credit Agreement dated November 25, 1997 between Registrant and NationsBank of Florida N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10.43- Form of Non-employee Director Stock Option Agreement . . . . . . . . . . . . . . 40 10.44- Form of Non-qualified Stock Option Agreement . . . . . . . . . . . . . . . . . . 41 +++++22.2- List of Subsidiaries of Lincare Holdings Inc. . . . . . . . . . . . . . . . . . . 23.1- Consent of KPMG Peat Marwick LLP . . . . . . . . . . . . . . . . . . . . . . . . 43 27.1- Financial Data Schedule 12/31/97 (for SEC Use Only) . . . . . . . . . . . . . . 27.2- Financial Data Schedule 12/31/96 (for SEC Use Only) . . . . . . . . . . . . . . 27.3- Financial Data Schedule 12/31/95 (for SEC Use Only) . . . . . . . . . . . . . .
- --------------- + Incorporated by reference to the corresponding exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-44672) 36 ++ Incorporated by reference to Exhibit A to the Registrant's Form 8-K dated October 14, 1992. +++ Incorporated by reference to the corresponding exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-55260). ++++ Incorporated by reference to the Registrant's Form 8-K dated April 28, 1993. +++++ Incorporated by reference to the Registrant's Form 10-K dated March 22, 1994. * Incorporated by reference to the Registrant's Form 10-K dated March 22, 1995. ** Incorporated by reference to the Registrant's Form 8-K dated May 24, 1995. *** Incorporated by reference to the Registrant's Form 10-K dated March 27, 1996. **** Incorporated by reference to the Registrant's Form 10-K dated March 25, 1997. EX-10.34 2 EMPLOYMENT AGREEMENT FOR JOHN P. BYRNES 1 Exhibit 10.34 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of January 1, 1997, by and between LINCARE HOLDINGS INC., a Delaware corporation (the "Company"), and JOHN P. BYRNES (the "Employee"). W I T N E S S E T H: WHEREAS, prior to the date hereof, the Employee has been an employee of the Company; and WHEREAS, the Company desires to induce the Employee to continue in the employ of the Company for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto do hereby covenant and agree as follows: 1. Employment. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. Term of Employment. Unless earlier terminated as hereinafter provided, the initial term of the Employee's employment under this Agreement shall be for a period beginning on the date hereof and ending on December 31, 2001 (such period from the date hereof until December 31, 2001 or, if the Employee's employment hereunder is earlier terminated, such shorter period, being hereinafter called the "Initial Employment Term"). In the event that the Employee continues in the full-time employ of the Company after the end of the Initial Employment Term (it being expressly understood and agreed that the Company does not now, nor hereafter shall, have any obligation to continue the Employee in its employ, whether or not 2 on a full-time basis), then, unless otherwise expressly agreed to by the Employee and the Company in writing, the Employee's continued employment with the Company shall, notwithstanding anything to the contrary expressed or implied herein, continue to be subject to the terms and conditions of this Agreement. As used in this Agreement, the term "Employment Term" shall mean the period beginning on the date hereof and ending on the date of the Employee's cessation of employment with the Company, whether such date is before, on or after the expiration of the Initial Employment Term. 3. Duties. The Employee shall be employed as the Chief Executive Officer of the Company, shall faithfully and competently perform such duties as are specified in the By-laws of the Company and shall also perform and discharge such other reasonable employment duties and responsibilities as the Board of Directors of the Company may from time to time prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe. Except as may otherwise be approved in advance by the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Employee shall devote his full time throughout the Employment Term to the services required of him hereunder. Except as may otherwise be approved in advance by the Company, the Employee shall render his services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. 4. Salary and Bonus. (a) Salary. As compensation for the complete and satisfactory performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) (said amount, together with any increases thereto during the Employment Term, being hereinafter referred to as the "Salary"). Any Salary payable hereunder shall be paid in regular intervals in accordance with the Company's payroll practices. The Salary payable to the Employee pursuant to this Section 4(a) shall be increased annually as of January 1, 1998 and each January 1 thereafter for the twelve (12) month period then commencing, by an amount equal to: (i) the annual percentage increase in the Consumer Price Index for All Urban Consumers, All Items, for the most recent twelve (12) month period for which such figures are then available as reported in the Monthly Labor -2- 3 Review published by the Bureau of Labor Statistics of the U.S. Department of Labor or (ii) such higher amount as may be determined from time to time by the Board of Directors of the Company in its sole discretion. (b) Bonus. During the Employment Term, in addition to Salary, the Company shall also pay bonus compensation to the Employee in respect of each calendar year (or applicable portion thereof) during the Employment Term, such bonus compensation ("Bonus") to be an amount equal to the Bonus Amount (as hereinafter defined) for such calendar year (or applicable portion thereof). For the purposes of this Agreement, the following terms shall have the meanings set forth below: "Bonus Amount" for any full calendar year shall mean an amount equal to: (a) the Employee's Salary for such calendar year; MULTIPLIED BY (b) the percentage set forth on the table below which corresponds to the increase in the Company's fully diluted earnings per share in respect of such calendar year over the fully diluted earnings per share of the Company during the immediately preceding calendar year.
FULLY DILUTED BONUS AS % OF EPS GROWTH BASE SALARY ---------- ----------- Less than 20% 0% 20% or more but less than 21% 40% 21% or more but less than 22% 46% 22% or more but less than 23% 52% 23% or more but less than 24% 58% 24% or more but less than 25% 64% 25% or more but less than 26% 70% 26% or more but less than 27% 76% 27% or more but less than 28% 82% 28% or more but less than 29% 88% 29% or more but less than 30% 94% 30% 100%*
* If the fully diluted EPS growth is greater than 30%, then the Employee shall receive an additional 6% of his Base Salary for each full percentage point of EPS growth achieved. In the event that the Employment Term ends at any time other than the conclusion of a full calendar year, the Employee's -3- 4 Bonus Amount in respect of such calendar year shall be prorated, and shall be an amount equal to: (a) the Employee's Salary for such calendar year; MULTIPLIED BY (b) the percentage set forth on the table above which corresponds to the increase in the Company's year-to-date fully diluted earnings per share (as determined by the then-most recently announced fully diluted earnings per share of the Company) over the fully diluted earnings per share of the Company during the comparable period in the immediately preceding calendar year; MULTIPLIED BY (c) a percentage equal to the number of full calendar months included in the Employment Term for the current calendar year divided by twelve. The Company's Board of Directors (or an authorized committee thereof) shall have the discretion to adjust upward or downward the Bonus Amount for any applicable period to account equitably for: (a) any extraordinary charges; (b) any unusual non-recurring items; or (c) changes after the date hereof in accounting principles required under generally accepted accounting principles; which events impacted the Company's fully diluted earnings per share in respect of any such applicable period or comparable prior year period. Nothing contained herein and no action taken in respect of any Bonus (or otherwise in respect of this Section 4(b)) shall create or be construed to create a trust of any kind. The Employee's right to receive any Bonus pursuant to this Section 4(b) shall be no greater than the right of an unsecured general creditor of the Company to receive payment from the Company. All Bonuses under this Section 4(b) shall be paid from the general funds of the Company, and no special or separate fund shall be established, and no segregation of assets shall be made, to assure payment of any Bonuses hereunder. (c) Withholding. The payment of any Salary and Bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. 5. Benefits. During the Employment Term, the Employee shall: (a) be eligible to participate in all employee fringe benefits and any pension and/or profit sharing plans that may be provided by the Company for its key executive employees in accordance with the provisions of any such -4- 5 plans, as same may be in effect on and after the date hereof; (b) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its key executive employees in accordance with the provisions of any such plans, as same may be in effect on and after the date hereof; (c) be entitled to annual paid vacation in accordance with the Company policy that may be applicable on and after the date hereof to key executive employees; (d) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable on and after the date hereof to key executive employees; and (e) be entitled to reimbursement for all reasonable and necessary out-of-pocket living and travel expenses incurred by the Employee while away from his usual place of business in the performance of his duties hereunder in accordance with the Company's policies applicable on and after the date hereof in respect thereto. 6. Inventions and Confidential Information. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its business and that as part of the Employee's employment by the Company the Employee is (or may be) expected to make new contributions and inventions of value to the Company. (b) The Employee's employment hereunder creates a relationship of confidence and trust between the Employee and the Company with respect to certain information pertaining to the business of the Company and its Affiliates (as hereinafter defined) or pertaining to the business of any client or customer of the Company or its Affiliates which may be made known to the Employee by the Company or any of its Affiliates or by any client or customer of the Company or any of its Affiliates or learned by the Employee during the period of his employment. -5- 6 (c) The Company possesses and will continue to possess information that has been created, discovered or developed by, or otherwise become known to it (including, without limitation, information created, discovered, developed or made known by the Employee during the period of or arising out of his employment hereunder) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. (d) Any and all inventions, products, discoveries, improvements, processes, manufacturing, marketing and service methods or techniques, formulae, designs, styles, specifications, data bases, computer programs (whether in source code or object code), know-how, strategies and data, whether or not patentable or registrable under copyright or similar statutes, made, developed or created by the Employee (whether at the request or suggestion of the Company, any of its Affiliates, or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of his employment by the Company (collectively, hereinafter referred to as "Inventions"), which may pertain to the business, products, or processes of the Company or any of its Affiliates, will be promptly and fully disclosed by the Employee to an appropriate executive officer of the Company (other than the Employee) and shall be the Company's exclusive property, and the Employee will promptly execute and/or deliver to an appropriate executive officer of the Company (other than the Employee) without any additional compensation therefor, all papers, drawings, models, data, documents and other material pertaining to or in any way relating to any Inventions made, developed or created by him as aforesaid. For the purposes of this Agreement, the term "Affiliate" or "Affiliates" of the Company shall mean any corporation or other entity which is controlled, directly or indirectly, by the Company. As used in the preceding sentence, the word "control" shall mean, with respect to any entity, the power to vote or direct the voting of more than 50% of the voting equity interests in such entity. (e) The Employee will keep confidential and will hold for the Company's sole benefit any Invention which is to be the exclusive property of the Company under this Section 6 -6- 7 for which no patent, copyright, trademark or other right or protection is issued. (f) The Employee also agrees that he will not without the prior written consent of an appropriate executive officer of the Company (other than the Employee) use for his benefit or disclose at any time during his employment by the Company, or thereafter, except to the extent required by the performance by him of his duties as an employee of the Company, any information obtained or developed by him while in the employ of the Company with respect to any Inventions or with respect to any customers, clients, suppliers, products, employees, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any of its Affiliates, or any confidential matter, except information which at the time is generally known to the public other than as a result of disclosure by him not permitted hereunder, or if such information is required to be disclosed under court order or other applicable law. (g) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company and its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. (h) The Employee agrees that upon termination of his employment hereunder for any reason, the Employee shall forthwith return to the Company all documents and other property in his possession belonging to the Company or any of its Affiliates. (i) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. -7- 8 7. Termination. (a) The Employment Term shall end and the Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) the death of the Employee; (ii) termination of the Employee's employment hereunder by the Company based upon the inability of the Employee to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, occurring within any period of twelve (12) consecutive months; provided, however, that such employment shall not be terminated by the Company if it can reasonably accommodate the Employee's disability or incapacity; (iii) the termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement); (iv) termination of the Employee's employment hereunder by the Company at any time for "cause", such termination to take effect immediately upon written notice from the Company to the Employee; (v) termination of the Employee's employment hereunder by the Company at any time other than for "cause", such termination to take effect immediately upon written notice from the Company to the Employee; or (vi) upon a Change of Control of the Company. The following actions, failures or events by or affecting the Employee shall constitute "cause" for termination within the meaning of clause (iv) above: (1) conviction of having committed a felony; (2) determination by at least two-thirds of the members of the Board of Directors that the Employee has committed acts of dishonesty or moral turpitude; (3) failure to follow reasonable and lawful directives of the Board of Directors of the Company; or (4) gross negligence or willful misconduct by the Employee in the performance of his obligations hereunder. The term "willful" shall mean any act or failure to act taken or omitted to be taken by the Employee not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. -8- 9 As used herein the term "Change of Control of the Company" shall mean any of the following: (i) sale or other disposition (or the last such sale or other disposition) resulting in the transfer of more than 50% of the outstanding common stock of the Company to an unrelated and unaffiliated third party purchaser; or (ii) the consolidation or merger of the Company with or into any other entity (other than a merger in which the Company is the surviving corporation and which does not result in more than 50% of the capital stock of the Company outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of its capital stock immediately prior to such merger); or (iii) a sale of substantially all of the properties and assets of the Company as an entirety to an unrelated and unaffiliated third party purchaser; or (iv) the time at which any person (including a person's affiliates and associates) or group (as that term is understood under Section 13(d) of the Exchange Act and the rules and regulations thereunder), files a Schedule 13-D or 14D-1 (or any successor schedule, form or report under the Exchange Act) disclosing that such person or group has become the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of shares of capital stock of the Company giving such person or group a majority of the voting power of all outstanding capital stock of the Company with the right to vote generally in an election for directors or other capital stock of the Company into which the common stock or other voting stock is reclassified or changed. (b) (i) If the Initial Employment Term ends by reason of Employee being terminated by the Company other than for "cause", then the Company shall pay to the Employee, as severance pay or liquidated damages or both, an amount equal to his then-current annual Salary in effect immediately prior to such termination. (ii) If the Initial Employment Term ends by reason of the occurrence of an event described in Section 7(a)(vi) hereof, then the Company shall pay to the Employee, as severance pay or liquidated damages or both, an amount equal to his then-current annual Salary in effect immediately prior to the -9- 10 occurrence of such event plus an amount equal to his bonus compensation in respect of the immediately preceding calendar year. (iii) If, after the expiration of the Initial Employment Term, the Employment Term ends by reason of the Employee being terminated by the Company other than for "cause", the occurrence of an event described in Section 7(a)(vi) hereof, or the Employee voluntarily terminating his employment with the Company for any reason whatsoever (including, without limitation, resignation or retirement), then the Company shall pay to the Employee, as severance pay or liquidated damages or both, an amount equal to his then-current annual Salary in effect immediately prior to such termination plus an amount equal to his bonus compensation in respect of the immediately preceding calendar year. (iv) If the Employee's employment is terminated by the Company other than for "cause", or if the Employee voluntarily terminates his employment with the Company, then any such payable amounts shall be paid in twelve (12) equal monthly installments commencing on the first day of the calendar month immediately following the termination of the Employment Term. In the event the Employment Term ends by reason of the occurrence of an event described in Section 7(a)(vi) hereof, then such amounts shall be payable no later than ten (10) business days after the end of the Employment Term. It is understood and agreed that this Section 7(b) shall survive the expiration or termination of this Agreement and the provisions hereof shall be binding upon any successor in interest of the Company. It is expressly acknowledged and agreed that the provisions of this Section 7(b) shall supersede any and all payment obligations of Lincare Inc., a wholly-owned subsidiary of the Company, to the Employee under the provisions of Section 3 of that certain Agreement by and between the Employee and Lincare Inc., dated December 28, 1990. (c) Notwithstanding anything to the contrary expressed or implied herein, and except as set forth in Section 7(b) hereof, the Company (and its Affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment other than: (A) such amounts, if any, of his Salary and bonus compensation as shall have accrued and remained unpaid as of the date of said cessation (including, but not limited to, the amount of any bonus compensation payable in respect of the then-current calendar year); and (B) such other amounts which may be -10- 11 otherwise payable to the Employee from the Company's retirement plans or other benefit plans on account of such cessation of employment (including, but not limited to, payment for any vested but unused vacation); and (C) Company shall cover the Employee under its medical and dental plan, and life insurance through the end of the last calendar day of the month during which the Employment Term ends, thereafter, the Employee shall be given COBRA conversion rights for the Company's medical and dental plan. Nothing in this Section 7(c) shall limit the Employee's right to contest any termination of the Employee's employment hereunder by appropriate legal proceedings. It is understood and agreed that this Section 7(c) shall survive the expiration or termination of this Agreement and the provisions hereof shall be binding upon any successor in interest of the Company. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder paid in accordance with the terms of this Agreement. 8. Non-Assignability. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death. Neither this Agreement nor any right or interest hereunder shall be assignable by the Company, nor shall any obligations of the Company hereunder be delegated. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Competition. During the Employee's employment by the Company and during the twelve (12) month period commencing on the date of cessation of the Employee's employment for any reason whatsoever: (a) The Employee will not make any statement or perform any act intended to advance an interest of any existing or prospective competitor of the Company or any of its Affiliates in any way that will or may injure an interest of the Company or any of its Affiliates in its relationship and dealings with existing or potential -11- 12 customers or clients, or solicit or encourage any other employee of the Company or any of its Affiliates to do any act that is disloyal to the Company or any of its Affiliates or inconsistent with the interest of the Company or any of its Affiliate's interests or in violation of any provision of this Agreement; (b) The Employee will not discuss with any existing or potential customers or clients of the Company or any of its Affiliates the present or future availability of services or products by a business, if the Employee has or expects to acquire a proprietary interest in such business or is or expects to be an employee, officer or director of such business, where such services or products are competitive with services or products which the Company or any of its Affiliates provides during the Employment Term; (c) The Employee will not make any statement or do any act intended to cause any existing or potential customers (with whom the Company has made contact) or clients of the Company or any of its Affiliates to make use of the services or purchase the products of any competitive business in which the Employee has or expects to acquire a proprietary interest or in which the Employee is or expects to be made an employee, officer or director, if such services or products in any way relate to or arise out of the services or products sold or provided by the Company or any of its Affiliates to any such existing customer or client during the Employment Term; (d) The Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with (i) any business or organization which engages in competition with the Company or any of its Affiliates in any geographical area where any business is presently carried on by the Company or any of its Affiliates, or (ii) any business or organization which engages in competition with the Company or any of its Affiliates in any geographical area where any business shall be hereafter, during the period of the Employee's employment by the Company, carried on by the Company or any of its Affiliates, if such business is then being carried on by the Company or any of its Affiliates in such geographical area; provided, however, that the provisions of this Section 9(d) shall not be deemed to prohibit the Employee's ownership of not more than 1% of the -12- 13 total shares of all classes of stock outstanding of any publicly held company; (e) The Employee will not directly or indirectly solicit for employment, or advise or recommend to any other person that they employ or solicit for employment, any employee of the Company or any of its Affiliates; and (f) The Employee will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other person or firm which rendered manufacturing or other services, or sold any products, to the Company or any of its Affiliates if such action by him would have a material adverse effect on the business, assets or financial condition of the Company or any of its Affiliates. For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its Affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its Affiliates, if such person or entity in any way conducts, operates, carries out or engages (i) in the business of delivering medical oxygen, respiratory therapy services, or durable medical equipment to customers in their homes or (ii) in any other business engaged in by the Company or any of its Affiliates on or prior to the date upon which such Employee ceases to be employed hereunder. In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the business of the Company (and of its Affiliates). It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. -13- 14 For purposes of this Section 9, proprietary interest in a business is ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of such business. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. Binding Effect. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. 11. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 12. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 13. Severability. If any provision of this Agreement shall be determined to be invalid, illegal or unenforceable in whole or in part, neither the validity of the remaining part of such provision nor the validity of any other provision of this Agreement shall in any way be affected thereby. 14. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at -14- 15 any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15 Entire Agreement; Modifications. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. It is acknowledged and agreed that this Agreement shall supersede the Employment Agreement between the Employee and Lincare Inc., dated November 30, 1990, which agreement shall be of no further force or effect from the date of this Agreement. 16 Survival. The provisions of Sections 6, 7 and 9 hereof shall survive and continue after the expiration or termination of this Agreement. 17 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. LINCARE HOLDINGS INC. By:__________________________ Title:_______________________ _____________________________ JOHN P. BYRNES -15- EX-10.40 3 EMPLOYMENT AGREEMENT FOR PAUL GABOS 1 Exhibit 10.40 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of June 1, 1997, by and between LINCARE HOLDINGS INC., a Delaware corporation (the "Company"), and PAUL G. GABOS ("Employee"). W I T N E S S E T H: WHEREAS, prior to the date hereof, the Employee has been an employee of the Company; and WHEREAS, the Company desires to induce the Employee to continue in the employ of the Company for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below. NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto do hereby covenant and agree as follows: 1. Employment. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. Term of Employment. Unless earlier terminated as hereinafter provided, the initial term of the Employee's employment under this Agreement shall be for a period beginning on the date hereof and ending on December 31, 2001 (such period from the date hereof until December 31, 2001 or, if the Employee's employment hereunder is earlier terminated, such shorter period, being hereinafter called the "Initial Employment Term"). In the event that the Employee continues in the full-time employ of the Company after the end of the Initial Employment Term (it being expressly understood and agreed that 2 the Company does not now, nor hereafter shall, have any obligation to continue the Employee in its employ, whether or not on a full-time basis), then, unless otherwise expressly agreed to by the Employee and the Company in writing, the Employee's continued employment with the Company shall, notwithstanding anything to the contrary expressed or implied herein, continue to be subject to the terms and conditions of this Agreement. As used in this Agreement, the term "Employment Term" shall mean the period beginning on the date hereof and ending on the date of the Employee's cessation of employment with the Company, whether such date is before, on or after the expiration of the Initial Employment Term. 3. Duties. The Employee shall be employed as the Chief Financial Officer of the Company, shall faithfully and competently perform such duties as are specified by the By-laws of the Company and shall also perform and discharge such other reasonable employment duties and responsibilities as the Board of Directors of the Company may from time to time prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe. Except as may otherwise be approved in advance by the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Employee shall devote his full time throughout the Employment Term to the services required of him hereunder. Except as may otherwise be approved in advance by the Company, the Employee shall render his services exclusively to the Company during the Employment Term and shall use his best effort, judgment and energy to improve and advance the business and interest of the Company in a manner consistent with the duties of his position. 4. Salary and Bonus. (a) Salary. As compensation for the complete and satisfactory performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of ONE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($175,000) (said amount, together with any increases thereto during the Employment Term, being hereinafter referred to as the "Salary"). Any Salary payable hereunder shall be paid in regular intervals in accordance with the Company's payroll practices. The Salary payable to the Employee pursuant to this Section 4(a) shall be increased annually as of January 1, 1998 and each January 1 thereafter for the twelve (12) month period then commencing, by an amount equal to: (i) the annual percentage increase in the Consumer Price Index for All Urban Consumers, All 2 3 Items, for the most recent twelve (12) month period for which such figures are then available as reported in the Monthly Labor Review published by the Bureau of Labor Statistics of the U.S. Department of Labor or (ii) such higher amount as may be determined from time to time by the Board of Directors of the Company in its sole discretion. (b) Bonus. During the Employment Term, in addition to Salary, the Company shall also pay bonus compensation to the Employee in respect of each calendar year (or applicable portion thereof) during the Employment Term, such bonus compensation ("Bonus") to be an amount equal to the Bonus Amount (as hereinafter defined) for such calendar year (or applicable portion thereof). For the purposes of this Agreement, the following terms shall have the meanings set forth below: "Bonus Amount" for any full calendar year shall mean an amount equal to: (a) the Employee's Salary for such calendar year; MULTIPLIED BY (b) the percentage set forth on the table below which corresponds to the increase in the Company's fully diluted earnings per share in respect of such calendar year over the fully diluted earnings per share of the Company during the immediately preceding calendar year.
