-----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, JhnDMWLA3sBvL4wPEPLFf/Yjlh1dZcHXcxYbxFuqp3fDx4LzP9SKFflJwX1XhrlN d+9Yd4cnUbUimwJkka6gXA== 0000912057-96-026543.txt : 19961118 0000912057-96-026543.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026543 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGIANCE CORP CENTRAL INDEX KEY: 0001017799 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 364095179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11885 FILM NUMBER: 96666106 BUSINESS ADDRESS: STREET 1: ONE BARTER PARKWAY CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 8479483781 MAIL ADDRESS: STREET 1: ONE BARTER PARKWAY CITY: DEERFIELD STATE: IL ZIP: 60015 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 1-11885 --------- ALLEGIANCE CORPORATION ----------------------- (Exact name of registrant as specified in its charter) Delaware 36-4095179 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1430 Waukegan Road, McGaw Park, Illinois 60085 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (847) 689-8410 ------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X(*) ----- ----- (*) Registrant became subject to the filing requirements on September 20, 1996. The number of shares of the registrant's Common Stock, $1 par value, outstanding as of November 1, 1996, the latest practicable date, was 54,901,000 shares. -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Allegiance Corporation Condensed Combined Statements of Income (Unaudited) (in millions) - -------------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $1,094.2 $1,261.6 $3,295.3 $3,747.0 Costs and expenses Costs of goods sold 863.5 994.7 2,609.8 2,934.4 Selling, general and administrative expenses 162.8 195.8 508.2 580.1 Restructuring charges - 76.0 - 76.0 Goodwill amortization 9.3 9.5 27.7 28.6 Benefit curtailment gains (35.9) - (35.9) - Other income (3.6) (269.5) (5.4) (267.5) - -------------------------------------------------------------------------------- Total costs and expenses 996.1 1,006.5 3,104.4 3,351.6 - -------------------------------------------------------------------------------- Income before income taxes 98.1 255.1 190.9 395.4 Income tax expense 37.6 117.3 73.1 172.2 - -------------------------------------------------------------------------------- Net income $60.5 $137.8 $117.8 $223.2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed combined financial statements. -3- Allegiance Corporation Condensed Combined Balance Sheets (in millions, except shares) - ---------------------------------------------------------------------------------------
September 30, December 31, 1996 1995 (Unaudited) Current assets Cash and equivalents $13.2 $0.8 Accounts receivable (net of allowance for doubtful accounts of $28.2 and $18.2 at September 30, 1996 and December 31, 1995, respectively) 454.6 486.7 Notes and other current receivables 23.0 59.2 Inventories 641.0 684.4 Short-term deferred income taxes 96.7 129.1 Prepaid expenses 27.3 11.8 -------------------------------------------------------------------- Total current assets 1,255.8 1,372.0 - ---------------------------------------------------------------------------------------- Property, At cost 1,540.8 1,307.1 plant and Accumulated depreciation equipment and amortization (683.0) (428.9) --------------------------------------------------------------------- Net property, plant and equipment 857.8 878.2 - ---------------------------------------------------------------------------------------- Other assets Goodwill and other intangibles 1,085.1 1,115.7 Other 101.3 77.8 -------------------------------------------------------------------- Total other assets 1,186.4 1,193.5 - ---------------------------------------------------------------------------------------- Total assets $3,300.0 $3,443.7 - ---------------------------------------------------------------------------------------- Current Current maturities of long-term debt and liabilities lease obligations $4.0 $ - Accounts payable and accrued liabilities 526.4 691.4 Income taxes payable 0.2 0.9 -------------------------------------------------------------------- Total current liabilities 530.6 692.3 - ---------------------------------------------------------------------------------------- Long-term debt and lease obligations 1,147.4 - - ---------------------------------------------------------------------------------------- Long-term deferred income taxes 116.6 109.8 - ---------------------------------------------------------------------------------------- Other non-current liabilities 78.7 64.1 - ---------------------------------------------------------------------------------------- Equity Divisional retained earnings - 1,767.5 Equity investment of parent - 810.0 Common stock, par value $1.00, authorized 200,000,000 shares, outstanding 54,798,000 shares 54.8 - Retained earnings 1,370.3 - Foreign currency adjustment 1.6 - -------------------------------------------------------------------- Total equity 1,426.7 2,577.5 - ---------------------------------------------------------------------------------------- Total liabilities and equity $3,300.0 $3,443.7 - ---------------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed combined financial statements.
-4- Allegiance Corporation Condensed Combined Statements of Cash Flows (Unaudited) (in millions) - ------------------------------------------------------------------------------------------------ Nine months ended September 30,
1996 1995 (Brackets denote cash outflows) Cash flow provided Net income $117.8 $223.2 by operations Adjustments Depreciation and amortization 112.4 122.8 Deferred income taxes 21.9 39.2 Gain on asset dispositions, net - (190.0) Benefit curtailment gains (35.9) - Other 0.2 3.6 Changes in balance sheet items Accounts receivable 55.2 29.7 Inventories 39.6 (53.0) Accounts payable and other current liabilities (43.7) (65.1) Restructuring program payments (30.3) (45.1) Other (18.4) 25.6 ------------------------------------------------------------------------- Cash flow provided by operations 218.8 90.9 - ------------------------------------------------------------------------------------------------- Investment Capital expenditures (55.5) (71.7) transactions Acquisitions (net of cash received) (20.8) (.4) Proceeds from asset dispositions (12.8) 565.9 ------------------------------------------------------------------------- Investment transactions, net (89.1) 493.8 - ------------------------------------------------------------------------------------------------- Financing Payments to Baxter International Inc. (1,268.6) (582.6) transactions Issuances of debt and lease obligations 1,151.3 - ------------------------------------------------------------------------- Financing transactions, net (117.3) (582.6) - ------------------------------------------------------------------------------------------------- Increase in cash and equivalents 12.4 2.1 Cash and equivalents at beginning of period 0.8 2.8 - ------------------------------------------------------------------------------------------------ Cash and equivalents at end of period $13.2 $4.9 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these condensed combined financial statements.
-5- Allegiance Corporation Notes to Condensed Combined Financial Statements (Unaudited) 1. COMPANY BACKGROUND Allegiance Corporation ("Allegiance" or the "Company") was incorporated in Delaware in June 1996. On September 30, 1996 (the "Distribution Date"), Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries the United States health-care distribution, surgical and respiratory therapy products and health-care cost management businesses, as well as certain foreign manufacturing and other operations (the "Allegiance Business") in connection with a spin-off by Baxter of the sAllegiance Business. The spin-off was effected on the Distribution Date through a distribution of common stock of Allegiance ("Allegiance Stock") to Baxter stockholders (the "Distribution"). The Distribution of approximately 54.8 million shares of Allegiance Stock, based on an exchange ratio of one for five, was made to Baxter's stockholders of record on September 26, 1996. No historical earnings per share data is presented as the Allegiance Business' earnings were part of Baxter's results through the close of business on September 30, 1996. 2. FINANCIAL INFORMATION The unaudited interim condensed combined financial statements of Allegiance have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These interim condensed combined financial statements should be read in conjunction with the combined financial statements and notes thereto included in the Company's Information Statement on Form 10 dated September 30, 1996 ("Form 10"). In the opinion of management, the interim condensed combined financial statements reflect all adjustments necessary for a fair presentation of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. 3. DIVESTITURES Allegiance's results of operations for the nine months ended September 30, 1995, include revenues and expenses related to the Industrial and Life Sciences division, which was sold in September 1995. -6- The following table presents selected financial data for Allegiance, excluding the revenue and expenses associated with the divested Industrial and Life Sciences division discussed above (in millions): Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $1,094.2 $1,156.2 $3,295.3 $3,400.1 Costs and expenses Costs of goods sold 863.5 911.5 2,609.8 2,681.0 Selling, general and administrative expenses 162.8 179.9 508.2 525.4 Goodwill amortization 9.3 9.2 27.7 27.6 Benefit curtailment gains (35.9) -- (35.9) -- Other (income) expense (3.6) (1.4) (5.4) 1.1 -------- -------- -------- -------- Total costs and expenses 996.1 1,099.2 3,104.4 3,235.1 -------- -------- -------- -------- Pretax income 98.1 57.0 190.9 165.0 Income tax expense 37.6 21.5 73.1 63.1 -------- -------- -------- -------- Net income $ 60.5 $ 35.5 $ 117.8 $ 101.9 -------- -------- -------- -------- -------- -------- -------- -------- 4.PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma combined statements of income present the combined results of Allegiance and its financial position assuming that the transactions contemplated by the Distribution and certain significant divestitures had been completed as of January 1, 1995. The unaudited pro forma information has been prepared utilizing the historical combined financial statements of Allegiance. All pro forma adjustments were substantially consistent with those disclosed in the Form 10, except for an adjustment for curtailment gains, which is discussed in Note 8 (in millions, except per share data). Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $1,092.8 $1,155.4 $3,294.8 $3,392.9 Costs and expenses Costs of goods sold 864.5 911.7 2,612.1 2,679.0 Selling, general and administrative expenses 170.6 182.9 519.6 534.2 Interest, net 22.5 22.5 67.5 67.5 Goodwill amortization 9.3 9.2 27.7 27.6 Other (income) expense (4.6) (1.4) (5.4) 1.1 -------- -------- -------- -------- Total costs and expenses 1,062.3 1,124.9 3,221.5 3,309.4 -------- -------- -------- -------- Pretax income 30.5 30.5 73.3 83.5 Income tax expense 11.6 11.1 27.5 31.1 -------- -------- -------- -------- Net income $ 18.9 $ 19.4 $ 45.8 $ 52.4 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share $ 0.34 $ 0.35 $ 0.84 $ 0.96 -------- -------- -------- -------- -------- -------- -------- -------- Average number of common shares outstanding 54.8 54.8 54.8 54.8 -------- -------- -------- -------- -------- -------- -------- -------- -7- 5. INVENTORIES Inventories consisted of the following: - ------------------------------------------------------------------------------- September 30, December 31, (in millions) 1996 1995 - ------------------------------------------------------------------------------- Raw materials $ 63.0 $ 54.0 Work in process 51.4 49.0 Finished products 526.6 581.4 - ------------------------------------------------------------------------------- Total inventories $641.0 $684.4 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 6. RESTRUCTURING CHARGES The following table summarizes the Company's restructuring reserves as of December 31, 1995 and September 30, 1996: - ------------------------------------------------------------------------------- Divestitures Employee- and asset Other (in millions) related costs write-downs costs Total - ------------------------------------------------------------------------------- December 31, 1995 balance $43.0 $62.8 $46.9 $152.7 - ------------------------------------------------------------------------------- Utilization: Cash (13.7) (15.7) (16.6) (46.0) Non-Cash - (22.2) - (22.2) - ------------------------------------------------------------------------------- September 30, 1996 balance $29.3 $24.9 $30.3 $ 84.5 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Cash outflows pertain primarily to employee-related costs for severance, outplacement assistance, relocation, implementation teams and facility consolidations. Since the inception of the restructuring program, approximately 2,030 of the 2,300 positions that are expected to be affected by the program have been eliminated. The majority of the remaining reductions will occur in 1996 and 1997, as facility closures and consolidations are completed as planned. Noncash restructuring reserve utilization with respect to divestitures and asset write-downs of $22.2 million for the nine months ended September 30, 1996 relate primarily to the closure of a manufacturing facility and consolidations of certain distribution facilities. The utilization relating to the manufacturing facility closure and distribution facility consolidations represents fixed asset and inventory write-downs. 7. LEGAL PROCEEDINGS Upon the Distribution, Allegiance assumed the defense of litigation involving claims related to the Allegiance Business, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves described below. Allegiance will be defending and indemnifying Baxter Healthcare Corporation ("BHC"), as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to this litigation. It is expected that Allegiance will be named as a defendant in future litigation and may be added as a defendant in existing litigation. -8- BHC was one of ten defendants named in a purported class action filed in August 1993, on behalf of all medical and dental personnel in the State of California who allegedly suffered allergic reactions to natural rubber latex gloves and other protective equipment or who allegedly have been exposed to natural rubber latex products. (KENNEDY, ET AL., V. BAXTER HEALTHCARE CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632) The case alleges that users of various natural rubber latex products, including medical gloves made and sold by BHC and other manufactures, suffered allergic reactions to the products ranging from skin irritation to systemic anaphylaxis. The Court granted defendants' demurer to the class action allegations. On February 29, 1996, the California Appellate Court upheld the trail court's ruling. In April 1994, a similar purported class action, GREEN, ET AL. V. BAXTER HEALTHCARE CORPORATION, ET AL., (Cir. Ct., Milwaukee Co., WI 94CV004977) was filed against Baxter and three other defendants. The class action allegations have been withdrawn, but additional plaintiffs added individual claims. On July 1, 1996, BHC was served with a similar purported class action, WOLF V. BAXTER HEALTHCARE CORP., ET AL., Circuit Court, Wayne County, MI, 96-617844NP. BHC is the only named defendant in that suit. On October 9, 1996, the plaintiff in one such case pending in federal court filed a petition with the Judicial Panel on Multidistrict Litigation, IN RE LATEX GLOVES PRODUCTS LIABILITY LITIGATION, MDL Docket No. 1148, seeking to transfer and consolidate the cases pending in federal court for pretrial proceedings and/or trial. All defendants in those actions have filed oppositions to the motion. The motion is currently pending before the Judicial Panel on Multidistrict Litigation. As of October 31, 1996, 58 additional lawsuits have been served on BHC containing similar allegations of sensitization to natural rubber latex products. Allegiance intends to vigorously defend against these actions. Since none of these cases has proceeded to a hearing on the merits, Allegiance is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. Allegiance believes that a substantial portion of any potential liability and defense costs related to natural rubber latex gloves cases and claims will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. BHC notified its insurance companies that it believes that these cases and claims are covered by BHC's insurance. Most of BHC's insurers have reserved their rights (i.e., neither admitted nor denied coverage), and may attempt to reserve in the future, the right to deny coverage, in whole or in part, due to differing theories regarding, among other things, the applicability of coverage and when coverage may attach. While the self-insured retention portion of litigation defense costs for these matters may have a material impact on Allegiance's results of operations in the period recorded, it is not expected that the outcome of these matters will have a material adverse affect on Allegiance's business, cash flow or financial condition. It is currently anticipated that a portion of these litigation costs may be incurred in the fourth quarter. Under the U.S. Superfund statute and many state laws, generators of hazardous waste which is sent to a disposal or recycling site are liable for cleanup of the site if contaminants from that property later leak into the environment. The law provides that potentially responsible parties may be held jointly and severally liable for the cost of investigating and remediating a site. This liability applies to the generator even if the waste was handled by a contractor in full compliance with the law. As of September 30, 1996, BHC had been named as a potentially responsible party for cleanup costs at ten hazardous waste sites, for which Allegiance has assumed responsibility. Allegiance's largest assumed exposure is at the Thermo-Chem site in Muskegon, Michigan. Allegiance expects that the total cleanup costs for this site will be between $44 million and $65 million, of which Allegiance's share will be approximately $5.4 million. This amount, net of payments of approximately $1.4 million, has been accrued and is reflected in Allegiance's combined financial statements. The estimated exposure for the remaining nine sites is approximately $3.9 million, which has been accrued and reflected in Allegiance's combined financial statements. BHC is a defendant in a number of other claims, investigations and lawsuits for which Allegiance has assumed responsibility. Based on the advice of counsel, management does not believe that the other claims, investigations and lawsuits individually or in the -9- aggregate, will have a material adverse effect on Allegiance's business, cash flow, results of operations or financial condition. 8. BENEFIT CURTAILMENT GAINS Prior to the Distribution, Allegiance participated in Baxter-sponsored non-contributory, defined benefit pension plans covering substantially all domestic employees as well as Baxter-sponsored contributory health-care and life insurance benefits for substantially all domestic retired employees. Effective on the Distribution Date, Allegiance did not replace these Baxter plans. The pension liability related to Allegiance employees' service prior to the Distribution Date remained with Baxter. Additionally, the post-retirement liabilities for Allegiance employees that retired prior to the Distribution Date also remained with Baxter. As a result, Allegiance recognized curtailment gains of $35.9 million related to these plans as of September 30, 1996. Curtailment gains have been excluded from Allegiance's pro forma financial information as presented in Note 4. 9. CREDIT FACILITIES On September 23, 1996, the Company entered into two unsecured revolving credit agreements (the "Credit Facilities"), providing for up to an aggregate of $1.5 billion in borrowings. One of the Credit Facilities provided for borrowings up to an aggregate of $1.2 billion and expires in September 2001. The other Credit Facility provided for borrowings up to an aggregate of $300 million and expires in September 1997. As of September 30, 1996, approximately $1.1 billion was outstanding under the $1.2 billion credit facility, all of which has been classified as long-term debt as it is supported by a long-term credit facility and will continue to be refinanced. No amounts were outstanding under the $300 million credit facility. Amounts borrowed under the Credit Facilities were used to fund distributions to Baxter and for working capital requirements. 10. SUBSEQUENT EVENT - DEBT On October 15, 1996, Allegiance offered $200 million in aggregate principal amount of the Company's 7.30% notes due October 15, 2006, $150 million in aggregate principal amount of the Company's 7.80% debentures due October 15, 2016, and $200 million in aggregate principal amount of the Company's 7.00% debentures due October 15, 2026. The net proceeds to the Company from the sale of these securities were used to reduce the amounts outstanding under the Company's $1.2 billion credit facility. On October 23, 1996, the Company's Credit Facilities were reduced to provide for borrowings up to an aggregate of $900 million expiring September 30, 2001 and $150 million expiring in September 1997. 11. SUBSEQUENT EVENT - GOODWILL As part of Baxter, Allegiance followed the accounting policies established by Baxter for its consolidated group. At September 30, 1996, goodwill, net of accumulated amortization, was approximately $1,060 million. Baxter's policy was to evaluate the overall recoverability of goodwill using projected undiscounted cash flows. Subsequent to the Distribution Date, the market value of Allegiance's stock was substantially below its historical book value. As a result of this market value and management's expectations that cost-containment efforts in the health-care industry will continue to result in intense competitive pressures among health-care suppliers, management reevaluated its accounting policy regarding goodwill impairment. In October 1996, the Company's board of directors approved the adoption of a new policy for assessing goodwill impairment based upon a fair value -10- approach. The Company believes that fair value is a preferable method to assess goodwill as it is a more objective indicator of the Company's inherent value as a separate publicly-traded entity and will be reflective of the challenges and pressures that continue to be a fundamental part of the U.S. health-care system. The change in the method of assessing goodwill impairment will result in a fourth quarter charge of $550 million to operations. This charge will result in net losses for the three and twelve month periods ended December 31, 1996. This policy change will also result in a reduction of $18.9 million and $4.7 million of goodwill amortization expense on an annual and quarterly basis, respectively, for the next twenty-nine years. The Company computes fair value based upon the price/earnings ("P/E") multiple for a group of similar companies. This P/E multiple, calculated based on actual quoted market prices per share and analysts' consensus earnings estimates for these companies, is applied to management's best estimate of earnings for Allegiance to arrive at an overall fair value of the Company. Management will continue to utilize the same group of companies in order to determine this multiple, provided that there are no significant changes in the underlying characteristics of such companies. The Company will assess goodwill for impairment every quarter based upon the above methodology. In addition, when evaluating the need to record a charge for goodwill impairment, the Company will evaluate whether such impairments are of a temporary or permanent nature, and will record appropriate charges (if any) to operations for permanent goodwill impairments. -11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis describes material changes in the Company's financial condition since December 31, 1995. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the historical and pro forma combined financial statements, related notes thereto and management's discussion and analysis of financial condition and results of operations included in the Form 10. Certain statements in this discussion constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including statements relating to potential fourth quarter charges and litigation defense costs, involve known and unknown risks, including, but not limited to, general economic and business conditions, competition, changing trends in customer profiles, changes in governmental regulations, and unfavorable foreign currency fluctuations. Although Allegiance believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of Allegiance will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. RESULTS OF OPERATIONS Allegiance's results of operations as of September 30, 1995, include revenues and expenses related to the Industrial and Life Sciences division, which was sold in September 1995. The following table presents selected financial data for Allegiance, excluding the revenue and expenses associated with the divested Industrial and Life Sciences division discussed above (in millions): THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------ 1996 1995 1996 1995 -------- -------- -------- -------- Net sale $1,094.2 $1,156.2 $3,295.3 $3,400.1 Costs and expenses Cost of goods sold 863.5 911.5 2,609.8 2,681.0 Selling, general and administrative expenses 162.8 179.9 508.2 525.4 Goodwill amortization 9.3 9.2 27.7 27.6 Benefit curtailment gains (35.9) - (35.9) - Other (income) expense (3.6) (1.4) (5.4) 1.1 -------- -------- -------- -------- Total costs and expenses 996.1 1,099.2 3,104.4 3,235.1 -------- -------- -------- -------- Pretax income 98.1 57.0 190.9 165.0 Income tax expense 37.6 21.5 73.1 63.1 -------- -------- -------- -------- Net income $ 60.5 $ 35.5 $ 117.8 $ 101.9 ======== ======== ======== ======== -12- SALES The following table summarizes net sales, excluding the divested business discussed previously, by major geographic region (in millions): Three months ended Nine months ended September 30, September 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Geographic region United States $1,019.4 $1,086.4 $3,068.1 $3,182.3 % (decrease) (6.2)% (3.6)% International 74.8 69.8 227.2 217.8 % increase 7.2% 4.3% -------- -------- -------- -------- Total net sales $1,094.2 $1,156.2 $3,295.3 $3,400.1 % (decrease) (5.4)% (3.1)% -------- -------- -------- -------- -------- -------- -------- -------- The decline in Allegiance's domestic net sales for the three and nine months ended September 30, 1996 as compared to the same period in the prior year is principally the result of planned attempts to reduce sales growth in lower margin, distributed products in the U.S., thereby improving overall profitability. International sales increased in 1996 as compared to 1995 as a result of continued focus on the penetration of surgical products into international markets. COSTS AND EXPENSES The following table summarizes Allegiance's gross margin and expense ratios, excluding the divested business discussed previously (in millions): Three months ended Nine months ended September 30, September 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Gross margin 21.1% 21.2% 20.8% 21.1% Selling, general and administrative expenses 14.9% 15.6% 15.4% 15.5% Gross margin declined for the three and nine month periods ended September 30, 1996 as compared with the same periods in 1995, due to pricing pressure in the U.S., combined with pricing pressures in Allegiance's higher margin surgical products. Allegiance plans to stabilize its gross margin by offsetting pricing pressures with manufacturing cost efficiencies, managing its product mix more effectively, and instituting price increases. Excluding the impact of a $6 million reversal of the Company's portion of an unearned incentive compensation program that was based on combined results of Allegiance and Baxter businesses, selling, general and administrative expenses as a percentage of sales would have been 15.4% for the three month period ended September 30, 1996. The decrease in selling, general and administrative expenses for the three month period resulted from the impact of expense reduction initiatives which management implemented in both the current and prior periods. Selling, general and administrative expenses as a percent of sales for the nine months ended September 30, 1996 decreased slightly as a result of a $5.7 million first quarter non-recurring reversal of excess reserves related to a downsizing program and the third quarter reversal of unearned incentive compensation discussed above. Excluding these adjustments, selling, general and administrative expenses for the nine months ended September 30, 1996 would have been $518.9 million or 15.7% of sales. Total selling, general and administrative expenses, excluding the adjustments discussed above, declined $6.5 million or 1.2% for the nine months ended -13- September 30, 1996, as compared to the same period in 1995. However, such expenses as a percent of sales for the period increased 0.2 percentage points over the prior year. The increase in the ratio for the nine months ended September 30, 1996, as compared to the same period in the prior year, is the result of the sales decline discussed above, as the timing of expense reduction initiatives lagged the planned reduction in lower-margin product sales. RESTRUCTURING PROGRAM In November 1993, Baxter initiated a restructuring program to improve shareholder value and reduce costs. The strategic actions of the program were designed in part to make the Allegiance Business more efficient and responsive in addressing the changes occurring in the U.S. health-care system. See Note 6 to "Notes to the Condensed Combined Financial Statements" for discussions related to cash and non-cash utilization of the reserves. Since the announcement of the 1993 restructuring program, Allegiance management has implemented, or is in the process of implementing, all of the major strategic actions associated therewith and is satisfied that the program is progressing on schedule and will meet established financial targets. During the first nine months of 1996, Allegiance utilized $68 million of restructuring reserves, including $46 million in cash payments. Cash outflows pertain primarily to employee-related costs for severance, outplacement assistance, relocation, implementation teams and facility consolidation. As of September 30, 1996, Allegiance had eliminated approximately 2,030 positions of the approximately 2,300 positions that are expected to be affected by the program. The majority of the remaining reductions will occur in 1996 and 1997, as facility closures and consolidations are completed as planned. Management believes that the program is on target to achieve anticipated direct savings of approximately $125 million in 1996, $155 million in 1997 and exceeding $155 million in 1998, and management anticipates that these savings will continue to offset potential future gross margin erosion and investments into cost-management initiatives. Management further believes that its remaining restructuring reserves are adequate to complete the actions contemplated by the restructuring program and that future cash expenditures related to the program will be funded from cash generated from operations. BENEFIT CURTAILMENT GAINS Nonrecurring gains associated with the curtailment of Baxter-sponsored noncontributory, defined benefit pension plans amounted to $17.4 million and the curtailment of Baxter-sponsored contributory healthcare and life insurance benefits amounted to $18.5 million. Refer to Note 8 to "Notes to the Condensed Combined Financial Statements" for discussions of these former plans. OTHER INCOME AND EXPENSE Other income for the three and nine months ended September 30, 1996 was $3.6 million and $5.4 million, respectively, and consisted primarily of revenue from miscellaneous non-operating service fees. Other income and expense for the three and nine months ended September 30, 1995, excluding the divested business discussed previously (which included a gain on the sale of the divested business), consisted primarily of revenue from miscellaneous non-operating service fees offset by net losses associated with the disposal or discontinuance of minor, non-strategic businesses. -14- PRETAX INCOME Excluding the divested business, the benefit plan curtailment gains and the adjustment for the Company's portion of an unearned incentive compensation program discussed previously, pretax income decreased by $0.8 million, or 1.4%, for the three months ended September 30, 1996, as compared to the same period in 1995. This decrease is primarily attributed to the decline in net sales noted above, partially offset by a reduction in selling, general and administrative expenses. Excluding the divested business, the benefit plan curtailment gains and the selling, general and administrative expense adjustments discussed previously, pretax income decreased by $21.7 million or 13.2% for the nine months ended September 30, 1996, as compared to the same period in 1995. This decrease was a result of the decline in net sales, partially offset by the decrease in selling, general and administrative expenses, and the increase in other income. INCOME TAXES Allegiance's effective tax rate, excluding the divested business discussed previously, remained relatively flat for the three and nine months ended September 30, 1996, as compared to the same period in 1995. NET INCOME Excluding the divested business, the benefit plan curtailment gains and the selling, general and administrative expense adjustments discussed previously, net income decreased $0.8 million or 2.2% for the three months ended September 30, 1996 as compared to the same period in 1995, and decreased $13.4 million or 13.2% for the nine months ended September 30, 1996 as compared to the same period in 1995. These changes are consistent with the change in pretax income discussed previously. ADOPTION OF NEW ACCOUNTING STANDARDS AND POLICIES As part of Baxter, Allegiance followed the accounting policies established by Baxter for its consolidated group. At September 30, 1996, goodwill, net of accumulated amortization, was approximately $1,060 million. Baxter's policy was to evaluate the overall recoverability of goodwill using projected undiscounted cash flows. Subsequent to the Distribution Date, the market value of Allegiance's stock was substantially below its historical book value. As a result of this market value and management's expectations that cost-containment efforts in the health-care industry will continue to result in intense competitive pressures among health-care suppliers, management reevaluated its accounting policy regarding goodwill impairment. In October 1996, the Company's board of directors approved the adoption of a new policy for assessing goodwill impairment based upon a fair value approach. The Company believes that fair value is a preferable method to assess goodwill as it is a more objective indicator of the Company's inherent value as a separate publicly-traded entity and will be reflective of the challenges and pressures that continue to be a fundamental part of the U.S. health-care system. The change in the method of assessing goodwill impairment will result in a fourth quarter charge of $550 million to operations. This charge will result in net losses for the three and twelve month periods ended December 31, 1996. This policy change will also result in a reduction of $18.9 million and $4.7 million of goodwill amortization expense on an annual and quarterly basis, respectively, for the next twenty-nine years. -15- The Company computes fair value based upon the price/earnings ("P/E") multiple for a group of similar companies. This P/E multiple, calculated based on actual quoted market prices per share and analysts' consensus earnings estimates for these companies, is applied to management's