SUSTAINED GROWTH THROUGH 
STRATEGIC MANAGEMENT

                                           1997 ANNUAL REPORT

Notes to Consolidated Financial Statements

4. Long-Term Debt and Bank Borrowings


Long-Term Debt. The Company’s long-term debt at December 31, 1997 and 1996, consists of $115,000,000 of 6.25% Convertible Subordinated Notes due 2006 ("Notes"). The Notes were issued on November 25, 1996, and will mature on November 15, 2006. The Notes are convertible into common stock of the Company at the option of the holders at any time prior to maturity at an adjusted conversion price of $31.534 per share, subject to adjustment upon the occurrence of certain events. The original conversion price of $34.6875 was adjusted downward to reflect the October 1997 10% stock dividend. Interest on the Notes is payable semiannually on May 15 and November 15, commencing with the first payment on May 15, 1997. On or after November 15, 1999, the Notes are redeemable for cash at the option of the Company, with certain restrictions, at 104.375% of principal, declining to 100.625% in 2005. Upon certain changes in control of the Company, if the price of the Company’s common stock is not above certain levels, each holder of Notes will have the right to require the Company to repurchase the Notes at the principal amount thereof, together with accrued and unpaid interest to the date of repurchase but after the repayment of any Senior indebtedness, as defined.

The Company’s long-term debt previously consisted of $28,750,000 of 6.5% Convertible Subordinated Debentures due 2003 ("Debentures") issued on June 30, 1993, which were convertible into common stock of the Company at an adjusted conversion price of $12.27 per share. On July 1, 1996, the Company called all of the Debentures for redemption on August 5, 1996, at 104.55% of their face amount. Prior to the redemption date, the holders of all of the outstanding Debentures elected to convert their Debentures into shares of common stock, resulting in the issuance of 2.34 million shares of common stock in August 1996. Upon conversion of the Debentures into common stock, the approximate $27,650,000 net carrying amount of the debt (the face amount less unamortized deferred charges) was transferred to the Company’s appropriate capital accounts during the third quarter of 1996.

Interest expense on the Notes, including amortization of debt issuance costs, totaled $7,514,967 in 1997, while interest expense on both the Notes and Debentures, including amortization of debt issuance costs, totaled $1,731,194 in 1996.

Bank Borrowings. At the end of 1996, the Company had available, through a two bank-group, a $100,000,000 unsecured revolving line of credit. The available borrowing base at December 31, 1996, was $5,000,000. Prior to December 1, 1996, the borrowing base was $30,000,000. At the Company’s request, it was reduced to the $5,000,000 amount effective December 1, 1996. This was requested in order to reduce the amount of commitment fees paid on this facility, the calculation of which is described below. Depending on the level of outstanding debt, the interest rate is either the bank’s base rate (8.25% at December 31, 1996) or the bank’s base rate plus 0.25%. This facility also allows, at the Company’s option, draws which bear interest for specific periods at the London Interbank Offered Rate ("LIBOR"). The LIBOR option will now vary from LIBOR plus 1% to plus 1.5%. There was no outstanding balance under this line of credit at December 31, 1996.

Effective December 1, 1997, the available borrowing base was increased to $40,000,000 and will be redetermined periodically. The interest rate was 8.5% at December 31, 1997, with an outstanding balance at that date of $2,431,000. The revolving line of credit extends through September 30, 1999.

The terms of the revolving line of credit include, among other restrictions, a limitation on the level of cash dividends (not to exceed $2,000,000 in any fiscal year), requirements as to maintenance of certain minimum financial ratios (principally pertaining to working capital, debt, and equity ratios), and limitations on incurring other debt. Since inception, no cash dividends have been declared on the Company’s common stock. For all periods presented, the Company was in compliance with the provisions of these agreements.

The Company’s other credit facility, which is the Company’s only secured facility, is an amended and restated revolving line of credit with the lead bank of the two bank-group, secured by certain Company receivables. Effective April 30, 1996, this facility was increased to $7,000,000, with interest at the bank’s base rate less 0.25% (8% at December 31, 1996 and 8.25% at December 31, 1997). The available borrowing base was $2,000,000 at December 31, 1996, and $5,484,000 at December 31, 1997, and is redetermined monthly. There were no outstanding amounts under this facility at December 31, 1996, while at December 31, 1997, the outstanding amount was $5,484,000. The restated credit facility extends through September 30, 1999.

In addition to interest on these credit facilities, the Company pays a commitment fee to compensate the banks for making funds available. The fee on the revolving line of credit is calculated on the average daily remainder, if any, of the commitment amount less the aggregate principal amounts outstanding, plus the amount of all letters of credit outstanding during the period. The aggregate amounts of commitment fees paid by the Company were $31,000 in 1997 and $120,000 in 1996.

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