FULLY DILUTED BONUS AS % OF EPS GROWTH BASE SALARY ---------- ----------- Less than 20% 0% 20% or more but less than 21% 40% 21% or more but less than 22% 46% 22% or more but less than 23% 52% 23% or more but less than 24% 58% 24% or more but less than 25% 64% 25% or more but less than 26% 70% 26% or more but less than 27% 76% 27% or more but less than 28% 82% 28% or more but less than 29% 88% 29% or more but less than 30% 94% 30% 100%*
*If the fully diluted EPS growth is greater than 30%, then the Employee shall receive an additional 6% of his Base Salary for each full percentage point of EPS growth achieved. 3 4 In the event that the Employment Term ends at any time other than the conclusion of a full calendar year, the Employee's Bonus Amount in respect of such calendar year shall be prorated, and shall be an amount equal to: (a) the Employee's Salary for such calendar year; MULTIPLIED BY (b) the percentage set forth on the table above which corresponds to the increase in the Company's year-to-date fully diluted earnings per share (as determined by the then-most recently announced fully diluted earnings per share of the Company) over the fully diluted earnings per share of the Company during the comparable period in the immediately preceding calendar year; MULTIPLIED BY (c) a percentage equal to the number of full calendar months included in the Employment Term for the current calendar year divided by twelve. The Company's Board of Directors (or an authorized committee thereof) shall have the discretion to adjust upward or downward the Bonus Amount for any applicable period to account equitably for: (a) any extraordinary charges; (b) any unusual non-recurring items; or (c) changes after the date hereof in accounting principles required under generally accepted accounting principles; which events impacted the Company's fully diluted earnings per share in respect of any such applicable period or comparable prior year period. Nothing contained herein and no action taken in respect of any Bonus (or otherwise in respect of this Section 4(b)) shall create or be construed to create a trust of any kind. The Employee's right to receive any Bonus pursuant to this Section 4(b) shall be no greater than the right of an unsecured general creditor of the Company to receive payment from the Company. All Bonuses under this Section 4(b) shall be paid from the general funds of the Company, and no special or separate fund shall be established, and no segregation of assets shall be made, to assure payment of any Bonuses hereunder. (c) Withholding. The payment of any Salary and Bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. 5. Benefits. During the Employment Term, the Employee shall: (a) be eligible to participate in all employee fringe benefits and any pension and/or profit sharing plans that 4 5 may be provided by the Company for its key executive employees in accordance with the provisions of any such plans, as same may be in effect on and after the date hereof; (b) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its key executive employees in accordance with the provisions of any such plans, as same may be in effect on and after the date hereof; (c) be entitled to annual paid vacation in accordance with the Company policy that may be applicable on and after the date hereof to key executive employees; (d) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable on and after the date hereof to key executive employees; and (e) be entitled to reimbursement for all reasonable and necessary out-of-pocket living and travel expenses incurred by the Employee while away from his usual place of business in the performance of his duties hereunder in accordance with the Company's policies applicable on and after the date hereof in respect thereto. 6. Inventions and Confidential Information. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its business and that as part of the Employee's employment by the Company the Employee is (or may be) expected to make new contributions and inventions of value to the Company. (b) The Employee's employment hereunder creates a relationship of confidence and trust between the Employee and the Company with respect to certain information pertaining to the business of the Company and its Affiliates (as hereinafter defined) or pertaining to the business of any client or customer of the Company or its Affiliates which may be made known to the Employee by the Company or any of its Affiliates or by any client or customer of the 5 6 Company or any of its Affiliates or learned by the Employee during the period of his employment. (c) The Company possesses and will continue to possess information that has been created, discovered or developed by, or otherwise become known to it (including, without limitation, information created, discovered, developed or made known by the Employee during the period of or arising out of his employment hereunder) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. (d) Any and all inventions, products, discoveries, improvements, processes, manufacturing, marketing and service methods or techniques, formulae, designs, styles, specifications, data bases, computer programs (whether in source code or object code), know-how, strategies and data, whether or not patentable or registrable under copyright or similar statutes, made, developed or created by the Employee (whether at the request or suggestion of the Company, any of its Affiliates, or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of his employment by the Company (collectively, hereinafter referred to as "Inventions"), which may pertain to the business, products, or processes of the Company or any of its Affiliates, will be promptly and fully disclosed by the Employee to an appropriate executive officer of the Company (other than the Employee) and shall be the Company's exclusive property, and the Employee will promptly execute and/or deliver to an appropriate executive officer of the Company (other than the Employee) without any additional compensation therefor, all papers, drawings, models, data, documents and other material pertaining to or in any way relating to any Inventions made, developed or created by him as aforesaid. For the purposes of this Agreement, the term "Affiliate" or "Affiliates" of the Company shall mean any corporation or other entity which is controlled, directly or indirectly, by the Company. As used in the preceding sentence, the word "control" shall mean, with respect to any entity, the power to vote or direct the voting of more than 50% of the voting equity interests in such entity. 6 7 (e) The Employee will keep confidential and will hold for the Company's sole benefit any Invention which is to be the exclusive property of the Company under this Section 6 for which no patent, copyright, trademark or other right or protection is issued. (f) The Employee also agrees that he will not without the prior written consent of an appropriate executive officer of the Company (other than the Employee) use for his benefit or disclose at any time during his employment by the Company, or thereafter, except to the extent required by the performance by him of his duties as an employee of the Company, any information obtained or developed by him while in the employ of the Company with respect to any Inventions or with respect to any customers, clients, suppliers, products, employees, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any of its Affiliates, or any confidential matter, except information which at the time is generally known to the public other than as a result of disclosure by him not permitted hereunder, or if such information is required to be disclosed under court order or other applicable law. (g) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company and its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. (h) The Employee agrees that upon termination of his employment hereunder for any reason, the Employee shall forthwith return to the Company all documents and other property in his possession belonging to the Company or any of its Affiliates. (i) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7 8 7. Termination. (a) The Employment Term shall end and the Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) the death of the Employee; (ii) termination of the Employee's employment hereunder by the Company based upon the inability of the Employee to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, occurring within any period of twelve (12) consecutive months; provided, however, that such employment shall not be terminated by the Company if it can reasonably accommodate the Employee's disability or incapacity; (iii) the termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement); (iv) termination of the Employee's employment hereunder by the Company at any time for "cause", such termination to take effect immediately upon written notice from the Company to the Employee; (v) termination of the Employee's employment hereunder by the Company at any time other than for "cause", such termination to take effect immediately upon written notice from the Company to the Employee; or (vi) upon a Change of Control of the Company. The following actions, failures or events by or affecting the Employee shall constitute "cause" for termination within the meaning of clause (iv) above: (1) conviction of having committed a felony; (2) determination by at least two-thirds of the members of the Board of Directors that the Employee has committed acts of dishonesty or moral turpitude; (3) failure to follow reasonable and lawful directives of the Board of Directors of the Company; or (4) gross negligence or willful misconduct by the Employee in the performance of his obligations hereunder. The term "willful" shall mean any act or failure to act taken or omitted to be taken by the Employee not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. 8 9 As used herein the term "Change of Control of the Company" shall mean any of the following: (i) sale or other disposition (or the last such sale or other disposition) resulting in the transfer of more than 50% of the outstanding common stock of the Company to an unrelated and unaffiliated third party purchaser; or (ii) the consolidation or merger of the Company with or into any other entity (other than a merger in which the Company is the surviving corporation and which does not result in more than 50% of the capital stock of the Company outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of its capital stock immediately prior to such merger); or (iii) a sale of substantially all of the properties and assets of the Company as an entirety to an unrelated and unaffiliated third party purchaser; or (iv) the time at which any person (including a person's affiliates and associates) or group (as that term is understood under Section 13(d) of the Exchange Act and the rules and regulations thereunder), files a Schedule 13-D or 14D-1 (or any successor schedule, form or report under the Exchange Act) disclosing that such person or group has become the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of shares of capital stock of the Company giving such person or group a majority of the voting power of all outstanding capital stock of the Company with the right to vote generally in an election for directors or other capital stock of the Company into which the common stock or other voting stock is reclassified or changed. (b) (i) If the Employment Term ends by reason of Employee being terminated by the Company other than for "cause", then the Company shall pay to the Employee, as severance pay or liquidated damages or both, an amount equal to his then-current annual Salary in effect immediately prior to such termination. (ii) If the Employment Term ends by reason of the occurrence of an event described in Section 7(a)(vi), the Company shall pay to the Employee, as severance pay or liquidated damages or both, an amount equal to his then-current annual Salary in 9 10 effect immediately prior to the occurrence of such event plus an amount equal to his bonus compensation in respect of the immediately preceding calendar year. (iii) If the Employment Term ends by reason of the Employee being terminated by the Company other than for "cause", then any such payable amounts shall be paid in twelve (12) equal monthly installments commencing on the first day of the calendar month immediately following the termination of the Employment Term. If the Employment Term ends by reason of the occurrence of an event described in Section 7(a)(vi) hereof, then such amounts shall be payable no later than ten (10) business days after the end of the Employment Term. It is understood and agreed that this Section 7(b) shall survive the expiration or termination of this Agreement and the provisions hereof shall be binding upon any successor in interest of the Company. (c) Notwithstanding anything to the contrary expressed or implied herein, and except as set forth in Section 7(b) hereof, the Company (and its Affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment other than: (A) such amounts, if any, of his Salary and bonus compensation as shall have accrued and remained unpaid as of the date of said cessation (including, but not limited to, the amount of any bonus compensation payable in respect of the then-current calendar year); and (B) such other amounts which may be otherwise payable to the Employee from the Company's retirement plans or other benefit plans on account of such cessation of employment (including, but not limited to, payment for any vested but unused vacation); and (C) Company shall cover the Employee under its medical and dental plan, and life insurance through the end of the last calendar day of the month during which the Employment Term ends, thereafter, the Employee shall be given COBRA conversion rights for the Company's medical and dental plan. Nothing in this Section 7(c) shall limit the Employee's right to contest any termination of the Employee's employment hereunder by appropriate legal proceedings. It is understood and agreed that this Section 7(c) shall survive the expiration or termination of this Agreement and the provisions hereof shall be binding upon any successor in interest of the Company. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder paid in accordance with the terms of this Agreement. 10 11 8. Non-Assignability. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death. Neither this Agreement nor any right or interest hereunder shall be assignable by the Company, nor shall any obligations of the Company hereunder be delegated. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Competition. During the Employee's employment by the Company and during the twelve (12) month period commencing on the date of cessation of the Employee's employment for any reason whatsoever: (a) The Employee will not make any statement or perform any act intended to advance an interest of any existing or prospective competitor of the Company or any of its Affiliates in any way that will or may injure an interest of the Company or any of its Affiliates in its relationship and dealing with existing or potential customers or clients, or solicit or encourage any other employee of the Company or any of its Affiliates to do any act that is disloyal to the Company or any of its Affiliates or inconsistent with the interest of the Company or any of its Affiliate's interests or in violation of any provision of this Agreement; (b) The Employee will not discuss with any existing or potential customers or clients of the Company or any of its Affiliates the present or future availability of services or products by a business, if the Employee has or expects to acquire a proprietary interest in such business or is or expects to be an employee, officer or director of such business, where such services or products are competitive with services or products which the Company or any of its Affiliates provides during the Employment Term; 11 12 (c) The Employee will not make any statement or do any act intended to cause any existing or potential customers (with whom the Company has made contact) or clients of the Company or any of its Affiliates to make use of the services or purchase the products of any competitive business in which the Employee has or expects to acquire a proprietary interest or in which the Employee is or expects to be made an employee, officer or director, if such services or products in any way relate to or arise out of the services or products sold or provided by the Company or any of its Affiliates to any such existing customer or client during the Employment Term; (d) The Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with (i) any business or organization which engages in competition with the Company or any of its Affiliates in any geographical area where any business is presently carried on by the Company or any of its Affiliates, or (ii) any business or organization which engages in competition with the Company or any of its Affiliates in any geographical area where any business shall be hereafter, during the period of the Employee's employment by the Company, carried on by the Company or any of its Affiliates, if such business is then being carried on by the Company or any of its Affiliates in such geographical area; provided, however, that the provisions of this Section 9(d) shall not be deemed to prohibit the Employee's ownership of not more than 1% of the total shares of all classes of stock outstanding of any publicly held company; (e) The Employee will not directly or indirectly solicit for employment, or advise or recommend to any other person that they employ or solicit for employment, any employee of the Company or any of its Affiliates; and (f) The Employee will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other person or firm which rendered manufacturing or other services, or sold any products, to the Company or any of its Affiliates if such action by him would have a material adverse effect on the business, assets 12 13 or financial condition of the Company or any of its Affiliates. For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its Affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its Affiliates, if such person or entity in any way conducts, operates, carries out or engages (i) in the business of delivering medical oxygen, respiratory therapy services, or durable medical equipment to customers in their homes or (ii) in any other business engaged in by the Company or any of its Affiliates on or prior to the date upon which such Employee ceases to be employed hereunder. In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the business of the Company (and of its Affiliates). It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. For purposes of this Section 9, proprietary interest in a business is ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of such business. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. Binding Effect. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the 13 14 benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. 11. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 12. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 13. Severability. If any provision of this Agreement shall be determined to be invalid, illegal or unenforceable in whole or in part, neither the validity of the remaining part of such provision nor the validity of any other provision of this Agreement shall in any way be affected thereby. 14. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. Entire Agreement; Modifications. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto 16. Survival. The provisions of Sections 6, 7 and 9 hereof shall survive and continue after the expiration or termination of this Agreement. 14 15 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. LINCARE HOLDINGS INC. By:_____________________________________ Title:__________________________________ ________________________________________ PAUL G. GABOS 15 EX-10.41 4 LINCARE HOLDINGS EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10.41 LINCARE HOLDINGS INC. EMPLOYEE STOCK PURCHASE PLAN 1. Purpose of the Plan. The purpose of the Lincare Holdings Inc. Employee Stock Purchase Plan (the "Plan"), is to provide employees of Lincare Holdings Inc. (the "Company") and its subsidiaries with an opportunity to acquire a proprietary interest in the Company through the purchase of shares of common stock (par value $0.01 per share) of the Company (the "shares"). 2. Employees Eligible to Participate. Any person, including officers (as such term is defined in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")) and directors, who is in the employment of the Company or any of its subsidiaries during an Offering Period (as defined and described below) is eligible to participate in the Plan; provided, however, that the Committee shall have the authority, in its sole discretion (but in all events consistent with the provisions of Section 423 of the Internal Revenue Code of 1986, as amended) to establish from time to time the eligibility requirements with respect to such employees' participation in the Plan. Notwithstanding any provisions of the Plan to the contrary, no employee shall be granted an option to participate in the Plan: (a) if, immediately after the grant, such employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company; or (b) which permits his or her rights to purchase stock under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 in fair market value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding; or (c) which is exercisable more than 5 years after the date such option is granted. 3. Offering Periods. Subject to change or modification at any time and from time to time by the Employee Stock Purchase Plan Committee (the "Committee"), there will be four (4) offering periods--December 1 through February 28 (or February 29, as the case may be), March 1 through May 31, June 1 through August 31 and September 1 through November 30--for each twelve (12) month period during the term of the Plan (an "Offering Period"). The last day of each Offering Period shall be referred to herein as an "Offering Date." Except for the limitation contained in Section 5(a) of the Plan and limitations which the Committee may impose from time to time in its discretion on the number of shares for which each eligible employee may subscribe, there shall be no limit on the aggregate number of shares for which subscriptions may be made during any particular Offering Period. The right of an eligible employee to subscribe for shares 2 under the Plan during an offering period shall accrue on the Offering Date preceding the first day of each such Offering Period. 4. Price and Methods of Purchase. All matters regarding the purchase price of the shares and method of purchase of the shares under this Plan shall be conducted so as to at all times comply with the provisions of the Rules promulgated under the Exchange Act. Unless otherwise necessary in order to comply with the foregoing, the purchase price per share on any Offering Date shall be the lesser of (i) 85% of the fair market value of the Company's common stock as of the immediately preceding Offering Date, or (ii) 85% of the fair market value of the Company's common stock as of the current Offering Date. For purposes of paragraph 4, "fair market value" shall mean the closing price on the last trading day before the Offering Date of the Company's common stock as reported on the Composite Tape, or if not reported thereon, then such price as reported in the trading reports of the principal securities exchange in the United States on which such stock is listed, or if such stock is not listed on a securities exchange in the United States, then the closing price as reported in the trading reports of the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or NASDAQ's successor, or if not reported on NASDAQ, the fair market value of such stock as determined in good faith and based on all relevant factors. 5. Number of Shares Available for Purchase. (a) The Committee shall have the authority, in its sole discretion, to establish from time to time a minimum and/or maximum number of shares which eligible employees are allowed to purchase under the Plan during any given Offering Period; provided, however, that in no event shall an aggregate number of shares greater than 300,000 be issued under the Plan, and provided further that no employee shall be permitted to purchase shares with an aggregate value in excess of 10% of such employee's base salary in any calendar year. (b) Subscriptions shall be allowed for full shares only. Any rights to subscribe for fractional shares shall be void, and any computation relating to fractional shares shall be rounded down to the next lowest whole number of shares. 6. Participation and Payment. (a) An eligible employee may become a participant in any Offering Period by completing and delivering a Payroll Deduction Authorization at least 20 days prior to the end of the payroll period for which the employee desires such election to be effective; provided, however, that an employee who previously has participated in the Plan and has terminated such participation shall be ineligible to participate again until a period of six months has elapsed from the date of such termination of participation. The Payroll 2 3 Deduction Authorization Form shall state the percentage of the employee's base compensation that he or she desires to have withheld. Notwithstanding the foregoing, any amounts of salary or wages deferred by the Employee for the purpose of purchasing stock under the Plan shall be subject to all income tax, social security and other withholdings under state and federal law. (b) The designated percentage of compensation shall be withheld by the Company for such pay period and for each succeeding pay period until the employee submits a Payroll Deduction Authorization Form changing such election. Changes to the percentage of compensation to be withheld may be made at any time, but not more frequently than 4 times per year; provided, however, that regardless of the number of changes previously made, an employee may discontinue participation in the Plan at any time, as provided in Section 7. (c) The Company will accumulate and hold the amounts deducted from the participant's compensation for each participant's account. On each Offering Date, the Company will use the funds accumulated to purchase shares for the benefit of the participants. Such shares shall be held by an agent designated by the Company. No interest will be paid on any funds of the participant under any circumstances. Once funds have been withheld from the participant's compensation, the participant shall have no right to obtain the release of such funds, except upon termination of participation in the Plan. (d) Shares purchased shall be allocated to the individual accounts established by the Company's agent for participants in proportion to the respective amounts withheld for participants' accounts. Allocations shall be made in whole shares. Any funds which would result in the purchase of fractional shares shall be carried over to the next purchase date. 7. Termination of Participation in Plan. (a) A participant may terminate his or her participation in the Plan at any time by delivering to the Company written notice terminating his or her payroll deduction authorization, which will become effective as soon as practicable after receipt. (b) Participation in the Plan and payroll deduction authorizations terminate automatically without notice upon death or other termination of employment with the Company. Any funds submitted in payment for shares prior to termination of participation in the Plan shall be promptly returned to the participant. 8. Delivery of Certificates Representing Shares. Periodically throughout the operation of the Plan (but in no event less than quarterly), the Company shall cause the agent designated by it to prepare and deliver to each participating employee a statement 3 4 with respect to the employee's account activity in the Plan. All shares purchased under the Plan shall be held in street name by the Company or its designee for the benefit of the employees. Alternatively, the Committee may, in its sole discretion, from time to time direct that certificates representing the purchased shares be issued in the purchasing employee's name and delivered to the employee. In the event the Plan is terminated for any reason, the Company shall cause certificates to be issued in the name(s) of the employees holding shares in the Plan with respect to such shares held. In the event of termination for any reason of the employment of an employee participant of the Plan, the Company shall cause to be issued to such employee, one or more certificates representing the Company shares owned by such terminated employee held in street name on behalf of such terminated employee, if any. Notwithstanding any other provision of this Plan, shares purchased hereunder must be held by participating employees for a minimum of one year from the date of purchase. The Company or its designee may require appropriate legends or stop orders to enforce such restriction. 9. Employees' Rights as Stockholders. No participating employee shall have any right as a stockholder until he or she becomes a record or beneficial owner of the shares purchased under the Plan. No adjustment shall be made for dividends or other rights for which the record date is prior to such date. 10. Termination of Employment. An employee whose employment is terminated for any reason shall have no right to purchase shares or otherwise participate in the Plan after the date of termination. No shares may be issued to any person who is not an employee on the date the shares are issued. Any funds submitted in payment for shares that may not be issued as a result of non-employee status shall be promptly returned to the subscriber. 11. Rights Not Transferable. The right of an employee to participate in the Plan shall not be transferable by an employee nor be exercisable after death, by his or her personal representative or anyone else, or during his or her lifetime by any person other than the employee. 12. Dividend, Recapitalization, Etc. If shares are distributed by the Company as a stock dividend or pursuant to a stock split, combination, or exchange of shares of the Company's common stock, or other increase or decrease in the number of the outstanding shares without receipt by the Company of consideration: (a) the aggregate number of shares which shall thereafter be available under the Plan shall be equitably and appropriately adjusted; and (b) the number and kind of shares then subject to subscription by employees under the Plan shall be equitably and appropriately adjusted. 4 5 13. Administration. (a) The Board of Directors of the Company shall appoint an Employee Stock Purchase Plan Committee composed of at least two persons who shall be employees of the Company, but who are not required to be Directors of the Company. The Committee shall have the sole and exclusive authority to administer the Plan. The Committee may prescribe rules and regulations from time to time for the administration of the Plan, may make exceptions to such rules and regulations and to the provisions set forth in the Plan, and may decide questions which may arise with respect to its interpretation or application. (b) All shares purchased under the Plan shall be purchased in accordance with applicable state and federal securities laws such that the shares, when purchased, will be freely tradable by the respective Employees purchasing such shares, subject to the restriction imposed by Section 8 of the Plan. The Committee may establish procedures and restrictions in its discretion to ensure compliance with applicable securities laws. 14. Term of Plan. Unless sooner terminated as provided in paragraph 15, the Plan shall commence on satisfaction of the condition of paragraph 17 and shall terminate on December 31, 2007. Notwithstanding anything in the Plan to the contrary, if (i) the Company is merged or consolidated with another corporation, and the Company is not a surviving corporation or (ii) the Company is liquidated or dissolved, then the Plan shall immediately terminate and all rights to purchase stock hereunder to the extent not then exercised shall cease and become void. 15. Amendment or Termination. The Board of Directors of the Company shall have the right to amend, modify, or terminate the Plan at any time without notice. Upon termination, all rights to purchase stock hereunder to the extent not then exercised shall cease and become void. 16. Notices. (a) All notices or other communications by an employee to the Company under or in connection with the Plan shall be deemed to have been duly given when actually received by the Secretary of the Company or when actually received in the form specified by the Company at the locations, or by the person, designated by the Company for the receipt thereof. (b) All notices or other communications by the Company to an employee under or in connection with the Plan shall be deemed to have been duly 5 6 given by the Company to the employee if hand delivered to the employee or delivered to the employee's location of employment, or if sent by U.S. mail to the residence or business address of the employee as reflected on the books of the Company or to such other address as the employee may designate from time to time by notice given in accordance with the provisions in paragraph 16(a). 