best estimate of earnings for Allegiance to arrive at an overall fair value of the Company. Management will continue to utilize the same group of companies in order to determine this multiple, provided that there are no significant changes in the underlying characteristics of such companies. The Company will assess goodwill for impairment every quarter based upon the above methodology. In addition, when evaluating the need to record a charge for goodwill impairment, the Company will evaluate whether such impairments are of a temporary or permanent nature, and will record appropriate charges (if any) to operations for permanent goodwill impairments. POTENTIAL FOURTH QUARTER COSTS AND CHARGES Management is currently evaluating the incurrence of certain spin-off related costs in the fourth quarter, including corporate identity, name recognition, and incremental compensation costs. Management is also evaluating programs involving manufacturing consolidations and the rationalization of certain business initiatives and investments. The outcome of these evaluations is expected to be completed by December 31, 1996, and any charges that may result therefrom will be recorded at that time. Such costs and charges could have a material impact on the Company's results of operations. LIQUIDITY AND CAPITAL RESOURCES Allegiance's current assets exceeded current liabilities by $725.2 million at September 30, 1996 versus an excess of $679.7 million at December 31, 1995. Current assets at September 30, 1996 included accounts and notes receivable of $471.0 million and inventories of $639.9 million. These sources of liquidity are convertible into cash over a relatively short period of time and thus, could be available to help Allegiance satisfy normal operating cash requirements. DEBT AND FINANCIAL INSTRUMENTS On September 23, 1996, the Company entered into two unsecured revolving credit agreements (the "Credit Facilities"), providing for up to an aggregate of $1.5 billion in borrowings. One of the Credit Facilities provided for borrowings up to an aggregate of $1.2 billion and expires in September 2001. The other Credit Facility provided for borrowings up to an aggregate of $300 million and expires in September 1997. As of September 30, 1996, approximately $1.1 billion was outstanding under the $1.2 billion credit facility, all of which has been classified as long-term debt as it is supported by a long-term credit facility and will continue to be refinanced. No amounts were outstanding under the $300 million credit facility. Amounts borrowed under the Credit Facilities were used to fund distributions to Baxter and for working capital requirements. On October 15, 1996, Allegiance offered $200 million in aggregate principal amount of the Company's 7.30% notes due October 15, 2006, $150 million in aggregate principal amount of the Company's 7.80% debentures due October 15, 2016, and $200 million in aggregate principal amount of the Company's 7.00% debentures due October 15, 2026. The net proceeds to the Company from the sale of these securities were used to reduce the amounts outstanding under the Company's $1.2 billion credit facility. On October 23, 1996, the Company's Credit Facilities were reduced to provide for borrowings up to an aggregate of $900 million expiring September 30, 2001 and $150 million expiring in September 1997. Allegiance's long-term debt as a percent of total capital was 44.6% at September 30, 1996. The Company intends to fund its short-term and long-term obligations as they mature through cash flow from operations, existing credit facilities or issuance of debt. Management believes it has credit facilities adequate to support ongoing operational, capital and -16- restructuring requirements. Beyond that, Allegiance believes it has sufficient financial flexibility to attract long-term capital on acceptable terms as may be needed to support its growth objectives. CASH FLOW FROM OPERATIONS Cash flow provided by operations was $218.8 million and $90.9 million for the nine months ended September 30, 1996 and 1995, respectively. This increase in cash flow from operations during 1996 resulted primarily from improved balance sheet management (primarily accounts receivable and inventories), partially offset by the decrease in earnings discussed previously. INVESTMENT TRANSACTIONS Net investment transactions for Allegiance are comprised of the following: - ------------------------------------------------------------------------------ September 30, September 30, 1996 1995 (in millions) - ------------------------------------------------------------------------------ Capital expenditures $(55.5) $(71.7) Acquisitions (20.8) (0.4) Proceeds from asset dispositions (12.8) 565.9 - ------------------------------------------------------------------------------ Total investment transactions, net $(89.1) $493.8 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Capital expenditures decreased by $16.2 million for the nine months ended September 30, 1996 as compared to the same period in 1995. This decrease is primarily the result of the timing of planned capital projects. Allegiance management expects to invest in capital expenditures at levels consistent with 1995, principally for improvements of its existing facilities, productivity enhancing equipment and system upgrades. Acquisitions (net of cash received) increased by $20.4 million for the nine months ended September 30, 1996 as compared to the same period in 1995. These acquisitions involved no significant change to Allegiance's strategic direction, and were made for the purpose of broadening product lines and service offerings or expanding market coverage. The net use of cash related to asset dispositions for the nine months ended September 30, 1996 primarily related to cash payments associated with the settlement of certain programs associated with the divestitures of the Industrial and Life Sciences division and the diagnostics manufacturing businesses. The proceeds for the nine months ended September 30, 1995 primarily related to Allegiance's divestiture of its Industrial and Life Sciences division in September 1995 and the collection of notes receivable related to the December 1994 divestiture of Allegiance's diagnostics manufacturing businesses. LITIGATION See Note 7 to "Notes to Condensed Combined Financial Statements" for a detailed description of the status of Allegiance's litigation. Under the U.S. Superfund statute and many state laws, generators of hazardous waste which is sent to a disposal or recycling site are liable for cleanup of the site if contaminants from that property later leak into the environment. The law provides that potentially responsible parties may be held jointly and severally liable for the cost of investigating and -17- remediating a site. This liability applies to the generator even if the waste was handled by a contractor in full compliance with the law. As of September 30, 1996, BHC had been named as a potentially responsible party for cleanup costs at ten hazardous waste sites, for which Allegiance has assumed responsibility. Allegiance's largest assumed exposure is at the Thermo-Chem site in Muskegon, Michigan. Allegiance expects that the total cleanup costs for this site will be between $44 million and $65 million, of which Allegiance's share will be approximately $5.4 million. This amount, net of payments of approximately $1.4 million, has been accrued and is reflected in Allegiance's combined financial statements. The estimated exposure for the remaining nine sites is approximately $3.9 million, which has been accrued and reflected in Allegiance's combined financial statements. Upon resolution of any of the uncertainties described in Note 7 to "Notes to Condensed Combined Financial Statements", Allegiance may incur charges in excess of available reserves. While the self-insured retention portion of litigation defense costs for such matters may have a material impact on Allegiance's results of operations in the period recorded, it is not expected that the outcome of these matters will have a material adverse effect on Allegiance's business, cash flow, results of operations or financial condition. -18- PART II. OTHER INFORMATION Allegiance Corporation Item 1. Legal Proceedings Upon the Distribution, Allegiance assumed the defense of litigation involving claims related to the Allegiance Business, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves described below. Allegiance will be defending and indemnifying Baxter Healthcare Corporation ("BHC"), as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to this litigation. It is expected that Allegiance will be named as a defendant in future litigation and may be added as a defendant in existing litigation. BHC was one of ten defendants named in a purported class action filed in August 1993, on behalf of all medical and dental personnel in the State of California who allegedly suffered allergic reactions to natural rubber latex gloves and other protective equipment or who allegedly have been exposed to natural rubber latex products. (KENNEDY, ET AL., V. BAXTER HEALTHCARE CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632) The case alleges that users of various natural rubber latex products, including medical gloves made and sold by BHC and other manufacturers, suffered allergic reactions to the products ranging from skin irritation to systemic anaphylaxis. The Court granted defendants' demurer to the class action allegations. On February 29, 1996, the California Appellate Court upheld the trial court's ruling. In April 1994, a similar purported class action, GREEN, ET AL. V. BAXTER HEALTHCARE CORPORATION, ET AL., (Cir. Ct., Milwaukee Co., WI, 94CV004977) was filed against Baxter and three other defendants. The class action allegations have been withdrawn, but additional plaintiffs added individual claims. On July 1, 1996, BHC was served with a similar purported class action, WOLF V. BAXTER HEALTHCARE CORP., ET AL., Circuit Court, Wayne County, MI, 96-617844NP. BHC is the only named defendant in that suit. On October 9, 1996, the plaintiff in one such case pending in federal court filed a petition with the Judicial Panel on Multidistrict Litigation, IN RE LATEX GLOVES PRODUCTS LIABILITY LITIGATION, MDL Docket No. 1148, seeking to transfer and consolidate the cases pending in federal court for pretrial proceedings and/or trial. All defendants in those actions have filed oppositions to the motion. The motion is currently pending before the Judicial Panel on Multidistrict Litigation. As of October 31, 1996, 58 additional lawsuits have been served on BHC containing similar allegations of sensitization to natural rubber latex products. Allegiance intends to vigorously defend against these actions. Since none of these cases has proceeded to a hearing on the merits, Allegiance is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. Allegiance believes that a substantial portion of any potential liability and defense costs related to natural rubber latex gloves cases and claims will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. BHC notified its insurance companies that it believes that these cases and claims are covered by BHC's insurance. Most of BHC's insurers have reserved their rights (i.e., neither admitted nor denied coverage), and may attempt to reserve in the future, the right to deny coverage, in whole or in part, due to differing theories regarding, among other things, the applicability of coverage and when coverage may attach. While the self-insured retention portion of litigation defense costs for these matters may have a material impact on Allegiance's results of operations in the period recorded, it is not expected that the outcome of these matters will have a material adverse effect on Allegiance's business, cash flow or financial condition. It is currently anticipated that a portion of these litigation costs may be incurred in the fourth quarter. Under the U.S. Superfund statute and many state laws, generators of hazardous waste which is sent to a disposal or recycling site are liable for cleanup of the site if contaminants