17. Condition Precedent to Effectiveness. The Plan shall become effective upon the adoption of the Plan by the Board of Directors of the Company. Further, the Company shall submit the Plan for stockholder approval at the next annual meeting of stockholders after its adoption. 6 EX-10.42 5 CREDIT AGREEMENT 1 ================================================================================ Exhibit 10.42 CREDIT AGREEMENT by and among LINCARE HOLDINGS INC. as Borrower, NATIONSBANK, NATIONAL ASSOCIATION, as Agent and as Lender and THE LENDERS PARTY HERETO FROM TIME TO TIME November 25, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ARTICLE I Definitions and Terms 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE II The Credit Facilities 2.1. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.2. Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.3. Payment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.4. Non-Conforming Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.6. Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.7. Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.8. Conversions and Elections of Subsequent Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . 31 2.9. Increase and Decrease in Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.10. Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.11. Deficiency Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.12. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.13. Line of Credit Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.14. Swing Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE III Letters of Credit 3.1. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.2. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.3. Letter of Credit Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE IV Security 4.1. Facility Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.2. Stock Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3 4.3. Pledge of Partnership Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.4. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE V Change in Circumstances 5.1. Increased Cost and Reduced Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.2. Limitation on Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.3. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.4. Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.7. Replacement Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VI Conditions to Making Loans and Issuing Letters of Credit 6.1. Conditions of Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.2. Conditions of Revolving Loans, Line of Credit Loans and Letter of Credit . . . . . . . . . . . . . . . . 49 ARTICLE VII Representations and Warranties 7.1. Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.2. Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.3. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.4. Subsidiaries and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.5. Ownership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.6. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.7. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.9. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.11. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.12. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.13. Patents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.14. No Untrue Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.15. No Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.17. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.18. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.19. Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ii 4 7.20. RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.21. Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE VIII Affirmative Covenants 8.1. Financial Reports, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.2. Maintain Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.3. Existence, Qualification, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.4. Regulations and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.6. True Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.7. Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.8. Observe all Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.9. Governmental Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.10. Covenants Extending to Other Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.11. Officer's Knowledge of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.12. Suits or Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.13. Notice of Discharge of Hazardous Material or Environmental Complaint . . . . . . . . . . . . . . . . . . 61 8.14. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.15. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.16. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.17. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.18. Continued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.19. New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE IX Negative Covenants 9.1. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 9.2. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 9.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 9.4. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 9.5. Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 9.6. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.7. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.8. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.9. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.10. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 9.11. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 9.12. Prepayments, Etc. of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.13. Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.14. Rate Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
iii 5 9.15. Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 ARTICLE X Events of Default and Acceleration 10.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 10.2. Agent to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 10.3. Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 10.4. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 10.5. Allocation of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE XI The Agent 11.1. Appointment, Powers, and Immunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.2. Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.3. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 11.4. Rights as Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 11.5. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 11.6. Non-Reliance on Agent and Other Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 11.7. Resignation of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 11.8. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 ARTICLE XII Miscellaneous 12.1. Assignments and Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 12.3. Right of Set-off; Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 12.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 12.5. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 12.6. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 12.8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 12.9. Indemnification; Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 12.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 12.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 12.12. Agreement Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 12.13. Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 12.14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 12.15. GOVERNING LAW; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
iv 6 EXHIBIT A Applicable Commitment Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 EXHIBIT B Form of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1 EXHIBIT D-1 Form of Borrowing Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1 EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-3 EXHIBIT E Form of Interest Rate Selection Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 EXHIBIT F-1 Form of Revolving Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 EXHIBIT F-2 Form of Line of Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 EXHIBIT F-3 Form of Swing Line Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 EXHIBIT G Form of Opinion of Borrower's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 EXHIBIT H Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1 EXHIBIT I Form of Facility Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1 EXHIBIT J Form of Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1 EXHIBIT K Form of LC Account Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-1 EXHIBIT L Form of Collateral Assignment of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . L-1 Schedule 1.1(a) Non-cash Non-recurring Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1.1(a) Schedule 1.1(b) Existing Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1.1(b) Schedule 4.1 Excluded Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2 Schedule 7.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3 Schedule 7.6 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4 Schedule 7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5 Schedule 7.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6 Schedule 8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7 Schedule 9.6 Investments in Other Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
v 7 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of November 25, 1997 (the "Agreement"), is made by and among LINCARE HOLDINGS INC., a Delaware corporation having its principal place of business in Clearwater, Florida (the "Borrower"), NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("NationsBank"), and each other financial institution executing and delivering a signature page hereto and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 12.1 (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, in its capacity as agent for the Lenders (in such capacity, and together with any successor agent appointed in accordance with the terms of Section 11.7, the "Agent"); W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders make available to the Borrower certain credit facilities in the maximum aggregate principal amount at any time outstanding of $100,000,000, which shall include a line of credit facility of up to $25,000,000 and a revolving credit facility of up to $75,000,000, which shall include a letter of credit facility of up to $5,000,000 for the issuance of standby letters of credit and a swing line facility of up to $5,000,000, which swing line facility shall be available according to the conditions under Section 2.14 hereof; and WHEREAS, the Borrower desires to use a portion of the proceeds of the Revolving Credit Facility and Line of Credit Facility to refinance outstanding indebtedness under the existing Restated Loan Agreement by and between the Borrower and NationsBank dated as of February 10, 1995; and WHEREAS, the Lenders are willing to make such revolving credit, line of credit, letter of credit and swing line facilities available to the Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: 8 ARTICLE I Definitions and Terms 1.1. Definitions. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Acquisition" means the acquisition of (i) a controlling equity interest in another Person, whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or substantially all of the assets of such Person or of a line or lines of business conducted by such Person. "Advance" means a borrowing under the Revolving Credit Facility or Line of Credit Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan. "Affiliate" means any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Borrower; or (ii) which beneficially owns or holds 5% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of the Borrower; or 5% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise. "Applicable Commitment Percentage" means, with respect to each Lender that portion of the Total Credit Commitment (including its Participations and its obligations hereunder to the Issuing Bank to acquire Participations) allocable to such Lender (i) with respect to Lenders as of the Closing Date, as set forth in Exhibit A and (ii) with respect to any Person who becomes a Lender hereafter, as reflected in each Assignment and Acceptance to which such Lender is a party Assignee; provided that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 12.1. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. 2 9 "Applicable Margin" means for each Eurodollar Rate Loan that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below:
Applicable Margin Applicable Margin for Revolving for Line of Tier Consolidated Leverage Ratio Credit Facility Credit Facility ---- --------------------------- --------------- ---------------- IV Equal to or Greater than .525% .575% 2.00 to 1.00 III Less than 2.00 to 1.00 .425% .475% and equal to or Greater than 1.50 to 1.00 II Less than 1.50 to 1.00 .325% .375% and equal to or Greater than 1.00 to 1.00 I Less than 1.00 to 1.00 .275% .325%
The Applicable Margin shall be established at the end of each fiscal quarter of the Borrower (each, a "Determination Date". Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 8.1(a)(ii) and Section 8.1(b)(ii), subject to review and approval of such computations by the Agent, and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate was required to be delivered) until the date following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; provided however, if the Borrower shall fail to deliver any such certificate within the time period required by Section 8.1, then the Applicable Margin shall be Tier IV until the appropriate certificate is so delivered. From the Closing Date to the first Determination Date, the Applicable Margin shall be Tier I. 3 10 "Applicable Unused Fee" means, with respect to the Line of Credit Facility and the Revolving Credit Facility, that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below:
Applicable Unused Applicable Unused Fee Revolving Fee for Line of Tier Consolidated Leverage Ratio Credit Credit ---- --------------------------- --------------- ---------------- IV Equal to or Greater than .225% .175% 2.00 to 1.00 III Less than 2.00 to 1.00 .200% .150% and equal to or Greater than 1.50 to 1.00 II Less than 1.50 to 1.00 .175% .125% and equal to or Greater than 1.00 to 1.00 I Less than 1.00 to 1.00 .175% .125%
The Applicable Unused Fee shall be established at the end of each fiscal quarter of the Borrower (the "Determination Date"). Any change in the Applicable Unused Fee following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 8.1(a)(ii) and Section 8.1(b)(ii), subject to review and approval of such computations by the Agent and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate was required to be delivered) until the date following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; provided however, if the Borrower shall fail to deliver any such certificate within the time period required by Section 8.1, then the Applicable Unused Fee shall be Tier IV until the appropriate certificate is so delivered. From the Closing Date to the first Determination Date, the Applicable Unused Fee shall be Tier I. "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit, or similar documentation, executed by the Borrower from time to time and delivered to the Issuing Bank to support the issuance of Letters of Credit. "Assigned Interests" has the meaning given to such term in the Collateral Assignment of Partnership Interests. 4 11 "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to Section 12.1. "Authorized Representative" means any of the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or the Corporate Controller of the Borrower or, with respect to financial matters, the Chief Financial Officer or Corporate Controller of the Borrower, or any other Person expressly designated by the Board of Directors of the Borrower (or the appropriate committee thereof) as an Authorized Representative of the Borrower, as set forth from time to time in a certificate in the form of Exhibit C. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (b) the Prime Rate for such day; provided, however, that at any time there shall be outstanding under Section 5.4 an Affected Loan, the "Base Rate" with respect to such Affected Loan shall mean the lesser of (a) or (b). Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "Base Rate Loan" means a Loan for which the rate of interest is determined by reference to the Base Rate. "Base Rate Refunding Loan" means a Base Rate Loan or Swing Line Loan made either to (i) satisfy Reimbursement Obligations arising from a drawing under a Letter of Credit or (ii) pay NationsBank in respect of Swing Line Outstandings. "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Borrower's Account" means a demand deposit account number 0095020624 or any successor account with the Agent, which may be maintained at one or more offices of the Agent or an agent of the Agent. "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance under (i) the Revolving Credit Facility or the Line of Credit Facility or, (ii) a Swing Line Loan, in the forms of Exhibits D-1 and D-2 respectively. "Business Day" means, (i) with respect to any Base Rate Loan, any day which is not a Saturday, Sunday or a day on which banks in the States of New York and North Carolina are authorized or obligated by law, executive order or governmental decree to be closed and, (ii) with respect to any Eurodollar Rate Loan, any day which is a Business Day, as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England, New York, New York and Charlotte, North Carolina. 5 12 "Capital Expenditures" means, with respect to the Borrower and its Subsidiaries, for any period the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower or any Subsidiary during such period for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Borrower and its Subsidiaries, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized, excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Agent together with any compliance certificate delivered pursuant to Section 8.1(a) or (b), and (ii) with respect to any Capital Lease entered into by the Borrower or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate, that rate used in the preparation of the financial statements described in Section 8.1(a)), all the foregoing in accordance with GAAP applied on a Consistent Basis. "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "Certificate and Receipt of Registrar" means, collectively or individually as the context may indicate (i) that certain Certificate and Receipt of Registrar dated as of the Closing Date between certain Subsidiaries and the Agent in the form attached to the Collateral Assignment of Partnership Interests as Exhibit A and (ii) any additional Certificate and Receipt of Registrar delivered to the Agent pursuant to Section 8.19, as any of the foregoing may be hereafter amended, supplemented or restated from time to time. "Change of Control" means, at any time: (i) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than Persons owning thirty percent (30%) or more of the Voting Stock of the Borrower on the Closing Date, either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of Voting Stock of the Borrower (or securities convertible into or exchangeable for such Voting Stock) representing thirty percent (30%) or more of the combined voting power of all Voting Stock of the Borrower (on a fully diluted basis) or (B) otherwise has the ability, directly or indirectly, to elect a majority of the board of directors of the Borrower; or (ii) during any period of up to 12 consecutive months, commencing on the Closing Date, individuals who at the beginning of such 12-month period were directors of the Borrower shall cease for any reason (other than the death, disability or retirement of an officer of the Borrower that is serving as a director at such time so long as another officer of the Borrower replaces such Person as a director) to constitute a majority of the board of directors of the Borrower; provided, however, 6 13 to the extent there exist vacancies on the Board of Directors as of the Closing Date, the individuals named to fill such vacancies, if selected by a majority of directors sitting as of the Closing Date, shall be deemed for purposes of this clause (ii) to have been appointed prior to the Closing Date. "Closing Date" means the date as of which this Agreement is executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in Section 6.1 have been satisfied. "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. "Collateral" means, collectively, all property of the Borrower, any Subsidiary or any other Person in which the Agent or any Lender is granted a Lien as security for all or any portion of the Obligations under any Security Instrument. "Collateral Assignment of Partnership Interests" means, collectively (i) the Collateral Assignment of Partnership Interests dated as of the Closing Date between the Borrower, Lincare Inc. and the Agent and (ii) each Collateral Assignment of Partnership Interests substantially in the form of Exhibit L delivered to the Agent pursuant to Section 8.19 hereof as any of the foregoing may be amended, supplemented or restated from time to time. "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower and its Subsidiaries referred to in Section 7.6(a). "Consolidated EBITDA" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income, (iv) amortization and (v) depreciation and (vi) the non-cash non-recurring expenses described in Schedule 1.1(a), all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Fixed Charge Coverage Ratio" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the ratio of (i) Consolidated EBITDA for such period less (without duplication) Capital Expenditures for such period, to (ii) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication (i) Consolidated Interest Expense, (ii) current maturities of Consolidated Funded Indebtedness having an original term (including rights of renewal) of greater than one year, excluding in all events Outstandings and (iii) all Restricted Payments, 7 14 all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Funded Indebtedness" means, without duplication, all Indebtedness for Money Borrowed and all Guaranties of the Borrower and its Subsidiaries, all determined on a consolidated basis. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries, including without limitation (i) the current amortized portion of debt discounts to the extent included in gross interest expense, (ii) the current amortized portion of all fees (including fees payable in respect of any Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in gross interest expense and (iii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Leverage Ratio" means, as of the date of computation thereof, the ratio of (i) the sum of (without duplication) Consolidated Funded Indebtedness (determined as at such date) to (ii) Consolidated EBITDA (for the Four-Quarter Period ending on (or most recently ended prior to) such date). "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Borrower and its Subsidiaries (excluding payments received by the Borrower and its Subsidiaries of (a) interest income, and (b) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to this Agreement and not related to an extraordinary event), less all operating and non-operating expenses of the Borrower and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding as income: (i) net gains or losses on the sale, conversion or other disposition of capital assets, (ii) net gains or losses on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains or losses on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or loss or credit of an extraordinary nature as determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Shareholders' Equity" means, as of any date on which the amount thereof is to be determined, the sum of the following in respect of the Borrower and its Subsidiaries (determined on a consolidated basis and excluding any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid-in capital and retained earnings (or, in the case of a deficit, minus the amount of such deficit), plus (iii) the amount of any foreign currency translation adjustments (if positive, or, if negative, minus the amount of such translation adjustment), minus (iv) the amount of any treasury stock, all as determined in accordance with GAAP applied on a Consistent Basis. 8 15 "Contingent Obligation" of any Person means all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the financial statements (including footnotes) of such Person in accordance with GAAP applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, all Letters of Credit, Rate Hedging Obligations and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 2.8 hereof of a Eurodollar Rate Loan of one Type as a Eurodollar Rate Loan of the same Type from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 2.8 of one Type of Loan into another Type of Loan. "Cost of Acquisition" means, with respect to any Acquisition, as at the date of entering into any agreement therefor for the purpose of determining whether approval of the Required Lenders is necessary prior to the Acquisition, or as at the date of closing of an Acquisition for the purpose of determining whether the Cost of Acquisition exceeds the limitations set forth in Section 9.2 hereof, the sum of the following (without duplication): (i) the value of the capital stock, warrants or options to acquire capital stock of Borrower or any Subsidiary to be transferred in connection therewith, (ii) the amount of any cash and fair market value of other property (excluding property described in clause (i) and the unpaid principal amount of any debt instrument) given as consideration, (iii) the amount (determined 9 16 by using the face amount or the amount payable at maturity, whichever is greater) of any Indebtedness incurred, assumed or acquired by the Borrower or any Subsidiary in connection with such Acquisition, (iv) all additional purchase price amounts in the form of earnouts and other contingent obligations that should be recorded on the financial statements of the Borrower and its Subsidiaries in accordance with GAAP, (v) all amounts paid in respect of covenants not to compete, consulting agreements that should be recorded on financial statements of the Borrower and its Subsidiaries in accordance with GAAP, and other affiliated contracts in connection with such Acquisition, (vi) the aggregate fair market value of all other consideration given by the Borrower or any Subsidiary in connection with such Acquisition, and (vii) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such transaction, and other similar transaction costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of the Borrower shall be valued (I) in the case of capital stock that is then designated as a national market system security by the National Association of Securities Dealers, Inc. ("NASDAQ") or is listed on a national securities exchange, the average of the last reported bid and ask quotations or the last prices reported thereon, and (II) with respect to shares that are not freely tradeable, as determined by the Board of Directors of the Borrower and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 8.1(a), (B) the capital stock of any Subsidiary shall be valued as determined by the Board of Directors of such Subsidiary and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 8.1(a), and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion. "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder. "Default Rate" means (i) with respect to each Eurodollar Rate Loan, until the end of the Interest Period applicable thereto, a rate of two percent (2%) above the Eurodollar Rate applicable to such Loan, and thereafter at a rate of interest per annum which shall be two percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans, at a rate of interest per annum which shall be two percent (2%) above the Base Rate and (iii) in any case, the maximum rate permitted by applicable law, if lower. "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender, and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 12.1, the Borrower, each such approval not to be unreasonably withheld or delayed by the Borrower, as the case may be, and such approval to be deemed given by the Borrower if no objection is received by the assigning Lender and the Agent from the Borrower within two Business Days after notice of 10 17 such proposed assignment has been provided by the assigning Lender to the Borrower; provided, however, that neither the Borrower nor an affiliate of the Borrower shall qualify as an Eligible Assignee. "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: (a) Government Securities; (b) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than 92 days following the date of issuance thereof and rated in an investment grade rating category of A-1 or better by S&P and P-1 or better by Moody's; (c) interest bearing demand or time deposits issued by any Lender or certificates of deposit maturing within one year from the date of issuance thereof and issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated "A-1" or better by S&P or "P-1" or better by Moody's; (d) Repurchase Agreements; (e) Municipal Obligations; (f) Pre-Refunded Municipal Obligations; (g) shares of mutual funds which invest in obligations described in paragraphs (a) through (f) above, the shares of which mutual funds are at all times rated "AAA" by S&P; (h) tax-exempt or taxable adjustable rate preferred stock issued by a Person having a rating of its long term unsecured debt of "A" or better by S&P or "A-1" or better by Moody's; and (i) asset-backed remarketed certificates of participation representing a fractional undivided interest in the assets of a trust, which certificates are rated at least "A-1" by S&P and "P-1" by Moody's. "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time been maintained for the employees of the Borrower or any current or former ERISA Affiliate. 11 18 "Environmental Laws" means any federal, state or local statute, law, ordinance, code, rule, regulation, order, decree, permit or license regulating, relating to, or imposing liability or standards of conduct concerning, any environmental matters or conditions, environmental protection or conservation, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the Clean Water Act, as amended; together with all regulations promulgated thereunder, and any other "Superfund" or "Superlien" law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to the Borrower, means any Person or trade or business which is a member of a group which is under common control with the Borrower, who together with the Borrower, is treated as a single employer within the meaning of Section 414(b) and (c) of the Code. "Eurodollar Rate Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Rate. "Eurodollar Rate" means the interest rate per annum calculated according to the following formula: Eurodollar = Interbank Offered Rate + Applicable ------------------------- Rate 1- Reserve Requirement Margin "Event of Default" means any of the occurrences set forth as such in Section 10.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. "Existing Credit Facility" means that certain Restated Loan Agreement dated as of February 10, 1995, as amended, by and between the Borrower and the Agent providing for loans of up to a maximum principal amount of $50,000,000. "Existing Letters of Credit" means those certain letters of credit issued by NationsBank for the benefit of the Borrower including those listed on Schedule 1.1(b) hereto. "Facility Guaranty" means each Guaranty and Suretyship Agreement between one or more Guarantors and the Agent for the benefit of the Lenders substantially in the form of Exhibit I, delivered as of the Closing Date and otherwise pursuant to Section 8.19, as the same may be amended, modified or supplemented. 12 19 "Facility Termination Date" means the date on which both the Revolving Credit Termination Date and Line of Credit Termination Date shall have occurred, no Letters of Credit shall remain outstanding and the Borrower shall have fully, finally and irrevocably paid and satisfied all Obligations. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the twelve month fiscal period of the Borrower commencing on January 1 of each calendar year and ending on December 31 of the following calendar year. "Foreign Benefit Law" means any applicable statute, law, ordinance, code, rule, regulation, order or decree of any foreign nation or any province, state, territory, protectorate or other political subdivision thereof regulating, relating to, or imposing liability or standards of conduct concerning, any Employee Benefit Plan. "Four-Quarter Period" means a period of four full consecutive fiscal quarters of the Borrower and its Subsidiaries, taken together as one accounting period. "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report. "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America. "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. 13 20 "Guaranties" means all obligations of the Borrower or any Subsidiary directly or indirectly, or in effect, guaranteeing, any Indebtedness or other obligation to pay money of any other Person. "Guarantors" means, at any date, the Subsidiaries who are parties to a Facility Guaranty at such date. "Hazardous Material" means and includes any pollutant, contaminant, or hazardous, toxic waste, substance or material (including without limitation petroleum products, asbestos-containing materials and lead), the generation, handling, storage, transportation, disposal, treatment, release, discharge or emission of which is subject to any Environmental Law. "Indebtedness" means with respect to any Person, without duplication, all Indebtedness for Money Borrowed, all indebtedness of such Person for the acquisition of property or arising under Rate Hedging Obligations, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Contingent Obligations, all Guaranties, that portion of obligations with respect to Capital Leases and other items which in accordance with GAAP is required to be classified as a liability on a balance sheet; but excluding all accounts payable in the ordinary course of business so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include surplus and retained earnings, lease obligations (other than pursuant to Capital Leases), reserves for deferred income taxes and investment credits, other deferred credits or reserves. "Indebtedness for Money Borrowed" means with respect to any Person, without duplication, all indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond, debenture or similar written obligation for the payment of money (including conditional sales or similar title retention agreements), other than accounts payable incurred in the ordinary course of business. "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is unavailable, the term "Interbank Offered Rate" shall mean, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period, provided, however; if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. 14 21 "Interest Period" means, for each Eurodollar Rate Loan, a period commencing on the date such Eurodollar Rate Loan is made or Converted and ending, at the Borrower's option, on the date one, two, three or six months thereafter as notified to the Agent by the Authorized Representative three (3) Business Days prior to the beginning of such Interest Period; provided, that, (i) if the Authorized Representative fails to notify the Agent of the length of an Interest Period three (3) Business Days prior to the first day of such Interest Period, the Loan for which such Interest Period was to be determined shall be deemed to be a Base Rate Loan as of the first day thereof; (ii) if an Interest Period for a Eurodollar Rate Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); (iii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iv) no Interest Period shall extend past the Revolving Credit Termination Date in the case of Revolving Loans and the Line of Credit Termination Date in the case of Line of Credit Loans; and (v) there shall not be more than ten (10) Interest Periods in effect on any day. "Interest Rate Selection Notice" means the written notice delivered by an Authorized Representative in connection with the election of a subsequent Interest Period for any Eurodollar Rate Loan or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in the form of Exhibit E. "Issuing Bank" means initially NationsBank and thereafter any Lender which is successor to NationsBank as issuer of Letters of Credit under Article III. "LC Account Agreement" means the LC Account Agreement substantially in the form of Exhibit K attached hereto and dated as of the date hereof between the Borrower and the Agent, as amended, modified or supplemented from time to time. "Letter of Credit" means a standby letter of credit issued by the Issuing Bank for the account of the Borrower in favor of a Person advancing credit or securing an obligation on behalf of the Borrower, including without limitation the Existing Letters of Credit. 15 22 "Letter of Credit Commitment" means, with respect to each Lender, the obligation of such Lender to acquire Participations in respect of Letters of Credit and Reimbursement Obligations up to an aggregate amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement. "Letter of Credit Facility" means the facility described in Article III hereof providing for the issuance by the Issuing Bank for the account of the Borrower of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment. "Letter of Credit Outstandings" means, as of any date of determination, the aggregate amount remaining undrawn under all Letters of Credit plus Reimbursement Obligations then outstanding. "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Borrower and any Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Line of Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Line of Credit Loans to the Borrower in a principal amount equal to such Lender's Applicable Commitment Percentage of the Total Line of Credit Commitment. "Line of Credit Facility" means the facility described in Section 2.1(b) providing for Line of Credit Loans to the Borrower by the Lenders in the original principal amount of the Total Line of Credit Commitment. "Line of Credit Loan" means a loan made pursuant to the Line of Credit Facility in accordance with Section 2.1(b). "Line of Credit Notes" means, collectively, the promissory notes of the Borrower evidencing Line of Credit Loans executed and delivered to the Lenders as provided in Section 2.5(b) substantially in the form of Exhibit F-2. "Line of Credit Outstandings" means, as of any date of determination, the aggregate principal amount of Line of Credit Loans then outstanding and all interest accrued thereon. "Line of Credit Termination Date" means (i) the Stated Termination Date or (ii) such earlier date of termination of Lenders' obligations pursuant to Section 10.1 upon the 16 23 occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily and permanently terminate the Line of Credit Facility by written notice to Agent together with payment in full of all Line of Credit Outstandings. "Loan" or "Loans" means any borrowing pursuant to an Advance under the Revolving Credit Facility, including Swing Line Loans, or the Line of Credit Facility. "Loan Documents" means this Agreement, the Notes, the Security Instruments, the Facility Guaranties, the LC Account Agreement, the Applications and Agreements for Letter of Credit, and all other instruments and documents heretofore or hereafter executed or delivered to or in favor of any Lender or the Agent in connection with the Loans made and transactions contemplated under this Agreement, as the same may be amended, supplemented or replaced from the time to time. "Loan Parties" means the Borrower and the Guarantors. "Material Adverse Effect" means a material adverse effect on (i) the business, properties, prospects, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of any Loan Party to pay or perform its respective obligations, liabilities and indebtedness under the Loan Documents as such payment or performance becomes due in accordance with the terms thereof, or (iii) the rights, powers and remedies of the Agent or any Lender under any Loan Document or the validity, legality or enforceability thereof. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) Fiscal Years. "Municipal Obligations" means general obligations issued by, and supported by the full taxing authority of, any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated in the highest investment rating category by both S&P and Moody's. "NationsBank" means NationsBank, National Association. "Notes" means, collectively, the Line of Credit Notes, the Revolving Notes, and the Swing Line Note. "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, (ii) the Reimbursement Obligations and otherwise in respect of the Letters of Credit, (iii) all liabilities of Borrower to any Lender which arise under a Swap Agreement, and (iv) the payment and 17 24 performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders or the Agent hereunder, under any one or more of the other Loan Documents or with respect to the Loans. "Outstandings" means, collectively, at any date, the Letter of Credit Outstandings, Swing Line Outstandings, Line of Credit Outstandings and Revolving Credit Outstandings on such date. "Participation" means, (i) with respect to any Lender (other than the Issuing Bank) and a Letter of Credit, the extension of credit represented by the participation of such Lender hereunder in the rights and obligations of the Issuing Bank in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof and (ii) with respect to any Lender (other than NationsBank) and a Swing Line Loan, the extension of credit represented by the participation of such Lender hereunder in the rights and obligations of NationsBank in respect of a Swing Line Loan made by NationsBank in accordance with the terms hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time been maintained for the employees of the Borrower or any current or former ERISA Affiliate. "Permitted Acquisition" means an Acquisition of a Person or the assets of a Person (i) effected with the consent and approval of the executive officers, Board of Directors or other applicable governing body of such Person and the duly obtained approval of such shareholders or other holders of equity interests in such Person as may be required to be obtained under applicable law, the charter documents of or any shareholder agreements or similar agreements pertaining to such Person, (ii) the line or lines of business of the Person to be acquired are substantially the same or similar as one or more line or lines of business conducted by the Borrower and its Subsidiaries, and (iii) the Person acquired shall be a Subsidiary, or be merged into the Borrower or a wholly-owned Subsidiary, upon consummation of the Acquisition (or if assets are being acquired, the acquiror shall be the Borrower or a wholly-owned Subsidiary). "Person" means an individual, partnership, corporation, trust, limited liability company, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. "Pledge Agreement" means, collectively (or individually as the context may indicate), (i) the pledge agreements dated as of the date hereof between the Borrower, certain Guarantors and the Agent for the benefit of the Agent and the Lenders, and (ii) any additional Pledge Agreement delivered to the Agent pursuant to Section 8.19 hereof, in each case, 18 25 substantially in the form of Exhibit J attached hereto, as such Pledge Agreement may be amended, supplemented or replaced from time to time. "Pledged Stock" has the meaning given to such term in the Pledge Agreement. "Pledgor" means, at any date, the Borrower and the Guarantors who are parties to a Pledge Agreement at such date. "Pre-Refunded Municipal Obligations" means obligations of any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated, based on the escrow, in the highest investment rating category by both S&P and Moody's and which have been irrevocably called for redemption and advance refunded through the deposit in escrow of Government Securities or other debt securities which are (i) not callable at the option of the issuer thereof prior to maturity, (ii) irrevocably pledged solely to the payment of all principal and interest on such obligations as the same becomes due and (iii) in a principal amount and bear such rate or rates of interest as shall be sufficient to pay in full all principal of, interest, and premium, if any, on such obligations as the same becomes due as verified by a nationally recognized firm of certified public accountants. "Prime Rate" means the per annum rate of interest established from time to time by NationsBank as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank to its customers. "Principal Office" means the office of NationsBank, presently located at Independence Center, 15th Floor, NC1 001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services, or such other office and address as the Agent may from time to time designate. "Rate Hedging Obligations" means any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, Dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; and (ii) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time. "Regulatory Change" means any change effective after the Closing Date in United States federal or state laws or regulations (including Regulation D and capital adequacy 19 26 regulations) or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks, which includes any of the Lenders, under any United States federal or state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy, including those relating to "highly leveraged transactions," whether or not having the force of law, and whether or not failure to comply therewith would be unlawful and whether or not published or proposed prior to the date hereof. "Reimbursement Obligation" shall mean at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by the Issuing Bank of proceeds of Loans pursuant to Section 3.2) for amounts theretofore paid by the Issuing Bank pursuant to a drawing under such Letter of Credit. "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or "P-1" by Moody's. "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating more than 50% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal to the aggregate principal amount of the Loans owing to such Lender plus the aggregate unutilized amounts of such Lender's Revolving Credit Commitment (without regard to any Swing Line Outstandings) plus the aggregate unutilized amounts of such Lender's Line of Credit Commitment plus the amount of such Lender's Applicable Commitment Percentage of Letter of Credit Outstandings; provided that, (i) if any Lender shall have failed to pay to the Issuing Bank its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to Letters of Credit and Reimbursement Obligations shall be deemed to be held by the Issuing Bank for purposes of this definition and (ii) if any Lender shall have failed to pay to NationsBank its Applicable Commitment Percentage of any Swing Line Loan, such Lender's Credit Exposure attributable to all Swing Line Outstandings shall be deemed to be held by NationsBank for purposes of this definition. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be 20 27 determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower or a Guarantor) now or hereafter outstanding, except a dividend payable solely in shares of a class of stock to the holders of that class; (b) any redemption, conversion, exchange, retirement or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower or a Guarantor) now or hereafter outstanding; (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; and (d) any issuance and sale of capital stock of any Subsidiary of the Borrower (or any option, warrant or right to acquire such stock) other than to the Borrower or a Subsidiary. "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment. "Revolving Credit Facility" means the facility described in Section 2.1(a) hereof providing for Loans to the Borrower by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment. "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Loans then outstanding and all interest accrued thereon. "Revolving Credit Termination Date" means (i) November ___, 2000 or (ii) such earlier date of termination of Lenders' obligations pursuant to Section 10.1 upon the occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily and permanently terminate the Revolving Credit Facility by written notice to Agent together with payment in full of all Revolving Credit Outstandings, Swing Line Outstandings and Letter of Credit Outstandings and cancellation of all Letters of Credit. "Revolving Loan" means any borrowing pursuant to an Advance under the Revolving Credit Facility in accordance with Section 2.1(a). "Revolving Notes" means, collectively, the promissory notes of the Borrower evidencing Revolving Loans executed and delivered to the Lenders as provided in Section 2.5(a) substantially in the form of Exhibit F-1, with appropriate insertions as to amounts, dates and names of Lenders. 21 28 "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. "Security Instruments" means, collectively, the Pledge Agreement, the Collateral Assignment of Partnership Interests, and all other agreements, instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrower or any Subsidiary shall grant or convey to the Agent or the Lenders a Lien in property as security for all or any portion of the Obligations, as any of them may be amended, modified or supplemented from time to time. "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA in respect of which the Borrower or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA and which is not a Multiemployer Plan. "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Stated Termination Date" means November 24, 1998 or such later date as the parties may agree pursuant to Section 2.13(a). "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries. "Swap Agreement" means one or more agreements between the Borrower and any Lender with respect to Indebtedness evidenced by any or all of the Notes, on terms mutually acceptable to the Borrower and such Lender, which agreements create Rate Hedging Obligations. "Swing Line" means the revolving line of credit established by NationsBank in favor of the Borrower pursuant to Section 2.14. "Swing Line Loans" means loans made by NationsBank to the Borrower pursuant to Section 2.14. 22 29 "Swing Line Note" means the promissory note of the Borrower evidencing Swing Line Loans executed and delivered to NationsBank as provided in Section 2.5(c). "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding. "Termination Event" means: (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (unless the notice requirement has been waived by applicable regulation); or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA; or (iii) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the institution of proceedings to terminate a Pension Plan by the PBGC; or (v) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (vi) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or (ix) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. "Total Credit Commitment" means the sum of the Total Revolving Credit Commitment and the Total Line of Credit Commitment. "Total Letter of Credit Commitment" means an amount not to exceed $5,000,000. "Total Line of Credit Commitment" means a principal amount equal to $25,000,000, as reduced from time to time in accordance with Section 2.7. "Total Revolving Credit Commitment" means a principal amount equal to $75,000,000, as reduced from time to time in accordance with Section 2.7., "Type" shall mean any type of Loan (i.e., a Base Rate Loan or a Eurodollar Rate Loan). "Voting Stock" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. 1.2. Rules of Interpretation. 23 30 (a) All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP applied on a Consistent Basis. (b) Each term defined in Article 1 or 9 of the Florida Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. (c) The headings, subheadings and table of contents used herein or in any other Loan Document are solely for convenience of reference and shall not constitute a part of any such document or affect the meaning, construction or effect of any provision thereof. (d) Except as otherwise expressly provided, references herein to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules are references to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules in or to this Agreement. (e) All definitions set forth herein or in any other Loan Document shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender, and vice versa, as the context may require. (f) When used herein or in any other Loan Document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (g) References to "including" means including without limiting the generality of any description preceding such term, and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (h) All dates and times of day specified herein shall refer to such dates and times at Charlotte, North Carolina. (i) Each of the parties to the Loan Documents and their counsel have reviewed and revised, or requested (or had the opportunity to request) revisions to, the Loan Documents, and any rule of construction that ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Loan Documents and all exhibits, schedules and appendices thereto. (j) Any reference to an officer of the Borrower or any other Person by reference to the title of such officer shall be deemed to refer to each other officer of such Person, however titled, exercising the same or substantially similar functions. 24 31 (k) All references to any agreement or document as amended, modified or supplemented, or words of similar effect, shall mean such document or agreement, as the case may be, as amended, modified or supplemented from time to time only as and to the extent permitted therein and in the Loan Documents. 25 32 ARTICLE II The Credit Facilities 2.1. Loans. (a) Revolving Credit Facility. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower under the Revolving Credit Facility from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by such Lender=s Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each such Advance, the principal amount of Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings shall not exceed the Total Revolving Credit Commitment. Within such limits, the Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; provided, however, that (y) no Revolving Loan that is a Eurodollar Rate Loan shall be made which has an Interest Period that extends beyond the Revolving Credit Termination Date and (z) each Revolving Loan that is a Eurodollar Rate Loan may, subject to the provisions of Section 2.8, be repaid only on the last day of the Interest Period with respect thereto unless such payment is accompanied by the additional payment, if any, required by Section 5.5. (b) Line of Credit Facility. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower under the Line of Credit Facility from time to time from the Closing Date until the Line of Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by such Lender's Applicable Commitment Percentage up to but not exceeding the Line of Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each such Advance, the principal amount of Line of Credit Outstandings shall not exceed the Total Line of Credit Commitment. Within such limits, the Borrower may borrow, repay and reborrow under the Line of Credit Facility on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Line of Credit Termination Date; provided, however, that (y) no Line of Credit Loan that is a Eurodollar Rate Loan shall be made which has an Interest Period that extends beyond the Line of Credit Termination Date and (z) each Line of Credit Loan that is a Eurodollar Rate Loan may, subject to the provisions of Section 2.8, be repaid only on the last day of the Interest Period with respect thereto unless such payment is accompanied by the additional payment, if any, required by Section 5.5. 26 33 (c) Amounts. Except as otherwise permitted by the Lenders from time to time, the aggregate unpaid principal amount of the Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings shall not exceed at any time the Total Revolving Credit Commitment, and the aggregate unpaid principal amount of the Line of Credit Outstandings shall not exceed the Total Line of Credit Commitment and, in the event there shall be outstanding any such excess, the Borrower shall immediately make such payments and prepayments as shall be necessary to comply with this restriction. Each Revolving Loan and Line of Credit Loan hereunder, other than Base Rate Refunding Loans, and each Conversion under Section 2.8, shall be in an amount of at least $1,000,000, and, if greater than $1,000,000, an integral multiple of $500,000. (d) Advances. (i) An Authorized Representative shall give the Agent (1) at least three (3) Business Days' irrevocable written notice by telefacsimile transmission of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions, effective upon receipt, of each Loan that is a Eurodollar Rate Loan (whether representing an additional borrowing hereunder or the Conversion of a borrowing hereunder from Base Rate Loans to Eurodollar Rate Loans) prior to 10:30 A.M. and (2) irrevocable written notice by telefacsimile transmission of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions, effective upon receipt, of each Loan (other than Base Rate Refunding Loans to the extent the same are effected without notice pursuant to Section 2.1(d)(iv)) that is a Base Rate Loan (whether representing an additional borrowing hereunder or the Conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to 10:30 A.M. on the day of such proposed Loan. Each such notice shall specify the amount of the borrowing, whether the Loan is a Revolving Loan or a Line of Credit Loan, the Type of Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, together with the amount of each Lender's portion of an Advance requested thereunder, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 10:30 A.M.) not later than 1:00 P.M. on the same day as the Agent's receipt of such notice. (ii) Not later than 2:00 P.M. on the date specified for each borrowing under this Section 2.1, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Advance or Advances to be made by it on such day available by wire transfer to the Agent in the amount of its pro rata share, determined according to such Lender's Applicable Commitment Percentage of the Loan or Loans to be made on such day. Such wire transfer shall be directed to the Agent at the Principal Office and shall be in the form of Dollars constituting immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by delivery of the proceeds thereof to the Borrower's Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative and reasonably acceptable to the Agent. (iii) The Borrower shall have the option to elect the duration of the initial and any subsequent Interest Periods and to Convert the Loans in accordance with Section 2.8. Eurodollar Rate Loans and Base Rate Loans may be outstanding at the same time, provided, however, there shall not be outstanding at any one time Eurodollar Rate Loans having more than ten (10) different Interest 27 34 Periods. If the Agent does not receive a Borrowing Notice or an Interest Rate Selection Notice giving notice of election of the duration of an Interest Period or of Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by the time prescribed by Section 2.1(d) or 2.8, the Borrower shall be deemed to have elected to Convert such Loan to (or Continue such Loan as) a Base Rate Loan until the Borrower notifies the Agent in accordance with Section 2.8. (iv) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit, such drawing is honored by the Issuing Bank prior to the Revolving Credit Termination Date, and the Borrower shall not immediately, after receipt of notice of such drawing, fully reimburse the Issuing Bank in respect of such drawing, (A) provided that the conditions to making a Revolving Loan as herein provided shall then be satisfied, the Reimbursement Obligation arising from such drawing shall be paid to the Issuing Bank by the Agent without the requirement of notice to or from the Borrower from immediately available funds which shall be advanced as a Base Rate Refunding Loan by each Lender under the Revolving Credit Facility in an amount equal to such Lender's Applicable Commitment Percentage of such Reimbursement Obligation, and (B) if the conditions to making a Revolving Loan as herein provided shall not then be satisfied, each of the Lenders shall fund by payment to the Agent (for the benefit of the Issuing Bank) in immediately available funds for the purchase from the Issuing Bank of their respective Participations in the related Reimbursement Obligation based on their respective Applicable Commitment Percentages of the Total Letter of Credit Commitment. If a drawing is presented under any Letter of Credit in accordance with the terms thereof and the Borrower shall not immediately reimburse the Issuing Bank in respect thereof, then notice of such drawing or payment shall be provided promptly by the Issuing Bank to the Agent and the Agent shall provide notice to each Lender by telephone or telefacsimile transmission. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.1(d)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If notice to the Lenders of a drawing under a Letter of Credit is given by the Agent after 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.1(d)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon on the next following Business Day. Any such Base Rate Refunding Loan shall be advanced as, and shall Continue as, a Base Rate Loan unless and until the Borrower Converts such Base Rate Loan in accordance with the terms of Section 2.8. 2.2. Payment of Interest. (a) The Borrower shall pay interest to the Agent for the account of each Lender on the outstanding and unpaid principal amount of each Loan made by such Lender for the period commencing on the date of such Loan until such Loan shall be due at the then applicable Base Rate for Base Rate Loans or applicable Eurodollar Rate for Eurodollar Rate Loans, as designated by the Authorized Representative pursuant to Section 2.1; provided, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise), all amounts outstanding hereunder shall bear interest thereafter, until paid, at the Default Rate. 28 35 (b) Interest on each Loan shall be computed on the basis of a year of 360 days and calculated in each case for the actual number of days elapsed. Interest on each Loan shall be paid (i) quarterly in arrears on the last Business Day of each March, June, September and December, commencing December 31, 1997 for each Base Rate Loan, (ii) on the last day of the applicable Interest Period for each Eurodollar Rate Loan and, if such Interest Period extends for more than three (3) months, at intervals of three (3) months after the first day of such Interest Period, and (iii) upon payment in full of the principal amount of such Loan and termination of all commitments to make Loans hereunder. 2.3. Payment of Principal. The principal amount of each Revolving Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as specifically provided herein. The principal amount of each Line of Credit Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Line of Credit Termination Date, or earlier as specifically provided herein. The principal amount of any Base Rate Loan may be prepaid in whole or in part at any time. The principal amount of any Eurodollar Rate Loan may be prepaid only at the end of the applicable Interest Period unless the Borrower shall pay to the Agent for the account of the Lenders the additional amount, if any, required under Section 5.5. All prepayments of Loans made by the Borrower shall be in the amount of $1,000,000 or such greater amount which is an integral multiple of $500,000, or the amount equal to all Revolving Credit Outstandings or Line of Credit Outstandings, or such other amount as necessary to comply with Section 2.1(d) or Section 2.8. 2.4. Non-Conforming Payments. (a) Each payment of principal (including any prepayment) and payment of interest and fees, and any other amount required to be paid to the Lenders with respect to the Loans, shall be made to the Agent at the Principal Office, for the account of each Lender, in Dollars and in immediately available funds before 12:00 Noon on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to any ordinary deposit account, if any, of the Borrower with the Agent. (b) The Agent shall deem any payment made by or on behalf of the Borrower hereunder that is not made both in Dollars and in immediately available funds and prior to 12:00 Noon to be a non-conforming payment. Any such payment shall not be deemed to be received by the Agent until the later of (i) the time such funds become available funds and (ii) the next Business Day. Any non-conforming payment may, at the option of the Agent, constitute or become a Default or Event of Default provided, that, if the Agent determines such non-conforming payment to be a Default or Event of Default, the Agent will provide notification to the Borrower after such determination has been made. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until the later of (x) the date such funds become available funds or (y) the next Business Day at the Default Rate from the date such amount was due and payable. (c) In the event that any payment hereunder or under the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day unless provided otherwise under clause (ii) of the definition of "Interest Period"; provided that interest shall continue to accrue during the period of any such extension and provided 29 36 further, that in no event shall any such due date be extended beyond the Revolving Credit Termination Date or Line of Credit Termination Date, as the case may be. 2.5. Notes. (a) Revolving Loans made by each Lender shall be evidenced by the Revolving Note payable to the order of such Lender in the respective amount of its Applicable Commitment Percentage of the Revolving Credit Commitment, which Revolving Note shall be dated the Closing Date or a later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. (b) Line of Credit Loans made by each Lender shall be evidenced by the Line of Credit Note payable to the order of such Lender in the respective amount of its Applicable Commitment Percentage of the Line of Credit Commitment, which Line of Credit Note shall be dated the Closing Date or a later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. (c) Swing Line Loans made by NationsBank shall be evidenced by the Swing Line Note payable to the order of NationsBank in the principal amount of $5,000,000, which Swing Line Note shall be dated the Closing Date. 2.6. Pro Rata Payments. Except as otherwise provided herein, (a) each payment on account of the principal of and interest on the Loans and the fees described in Section 2.10 shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) all payments to be made by the Borrower for the account of each of the Lenders on account of principal, interest and fees, shall be made without diminution, setoff, recoupment or counterclaim, and (c) the Agent will promptly distribute to the Lenders in immediately available funds payments received in fully collected, immediately available funds from the Borrower. 2.7. Reductions. The Borrower shall, by notice from an Authorized Representative, have the right from time to time but not more frequently than once each calendar month, upon not less than three (3) Business Days' written notice to the Agent, effective upon receipt, to permanently reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed in writing), of such reduction. Each such reduction shall be in the aggregate amount of $5,000,000 or such greater amount which is in an integral multiple of $1,000,000, or the entire remaining Total Revolving Credit Commitment, and shall permanently reduce the Total Revolving Credit Commitment. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Revolving Loans to the extent that the principal amount of Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. No such reduction shall result in the payment of any Eurodollar Rate Loan other than on the last day of the Interest Period of such Eurodollar Rate Loan unless such prepayment is accompanied by amounts due, if any, under Section 5.5. 30 37 2.8. Conversions and Elections of Subsequent Interest Periods. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in Article V, the Borrower may: (a) upon delivery, effective upon receipt, of a properly completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. on any Business Day, Convert all or a part of Eurodollar Rate Loans under either the Revolving Credit Facility or the Line of Credit Facility to Base Rate Loans on the last day of the Interest Period for such Eurodollar Rate Loans; and (b) upon delivery, effective upon receipt, of a properly completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. three (3) Business Days' prior to the date of such election or Conversion: (i) elect a subsequent Interest Period for all or a portion of Eurodollar Rate Loans under either the Revolving Credit Facility or the Line of Credit Facility to begin on the last day of the then current Interest Period for such Eurodollar Rate Loans; and (ii) Convert Base Rate Loans under either the Revolving Credit Facility or the Line of Credit Facility to Eurodollar Rate Loans on any Business Day. Each election and Conversion pursuant to this Section 2.8 shall be subject to the limitations on Eurodollar Rate Loans set forth in the definition of "Interest Period" herein and in Sections 2.1, 2.3 and Article V. The Agent shall give written notice to each Lender of such notice of election or Conversion prior to 3:00 P.M. on the day such notice of election or Conversion is received. All such Continuations or Conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 2.9. Increase and Decrease in Amounts. The amount of the Total Revolving Credit Commitment which shall be available to the Borrower as Advances shall be reduced by the aggregate amount of Outstanding Letters of Credit and Outstanding Swing Line Loans. 2.10. Facility Fees. (a) Revolving Credit Facility. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, an unused fee equal to the Applicable Unused Fee for the Revolving Credit Facility multiplied by the average daily amount by which the Total Revolving Credit Commitment exceeds the sum of (i) Revolving Credit Outstandings without giving effect to Swing Line Outstandings plus (ii) Letter of Credit Outstandings. Such fees shall be due in arrears on the last Business Day of each March, June, September and December commencing December 31, 1997 to and on the Revolving Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to 31 38 receive payment of its pro rata share of such fee until such Lender shall make available such portion. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. (b) Line of Credit Facility. For the period beginning on the Closing Date and ending on the Line of Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, an unused fee equal to the Applicable Unused Fee for the Line of Credit Facility multiplied by the average daily amount by which the Total Line of Credit Commitment exceeds the aggregate principal amount of Line of Credit Outstandings. Such fees shall be due in arrears on the last Business Day of each March, June, September and December commencing December 31, 1997 to and on Line of Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Line of Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 2.11. Deficiency Advances. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan or fund its purchase of any Participation hereunder nor shall the Revolving Credit Commitment or Line of Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to advance funds to the Borrower under the Revolving Credit Facility or Line of Credit Facility as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the Revolving Note or Line of Credit Note, as the case may be, in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its Revolving Note or Line of Credit Note, as the case may be; provided that, upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from the most recent date or dates interest was paid to the Agent by the Borrower on each Loan comprising such deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the applicable Note of the Agent in full payment of such deficiency advance and the Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrower thereon. 2.12. Use of Proceeds. The proceeds of the Loans made pursuant to this Agreement shall be used by the Borrower to refinance existing debt, finance Permitted Acquisitions, and for general working capital needs and other corporate purposes, including letters of credit. 2.13. Line of Credit Extension. (a) Extension of Stated Termination Date. At the request of the Borrower the Lenders may, in their sole discretion, elect to extend the Stated Termination Date then in effect for additional periods of up to 364 days each; provided, however, that at no time shall the committed 32 39 term of the Line of Credit Facility exceed 364 days. The Borrower shall notify the Lenders of its request for such an extension by delivering to the Agent notice of such request signed by an Authorized Representative not more than ninety (90) days nor less than sixty (60) days prior to the Stated Termination Date then in effect. If the Lenders shall elect to so extend, the Agent shall notify the Borrower in writing within sixty (60) days of its receipt of such request for extension of the decision of the Lenders as to whether to extend the Stated Termination Date. Failure by any Lender to respond to a request for an extension shall constitute a refusal of such Lender to give its consent to such extension. Failure by the Agent to give such notice shall constitute refusal by the Lenders to extend the Stated Termination Date. In no event shall the Stated Termination Date extend beyond the Revolving Credit Termination Date. (b) Term Loan Option. In the event the Borrower fails to exercise its option to extend the Stated Termination Date or the Lenders fail to consent to such extension, the Borrower shall have the option to convert the Line of Credit Outstandings as of the Stated Termination Date into a term loan in the original principal amount equal to such Line of Credit Outstandings (the "Term Loan Option"). Line of Credit Loans so converted by the Borrower in accordance with this subsection (b) shall be referred to as the "Term Loans". The Term Loans shall mature on the Revolving Credit Termination Date. The Term Loans may be comprised of Base Rate Loans and Eurodollar Rate Loans as the Borrower may elect in accordance with the provisions hereof. The Term Loans shall bear interest on the same terms as the Line of Credit Loans prior to their conversion to Term Loans. Amounts repaid or prepaid on the Term Loans may not be reborrowed. For purposes of this Agreement, in the event the Borrower shall elect the Term Loan Option, then on and after the Line of Credit Termination Date (i) references herein to the "Total Line of Credit Commitment" shall mean the aggregate principal amount of the Term Loans as of the Line of Credit Termination Date less all payments made with respect to the Term Loans hereunder, (ii) references herein to "Line of Credit Commitment" shall mean, with respect to each Lender, the obligation of such Lender to make Term Loans in a principal amount equal to such Lender's Applicable Commitment Percentage of the aggregate Term Loans and (iii) references herein to the "Line of Credit Termination Date" shall mean the Term Loan Termination Date. 2.14. Swing Line. (a) Notwithstanding any other provision of this Agreement to the contrary, if and when there shall be more than one Lender under this Agreement, in order to administer the Revolving Credit Facility in an efficient manner and to minimize the transfer of funds between the Agent and the Lenders, NationsBank may make available Swing Line Loans to the Borrower prior to the Revolving Credit Termination Date. NationsBank shall not make any Swing Line Loan pursuant hereto (i) if to the actual knowledge of NationsBank the Borrower is not in compliance with all the conditions to the making of Revolving Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the Swing Line Outstandings exceed $5,000,000, (iii) if after giving effect to such Swing Line Loan, the sum of the Swing Line Outstandings, Revolving Credit Outstandings and Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment or (iv) if the number of Lenders is less than two. Swing Line Loans shall be limited to Base Rate Loans. The Borrower may borrow, repay and reborrow under this Section 2.14. Unless notified to the contrary by NationsBank, borrowings under the Swing Line shall be made in the minimum amount of $100,000 or, if greater, in amounts which are integral multiples of $50,000, or in the amount necessary to effect a Base Rate Refunding Loan, upon written request by telefacsimile 33 40 transmission, effective upon receipt, by an Authorized Representative of the Borrower made to NationsBank not later than 12:30 P.M. on the Business Day of the requested borrowing. Each such Borrowing Notice shall specify the amount of the borrowing and the date of borrowing, and shall be in the form of Exhibit D-2, with appropriate insertions. Unless notified to the contrary by NationsBank, each repayment of a Swing Line Loan shall be in a minimum amount of $100,000 and an integral multiple of $50,000 in excess thereof or the aggregate amount of all Swing Line Outstandings. If the Borrower instructs NationsBank to debit any demand deposit account of the Borrower in the amount of any payment with respect to a Swing Line Loan, or NationsBank otherwise receives repayment, after 12:30 P.M. on a Business Day, such payment shall be deemed received on the next Business Day. (b) Swing Line Loans shall bear interest at the Base Rate, the interest payable on Swing Line Loans is solely for the account of NationsBank, and all accrued and unpaid interest on Swing Line Loans shall be payable on the dates and in the manner provided in Sections 2.2(b) and 2.4 with respect to interest on Base Rate Loans. The Swing Line Outstandings shall be evidenced by the Note delivered to NationsBank pursuant to Section 2.5(c). (c) Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from NationsBank a Participation therein in an amount equal to that Lender's Applicable Commitment Percentage of such Swing Line Loan. Upon demand made by NationsBank, each Lender shall, according to its Applicable Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank its purchase price therefor in an amount equal to its Participation therein. Any Advance made by a Lender pursuant to demand of NationsBank of the purchase price of its Participation shall be deemed (i) provided that the conditions to making Revolving Loans shall be satisfied, a Base Rate Refunding Loan under Section 2.1 until the Borrower Converts such Base Rate Loan in accordance with the terms of Section 2.8, and (ii) in all other cases, the funding by each Lender of the purchase price of its Participation in such Swing Line Loan. The obligation of each Lender to so provide its purchase price to NationsBank shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. The Borrower, at its option and subject to the terms hereof, may request an Advance pursuant to Section 2.1 in an amount sufficient to repay Swing Line Outstandings on any date and the Agent shall provide from the proceeds of such Advance to NationsBank the amount necessary to repay such Swing Line Outstandings (which NationsBank shall then apply to such repayment) and credit any balance of the Advance in immediately available funds in the manner directed by the Borrower pursuant to Section 2.1(d)(ii). The proceeds of such Advances shall be paid to NationsBank for application to the Swing Line Outstandings and the Lenders shall then be deemed to have made Loans in the amount of such Advances. The Swing Line shall continue in effect until the Revolving Credit Termination Date, at which time all Swing Line Outstandings and accrued interest thereon shall be due and payable in full. 34 41 ARTICLE III Letters of Credit 3.1. Letters of Credit. The Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request of the Borrower to issue from time to time for the account of the Borrower Letters of Credit upon delivery to the Issuing Bank of an Application and Agreement for Letter of Credit relating thereto in form and content acceptable to the Issuing Bank; provided, that (i) the Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment and (ii) no Letter of Credit shall be issued if, after giving effect thereto, Letter of Credit Outstandings plus Revolving Credit Outstandings plus Swing Line Outstandings shall exceed the Total Revolving Credit Commitment. No Letter of Credit shall have an expiry date (including all rights of the Borrower or any beneficiary named in such Letter of Credit to require renewal) or payment date occurring later than the earlier to occur of one year after the date of its issuance or the fifth Business Day prior to the Revolving Credit Termination Date. 3.2. Reimbursement. (a) The Borrower hereby unconditionally agrees to pay to the Issuing Bank immediately on demand at the Principal Office all amounts required to pay all drafts drawn or purporting to be drawn under the Letters of Credit and all reasonable expenses incurred by the Issuing Bank in connection with the Letters of Credit, and in any event and without demand to place in possession of the Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by Section 2.1 and Swing Line Loans if permitted by Section 2.14) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Issuing Bank agrees to give the Borrower prompt notice of any request for a draw under a Letter of Credit. The Issuing Bank may charge any account the Borrower may have with it for any and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from time to time agreed to by the Issuing Bank and the Borrower; provided that to the extent permitted by Section 2.1(d)(iv) and Section 2.14, amounts shall be paid pursuant to Advances under the Revolving Credit Facility or, if the Borrower shall elect, by Swing Line Loans. The Borrower agrees to pay the Issuing Bank interest on any Reimbursement Obligations not paid when due hereunder at the Base Rate plus two percent (2.0%), or the maximum rate permitted by applicable law, if lower, such rate to be calculated on the basis of a year of 360 days for actual days elapsed. (b) In accordance with the provisions of Section 2.1(d), the Issuing Bank shall notify the Agent of any drawing under any Letter of Credit promptly following the receipt by the Issuing Bank of such drawing. (c) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of the Issuing Bank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay the Issuing Bank under Section 3.2(a), each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably 35 42 assume, and shall be unconditionally obligated to pay to the Issuing Bank as hereinafter described, its Applicable Commitment Percentage of the liability of the Issuing Bank under such Letter of Credit. (i) Each Lender (including the Issuing Bank in its capacity as a Lender) shall, subject to the terms and conditions of Article II, pay to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, an amount equal to its Applicable Commitment Percentage of any drawing under a Letter of Credit, such funds to be provided in the manner described in Section 2.1(d)(iv). (ii) Simultaneously with the making of each payment by a Lender to the Issuing Bank pursuant to Section 2.1(d)(iv)(B), such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest accrued prior to the date the Lender made its payment) in the related Reimbursement Obligation of the Borrower. The Reimbursement Obligations of the Borrower shall be immediately due and payable whether by Advances made in accordance with Section 2.1(d)(iv), Swing Line Loans made in accordance with Section 2.14, or otherwise. (iii) Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to Section 2.1(d)(iv) and this Section 3.2(c), and the right of the Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is obligated to pay but does not pay amounts to the Agent for the account of the Issuing Bank in full upon such request as required by Section 2.1(d)(iv) or this Section 3.2(c), such Lender shall, on demand, pay to the Agent for the account of the Issuing Bank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to Section 2.1(d) until such Lender pays such amount to the Agent for the account of the Issuing Bank in full at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank. (iv) In the event the Lenders have purchased Participations in any Reimbursement Obligation as set forth in clause (ii) above, then at any time payment (in fully collected, immediately available funds) of such Reimbursement Obligation, in whole or in part, is received by Issuing Bank from the Borrower, Issuing Bank shall promptly pay to each Lender an amount equal to its Applicable Commitment Percentage of such payment from the Borrower. (d) Promptly following the end of each calendar quarter, the Issuing Bank shall deliver to the Agent a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, the Issuing Bank shall deliver 36 43 to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Letter of Credit outstanding. (e) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article VI, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank consistent with the then current practices and procedures of the Issuing Bank with respect to similar letters of credit, and the Borrower shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures and shall not be in conflict with any of the express terms herein contained. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. (f) The Borrower agrees that Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. (g) Without limiting the generality of the provisions of Section 12.9, the Borrower hereby agrees to indemnify and hold harmless the Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which the Issuing Bank, such other Lender or the Agent may incur (or which may be claimed against the Issuing Bank, such other Lender or the Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay under any Letter of Credit after the presentation to it of a request for payment strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. The indemnification and hold harmless provisions of this Section 3.2(g) shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement. (h) Without limiting Borrower's rights as set forth in Section 3.2(g), the obligation of the Borrower to immediately reimburse the Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's right to receive such payment shall be absolute, unconditional and irrevocable, and that such obligations of the Borrower shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related Applications and Agreement for any Letter of Credit, under all circumstances whatsoever, including the following circumstances: 37 44 (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related LC Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related LC Documents; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person, whether in connection with the Loan Documents, the Related LC Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Agent, with or without notice to or approval by the Borrower in respect of any of Borrower's Obligations under this Agreement. 3.3. Letter of Credit Facility Fees. The Borrower shall pay to the Agent, (i) for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each outstanding Letter of Credit at a rate equal to the Applicable Margin for Eurodollar Rate Loans that are Revolving Credit Loans and (ii) for the Issuing Bank a fee equal to an amount agreed to from time to time by the Borrower and the Issuing Bank based on the aggregate amount available to be drawn on each outstanding Letter of Credit provided, however, in no event shall such fee exceed 1% per annum on the aggregate amount available to be drawn on each outstanding Letter of Credit. Such fees shall be due with respect to each Letter of Credit quarterly in arrears on the last day of each March, June, September and December, the first such payment to be made on the first such date occurring after the date of issuance of a Letter of Credit. The fees described in this Section 3.3 shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 38 45 ARTICLE IV Security 4.1. Facility Guaranty. To guarantee the full and timely payment and performance of all Obligations now existing or hereafter arising, the Borrower shall cause the Facility Guaranty to be delivered by each Subsidiary other than those Subsidiaries listed on Schedule 4.1, in form and substance reasonably acceptable to the Agent, on or before the Closing Date. The Borrower hereby agrees to cause a Facility Guaranty to be delivered by any hereafter acquired or created Subsidiary or upon any previously existing Person becoming a Subsidiary pursuant to the terms of Section 8.19 hereof. 4.2. Stock Pledge. As security for the full and timely payment and performance of (i) all Obligations now existing or hereafter arising under the Loan Documents and (ii) certain Guarantors' obligations under the Facility Guaranty, the Borrower and each Subsidiary owning any Pledged Stock shall on or before the Closing Date deliver to the Agent, in substantially the form of Exhibit J hereto, the Pledge Agreement together with certificates representing such Pledged Stock and stock powers duly executed in blank as may be required by the Agent in accordance with the terms hereof and thereof. In addition to any Pledge Agreement required to be delivered pursuant to Section 8.19 hereof, the Borrower and each Subsidiary hereby agree to pledge to the Agent for the benefit of the Lenders (x) 100% of the capital stock and related interests and rights of any domestic Subsidiary hereafter acquired or created and owned directly or indirectly by Borrower and (y) 65% of the Voting Stock and 100% of the non-voting common stock and related interests and rights of any foreign Subsidiary owned by the Borrower or any domestic Subsidiary hereafter acquired or created and, in each case, to deliver to the Agent a Pledge Agreement in substantially the form of Exhibit J hereto and content acceptable to the Agent within thirty (30) days of the acquisition or creation of such domestic Subsidiary or foreign Subsidiary, as the case may be. 4.3. Pledge of Partnership Interests. (a) As security for the full and timely payment and performance of (i) all Obligations now existing or hereafter arising and (ii) if applicable, the Guarantors' Obligations under the Guaranty Agreement, the Borrower and each Person owning any Assigned Interests shall on or before the Closing Date deliver to the Agent, in substantially the form of Exhibit L, a Collateral Assignment of Partnership Interests together with a Receipt and Certificate of Registrar as may be required by the Agent, which Collateral Assignment of Partnership Interests shall pledge to the Agent for the benefit of the Lenders 100% of the ownership interests and rights in certain limited partnerships in accordance with the terms hereof. (b) The Borrower and each Subsidiary hereby agree to collaterally assign to the Agent for the benefit of the Lenders 100% of the ownership interests and rights in limited partnership and joint ventures hereafter acquired or created which are deemed Subsidiaries hereunder and to deliver to the Agent a Collateral Assignment of Partership Interests substantially in the form of Exhibit L hereto within thirty (30) days of the acquisition or creation of such Subsidiary pursuant to the terms of Section 8.19. 39 46 4.4. Further Assurances. At the request of the Agent, the Borrower will or will cause its Subsidiaries, as the case may be to execute, by its duly authorized officers, alone or with the Agent, any certificate, instrument, statement or document, or to procure any such certificate, instrument, statement or document, or to take such other action (and pay all reasonable connected costs) which the Agent reasonably deems necessary from time to time to create, continue or preserve the liens and security interests in Collateral (and the perfection and priority thereof) of the Agent contemplated hereby and by the other Loan Documents. 40 47 ARTICLE V Change in Circumstances 5.1. Increased Cost and Reduced Return. (a) Except with respect to Taxes (as defined in Section 5.6(a)), as to which the provisions of Section 5.6 shall apply, if, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar Rate Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Rate Loans (other than taxes of the type described in clauses (i) through (iv) of Section 5.6(a) imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Revolving Credit Commitment and Line of Credit Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Eurodollar Rate Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Rate Loans, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 5.1(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Eurodollar Rate Loans, or to Convert Base Rate Loans into Eurodollar Rate Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 5.4 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested with respect to outstanding Eurodollar Rate Loans. 41 48 (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation would have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 5.1 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 5.1 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 5.2. Limitation on Types of Loans. If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Rate Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Rate Loans, Continue Eurodollar Rate Loans, or to Convert Base Rate Loans into Eurodollar Rate Loans and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the affected and outstanding Eurodollar Rate Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with the terms of this Agreement. 5.3. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans into Eurodollar Rate Loans shall be suspended until such time as such Lender may again make, 42 49 maintain, and fund Eurodollar Rate Loans (in which case the provisions of Section 5.4 shall be applicable). 5.4. Treatment of Affected Loans. If the obligation of any Lender to make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other Type into, Eurodollar Rate Loans of a particular Type shall be suspended pursuant to Section 5.1 or 5.3 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 5.3 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.1 or 5.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 5.1 or 5.3 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 5.4 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Revolving Credit and Line of Credit Commitments. 5.5. Compensation. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Rate Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.1) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article VI to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Rate Loan on the date for such borrowing, Conversion, 43 50 Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. 5.6. Taxes. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, (i) franchise taxes, (ii) in addition to the taxes described in clauses (i), (iii) and (iv) of this Section 5.6(a), any taxes (other than withholding taxes) that would not be imposed but for a connection between the Lender or the Agent and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of such Lender or the Agent pursuant to or in respect of this Agreement or any other Loan Document), (iii) any taxes imposed on or with respect to or measured by the Agent's or any Lender's assets, income, receipts, gains, capital, net worth or profits, and (iv) any taxes arising after the Closing Date solely as a result of or attributable to a Lender changing its designated lending office after the Lender becomes a party hereto (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Agent, (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 5.6) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 12.2, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all stamp or documentary taxes and any other excise or property taxes or charges or similar levies (specifically excluding, without limitation, any Taxes of the type described in clauses (i) through (iv) of Section 5.6(a)) which are imposed on the execution or delivery of this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) If the Borrower fails to pay any Taxes or Other Taxes (collectively, "Indemnifiable Taxes") when due to the appropriate taxing authority (as required by Section 5.6(a) or Section 5.6(b), respectively, the Borrower agrees to indemnify each Lender and the Agent for the full amount of such Indemnifiable Taxes (including, without limitation, any such Indemnifiable Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 5.6) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, (x) on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, (y) on or prior to the date such Lender changes its Applicable Lending Office, and (z) from time to time thereafter if requested in writing by the Borrower or the Agent (but 44 51 only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) two properly completed and duly executed copies of Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) two properly completed and duly executed copies of Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) two properly completed and duly executed copies of any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 5.