from that property later leak into the environment. The law provides that potentially responsible parties may be held jointly and severally liable for the cost of investigating and remediating a site. This liability applies to the generator even if the waste was handled by a contractor in full compliance with the law. -19- As of September 30, 1996, BHC had been named as a potentially responsible party for cleanup costs at ten hazardous waste sites, for which Allegiance has assumed responsibility. Allegiance's largest assumed exposure is at the Thermo-Chem site in Muskegon, Michigan. Allegiance expects that the total cleanup costs for this site will be between $44 million and $65 million, of which Allegiance's share will be approximately $5.4 million. This amount, net of payments of approximately $1.4 million, has been accrued and is reflected in Allegiance's combined financial statements. The estimated exposure for the remaining nine sites is approximately $3.9 million, which has been accrued and reflected in Allegiance's combined financial statements. BHC is a defendant in a number of other claims, investigations and lawsuits for which Allegiance has assumed responsibility. Based on the advice of counsel, management does not believe that the other claims, investigations and lawsuits individually or in the aggregate, will have a material adverse effect on Allegiance's business, cash flow, results of operations or financial condition. -20- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto. (b) Report on Form 8-K A report on Form 8-K, dated November 1, 1996, was filed with the SEC under Item 5, Other Events, to file information disclosing the Company's change in its accounting policy for assessing goodwill impairment. -21- Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLEGIANCE CORPORATION ----------------------------------- (Registrant) Date: November 14, 1996 By: /s/Peter B. McKee ----------------------------------- Peter B. McKee Senior Vice President and Chief Financial Officer -22- Exhibits Filed with Securities and Exchange Commission Number Description of Exhibit - ------ ---------------------- 3.1 Certificate of Incorporation of Allegiance Corporation, including Certificate of Designation relating to Series A Junior Participating Preferred Stock of Allegiance Corporation. 4.1 Indenture dated as of October 1, 1996 between Allegiance Corporation and PNC Bank, Kentucky, Inc. 4.2 Board Resolutions creating the 7.30% Notes due October 15, 2006, the 7.80% Debentures due October 15, 2016 and the 7.00% Debentures due October 15, 2026. 10.1+ Agency Services and Distribution Agreement dated as of September 30, 1996 between Allegiance Corporation and Baxter International Inc. 27 Financial Data Schedule. * (All other exhibits are inapplicable.) + Confidential treatment requested for certain portions of this document. * Shown only in the original filed with the Securities and Exchange Commission. - ------------------------------------------------------------------------------- Copies of the above exhibits are available at a charge of 35 cents per page upon written request to the Benefits Department, Allegiance Corporation, 1430 Waukegan Road, McGaw Park, IL 60085. Copies are also available at a charge of at least 25 cents per page from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C., 20549. EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ALLEGIANCE CORPORATION * * * * * Allegiance Corporation, a Delaware corporation, initially incorporated on June 26, 1996, has duly adopted by action of its Board of Directors and stockholders the following amended and restated certificate of incorporation in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of Delaware. FIRST: The name of the Corporation is Allegiance Corporation. SECOND: The registered office of the Corporation in the State of Delaware is located at 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred Twenty Million (220,000,000) shares, of which Twenty Million (20,000,000) shares, par value $.01 per share, shall be preferred stock (the "Preferred Stock") and of which Two Hundred Million (200,000,000) shares, par value $ 1.00 per share, shall be common stock (the "Common Stock"). Authority is hereby expressly granted to and vested in the Board of Directors of the Corporation to issue Preferred Stock in one or more series and in connection therewith to fix by resolutions providing for the issue of such series the number of shares to be included in such series and the designations and such voting powers, full or limited, or no voting powers, and such of the preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, of such series of the Preferred Stock which are not fixed by the certificate of incorporation, to the full extent now or hereafter permitted by the laws of the State of Delaware. Without limiting the generality of the grant of authority contained in the preceding sentence, the Board of Directors is authorized to determine any or all of the following, and the shares of each series may vary from the shares of any other series in any or all of the following respects: 1. The number of shares of such series (which may subsequently be increased, except as otherwise provided by the resolutions of the Board of Directors providing for the issue of such series, or decreased to a number not less than the number of shares then outstanding) and the distinctive designation thereof; 2. The dividend rights, if any, of such series, the dividend preferences, if any, as between such series and any other class or series of stock, whether and the extent to which shares of such series shall be entitled to participate in dividends with shares of any other series or class of stock, whether and the extent to which dividends on such series shall be cumulative, and any limitations, restrictions or conditions on the payment of such dividends; 3. The time or times during which, the price or prices at which, and any other terms or conditions on which the shares of such series may be redeemed, if redeemable; 4. The rights of such series, and the preferences, if any, as between such series and any other class or series of stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and whether and the extent to which shares of any such series shall be entitled to participate in such event with any other class or series of stock; 5. The voting powers, if any, in addition to the voting powers prescribed by law of shares of such series and, to the extent not prohibited by applicable law, voting powers which may exceed one vote per share, and the terms of exercise of such voting powers; 6. Whether shares of such series shall be convertible into or exchangeable for shares of any other series or class of stock, or any other securities, and the terms and conditions, if any, applicable to such rights; and 7. The terms and conditions, if any, of any purchase, retirement or sinking fund which may be provided for the shares of such series. FIFTH: Subject to any rights of the holders of the Preferred Stock or any terms thereof to elect additional directors under specified circumstances, the number of directors which shall constitute the whole Board of Directors of the Corporation shall be the number from time to time fixed by the Board of Directors. A decrease in the number of directors shall not affect the term of office of any director then in office. Subject to any rights of the holders of the Preferred Stock or any series thereof to fill any newly created directorships or vacancies, any vacancy on the Board of Directors that results from an increase in the number of directors or for any other reason, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Subject to the rights of the holders of any series of Preferred Stock, any director may be removed from office at any time, but only for cause and only by the affirmative vote of at least a majority of the then outstanding shares entitled to vote for the election of such director. Unless the Corporation's bylaws specify otherwise, the election of directors of the Corporation need not be by written ballot. SIXTH: The directors, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be divided, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the 1997 annual meeting of stockholders, the term of office of the second class to expire at the Page 2 1998 annual meeting of stockholders and the terms of office of the third class to expire at the 1999 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. The directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the directors whom they succeed and shall be elected for a term expiring at the third succeeding annual meeting of stockholders or thereafter in each case until their respective successors are elected and qualified, subject to death, resignation, retirement or removal from office. Any new positions created as a result of the increase in the number of directors shall be allocated to make the classes of directors as nearly equal as possible. Any director elected to fill a term resulting from an increase in the number of directors shall have the same term as the other members of his class. A director elected to fill any other vacancy shall have the same remaining term as that of his predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the certificate of incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms. SEVENTH: The Board of Directors shall have such powers as are permitted by the General Corporation Law of Delaware, including, without limitation, without the assent or vote of the stockholders, to make, alter, amend, change, add to, or repeal the bylaws of the Corporation, to fix and vary the amount to be reserved as working capital; to authorize and cause to be executed mortgages and liens upon all the property of the Corporation, or any part thereof, to determine the use and disposition of any surplus or net profits over and above the capital stock paid in, and to fix the times for the declaration and payment of dividends. EIGHTH: The Board of Directors is hereby authorized to create and issue, whether or not in connection with the issuance and sale of any of its capital stock or other securities or property, rights entitling the holders thereof to purchase from the Corporation shares of stock or other securities of the Corporation or any other corporation. The times at which and the terms upon which such rights are to be issued will be determined by the Board of Directors and set forth in the contracts or instruments that evidence such rights. The authority of the Board of Directors or any duly authorized committee thereof with respect to such rights shall include, but not be limited to, determination of the following: (A) the initial purchase price per share or other unit of the capital stock or other securities or property to be purchased upon exercise of such rights; (B) provisions relating to the times at which and the circumstances under which such rights may be exercised or sold or otherwise transferred, either together with or separately from, any other capital stock or other securities of the Corporation; Page 3 (C) provisions which adjust the number or exercise price of such rights or amount or nature of the capital stock or other securities or property receivable upon exercise of such rights in the event of a combination, split or recapitalization of any capital stock of the Corporation, a change in ownership of the Corporation's capital stock or other securities or a reorganization, merger, consolidation, sale of assets or other occurrence relating to the Corporation or any capital stock of the Corporation, and provisions restricting the ability of the Corporation to enter into any such transaction absent an assumption by the other party or parties thereto of the obligations of the Corporation under such rights; (D) provisions which deny the holder of a specified percentage of the outstanding capital stock or other securities of the Corporation the right to exercise such rights and/or cause the rights held by such holder to become void; (E) provisions which permit the Corporation to redeem or exchange such