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 5.6(a) or 5.6(b) with respect to Indemnifiable Taxes; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Indemnifiable Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Indemnifiable Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 5.6, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the reasonable judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Indemnifiable Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 5.6 shall survive the termination of the Revolving Credit and Line of Credit Commitments and the payment in full of the Notes. 5.7. Replacement Banks. The Borrower may, in its sole discretion, on ten (10) Business Days' prior written notice to the Agent and a Lender, cause a Lender who has incurred increased costs or is unable to make Eurodollar Rate Loans to (and such Lender shall) assign, pursuant to Section 12.1, all of its rights and obligations under this Agreement to an Eligible Assignee designated by the Borrower which is willing to become a Lender for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans, any accrued but unpaid fees with respect to such Lender's Revolving Credit Commitment and 45 52 any other amount payable to such Lender under this Agreement; provided, however, that any expenses or other amounts which would be owing to such Lender pursuant to any indemnification provision hereof (including, if applicable, Section 5.5) shall be payable by the Borrower as if the Borrower had prepaid the Loans of such Lender rather than such Lender having assigned its interest hereunder. The assignee shall pay the applicable processing fee under Section 12.1. 46 53 ARTICLE VI Conditions to Making Loans and Issuing Letters of Credit 6.1. Conditions of Initial Advance. The obligation of the Lenders to make the initial Advance under the Revolving Credit Facility and the Line of Credit Facility, and of the Issuing Bank to issue any Letter of Credit, and of NationsBank to make any Swing Line Loan, is subject to the conditions precedent that: (a) the Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the initial Facility Guaranties, the Security Instruments, the LC Account Agreement and the other Loan Documents, together with all schedules and exhibits thereto; (ii) the written opinion or opinions with respect to the Loan Documents and the transactions contemplated thereby of special counsel to the Loan Parties dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to the Agent, substantially in the form of Exhibit G; (iii) resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of each Loan Party certified by its secretary or assistant secretary as of the Closing Date, approving and adopting the Loan Documents to be executed by such Person, and authorizing the execution and delivery thereof; (iv) specimen signatures of the officers of each of the Loan Parties executing the Loan Documents on behalf of such Loan Party, certified by the secretary or assistant secretary of such Loan Party; (v) the charter documents of each of the Loan Parties certified as of a recent date by the Secretary of State of its state of organization; (vi) the bylaws of each of the Loan Parties certified as of the Closing Date as true and correct by its secretary or assistant secretary; (vii) certificates issued as of a recent date by the Secretaries of State of the respective jurisdictions of formation of each of the Loan Parties as to the due existence and good standing of such Person; (viii) appropriate certificates of qualification to do business and as to good standing issued in respect of each of the Loan Parties as of a recent date by the Secretary of State or comparable official of each jurisdiction in which the failure to 47 54 be qualified to do business or authorized so to conduct business could have a Material Adverse Effect; (ix) notice of appointment of the initial Authorized Representative(s); (x) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 9.1(a) through 9.1(c) as of the most recent quarter end, substantially in the form of Exhibit H; (xi) an initial Borrowing Notice, if any, and, if elected by the Borrower, Interest Rate Selection Notice; (xii) all stock certificates evidencing Pledged Stock, accompanied by duly executed stock powers (or other appropriate transfer documents) in blank affixed thereto; (xiii) Certificate and Receipt of Registrar of all of the Assigned Interests; (xiv) evidence that all fees payable by the Borrower on the Closing Date to the Agent and the Lenders have been paid in full; (xv) evidence of insurance required by the Loan Documents; and (xvi) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby. (b) In the good faith judgment of the Agent: (i) there shall not have occurred or become known to the Agent or the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent after September 30, 1997 and prior to the Closing Date that has had or could reasonably be expected to result in a Material Adverse Effect; (ii) there shall not have occurred or become known to the Agent or the Lenders any disruption or adverse change in the financial or capital markets generally prior to the Closing Date that has had or could reasonably be expected to result in a Material Adverse Effect; (iii) no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be likely to result in a Material Adverse Effect; 48 55 (iv) the Loan Parties shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (A) any applicable law, rule, regulation, order or decree of any Governmental Authority or arbitral authority or (B) any agreement, document or instrument to which any of the Loan Parties is a party or by which any of them or their properties is bound; and (v) the Agent shall have completed all due diligence with respect to the Borrower and its Subsidiaries in scope and determination satisfactory to NationsBank in its sole discretion. 6.2. Conditions of Revolving Loans, Line of Credit Loans and Letter of Credit. The obligations of the Lenders to make any Revolving Loans and Line of Credit Loans and the Issuing Bank to issue Letters of Credit and NationsBank to make Swing Line Loans, hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent or, in the case of Swing Line Loans, NationsBank shall have received a Borrowing Notice if required by Article II; (b) the representations and warranties of the Loan Parties set forth in Article VII and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance, Swing Line Loan or Letter of Credit issuance or renewal, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 7.6(a)(i) shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 8.1 from the date financial statements are delivered to the Agent and the Lenders in accordance with such Section; (c) in the case of the issuance of a Letter of Credit, the Borrower shall have executed and delivered to the Issuing Bank an Application and Agreement for Letter of Credit in form and content acceptable to the Issuing Bank together with such other instruments and documents as it shall request; (d) at the time of (and after giving effect to) each Advance, Swing Line Loan or the issuance of a Letter of Credit, no Default or Event of Default specified in Article X shall have occurred and be continuing; and (e) immediately after giving effect to: (i) a Revolving Loan, the aggregate principal balance of all outstanding Revolving Loans for each Lender shall not exceed such Lender's Revolving Credit Commitment; 49 56 (ii) a Line of Credit Loan, the aggregate principal balance of all outstanding Line of Credit Loans for each Lender shall not exceed such Lender's Line of Credit Commitment; (iii) a Letter of Credit or renewal thereof, the aggregate principal balance of all outstanding Participations in Letters of Credit and Reimbursement Obligations (or in the case of the Issuing Bank, its remaining interest after deduction of all Participations in Letters of Credit and Reimbursement Obligations of other Lenders) for each Lender and in the aggregate shall not exceed, respectively, (X) such Lender's Letter of Credit Commitment or (Y) the Total Letter of Credit Commitment; (iv) a Swing Line Loan, the Swing Line Outstandings shall not exceed $5,000,000; (v) a Revolving Loan, Swing Line Loan or a Letter of Credit or renewal thereof, the sum of Letter of Credit Outstandings plus Revolving Credit Outstandings plus Swing Line Outstandings shall not exceed the Total Revolving Credit Commitment; and (vi) a Line of Credit Loan, all Line of Credit Outstandings shall not exceed the Total Line of Credit Commitment. 50 57 ARTICLE VII Representations and Warranties The Borrower represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans), that: 7.1. Organization and Authority. (a) The Borrower and each Subsidiary is a corporation or partnership duly organized and validly existing under the laws of the jurisdiction of its formation; (b) The Borrower and each Subsidiary (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a Material Adverse Effect; (c) The Borrower has the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents to which it is a party; (d) Each Guarantor has the power and authority to execute, deliver and perform the Facility Guaranty and each of the other Loan Documents to which it is a party; and (e) When executed and delivered, each of the Loan Documents to which any Loan Party is a party will be the legal, valid and binding obligation or agreement, as the case may be, of such Loan Party, enforceable against such Loan Party in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether considered in a proceeding at law or in equity); 7.2. Loan Documents. The execution, delivery and performance by each Loan Party of each of the Loan Documents to which it is a party: (a) have been duly authorized by all requisite corporate action (including any required shareholder approval) of such Loan Party required for the lawful execution, delivery and performance thereof; (b) do not violate any provisions of (i) applicable law, rule or regulation, (ii) any judgment, writ, order, determination, decree or arbitral award of any Governmental Authority or arbitral authority binding on such Loan Party or its properties, or (iii) the charter documents or bylaws of such Loan Party; 51 58 (c) does not and will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time or both, would constitute an event of default, under any contract, indenture, agreement or other instrument or document to which such Loan Party is a party, or by which the properties or assets of such Loan Party are bound; and (d) does not and will not result in the creation or imposition of any Lien upon any of the properties or assets of such Loan Party or any Subsidiary except any Liens in favor of the Agent and the Lenders created by the Security Instruments; 7.3. Solvency. Each Loan Party is Solvent after giving effect to the transactions contemplated by the Loan Documents; 7.4. Subsidiaries and Stockholders. The Borrower has no Subsidiaries other than those Persons listed as Subsidiaries in Schedule 7.4 and no additional Subsidiaries will be created or acquired after the Closing Date except in compliance with Section 8.19; Schedule 7.4 states as of the date hereof the organizational form of each entity, the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and/or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or other equity interest owned by Borrower or by any such Subsidiary; the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable; and Borrower and each such Subsidiary owns beneficially and of record all the shares and other interests it is listed as owning in Schedule 7.4, free and clear of any Lien other than Liens permitted under Section 9.3; 7.5. Ownership Interests. Borrower owns no interest in any Person other than the Persons listed in Schedule 7.4, equity investments in Persons not constituting Subsidiaries permitted under Section 9.6 and no additional Subsidiaries will be created or acquired after the Closing Date except in compliance with Section 8.19; 7.6. Financial Condition. (a) The Borrower has heretofore furnished to each Lender audited consolidated balance sheets of the Borrower and its Subsidiaries as at December 31, 1996 and the notes thereto and the related consolidated statements of operations, stockholders' equity and cash flows for the Fiscal Year then ended as examined and certified by KPMG Peat Marwick, L.L.P., and unaudited consolidated interim financial statements of the Borrower and its Subsidiaries consisting of consolidated balance sheets and related consolidated statements of income, stockholders' equity and cash flows, in each case without notes, for and as of the end of the three (3) month period ending September 30, 1997. Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Borrower and its Subsidiaries as of the end of such Fiscal Year and three (3) month period and results of their operations and the changes in its stockholders' equity for the Fiscal Year and interim period then ended, all in conformity with GAAP applied on a 52 59 Consistent Basis, subject however, in the case of unaudited interim statements to year end audit adjustments; (b) since September 30, 1997 there has been no material adverse change in the condition, financial or otherwise, of the Borrower or any of its Subsidiaries, taken as a whole, or in the businesses, properties, performance, prospects or operations of the Borrower or its Subsidiaries, taken as a whole, nor have such businesses or properties been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; and (c) except as set forth in the financial statements referred to in Section 7.6(a) or in Schedule 7.6 or permitted by Section 9.4, neither Borrower nor any Subsidiary has incurred, other than in the ordinary course of business, any material Indebtedness, Contingent Obligation or other commitment or liability which remains outstanding or unsatisfied; 7.7. Title to Properties. The Borrower and each of its Subsidiaries has good and marketable title to all its real and personal properties, subject to no transfer restrictions or Liens of any kind, except for the transfer restrictions and Liens described in Schedule 7.7 and Liens permitted by Section 9.3; 7.8. Taxes. The Borrower and each of its Subsidiaries has filed or caused to be filed all federal, state and local tax returns which are required to be filed by it and, except for taxes and assessments being contested in good faith by appropriate proceedings diligently conducted and against which reserves reflected in the financial statements described in Section 7.6(a) and satisfactory to the Borrower's independent certified public accountants have been established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due; 7.9. Other Agreements. Neither the Borrower nor any Subsidiary is (a) a party to or subject to any judgment, order, decree, agreement, lease or instrument, or subject to other restrictions, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect; or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Borrower or any Subsidiary is a party, which default has, or if not remedied within any applicable grace period could reasonably be likely to have, a Material Adverse Effect; 7.10. Litigation. Except as set forth in Schedule 7.10, there is no action, suit, or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending, or, to the knowledge of the Borrower, threatened by or against the Borrower or any Subsidiary or affecting the Borrower or any Subsidiary or any properties or rights of the Borrower or any Subsidiary or to the knowledge of the Borrower any investigation pending or threatened, 53 60 which could reasonably be likely to have a Material Adverse Effect on the Borrower and its Subsidiaries, taken as a whole; 7.11. Margin Stock. The proceeds of the borrowings made hereunder will be used by the Borrower only for the purposes expressly authorized herein. Except as expressly authorized herein, none of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a Apurpose credit@ within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor any agent acting in its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof; 7.12. Investment Company. No Loan Party is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. Section 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrower and the performance by the Borrower and the other Loan Parties of the transactions contemplated by the Loan Documents will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof; 7.13. Patents, Etc. The Borrower and each Subsidiary owns or has the right to use, under valid license agreements or otherwise, all material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights necessary to or used in the conduct of its businesses, without known conflict with any patent, license, franchise, trademark, trade secret, trade name, copyright, other proprietary right of any other Person; 7.14. No Untrue Statement. Neither (a) this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of any Loan Party in accordance with or pursuant to any Loan Document nor (b) any statement, representation, or warranty (written or oral) provided or made to the Agent by or on behalf of any Loan Party in connection with the negotiation or preparation of the Loan Documents contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such warranty, representation or statement contained therein not misleading; 7.15. No Consents, Etc. Neither the respective businesses or properties of the Borrower or any Subsidiary, nor any relationship among the Borrower or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Loan Documents and the transactions contemplated thereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person on the part of the Borrower as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by the Loan Documents, which, if not obtained or 54 61 effected, would be reasonably likely to have a Material Adverse Effect, or if so, such consent, approval, authorization, filing, registration or qualification has been duly obtained or effected, as the case may be; 7.16. Employee Benefit Plans. (a) The Borrower and each ERISA Affiliate is in material compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder and in material compliance with all Foreign Benefit Laws with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code. No material liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (b) Neither the Borrower nor any ERISA Affiliate has (i) engaged in a nonexempt prohibited transaction described in Section 4975 of the Code or Section 406 of ERISA affecting any of the Employee Benefit Plans or the trusts created thereunder which could subject any such Employee Benefit Plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA, (ii) incurred any accumulated funding deficiency with respect to any Employee Benefit Plan, whether or not waived, or any other liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (iii) failed to make a required contribution or payment to a Multiemployer Plan, or (iv) failed to make a required installment or other required payment under Section 412 of the Code, Section 302 of ERISA or the terms of such Employee Benefit Plan; (c) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan, and neither the Borrower nor any ERISA Affiliate has incurred any unpaid withdrawal liability with respect to any Multiemployer Plan; (d) The present value of all vested accrued benefits under each Employee Benefit Plan which is subject to Title IV of ERISA, did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such Employee Benefit Plan allocable to such benefits; (e) To the best of the Borrower's knowledge, each Employee Benefit Plan subject to Title IV of ERISA, maintained by the Borrower or any ERISA Affiliate, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA and other applicable laws, regulations and rules; 55 62 (f) The consummation of the Loans and the issuance of the Letters of Credit provided for herein will not involve any prohibited transaction under ERISA which is not subject to a statutory or administrative exemption; and (g) No material proceeding, claim, lawsuit and/or investigation exists or, to the best knowledge of the Borrower after due inquiry, is threatened concerning or involving any Employee Benefit Plan; 7.17. No Default. As of the date hereof, there does not exist any Default or Event of Default hereunder. 7.18. Hazardous Materials. The Borrower and each Subsidiary is in material compliance with all applicable Environmental Laws in all material respects. Neither the Borrower nor any Subsidiary has received written notice of any action, suit, proceeding or investigation which (i) alleges that Borrower or any Subsidiary is not in compliance with applicable Environmental Laws, which noncompliance, if proven, would have a Material Adverse Effect; (ii) seeks to suspend, revoke, or terminate any license, permit, or approval necessary for the generation, handling, storage, treatment or disposal of Hazardous Material, and which, if suspended, revoked or terminated would have Material Adverse Effect; or (iii) seeks to impose on any property owned by Borrower or any Subsidiary, a material restriction on the ownership, use, occupancy, or transferability under applicable Environmental Laws, which restriction would have Material Adverse Effect. 7.19. Employment Matters. (a) None of the employees of the Borrower or any Subsidiary is subject to any collective bargaining agreement a dispute under which is reasonably likely to result in a Material Adverse Effect and there are no strikes, work stoppages, election or decertification petitions or proceedings, unfair labor charges, equal opportunity proceedings, or other material labor/employee related controversies or proceedings pending or, to the best knowledge of the Borrower, threatened against the Borrower or any Subsidiary or between the Borrower or any Subsidiary and any of its employees, other than employee grievances arising in the ordinary course of business which could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and (b) Except to the extent a failure to maintain compliance would not have a Material Adverse Effect, the Borrower and each Subsidiary is in compliance in all material respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation and there is neither pending or threatened any litigation, administrative proceeding nor, to the knowledge of the Borrower, any investigation, in respect of such matters which, if decided adversely, could reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect. 7.20. RICO. Neither the Borrower nor any Subsidiary is engaged in or has engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws. 56 63 7.21. Security Interests. Subject to the Agent taking such actions as may be necessary to perfect its interest, the Security Instruments create valid and perfected security interests in favor of the Agent, for the benefit of the Lenders, in the Pledged Stock and Assigned Interests, subject to no other security interest, lien, encumbrance or adverse claim of record noted in the stock record books (other than restrictions on transfer imposed by applicable securities laws) and no filings or recordations are necessary to perfect the security interests created by the Pledge Agreement in the Pledged Stock other than such filings or recordations as have already been made. 57 64 ARTICLE VIII Affirmative Covenants Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and where applicable will cause each Subsidiary to: 8.1. Financial Reports, Etc. (a) As soon as practical and in any event within 90 days after the end of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent, with sufficient copies for each Lender of, (i) a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such Fiscal Year, and the notes thereto, and the related consolidated statements of operations, stockholders' equity and cash flows, and the respective notes thereto, for such Fiscal Year, setting forth comparative financial statements for the preceding Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis and containing, opinions of KPMG Peat Marwick L.L.P., or other such independent certified public accountants selected by the Borrower and approved by the Agent, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrower and without any exception not reasonably acceptable to the Lenders, and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 9.1(a) through 9.1(c) and Section 9.2, which certificate shall be in the form of Exhibit H; (b) as soon as practical and in any event within 45 days after the end of each fiscal quarter (except the last fiscal quarter of the Fiscal Year), deliver to the Agent with sufficient copies for each Lender (i) a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal quarter and for the period from the beginning of the then current Fiscal Year through the end of such reporting period and setting forth comparative statements for the comparative time period in the preceding Fiscal Year, and accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as of the end of such fiscal period and the results of their operations and the changes in their financial position for such fiscal period, in conformity with the standards set forth in Section 7.6(a) with respect to interim financial statements, and (ii) a certificate of an Authorized Representative containing computations for such quarter comparable to that required pursuant to Section 8.1(a)(ii); (c) together with each delivery of the financial statements required by Section 8.1(a)(i), deliver to the Agent, with sufficient copies for each Lender a letter from the Borrower's accountants specified in Section 8.1(a)(i) stating that in performing the audit necessary to render an opinion on the financial statements delivered under Section 8.1(a)(i), they obtained no knowledge of any Default or Event of Default by the Borrower in the fulfillment of the terms and provisions of this Agreement insofar as they relate to financial matters (which at the date of such statement remains uncured); or if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; 58 65 (d) promptly upon their becoming available to the Borrower, the Borrower shall deliver to the Agent with sufficient copies for each Lender a copy of (i) all regular or special reports or effective registration statements which Borrower or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, (ii) any proxy statement distributed by the Borrower or any Subsidiary to its shareholders, bondholders or the financial community in general, and (iii) any management letter submitted to the Borrower by independent accountants in connection with any annual, interim or special audit of the Borrower; (e) promptly, from time to time, deliver or cause to be delivered to the Agent and each Lender such other information regarding Borrower's and any Subsidiary's operations, business affairs and financial condition as the Agent or such Lender may reasonably request; and (f) promptly notify the Agent of the termination of any contract, the loss of which would have a Material Adverse Effect on the Borrower and its Subsidiaries taken as a whole; Subject to Section 12.14, the Agent and the Lenders are hereby authorized to deliver a copy of any such financial or other information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Agent, to any Governmental Authority having jurisdiction over the Agent or any of the Lenders pursuant to any written request therefor or in the ordinary course of examination of loan files, or to any other Person who shall acquire or consider the assignment of, or acquisition of any participation interest in, any Obligation permitted by this Agreement; 8.2. Maintain Properties. Maintain all properties necessary to its operations in good working order and condition, make all needed repairs, replacements and renewals to such properties to the extent failure to do so would have a Material Adverse Effect, and maintain free from Liens, except those permitted under Section 9.3, all trademarks, trade names, patents, copyrights, trade secrets, know-how, and other intellectual property and proprietary information (or adequate licenses thereto), in each case as are reasonably necessary to conduct its business as currently conducted or as contemplated hereby, all in accordance with customary and prudent business practices. 8.3. Existence, Qualification, Etc. Except as otherwise expressly permitted under Section 9.7, do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, and maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which the failure to maintain such license or qualification would have a Material Adverse Effect. 8.4. Regulations and Taxes. Comply in all material respects with or contest in good faith all statutes and governmental regulations and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, would become a Lien not otherwise permitted under Section 9.3 against any of its properties except liabilities being contested in good faith by appropriate proceedings diligently conducted and against which adequate reserves acceptable to the Borrower's independent certified public accountants have been established unless and until any Lien resulting therefrom attaches to any of its property and becomes enforceable against its creditors. 59 66 8.5. Insurance. (a) Keep all of its insurable properties adequately insured at all times with responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner as are customarily insured against by similar businesses owning such properties similarly situated, (b) maintain general public liability insurance at all times with responsible insurance carriers against liability on account of damage to persons and property and (c) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes) such policies of insurance to have such limits, deductibles, exclusions, co-insurance and other provisions providing no less coverages than that specified in Schedule 8.5, such insurance policies to be in form reasonably satisfactory to the Agent. Each of the policies of insurance described in this Section 8.5 shall provide that the insurer shall give the Agent not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner. 8.6. True Books. Keep true books of record and account in which full, true and correct entries will be made of all of its dealings and transactions, and set up on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in interim as well as year-end financial statements. 8.7. Right of Inspection. Permit any Person designated by any Lender or the Agent to visit and inspect any of the properties, corporate books and financial reports of the Borrower or any Subsidiary and to discuss its affairs, finances and accounts with its principal officers and independent certified public accountants, all at reasonable times, at reasonable intervals and with reasonable prior notice. 8.8. Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any Governmental Authority with respect to the conduct of its business. 8.9. Governmental Licenses. Obtain and maintain all licenses, permits, certifications and approvals of all applicable Governmental Authorities which are material to the conduct of its business except those the failure of which to maintain would not have a Material Adverse Effect. 8.10. Covenants Extending to Other Persons. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Borrower in Sections 8.2 through 8.9, and 8.18 inclusive. 8.11. Officer's Knowledge of Default. Upon any Authorized Representative of the Borrower obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrower or any Subsidiary to any Lender, or any event, development or occurrence which could reasonably be expected to have a Material Adverse Effect, cause such Authorized Representative to promptly notify the Agent of the nature thereof, the period of existence thereof, and advise the Agent within three (3) Business Days what action the Borrower or such Subsidiary proposes to take with respect thereto. 60 67 8.12. Suits or Other Proceedings. Upon any Authorized Representative of the Borrower obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or any Subsidiary, or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any Subsidiary, making a claim or claims in an aggregate amount greater than $1,000,000 not otherwise covered by insurance, promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 8.13. Notice of Discharge of Hazardous Material or Environmental Complaint. Promptly provide to the Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Borrower or any Subsidiary relating to any (a) violation or alleged violation by the Borrower or any Subsidiary of any applicable Environmental Law; (b) release or threatened release by the Borrower or any Subsidiary, or at any facility or property owned or leased or operated by the Borrower or any Subsidiary, of any Hazardous Material, except where occurring in compliance with applicable Environmental Laws; or (c) liability or alleged liability of the Borrower or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials; in each case, if determined adversely against Borrower or any subsidiary is likely to result in a Material Adverse Effect. 