rights; and (F) the appointment of a rights agent with respect to such rights. NINTH: Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of at least two-thirds of the voting power of the then outstanding Voting Stock (as defined below), voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, the bylaws of the Corporation or Articles FIFTH, SIXTH and EIGHTH of this Certificate of Incorporation. For the purposes of this Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors. TENTH: No person who is, or was at any time but is no longer serving as, a director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director, provided that the provisions of this Article TENTH shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. No amendment to or repeal of this Article TENTH shall have the effect of increasing the liability or alleged liability of any director of the Corporation for or with respect to any act or omission of such director occurring prior to such amendment or repeal. ELEVENTH: The Corporation shall indemnify and advance expenses to each person who serves as an officer or director of the Corporation or a subsidiary of the Corporation and each person who serves or may have served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise from any liability incurred as a result of such service to the fullest extent permitted by the General Corporation Law of Delaware as it may from time to time be amended, except with respect to an Page 4 action commenced by such director or officer against the Corporation or by such director or officer as a derivative action by or in the right of the Corporation. Each person who is or was an employee or agent of the Corporation and each officer or director who commences any action against the Corporation or a derivative action by or in the right of the Corporation may be similarly indemnified and receive an advance of expenses at the discretion of the Board of Directors. The indemnification and advancement of expenses provided by, or granted pursuant to, the certificate of incorporation shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this certificate of incorporation or Delaware law. The indemnification and advancement of expenses provided by, or granted pursuant to, this certificate of incorporation shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation. No amendment to this certificate of incorporation or repeal of any article of this certificate of incorporation shall increase the liability or alleged liability or reduce or limit the right to indemnification of any directors, officers, employees or agents of the Corporation for acts or omissions of such person occurring prior to such amendment or repeal. THIRTEENTH: Effective from and after the date upon which the Corporation shall first have more than one stockholder, no action which requires the vote or consent of stockholders of the Corporation may be taken without a meeting and vote of stockholders and the power of stockholders to consent thereafter in writing without a meeting to the taking of any action is specifically denied. IN WITNESS WHEREOF, Allegiance Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by Lester B. Knight, its chairman of the board and chief executive officer this 29th day of August, 1996. ALLEGIANCE CORPORATION By /s/ Lester B. Knight -------------------- (Name) Page 5 CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF ALLEGIANCE CORPORATION - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- The undersigned do hereby certify that the following resolution was duly adopted by the Board of Directors of Allegiance Corporation, a Delaware corporation (the "Corporation"), at a meeting duly convened and held on September 16, 1996, at which a quorum was present and acting throughout: RESOLVED, that pursuant to the authority vested in the board of directors of the Corporation by the Certificate of Incorporation, the board of directors does hereby create, authorize and provide for the issue of a series of Preferred Stock, par value $.01 per share, of the Corporation, to be designated "Series A Junior Participating Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock"), initially consisting of 2,000,000 shares, and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations or restrictions of the Series A Preferred Stock are not stated and expressed in the Certificate of Incorporation, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Certificate of Incorporation shall be deemed to have the meanings provided therein): Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be 2,000,000. Section 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after September 30, 1996 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a small number of shares, then in each case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); PROVIDED, HOWEVER, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, subject to the prior and superior rights of the holders of -2- any shares of any series of Preferred Stock ranking prior to and superior to the shares of Series A Preferred Stock with respect to dividends, a dividend of $.01 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the -3- number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote collectively as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting rights. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect -4- Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or PARI PASSU with the Series A Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board, the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him or her at his or her last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 50 days after such order or request, or in default of the calling of such meeting within 50 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 50 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and, if applicable, other classes of capital stock of the Corporation, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of capital stock which elected the -5- Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors appointed by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holderss of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of capital stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which -6- dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any capital stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any capital stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of capital stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. -7- Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of capital stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Preferred Stock and Common Stock, respectively, and the payment of liquidation preferences of all other shares of capital stock which rank prior to or on a parity with Series A Preferred Stock, holders of Series A Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding -8- Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of capital stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each share of Common Stock is exchanged or changed. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. Section 9. RANKING. The Series A Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, whether or not upon the dissolution, liquidation or winding up of the Corporation, unless the terms of any such series shall provide otherwise. -9- Section 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock, voting separately as a class. Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. -10- IN WITNESS WHEREOF, Allegiance Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Lester B. Knight, its Chairman of the Board and Chief Executive Officer, and the same to be attested to by William L. Feather, its Secretary, this 30th day of September, 1996. ALLEGIANCE CORPORATION By: /s/ Lester B. Knight ------------------------------ Name: Lester B. Knight Title: Chairman of the Board and Chief Executive Officer (Corporate Seal) Attest: /s/ William L. Feather - ---------------------------- Name: William L. Feather Title: Senior Vice President and General Counsel -11- EX-4.1 3 EXHIBIT 4.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ALLEGIANCE CORPORATION TO PNC BANK, KENTUCKY, INC. TRUSTEE -------------- INDENTURE DATED AS OF OCTOBER 1, 1996 -------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ---------- PAGE ---- RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions: Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate; control. . . . . . . . . . . . . . . . . . . . . 2 Attributable Debt . . . . . . . . . . . . . . . . . . . . . 2 Authenticating Agent. . . . . . . . . . . . . . . . . . . . 3 Board of Directors. . . . . . . . . . . . . . . . . . . . . 3 Board Resolution. . . . . . . . . . . . . . . . . . . . . . 3 Business Day. . . . . . . . . . . . . . . . . . . . . . . . 3 Commission. . . . . . . . . . . . . . . . . . . . . . . . . 3 Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company Request; Company Order. . . . . . . . . . . . . . . 3 Consolidated Net tangible Assets. . . . . . . . . . . . . . 3 Corporate Trust Office. . . . . . . . . . . . . . . . . . . 4 corporation . . . . . . . . . . . . . . . . . . . . . . . . 4 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 4 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Defaulted Interest. . . . . . . . . . . . . . . . . . . . . 4 Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . 4 Depositary. . . . . . . . . . . . . . . . . . . . . . . . . 4 Event of Default. . . . . . . . . . . . . . . . . . . . . . 4 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . 4 Expiration Date . . . . . . . . . . . . . . . . . . . . . . 5 Global Security . . . . . . . . . . . . . . . . . . . . . . 5 Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 5 interest. . . . . . . . . . . . . . . . . . . . . . . . . . 5 Interest Payment Date . . . . . . . . . . . . . . . . . . . 5 Investment Company Act. . . . . . . . . . . . . . . . . . . 5 Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . 5 Nonrecourse Obligation. . . . . . . . . . . . . . . . . . . 5 Notice of Default . . . . . . . . . . . . . . . . . . . . . 6 Officers' Certificate . . . . . . . . . . . . . . . . . . . 6 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . 6 Original Issue Discount Security. . . . . . . . . . . . . . 6 Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 6 Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . 7 - --------------- NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. PAGE ---- Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Place of Payment. . . . . . . . . . . . . . . . . . . . . . 7 Predecessor Security. . . . . . . . . . . . . . . . . . . . 7 Principal Property. . . . . . . . . . . . . . . . . . . . . 8 Redemption Date . . . . . . . . . . . . . . . . . . . . . . 8 Redemption Price. . . . . . . . . . . . . . . . . . . . . . 8 Regular Record Date . . . . . . . . . . . . . . . . . . . . 8 Restricted Security . . . . . . . . . . . . . . . . . . . . 8 Sale and Lease-Back Transaction . . . . . . . . . . . . . . 8 Securities. . . . . . . . . . . . . . . . . . . . . . . . . 8 Securities Act. . . . . . . . . . . . . . . . . . . . . . . 8 Security Register and Security Registrar. . . . . . . . . . 8 Special Record Date . . . . . . . . . . . . . . . . . . . . 9 Stated Maturity . . . . . . . . . . . . . . . . . . . . . . 9 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . 9 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 9 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 9 U.S. Government Obligation. . . . . . . . . . . . . . . . . 9 Vice President. . . . . . . . . . . . . . . . . . . . . . . 9 Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . 9 SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . . 10 SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . . . . 10 SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . 11 SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . 13 SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . 14 SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . 14 SECTION 108. Effect of Headings and Table of Contents. . . . . . . . . . 