8.14. Environmental Compliance. If the Borrower or any Subsidiary shall receive any letter, notice, complaint, order, directive, claim or citation alleging that the Borrower or any Subsidiary has violated any Environmental Law or is liable for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials, the Borrower shall, within the time period permitted by the applicable Environmental Law or the Governmental Authority responsible for enforcing such Environmental Law, remove or remedy, or cause the applicable Subsidiary to remove or remedy, such violation or release or satisfy such liability or shall be contesting in good faith such letter, notice, complaint, order, directive, claim or citation. 8.15. Indemnification. Without limiting the generality of Section 12.9, the Borrower hereby agrees to indemnify and hold the Agent and the Lenders, and their respective officers, directors, employees and agents, harmless from and against any and all claims, losses, penalties, liabilities, damages and expenses (including assessment and cleanup costs and reasonable attorneys' fees and disbursements) arising directly or indirectly from, out of or by reason of (a) the violation of any Environmental Law by the Borrower or any Subsidiary or with respect to any property owned, operated or leased by the Borrower or any Subsidiary or (b) the handling, storage, treatment, emission or disposal of any Hazardous Materials by or on behalf of the Borrower or any Subsidiary or on or with respect to property owned or leased or operated by the Borrower or any Subsidiary. The provisions of this Section 8.15 shall survive the Facility Termination Date and expiration or termination of this Agreement. 8.16. Further Assurances. At the Borrower's cost and expense, upon request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement, the Security Instruments and the other Loan Documents. 61 68 8.17. Employee Benefit Plans. (a) With reasonable promptness, and in any event within thirty (30) days thereof, give notice to the Agent of (a) the establishment of any new Pension Plan (which notice shall include a copy of such plan), (b) the commencement of contributions to any Employee Benefit Plan to which the Borrower or any of its ERISA Affiliates was not previously contributing, (c) any material increase in the benefits of any existing Employee Benefit Plan, (d) each funding waiver request filed with respect to any Employee Benefit Plan and all communications received or sent by the Borrower or any ERISA Affiliate with respect to such request and (e) the failure of the Borrower or any ERISA Affiliate to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code by the due date; (b) Promptly and in any event within fifteen (15) days of becoming aware of the occurrence or forthcoming occurrence of any (a) Termination Event or (b) nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan or any trust created thereunder, deliver to the Agent a notice specifying the nature thereof, what action the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (c) With reasonable promptness but in any event within fifteen (15) days for purposes of clauses (a), (b) and (c), deliver to the Agent copies of (a) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code, (b) all notices received by the Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (c) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan and (d) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. The Borrower will notify the Agent in writing within five (5) Business Days of the Borrower or any ERISA Affiliate obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA. 8.18. Continued Operations. Continue at all times to conduct its business and engage principally in the same or similar line or lines of business substantially as heretofore conducted. 8.19. New Subsidiaries. Within thirty (30) days of the acquisition or creation of any Subsidiary, cause to be delivered to the Agent for the benefit of the Lenders each of the following: (a) a Facility Guaranty executed by such Subsidiary substantially in the form of Exhibit I; 62 69 (b) (i) in the case that such Subsidiary is a corporation or otherwise issues certificated interests and is directly owned by the Borrower or a Subsidiary which has previously delivered a Pledge Agreement, a Pledge Agreement Supplement substantially in the form set forth in Exhibit A to Exhibit J of this Agreement and a revised Schedule I to the Pledge Agreement dated the date hereof together with stock certificates or other appropriate evidence of ownership representing 100% of the capital stock and related interests and rights of a domestic Subsidiary which are owned directly or indirectly by the Borrower and duly executed stock powers or powers of assignment in blank affixed thereto; or (ii) in the case that such Subsidiary is a corporation or otherwise issues certificated interests and is directly owned by a Subsidiary which has not previously delivered a Pledge Agreement, a Pledge Agreement substantially in the form of Exhibit J, with appropriate revisions as to the identity of the pledgor and securing Obligations of such Pledgor under its Facility Guaranty, together with stock certificates or other appropriate evidence of ownership representing 100% of the capital stock and related interests and rights of a domestic Subsidiary which are owned directly or indirectly by the Borrower and duly executed stock powers or powers of assignment in blank affixed thereto; (c) in the case that such Subsidiary is a partnership that has not issued certificates evidencing ownership of such partnership, the Collateral Assignment of Partnership Interests and Certificate and Receipt of Registrar of such partnership with respect to the registration of the Lien on Assigned Interests so long as such assignment is not prohibited by the governing documents of such partnership; (d) an opinion of counsel to the Subsidiary dated as of the date of delivery of the Facility Guaranty and other Loan Documents provided for in this Section 8.19 and addressed to the Agent and the Lenders, in form and substance reasonably acceptable to the Agent (which opinion may include assumptions and qualifications of similar effect to those contained in the opinions of counsel delivered pursuant to Section 6.1(a)), to the effect that: (i) such Subsidiary is duly organized, validly existing and in good standing in the jurisdiction of its formation, has the requisite power and authority to own its properties and conduct its business as then owned and then conducted and proposed to be conducted, and is duly qualified to transact business and is in good standing as a foreign corporation or partnership in each other jurisdiction in which the character of the properties owned or leased, or the business carried on by it, requires such qualification except where the failure to so qualify would not have a Material Adverse Effect; (ii) the execution, delivery and performance of the Facility Guaranty and other Loan Documents described in this Section 8.19 to which the Borrower or such Subsidiary is a signatory have been duly authorized by all requisite corporate or partnership action (including any required shareholder or partner approval), each of such agreements has been duly executed and delivered and constitutes the valid and binding agreement of the Borrower or such Subsidiary, enforceable against the 63 70 Borrower or such Subsidiary in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether considered in a proceeding at law or in equity); (e) current copies of the charter documents, including partnership agreements and certificate of limited partnership, if applicable, and bylaws of such Subsidiary, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such charter documents, bylaws or by applicable law, of the shareholders) of such Subsidiary authorizing the actions and the execution and delivery of documents described in this Section 8.19. 64 71 ARTICLE IX Negative Covenants Until the Obligations have been paid and satisfied in full, no Letters of Credit remain outstanding and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary to: 9.1. Financial Covenants. (a) Consolidated Shareholders= Equity. Permit Consolidated Shareholders' Equity, as at the last day of each fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, to be less than the sum of (A) 100% of Consolidated Shareholders' Equity at September 30, 1997 plus (B) 100% of the proceeds (reduced only by actual payments of reasonable, out-of-pocket issuance expenses) of each sale of equity interest (or securities other than those constituting Indebtedness exchangeable, convertible or exercisable into equity interests) in the Borrower or any Subsidiary, plus (C) 100% of Consolidated Net Income greater than -0- during the immediately preceding fiscal quarter of the Borrower ending on such day (including in Consolidated Net Income for purposes of this Section 9.1 only any net gain or credit of an extraordinary nature) minus (D) the amount of the purchase price of the common stock of the Borrower purchased pursuant to Section 9.8(i) so long as such stock is carried on the consolidated balance sheet as treasury stock. (b) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any Four-Quarter Period be less than 2.50 to 1.00. (c) Consolidated Leverage Ratio. Permit at any time the Consolidated Leverage Ratio to exceed 2.00 to 1.00. (d) Capital Expenditures. Permit Capital Expenditures to exceed $100,000,000 in any Fiscal Year. 9.2. Acquisitions. Enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition, or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition, except for Permitted Acquisitions. The approval of the Required Lenders, which approval shall be given in the Required Lenders' sole discretion, shall be required if the Cost of Acquisition for any single Acquisition shall exceed $35,000,000 or if such Acquisition shall cause the aggregate Cost of Acquisition for all Acquisitions in any Fiscal Year to exceed $150,000,000. 9.3. Liens. Incur, create or permit to exist any Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary, other than 65 72 (a) Liens created under the Security Instruments in favor of the Agent and the Lenders, and otherwise existing as of the date hereof and as set forth in Schedule 7.7; (b) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP and which Liens may not be executed upon the property subject thereto; (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 90 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP and which Liens may not be executed upon the property subject thereto; (d) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (e) easements (including reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower or any Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Subsidiary; (f) Liens on assets of Subsidiaries securing Indebtedness owed to the Borrower or a Guarantor; provided that if such Subsidiary is a Guarantor or such Subsidiary's stock is Pledged Stock, the promissory note evidencing such Indebtedness shall be pledged to the Agent as security for the Obligations; (g) purchase money Liens to secure Indebtedness permitted under Section 9.4(f) and incurred to purchase fixed assets or equipment, provided such Indebtedness represents not less than 75% and not more than 100% of the purchase price of such assets as of the date of purchase thereof and no property other than the assets so purchased secure such Indebtedness; and (h) Liens arising in connection with Capital Leases permitted under Section 9.4(g) provided that no such Lien shall extend to any property other than the property which is the subject to such Capital Leases. 66 73 9.4. Indebtedness. Incur, create, assume or permit to exist any Indebtedness of the Borrower, howsoever evidenced, except: (a) Indebtedness existing as of the Closing Date as set forth in Schedule 7.6; provided, none of the instruments and agreements evidencing or governing such Indebtedness shall be amended, modified or supplemented after the Closing Date to change any terms of subordination, repayment or rights of Conversion, put, exchange or other rights from such terms and rights as in effect on the Closing Date; (b) Indebtedness owing to the Agent or any Lender in connection with this Agreement, any Note or other Loan Document; (c) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (d) Indebtedness arising from Rate Hedging Obligations permitted under Section 9.14; (e) intercompany Indebtedness for loans and advances made by the Borrower or any Guarantor to the Borrower or any Guarantor, provided that such intercompany Indebtedness is evidenced by a promissory note or similar written instrument acceptable to the Agent which provides that such Indebtedness is subordinated to obligations, liabilities and undertakings of the holder or owner thereof under the Loan Documents on terms acceptable to the Agent; (f) purchase money Indebtedness in an aggregate amount not to exceed $1,000,000 at any time; (g) Capital Leases in an aggregate principal amount not to exceed $1,000,000; (h) Indebtedness of Guarantors guaranteed by the Borrower; and (i) Unsecured Indebtedness payable to the seller of Permitted Acquisition representing all or a portion of the purchase price of the Person or assets so acquired so long as such Indebtedness does not cause a Default or Event of Default and so long as the aggregate amount of such Indebtedness does not exceed $25,000,000. 9.5. Transfer of Assets. Sell, lease, transfer or otherwise dispose of any assets of Borrower or any Subsidiary other than (a) dispositions of inventory in the ordinary course of business, (b) dispositions of property that is substantially worn, damaged, obsolete or, in the judgment of the Borrower, no longer best used or useful in its business or that of any Subsidiary, (c) transfers of assets necessary to give effect to merger or consolidation transactions permitted by Section 9.7, and (d) the disposition of Eligible Securities in the ordinary course of management of the investment portfolio of the Borrower and its Subsidiaries. 67 74 9.6. Investments. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person, except that Borrower may maintain investments or invest in: (a) securities of any Person acquired in an Acquisition permitted hereunder; (b) Eligible Securities; (c) investments existing as of the date hereof and as set forth in Schedules 7.4 and 9.6; (d) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; and (e) loans to or investments in Subsidiaries which are Guarantors. 9.7. Merger or Consolidation. (a) Consolidate with or merge into any other Person, or (b) permit any other Person to merge into it, or (c) liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a substantial part of its assets (other than sales permitted under Section 9.5 (c)); provided, however, (i) any Subsidiary of the Borrower may merge or transfer all or substantially all of its assets into or consolidate with the Borrower or any wholly-owned Subsidiary of the Borrower, and (ii) any other Person may merge into or consolidate with the Borrower or any wholly-owned Subsidiary and any Subsidiary may merge into or consolidate with any other Person in order to consummate an Acquisition permitted by Section 9.2, provided further, that any resulting or surviving entity shall execute and deliver such agreements and other documents, including compliance with Section 8.19, and take such other action as the Agent may require to evidence or confirm its express assumption of the obligations and liabilities of its predecessor entities under the Loan Documents. 9.8. Restricted Payments. Make any Restricted Payment or apply or set apart any of their assets therefor or agree to do any of the foregoing, except as permitted under Section 9.6 except: (a) the purchase of common stock of the Borrower to make shares available pursuant to Borrower's 1998 Employee Stock Purchase Plan, so long as the total purchase price of such stock does not exceed $10,000,000 in the aggregate during any Fiscal Year; and (b) pro rata distributions to Persons owning a minority interest in any Subsidiary. 9.9. Transactions with Affiliates. Other than transactions permitted under Sections 9.6 and 9.7, enter into any transaction after the Closing Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Borrower, except (a) that such Persons may render services to the Borrower or its Subsidiaries 68 75 for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, (b) that the Borrower or any Subsidiary may render services to such Persons for compensation at the same rates generally charged by the Borrower or such Subsidiary and (c) in either case in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's (or any Subsidiary's) business consistent with past practice of the Borrower and its Subsidiaries and upon fair and reasonable terms no less favorable to the Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate. 9.10. Compliance with ERISA. With respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan: (a) permit the occurrence of any Termination Event which would result in a liability on the part of the Borrower or any ERISA Affiliate to the PBGC; or (b) permit the present value of all benefit liabilities under all Pension Plans to exceed the current value of the assets of such Pension Plans allocable to such benefit liabilities; or (c) permit any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether or not waived; or (d) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or (e) engage, or permit any Borrower or any ERISA Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or Sections 4975 of the Code for which a civil penalty pursuant to Section 502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be imposed; or (f) permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits or establish or amend any Employee Benefit Plan which establishment or amendment could result in liability to the Borrower or any ERISA Affiliate or increase the obligation of the Borrower or any ERISA Affiliate to a Multiemployer Plan; or (g) fail, or permit the Borrower or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance in all material respects with the provisions of ERISA, the Code, all applicable Foreign Benefit Laws and all other applicable laws and the regulations and interpretations thereof. 9.11. Fiscal Year. Change its Fiscal Year. 69 76 9.12. Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness other than the Obligations. 9.13. Change in Control. Cause, suffer or permit to exist or occur any Change of Control. 9.14. Rate Hedging Obligations. Incur any Rate Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Rate Hedging Obligations, except (i) pursuant to Swap Agreements or (ii) for Rate Hedging Obligations incurred to limit risks of currency or interest rate fluctuations to which the Borrower and its Subsidiaries are otherwise subject by virtue of the operations of their businesses, and not for speculative purposes. 9.15. Negative Pledge Clauses. Enter into or cause, suffer or permit to exist any agreement with any Person, other than the Agent and the Lenders pursuant to this Agreement or any other Loan Documents, which prohibits or limits the ability of any of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, provided that the Borrower and any Subsidiary may enter into such an agreement in connection with property subject to any Lien permitted by this Agreement and not released after the date hereof, when such prohibition or limitation is by its terms effective only against the assets subject to such Lien. 70 77 ARTICLE X Events of Default and Acceleration 10.1. Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority), that is to say: (a) if default shall be made in the due and punctual payment of the principal of any Loan, Reimbursement Obligation or other Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II or Article III, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan, Reimbursement Obligation or other Obligation or of any fees or other amounts payable to any of the Lenders or the Agent on the date on which the same shall be due and payable; or (c) if default shall be made in the performance or observance of any covenant set forth in Section 8.7, 8.11, 8.19 or Article IX; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Agent (which notice the Agent shall give on the request of any Lender), or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or any of the Lenders or delivered to the Agent or any of the Lenders in connection with or pursuant to this Agreement or any of the Obligations (beyond any applicable grace period), or if any Loan Document ceases to be in full force and effect (other than by reason of any action by the Agent), or if without the written consent of the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Lenders or the Agent); or (e) if there shall occur (i) a default, which is not waived, in the payment of any principal, interest, premium or other amount with respect to any Indebtedness or Rate Hedging Obligation (other than the Loans and other Obligations) of the Borrower or any Subsidiary in an amount not less than $100,000 in the aggregate outstanding, or (ii) a default, 71 78 which is not waived, in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which any such Indebtedness or Rate Hedging Obligation may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, or (iii) any other event of default as specified in any agreement or instrument under or pursuant to which any such Indebtedness or Rate Hedging Obligation may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, and such default or event of default referred to in clauses (i) through (iii) shall continue for more than the period of grace, if any, therein specified, or such default or event of default shall permit the holder of any such Indebtedness (or any agent or trustee acting on behalf of one or more holders) to accelerate the maturity thereof; or (f) if any representation, warranty or other statement of fact contained in any Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrower or any Subsidiary pursuant to or in connection with any Loan Document, or otherwise, shall be false in any material respect when given or shall fail to state a material fact; or (g) if the Borrower or any Subsidiary shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or any Subsidiary or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Borrower or any Subsidiary seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Borrower or any Subsidiary any proceeding or petition seeking reorganization, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of sixty (60) days; or if the Borrower or any Subsidiary takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) one or more judgments or orders where the amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $100,000 is rendered against the Borrower or any Subsidiary, or (ii) there is any attachment, injunction or execution against any of the Borrower's or Subsidiaries' properties for any amount in 72 79 excess of $100,000 in the aggregate; and such judgment, attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of thirty (30) days; or (j) if the Borrower or any Subsidiary shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of the Borrower and its Subsidiaries, taken as a whole, for a period of more than sixty (60) days; or (k) if the Borrower or any Subsidiary shall breach any of the material terms or conditions of any agreement under which any Rate Hedging Obligations permitted hereby is created and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such agreement; or (l) if there shall occur a Termination Event; or (m) if there shall occur and not be waived an Event of Default as defined in any of the other Loan Documents; or (n) if there shall occur a Change in Control; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (A) either or both of the following actions may be taken: (i) the Agent, with the consent of the Required Lenders, may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders and the Issuing Bank to make further Loans and Swing Line Loans or to issue additional Letters of Credit terminated, whereupon the obligation of each Lender to make further Loans, of NationsBank to make further Swing Line Loans, and of the Issuing Bank to issue additional Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrower to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to make Loans, of NationsBank to make Swing Line Loans, and of the Issuing Bank to issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice by the Agent or the Lenders; 73 80 (B) The Borrower shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in an amount equal to the amount of any Letter of Credit Outstandings, as collateral security for the repayment of any future drawings or payments under such Letters of Credit, and such amounts shall be held by the Agent pursuant to the terms of the LC Account Agreement; and (C) the Agent and each of the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 10.2. Agent to Act. In case any one or more Events of Default shall occur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 10.3. Cumulative Rights. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 10.4. No Waiver. No course of dealing between the Borrower and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 10.5. Allocation of Proceeds. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article X hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder, shall be applied by the Agent in the following order: (a) amounts due to the Lenders pursuant to Sections 2.10, 3.3 and 12.5; (b) amounts due to the Agent pursuant to Section 11.8; (c) payments of interest on Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders (with amounts payable in respect of Swing Line Outstandings being included in such calculation and paid to NationsBank); (d) payments of principal of Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders (with amounts payable in 74 81 respect of Swing Line Outstandings being included in such calculation and paid to NationsBank); (e) payments of cash amounts to the Agent in respect of outstanding Letters of Credit pursuant to Section 10.1(B); (f) amounts due to the Lenders pursuant to Sections 3.2(g), 8.15 and 12.9; (g) payments of all other amounts due under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; (h) amounts due to any of the Lenders in respect of Obligations consisting of liabilities under any Swap Agreement with any of the Lenders on a pro rata basis according to the amounts owed; and (i) any surplus remaining after application as provided for herein, to the Borrower or otherwise as may be required by applicable law. 75 82 ARTICLE XI The Agent 11.1. Appointment, Powers, and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.5 and the first sentence of Section 11.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Loan Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Loan Party or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 11.2. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telefacsimile) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Loan Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in 76 83 accordance with Section 12.1 hereof. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Loan Document or applicable law unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 11.3. Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 11.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 11.4. Rights as Lender. With respect to its Revolving Credit Commitment and Line of Credit Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Loan Party or any of its Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any Loan Party or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 11.5. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 12.9 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Revolving Credit and Line of Credit Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Loan Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 12.5, to the extent that the Agent is not promptly reimbursed for such costs 77 84 and expenses by the Borrower. The agreements contained in this Section 11.5 shall survive payment in full of the Loans and all other amounts payable under this Agreement. 11.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Loan Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Loan Party or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. 11.7. Resignation of Agent. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 11.8. Fees. The Borrower agrees to pay to the Agent, for its individual account, an annual Agent's administrative fee to administer borrowings hereunder not to exceed $5,000 per Lender with a minimum of $25,000 per year as from time to time agreed to by the Borrower and Agent in writing. 78 85 ARTICLE XII Miscellaneous 12.1. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Revolving Credit Commitment and Line of Credit Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $10,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Notes; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit B hereto, together with any Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement (other than the rights set forth in Sections 12.5 and 12.9). Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 5.6. (b) The Agent shall maintain at its address referred to in Section 12.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment and Line of Credit Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, 79 86 if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment, Line of Credit Commitment and its Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article V and the right of set-off contained in Section 12.3, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Revolving Credit Commitment or Line of Credit Commitment). No sale of any participation hereunder shall give rise to Taxes or increased costs payable by the Borrower under Section 5.6 hereof, or otherwise increase or expose the Borrower to any obligation or liability hereunder or reduce any rights or benefits to the Borrower hereunder. (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Subject to Section 12.14, any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). 12.2. Notices. Any notice shall be conclusively deemed to have been received by any party hereto and be effective (i) on the day on which delivered (including hand delivery by commercial courier service) to such party (against receipt therefor), (ii) on the date of receipt at such address, telefacsimile number or telex number as may from time to time be specified by such party in written notice to the other parties hereto or otherwise received), in the case of notice by telegram, telefacsimile or telex, respectively (where the receipt of such message is verified by return), or (iii) on the fifth Business Day after the day on which mailed, if sent prepaid by certified or registered mail, return receipt requested, in each case delivered, transmitted or mailed, as the case may be, to the address, telex number or telefacsimile number, as appropriate, set forth below or such other address or number as such party shall specify by notice hereunder: 80 87 (a) if to the Borrower: Lincare Holdings, Inc. 19337 US 19 North Suite 500 Clearwater, Florida 34624 Attn: Paul G. Gabos Telephone: (813) 530-7700 Telefacsimile: (813) 532-4091 (b) if to the Agent: NationsBank, National Association Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Jeff Strickland, Agency Services Telephone: (704) 388-1107 Telefacsimile: (704) 386-9923 (c) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance; (d) if to any other Loan Party, at the address set forth on the signature page of the Facility Guaranty or Security Instrument executed by such Loan Party, as the case may be. 12.3. Right of Set-off; Adjustments. (a) Upon the occurrence and during the continuance of any Event of Default, 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 indebtedness at any time owing by such Lender (or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 12.3 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether 81 88 voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this Section 12.3 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 12.4. Survival. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of Obligations remain outstanding or any Lender has any commitment hereunder or the Borrower has continuing obligations hereunder unless otherwise provided herein. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrower which are contained in the Loan Documents shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. 12.5. Expenses. The Borrower agrees to pay on demand all reasonable costs and expenses of the Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. 12.6. Amendments and Waivers. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if Article XI or the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Lenders, (i) increase the Revolving Credit Commitments or Line of Credit Commitments of the Lenders, (ii) reduce the principal of or rate of interest on any Loan or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Revolving Credit Commitment or Line of Credit Commitment, (iv) change the percentage of the Revolving Credit and Line of Credit Commitments or of the unpaid principal 82 89 amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section 12.6 or any other provision of this Agreement or (v) release any Guarantor or all or any material portion of the Collateral; and provided, further, that no such amendment or waiver that affects the rights, privileges or obligations of NationsBank as provider of Swing Line Loans, shall be effective unless signed in writing by NationsBank or that affects the rights, privileges or obligations of the Issuing Bank as issuer of Letters of Credit, shall be effective unless signed in writing by the Issuing Bank; Notwithstanding any provision of the other Loan Documents to the contrary, as between the Agent and the Lenders, execution by the Agent shall not be deemed conclusive evidence that the Agent has obtained the written consent of the Required Lenders. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. 12.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 12.8. Termination. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders under the Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable, which shall continue) or the Borrower has furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold the Agent or such Lender harmless for, the amount of such payment surrendered until the Agent or such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent or the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 83 90 12.9. Indemnification; Limitation of Liability. (a) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their affiliates and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 12.9 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees not to assert any claim against the Agent, any Lender, any of their affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans. (b) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 12.9 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. 12.10. Severability. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. 12.11. Entire Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto. 12.12. Agreement Controls. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any express term of this Agreement, the terms and provisions of this Agreement shall control to the extent of such conflict. 12.13. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the 84 91 outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be canceled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 12.14. Confidentiality. The Agent and each Lender (each, a "Lending Party") agrees to keep confidential any information furnished or made available to it by the Borrower pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any law, rule or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or demand or any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed participant or assignee. 12.15. GOVERNING LAW; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY SHALL BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE NOTWITHSTANDING ITS EXECUTION AND DELIVERY OUTSIDE SUCH STATE. 85 92 (B) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF PINELLAS, STATE OF FLORIDA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (C) THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE BORROWER PROVIDED IN SECTION 12.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF FLORIDA. (D) NOTHING CONTAINED IN SUBSECTIONS (A) OR (B) HEREOF SHALL PRECLUDE THE AGENT OR ANY LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN THE COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF THE BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE AVAILABLE UNDER APPLICABLE LAW. (E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH 86 93 PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. [Signatures on following pages] 87 94 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. LINCARE HOLDINGS INC. WITNESS: /s/ Terry J. Witcher By: /s/ Paul G. Gabos - ---------------------- -------------------------------- Name: Paul G. Gabos Title: Chief Financial Officer, /s/ Angela Bryant Secretary & Treasurer - ---------------------- Signature Page 1 of 2 95 NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/ James E. Harden, Jr. ------------------------------ Name: James E. Harden, Jr. Title: Vice President NATIONSBANK, NATIONAL ASSOCIATION By: /s/ James E. Harden, Jr. ------------------------------- Name: James E. Harden, Jr. Title: Vice President Lending Office: NationsBank, National Association Independence Center, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Jeff Strickland, Agency Services Telephone: (704) 388-1107 Telefacsimile: (704) 386-9923 Wire Transfer Instructions: NationsBank, National Association ABA# 063100277 Account No.: _________________ Reference: Lincare Holdings, Inc. Attention: Agency Services Signature Page 2 of 2 EX-10.43 6 NON EMPLOYEE STOCK OPTION AGREEMENT 1 Exhibit 10.43 LINCARE HOLDINGS INC. NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT Optionee: [Grantee Name] Number of shares of Common Stock subject to this Agreement: [Number of Options Granted] Pursuant to the Lincare Holdings Inc. [Plan Year] Stock Plan (the "Plan"), the [Plan Year] Stock Plan Committee (the "Committee") of the Board of Directors of Lincare Holdings Inc. (the "Company") has granted to you an option (the "Option") to purchase the number of shares of the Company's Common Stock, $.01 par value ("Common Stock"), set forth above. Such shares (as the same may be adjusted as described in Section 9 below) are herein referred to as the "Option Shares". The Option shall constitute and be treated at all times by you and the Company as a "non-qualified stock option" for Federal income tax purposes and shall not constitute and shall not be treated as an "incentive stock option" as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). The terms and conditions of the Option are set out below. 1. Date of Grant. The Option is granted to you on [Grant Date]. 2. Termination of Option. Your right to exercise the Option (and to purchase the Option Shares) shall expire and terminate in all events on the earlier of: (i) [Expiration Date] or (ii) the date provided in Section 7 below in the event you cease to be a non-employee director of the Company or any subsidiary or parent thereof. 3. Option Price. The purchase price to be paid upon the exercise of the Option is $[Exercise Price] per share, the price at which the Company's shares of Common Stock were traded on the NASDAQ National Market System at the close of business on the date hereof (subject to adjustment as provided in Section 9(a) hereof). 4. Automatic Vesting Provisions. Commencing on [First Vesting Date] and on the first anniversary of that date on which you shall continue to be a non-employee director of the Company or any subsidiary or parent thereof, you shall become entitled to 2 exercise the Option with respect to 50% of the Option Shares (rounded to the nearest whole share) until the Option expires and terminates pursuant to Section 2 hereof. 5. Exercise of Option. To exercise the Option, you must deliver a completed copy of the attached Option Exercise Form to the address indicated on the Form, specifying the number of Option Shares being purchased as a result of such exercise, together with payment of the full option price for the Option Shares being purchased. Payment of the option price must be made in cash or by check. 6. [Restriction on Transferability if Applicable] 7. Termination of Directorship. In the event that you cease to be a non-employee director of the Company for any reason whatsoever, then the Option may only be exercised within one (1) year after the date you ceased to be a non-employee director, and only to the same extent that you were entitled to exercise the Option on the date you ceased to be a non-employee director of the Company and had not previously done so. 8. Tax Consequences. You represent and warrant that you understand the Federal, state and local income tax consequences of the granting of the Option to you, the acquisition of rights to exercise the Option with respect to any Option Shares, the exercise of the Option and purchase of Option Shares, and the subsequent sale or other disposition of any Option Shares. In addition, you understand that the Company will be required to withhold Federal, state and local taxes in respect of any compensation income realized by you upon exercise of the Option granted hereunder. To the extent that the Company is required to withhold any such taxes, you hereby agree that the Company may deduct from any payments of any kind otherwise due to you an amount equal to the total Federal, state and local taxes required to be so withheld, or if such payments are inadequate to satisfy such Federal, state and local taxes, or if no such payments are due or to become due to you, then you agree to provide the Company with cash funds or make other arrangements satisfactory to the Company regarding such payment. It is understood that all matters with respect to the total amount of taxes to be withheld in respect of any such compensation income shall be determined by the Company in its sole discretion; provided, however, that the Company shall consult with you regarding such determination and shall promptly advise you of any such determination made by the Company hereunder with the intention that such advice shall be given in time to permit you to express your views regarding such determination. 2 3 9. Adjustments; Reorganization, Reclassification, Consolidation, Merger or Sale. (a) In the event that, after the date hereof, the outstanding shares of the Company's Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company through stock split, split-up, combination or exchange of shares or declaration of any dividends payable in Common Stock, the Committee shall appropriately adjust the number of shares of Common Stock (and the option price per share) subject to the unexercised portion of the Option (to the nearest possible full share), and such adjustment shall be effective and binding for all purposes of this Agreement and the Plan. (b) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all its assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, subject to Section 9(c) below, each holder of an Option shall thereafter have the right to receive upon the basis and upon the terms and conditions specified therein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the exercise of such Option, such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place. (c) Notwithstanding the foregoing, in the event of any offer to holders of the Company's Common Stock generally relating to the acquisition of their shares, including, without limitation, through purchase, merger or otherwise, or any transaction generally relating to the acquisition of substantially all of the assets or business of the Company (herein sometimes referred to as an "Acquisition"), the Committee may, in its sole discretion, cancel the Option and pay or deliver to you, or cause to be paid or delivered to you, an amount in cash or securities having a value (as determined by the Committee acting in good faith) equal to the product of: (i) the number of Option Shares that, as of the date of the consummation of such Acquisition, you had become entitled to purchase (and had not purchased), multiplied by (ii) the amount, if any, by which (x) the formula or fixed price per share paid to 3 4 holders of shares of Common Stock pursuant to such Acquisition exceeds (y) the option price set forth in Section 3 hereof. 10. Certain Notices. In case at any time there shall be any capital reorganization or reclassification or any consolidation or merger or sale of all or substantially all of the assets of the Company as described in Sections 9(b) or 9(c) above, then the Company shall give, by first class mail, postage prepaid, addressed to you at your address as shown on the books of the Company, at least 20 days' prior written notice of the date when such transaction or event shall take place, which notice shall contain a reasonably detailed summary of the terms of such transaction or event. The Company shall promptly provide upon request (to the extent permitted under any applicable agreements with third parties) additional relevant information relating to such transaction or event reasonably requested by you. 11. Continuation of Directorship. Neither the Plan nor the Option shall confer upon you any right to continue as a director of the Company or any subsidiary or parent thereof, or limit in any respect the right of the Company or any subsidiary or parent thereof to remove you as a director or terminate your relationship with the Company or any subsidiary or parent thereof, as the case may be, at any time. 12. Plan Documents. This Agreement is qualified in its entirety by reference to the provisions of the Plan, which are hereby incorporated herein by reference. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 4 5 Please acknowledge receipt of this Agreement by signing the enclosed copy of this Agreement in the space provided below and returning it promptly to the Secretary of the Company. LINCARE HOLDINGS INC. By: _____________________________ AGREED TO AND ACCEPTED AS OF THE DATE FIRST WRITTEN ABOVE: ______________________________ Optionee 5 6 EXHIBIT A LINCARE HOLDINGS INC. STOCK OPTION EXERCISE FORM I hereby elect to exercise my non-qualified stock option rights as follows:
GRANT DATE NUMBER OF SHARES PRICE TOTAL PRICE ---------- ---------------- ----- ----------- _______________ ________________________ ______________ ___________________ _______________ ________________________ ______________ ___________________
Please register and deliver my shares as follows: __________________________________________ __________________________________________ __________________________________________ __________________________________________ NAME:___________________________________________________________________________ ADDRESS:________________________________________________________________________ ________________________________________________________________________________ SOCIAL SECURITY NUMBER:_________________________________________________________ PHONE NUMBER: HOME(____)______________________ WORK(____)___________________ __________ I am currently an Executive Officer or Director of Lincare Holdings Inc. GENERAL A. __________________________________, is authorized to pay the stock option exercise price and withhold taxes (if applicable) to Lincare Holdings Inc. and to provide duplicate confirmations to Lincare Holdings Inc. B. Upon the sale of my stock option shares through _____________________, my authorization and direction to deliver those shares to my account at ___________________________________________, shall be irrevocable. ___________________________________________ ___________________ SIGNATURE OF OPTIONEE DATE 6 EX-10.44 7 NON QUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.44 LINCARE HOLDINGS INC. NON-QUALIFIED STOCK OPTION AGREEMENT [Grant Date] Employee/Optionee: [Grantee Name] Number of shares of Common Stock subject to this Agreement: [Number of Options Granted] Pursuant to the Lincare Holdings Inc. [Plan Year] Stock Plan (the "Plan"), the [Plan Year] Stock Plan Committee (the "Committee") of the Board of Directors of Lincare Holdings Inc. (the "Company") has granted to you on this date an option (the "Option") to purchase the number of shares of the Company's Common Stock, $.01 par value ("Common Stock"), set forth above. Such shares (as the same may be adjusted as described in Section 11 below) are herein referred to as the "Option Shares". The Option shall constitute and be treated at all times by you and the Company as a "non-qualified stock option" for Federal income tax purposes and shall not constitute and shall not be treated as an "incentive stock option" as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). The terms and conditions of the Option are set forth below. 1. Date of Grant. The Option is granted to you on [Grant Date]. 2. Termination of Option. Your right to exercise the Option (and to purchase the Option Shares) shall expire and terminate in all events on the earlier of (a) [Expiration Date], or (b) the date provided in Section 9 below in the event you cease to be employed by the Company or any subsidiary or parent thereof (other than as a result of your death or disability as described in Section 9(c) hereof, in which case you shall be deemed for purposes hereof to continue to be employed on a full-time basis). 3. Option Price. The purchase price to be paid upon the exercise of the Option is $[Exercise Price] per share, the price at which the Company's shares of Common Stock were traded on the NASDAQ National Market System at the close of business on the date hereof (subject to adjustment as provided in Section 11 hereof). 2 4. Vesting Provisions. Except as otherwise provided in Section 5 below, you will not be entitled to exercise the Option (and purchase any Option Shares) prior to [First Vesting Date]. Commencing on [First Vesting Date], you shall become entitled to exercise the Option (rounded to the nearest whole share) in accordance with the following schedule, until the Option expires and terminates pursuant to Section 2 hereof: (a) Commencing on [First Vesting Date], you shall be entitled to exercise [Percentage Vested] of the Option Shares; and (b) Commencing on [Second Vesting Date], you shall be entitled to exercise [Percentage Vested] of the Option Shares. [Additional Vesting Schedule if Applicable] 5. Change of Control. (a) All Options granted hereunder shall vest and shall become immediately exercisable upon a "Change of Control" of the Company. As used herein, the term "Change of Control" shall mean any of the following: (i) a sale or other disposition (or the last such sale or other disposition) resulting in the transfer of more than 50% of the Common Stock of the Company to unrelated and unaffiliated third parties; or (ii) the consolidation or merger of the Company with or into any other entity (other than a merger in which the Company is the surviving corporation and which does not result in more than 50% of the capital stock of the Company outstanding immediately after the effective date of such merger being owned of record or beneficially by persons other than the holders of its capital stock immediately prior to such merger); or (iii) a sale of substantially all of the properties and assets of the Company as an entirety to an unrelated and unaffiliated third party purchaser; or (iv) the time at which any person (including a person's affiliates and associates) or group (as that term is understood under Section 13(d) of the Exchange Act and the rules and regulations thereunder), files a Schedule 13-D or 14D-1 (or any successor schedule, form or report under the Exchange Act) disclosing that such person or group has become the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of shares of capital stock of the Company giving such person or group a -2- 3 majority of the voting power of all outstanding capital stock of the Company with the right to vote generally in an election for directors or other capital stock of the Company into which the common stock or other voting stock is reclassified or changed. (b) If one of the events specified in Section 5(a)(ii)-(iv) occurs, then on the busin ess day immediately preceding the occurrence of such event, you shall become entitled to exercise the Option with respect to all Option Shares that you had theretofore not otherwise become entitled to purchase hereunder (with the effect that you shall be deemed eligible to include such Option Shares in any transaction contemplated by Section 5(a) hereof to the extent that you (i) purchase such Option Shares and (ii) are otherwise entitled to participate in such transaction. (c) Notwithstanding anything contained herein to the contrary, no new rights to exercise the Option with respect to any Option Shares shall be acquired under this Section 5 after the date on which you cease to be employed on a full-time basis by the Company or any subsidiary or parent thereof (unless you have ceased to be employed on a full-time basis by reason of death or disability, as described in Section 9(c) below, in which case you shall be deemed for purposes hereof to continue to be employed on a full-time basis). 6. Additional Provisions Relating to Exercise. (a) Once you become entitled to exercise the Option (and purchase Option Shares) as provided in Sections 4 and 5 hereof, such right will continue until the date on which the Option expires and terminates pursuant to Section 2 hereof. (b) The Committee, in its sole discretion, may at any time accelerate the time set forth in Sections 4 or 5 at which the Option may be exercised by you with respect to any Option Shares. 7. Exercise of Option. To exercise the Option, you must deliver a completed copy of the Stock Option Exercise Form attached hereto to the principal office of the Company, specifying the number of Option Shares being purchased as a result of such exercise. The purchase price for the Option Shares for which an Option is exercised shall be paid in full, in cash, on the date of exercise, or, at the Company's sole discretion, within ten (10) business days thereafter. 8. [Restriction on Transferability if Applicable] -3- 4 9. Termination of Employment. (a) In the event that (i) the Company or any subsidiary or parent thereof terminates your employment by such entity "for cause" or (ii) you terminate your employment by such entity for any reason whatsoever (other than as a result of your death or disability as defined in the Contract), then the Option may only be exercised within one (1) month after such termination, and only to the same extent that you were entitled to exercise the Option on the date your employment was so terminated and had not previously done so. For the purposes of Sections 9(a) and 9(b) hereof, the term "for cause" shall have the meaning set forth in that certain Employment Agreement, dated as of [Agreement Date] (herein referred to as the "Contract"), between you and Lincare Holdings Inc. (b) In the event that you cease to be employed on a full-time basis by the Company or any subsidiary or parent thereof as a result of the termination of your employment by the Company or any subsidiary or parent thereof at any time other than "for cause", the Option may only be exercised within one year after the date you cease to be so employed, and only to the same extent that you were entitled to exercise the Option on the date you ceased to be so employed by reason of such termination and had not previously done so. (c) In the event that you (i) die while employed by the Company or any subsidiary or parent thereof (or within a period of one month after ceasing to be employed by the Company or any subsidiary or parent thereof for any reason described in Section 9(b) above) or (ii) cease to be employed on a full-time basis by the Company or any subsidiary or parent thereof by reason of a disability as defined in the Contract, the Option may be exercised as if you continued to be employed on a full-time basis by the Company or any subsidiary or parent thereof in accordance with the terms of this Agreement without giving effect to any applicability of Section 9(b) hereof. In the event of clause (i) of this subsection, the Option may be exercised by the executor or administrator of your estate or by any person who shall have acquired the Option through bequest or inheritance. (d) Notwithstanding any provision contained in this Section 9 to the contrary, in no event may the Option be exercised to any extent by anyone after [Expiration Date]. -4- 5 10. Representations. You represent and warrant that you understand the Federal, state and local income tax consequences of the granting of the Option to you, the acquisition of rights to exercise the Option with respect to any Option Shares, the exercise of the Option and purchase of Option Shares, and the subsequent sale or other disposition of any Option Shares. In addition, you understand that the Company will be required to withhold Federal, state or local taxes in respect of any compensation income realized by you upon exercise of the Option granted hereunder. To the extent that the Company is required to withhold any such taxes, you hereby agree that the Company may deduct from any payments of any kind otherwise due to you an amount equal to the total Federal, state and local taxes required to be so withheld, or if such payments are inadequate to satisfy such Federal, state and local taxes, or if no such payments are due or to become due to you, then you agree to provide the Company with cash funds or make other arrangements satisfactory to the Company regarding such payment. It is understood that all matters with respect to the total amount of taxes to be withheld in respect of any such compensation income shall be determined by the Company in its sole discretion; provided, however, that the Company shall consult with you regarding such determination and shall promptly advise you of any such determination made by the Company hereunder with the intention that such advice shall be given in time to permit you to express your views regarding such determination. 11. Adjustments; Reorganization, Reclassification, Consolidation, Merger or Sale. (a) In the event that, after the date hereof, the outstanding shares of the Company's Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company through stock split, split-up, combination or exchange of shares or declaration of any dividends payable in Common Stock, the Committee shall appropriately adjust the number of shares of Common Stock (and the option price per share) subject to the unexercised portion of the Option (to the nearest possible full share), and such adjustment shall be effective and binding for all purposes of this Agreement and the Plan. (b) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all its assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, subject to -5- 6 Section 11(c) below, each holder of an Option shall thereafter have the right to receive upon the basis and upon the terms and conditions specified therein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the exercise of such Option, such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place. (c) Notwithstanding the foregoing, in the event of any offer to holders of the Company's Common Stock generally relating to the acquisition of their shares, including, without limitation, through purchase, merger or otherwise, or any transaction generally relating to the acquisition of substantially all of the assets or business of the Company (herein sometimes referred to as an "Acquisition"), the Committee may, in its sole discretion, cancel the Option and pay or deliver to you, or cause to be paid or delivered to you, an amount in cash or securities having a value (as determined by the Board of Directors acting in good faith) equal to the product of (i) the number of Option Shares that, as of the date of the consummation of such Acquisition, you had become entitled to purchase (and had not purchased), multiplied by (ii) the amount, if any, by which (x) the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such Acquisition exceeds (y) the option price set forth in Section 3 hereof. 12. Certain Notices. In case at any time there shall be: (i) a Change of Control as described in Section 5(a)(ii)-(iv) above; or (ii) any capital reorganization or reclassification or any consolidation or merger or sale of all or substantially all of the assets of the Company as described in Sections 11(b) or 11(c) above, then the Company shall give, by first class mail, postage prepaid, addressed to you at your address as shown on the books of the Company, at least 20 days' prior written notice of the date when such transaction or event shall take place, which notice shall contain a reasonably detailed summary of the terms of such transaction or event. The Company shall promptly provide upon request (to the extent permitted under any applicable agreements with third parties) additional relevant information relating to such transaction or event reasonably requested by you. -6- 7 13. Continuation of Employment. Neither the Plan nor the Option shall confer upon you any right to continue in the employ of the Company or any subsidiary or parent thereof, or limit in any respect the right of the Company or any subsidiary or parent thereof to terminate your employment or other relationship with the Company or any subsidiary or parent thereof, as the case may be, at any time. 14. Plan Documents. This Agreement is qualified in its entirety by reference to the provisions of the Plan, which are hereby incorporated herein by reference. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. Please acknowledge receipt of this Agreement by signing the enclosed copy of this Agreement in the space provided below and returning it promptly to the Secretary of the Company. LINCARE HOLDINGS, INC. By:_________________________ AGREED TO AND ACCEPTED AS OF THE DATE FIRST WRITTEN ABOVE: __________________________________ Employee/Optionee -7- 8 EXHIBIT A LINCARE HOLDINGS INC. STOCK OPTION EXERCISE FORM I hereby elect to exercise my non-qualified stock option rights as follows:
GRANT DATE NUMBER OF SHARES PRICE TOTAL PRICE ---------- ---------------- ----- ----------- _______________ ________________________ ______________ ___________________ _______________ ________________________ ______________ ___________________
Please register and deliver my shares as follows: __________________________________________ __________________________________________ __________________________________________ __________________________________________ NAME:___________________________________________________________________________ ADDRESS:________________________________________________________________________ ________________________________________________________________________________ SOCIAL SECURITY NUMBER:_________________________________________________________ PHONE NUMBER: HOME(____)______________________ WORK(____)___________________ __________ I am currently an Executive Officer or Director of Lincare Holdings Inc. GENERAL A. __________________________________, is authorized to pay the stock option exercise price and withhold taxes (if applicable) to Lincare Holdings Inc. and to provide duplicate confirmations to Lincare Holdings Inc. B. Upon the sale of my stock option shares through _____________________, my authorization and direction to deliver those shares to my account at ___________________________________________, shall be irrevocable. ___________________________________________ ___________________ SIGNATURE OF OPTIONEE DATE -8- EX-23.1 8 CONSENT 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Lincare Holdings Inc.: We consent to incorporation by reference in the Registration Statements Nos. 33-55202, 33-595656, 33-90602 and 333-46969 on Form S-8 of Lincare Holdings Inc. of our report dated January 28, 1998, relating to the consolidated balance sheets of Lincare Holdings Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows and related consolidated financial statement schedule for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Lincare Holdings Inc. KPMG PEAT MARWICK LLP St. Petersburg, Florida March 24, 1998 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF LINCARE HOLDINGS, INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 4,078 0 76,334 7,951 1,542 77,049 181,438 73,148 440,388 34,943 0 0 0 287 392,780 440,388 443,181 443,181 65,932 65,932 245,876 4,432 1,161 130,321 50,173 80,148 0 0 0 80,148 2.82 2.73
EX-27.2 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 DEC-31-1996 1,541 0 51,090 5,917 1,689 54,973 150,598 57,068 347,408 31,340 0 0 0 282 298,966 347,408 348,870 348,870 53,711 53,711 183,807 3,472 497 106,996 40,422 66,574 0 0 0 66,574 2.38 2.31
EX-27.3 11 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 1,009 0 36,610 4,535 1,299 40,364 121,786 48,534 260,206 23,854 0 0 0 277 221,106 260,206 274,800 274,800 41,329 41,329 147,078 2,190 892 83,673 32,634 32,634 0 0 0 32,634 1.86 1.79
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