14 SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . . . 14 SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . 15 SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . 15 SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 202. Form of Face of Security. . . . . . . . . . . . . . . . . . 16 SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . 16 SECTION 204. Form of Legend for Global Securities. . . . . . . . . . . . 23 SECTION 205. Form of Trustee's Certificate of Authentication . . . . . . 23 -ii- PAGE ---- ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. . . . . . . . . . . . 24 SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 303. Execution, Authentication, Delivery and Dating. . . . . . . 27 SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . . . . 28 SECTION 305. Registration, Registration of Transfer and Exchange . . . . 29 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . 31 SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . . 32 SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . 33 SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . 34 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . 34 SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . . 35 ARTICLE FIVE REMEDIES SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . 35 SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . . 37 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . . 39 SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 39 SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . . . 40 SECTION 506. Application of Money Collected. . . . . . . . . . . . . . . 40 SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . 41 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. . . . . . . . . . . . . . . . . . 41 SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . . 42 SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . 42 -iii- PAGE ---- SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . 42 SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . 42 SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 43 SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . 43 SECTION 515. Waiver of Usury, Stay or Extension Laws . . . . . . . . . . 43 ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . 44 SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 44 SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . 44 SECTION 604. Not Responsible for Recitals or Issuance of Securities. . . 45 SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . 46 SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . 46 SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . . . . 46 SECTION 608. Conflicting Interests . . . . . . . . . . . . . . . . . . . 47 SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . 47 SECTION 610. Resignation and Removal; Appointment of Successor . . . . . 47 SECTION 611. Acceptance of Appointment by Successor. . . . . . . . . . . 49 SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 613. Preferential Collection of Claims Against Company . . . . . 50 SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . 50 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 702. Preservation of Information; Communication to Holders. . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . 53 SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . . . . 53 -iv- PAGE ---- ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . 54 SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . 55 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. . . . . 55 SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . 57 SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . . 58 SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . 58 SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . 58 SECTION 906. Reference in Securities to Supplemental Indentures. . . . . 58 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium and Interest. . . . . . . . . 59 SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . 59 SECTION 1003. Money for Securities Payments to Be Held in Trust . . . . . 59 SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . 61 SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . 61 SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . 61 SECTION 1008. Limitation on Liens . . . . . . . . . . . . . . . . . . . . 62 SECTION 1009. Limitation on Sale and Lease-Back Transactions. . . . . . . 64 SECTION 1010. Limitation on Subsidiary Debt . . . . . . . . . . . . . . . 64 SECTION 1011. Waiver of Certain Covenants . . . . . . . . . . . . . . . . 65 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article. . . . . . . . . . . . . . . . . . 65 SECTION 1102. Election to Redeem; Notice to Trustee . . . . . . . . . . . 66 -v- PAGE ---- SECTION 1103. Selection by Trustee of Securities to Be Redeemed . . . . . 66 SECTION 1104. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 67 SECTION 1105. Deposit of Redemption Price . . . . . . . . . . . . . . . . 67 SECTION 1106. Securities Payable on Redemption Date . . . . . . . . . . . 68 SECTION 1107. Securities Redeemed in Part . . . . . . . . . . . . . . . . 68 SECTION 1108. Right of Repayment. . . . . . . . . . . . . . . . . . . . . 68 SECTION 1109. Form of Option to Elect Repayment . . . . . . . . . . . . . 69 ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article. . . . . . . . . . . . . . . . . . 70 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities . . . 70 SECTION 1203. Redemption of Securities for Sinking Fund . . . . . . . . . 71 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . 71 SECTION 1302. Defeasance and Discharge. . . . . . . . . . . . . . . . . . 71 SECTION 1303. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 72 SECTION 1304. Conditions to Defeasance or Covenant Defeasance . . . . . . 72 SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions . . . . . 74 SECTION 1306. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 75 .............................................................. CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318, INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939: TRUST INDENTURE ACT SECTION INDENTURE SECTION Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . 609 (a)(2) . . . . . . . . . . . . . . . . . . . . 609 (a)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable (a)(4) . . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . 608 610 Section 311(a) . . . . . . . . . . . . . . . . . . . . 613 (b) . . . . . . . . . . . . . . . . . . . . 613 -vi- Section 312(a) . . . . . . . . . . . . . . . . . . . . 701 702 (b) . . . . . . . . . . . . . . . . . . . . 702 (c) . . . . . . . . . . . . . . . . . . . . 702 Section 313(a) . . . . . . . . . . . . . . . . . . . . 703 (b) . . . . . . . . . . . . . . . . . . . . 703 (c) . . . . . . . . . . . . . . . . . . . . 703 (d) . . . . . . . . . . . . . . . . . . . . 703 Section 314(a) . . . . . . . . . . . . . . . . . . . . 704 (a)(4) . . . . . . . . . . . . . . . . . . . . 101 1004 (b) . . . . . . . . . . . . . . . . . . . . Not Applicable (c)(1) . . . . . . . . . . . . . . . . . . . . 102 (c)(2) . . . . . . . . . . . . . . . . . . . . 102 (c)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable (d) . . . . . . . . . . . . . . . . . . . . Not Applicable (e) . . . . . . . . . . . . . . . . . . . . 102 Section 315(a) . . . . . . . . . . . . . . . . . . . . 601 (b) . . . . . . . . . . . . . . . . . . . . 602 (c) . . . . . . . . . . . . . . . . . . . . 601 (d) . . . . . . . . . . . . . . . . . . . . 601 (e) . . . . . . . . . . . . . . . . . . . . 514 Section 316(a) . . . . . . . . . . . . . . . . . . . . 101 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . 502 512 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . 513 (a)(2) . . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . 508 (c) . . . . . . . . . . . . . . . . . . . . 104 Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . 503 (a)(2) . . . . . . . . . . . . . . . . . . . . 504 (b) . . . . . . . . . . . . . . . . . . . . 1003 Section 318(a) . . . . . . . . . . . . . . . . . . . . 107 - -------------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. -viii- INDENTURE, dated as of October 1, 1996, between Allegiance Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 1430 Waukegan Road, McGaw Park, Illinois 60085, and PNC Bank, Kentucky, Inc., a corporation duly organized and existing under the laws of Kentucky, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting prin- ciples" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Indenture; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Attributable Debt" when used in connection with a Sale and Lease-Back Transaction involving a Principal Property means, at the time of determination, the lesser of: (a) the fair value of such property (as determined in good faith by the Board of Directors of the Company); or (b) the present value of the total net amount of rent required to be paid under such lease during the remaining term thereof (including any renewal term or period for which such lease has been extended), discounted at the rate of interest set forth or implicit in the terms of such lease or, if not practicable to determine such rate, the weighted average interest rate per annum (in the case of Original Issue Discount Securities, the imputed interest rate) borne by the Securities of each series outstanding pursuant to the Indenture compounded semi-annually. For purposes of the foregoing definition, rent shall not include amounts required to be paid by the lessee, whether or not designated as rent or additional rent, on account of or contingent upon maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall be the lesser of the net amount determined assuming termination upon the first date such lease may be terminated (in which case the net amount shall also include the amount of the penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated) and the net amount determined assuming no such termination. -2- "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. In the event the Board of Directors shall delegate to any director or officer of the Company or any group consisting of directors of the Company, officers of the Company or directors and officers of the Company the authority to take any action which under the terms of this Indenture may be taken by "Board Resolution," then any action so taken by, and set forth in a resolution adopted by, the director, officer or group within the scope of such delegation shall be deemed to be a "Board Resolution" for purposes of this Indenture. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Commission" means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Net Tangible Assets" means, as of any particular time, total assets (excluding applicable reserves and other properly deductible items) less: (a) total current liabilities, except for (1) notes and loans payable, (2) current maturities of long-term debt, and (3) current maturities of obligations under capital leases; and (b) goodwill, patents and trademarks, to the extent included in total assets; all as set forth on the most -3- recent consolidated balance sheet of the Company and its Restricted Subsidiaries and computed in accordance with generally accepted accounting principles. "Corporate Trust Office" means the principal office of the Trustee in Louisville, Kentucky at which at any particular time its corporate trust business shall be administered. "corporation" means a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 1303. "Debt" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations Incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) the maximum fixed redemption or repurchase price of redeemable stock of such Person at the time of determination, (vi) every obligation to pay rent or other payment amounts of such Person with respect to any Sale and Lease-back Transaction to which such Person is a party and (vii) every obligation of the type referred to in Clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise. "Defaulted Interest" has the meaning specified in Section 307. "Defeasance" has the meaning specified in Section 1302. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. -4- "Expiration Date" has the meaning specified in Section 104. "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 204 (or such legend as may be specified as contemplated by Section 301 for such Securities). "Holder" means a Person in whose name a Security is registered in the Security Register. "Incur" means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Debt or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such Debt or other obligation on the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have the meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in generally accepting accounting principles that results in an obligation of such Person that exists at such time becoming Debt shall not be deemed an Incurrence of such Debt. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301. "Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an instalment of interest on such Security. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Nonrecourse Obligation" means indebtedness or other obligations substantially related to (i) the acquisition of assets not previously owned by the Company or any -5- Restricted Subsidiary or (ii) the financing of a project involving the development or expansion of properties of the Company or any Restricted Subsidiary, as to which the obligee with respect to such indebtedness or obligation has no recourse to the Company or any Restricted Subsidiary or any assets of the Company or any Restricted Subsidiary other than the assets which were acquired with the proceeds of such transaction or the project financed with the proceeds of such transaction (and the proceeds thereof). "Notice of Default" means a written notice of the kind specified in Section 501(4) or 501(5). "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, EXCEPT: (1) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities as to which Defeasance has been effected pursuant to Section 1302; and -6- (4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; -7- and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Principal Property" means the land, land improvements, buildings and fixtures (to the extent they constitute real property interests), (including any leasehold interest therein) constituting the principal corporate office, any manufacturing facility, or any distribution center (whether now owned or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is located within any of the present 50 states of the United States (or the District of Columbia); (c) has not been determined in good faith by the Board of Directors of the Company not to be materially important to the total business conducted by the Company and its Subsidiaries taken as a whole; and (d) has a market value on the date as of which the determination is being made in excess of 1.0% of Consolidated Net Tangible Assets of the Company as most recently determined on or prior to such date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Restricted Subsidiary" means any Subsidiary which owns any Principal Property. "Sale and Lease-Back Transaction" means any arrangement with any person providing for the leasing by the Company or any Restricted Subsidiary of any Principal Property which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such person. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. -8- "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable. "Subsidiary" means any corporation of which at least a majority of the outstanding voting stock having the power to elect a majority of the board of directors of such corporation is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "U.S. Government Obligation" has the meaning specified in Section 1304. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding capital stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. -9- SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include, (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel -10- may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS; RECORD DATES. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by -11- the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, PROVIDED that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of -12- Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day PROVIDED that no Expiration Date shall be later than the 180th day after the applicable record date; and PROVIDED, FURTHER, that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. -13- SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act which is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. -14- SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. This Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York. SECTION 113. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity. ARTICLE TWO SECURITY FORMS SECTION 201. FORMS GENERALLY. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or -15- permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The definitive Securities shall be typewritten, printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 202. FORM OF FACE OF SECURITY. [INSERT ANY LEGEND REQUIRED BY THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER.] .......................................................... .......................................................................... No. ......... $ ........ .........................., a corporation duly organized and existing under the laws of ............... (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ..............................................., or registered assigns, the principal sum of ...................................... Dollars on ........................................................ [IF THE SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- , and to pay interest thereon from ............. or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ............ and ............ in each year, commencing ........., at the rate of ....% per annum, until the principal hereof is paid or made available for payment [IF APPLICABLE, INSERT -- , PROVIDED that any principal and premium, and any such instalment of interest, which is overdue shall bear interest at the rate of ...% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date -16- for such interest, which shall be the ....... or ....... (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption[, repayment] or at Stated Maturity and in such case the overdue principal and any overdue premium shall bear interest at the rate of ....% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal or premium shall be payable on demand. [Any such interest on overdue principal or premium which is not paid on demand shall bear interest at the rate of ......% per annum (to the extent that the payment of such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.]] Payment of the principal of (and premium, if any) and [if applicable, insert ___ any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in ............, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [IF APPLICABLE, INSERT -- ; PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. -17- Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: .................................................. By................................................ Attest: ......................................... SECTION 203. FORM OF REVERSE OF SECURITY. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of ............... (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and ..................., as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [IF APPLICABLE, INSERT -- , limited in aggregate principal amount to $...........]. [IF APPLICABLE, INSERT -- The Securities of this Series are subject to repayment on or after ________, ____, at the option of the Holder upon not less than 30 days' (but not more than 60 days') notice by mail to the Paying Agent prior to the repayment date including (a) appropriate wire instructions and (b) either (i) the Security with the form entitled Option to Elect Repayment (as set forth below) attached to the Security duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States setting forth the name of the Holder of such Security, the principal amount of such Debenture, the portion of the principal amount of such Security to be repaid, the certificate number or a description -18- of the tenor and terms of such Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that such Security to be repaid with the form entitled Option to Elect Repayment (substantially in the form set out in the Indenture) attached to such Security duly completed will be received by the Paying Agent not later than five Business Days after the date of such telegram, telex, facsimile transmission or letter and such Security and form duly completed must be received by the Paying Agent by such fifth Business Day. Exercise of the repayment option by the Holder of such Security shall be irrevocable. The repayment option may be exercised by the Holder of such Security for less than the entire principal amount of the Security provided that the principal amount of the Security remaining outstanding after repayment is an authorized denomination. No registration of, transfer or exchange of such Security (or, in the event that such Security is to be repaid in part, the portion of the Security to be repaid) will be permitted after exercise of a repayment option.] [IF APPLICABLE, INSERT -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [IF APPLICABLE, INSERT -- (1) on ........... in any year commencing with the year ...... and ending with the year ...... through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [IF APPLICABLE, INSERT -- on or after .........., 19..], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [IF APPLICABLE, INSERT -- on or before ..............., ...%, and if redeemed] during the 12-month period beginning ............. of the years indicated, Redemption Redemption Year Price Year Price - ---- ---------- ---- ---------- and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] -19- [IF APPLICABLE, INSERT -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on ............ in any year commencing with the year .... and ending with the year .... through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [IF APPLICABLE, INSERT -- on or after ............], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ............ of the years indicated, Redemption Price For Redemption Redemption Price For Through Operation Redemption Otherwise of the Than Through Operation Year Sinking Fund of the Sinking Fund - ---- ----------------- ---------------------- and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [IF APPLICABLE, INSERT -- Notwithstanding the foregoing, the Company may not, prior to ............., redeem any Securities of this series as contemplated by [IF APPLICABLE, INSERT -- Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than .....% per annum.] [IF APPLICABLE, INSERT -- The sinking fund for this series provides for the redemption on ............ in each year beginning with the year ....... and ending with the year ...... of [IF APPLICABLE, INSERT -- not less than $.......... ("mandatory sinking fund") and not -20- more than] $......... aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [IF APPLICABLE, INSERT -- mandatory] sinking fund payments may be credited against subsequent [IF APPLICABLE, INSERT -- mandatory] sinking fund payments otherwise required to be made [IF APPLICABLE, INSERT -- , in the inverse order in which they become due].] [IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [IF APPLICABLE, INSERT -- The Indenture contains provisions for defeasance at any time of [the entire indebtedness of this Security] [or] [certain restrictive covenants and Events of Default with respect to this Security] [, in each case] upon compliance with certain conditions set forth in the Indenture.] [IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE AMOUNT. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of 66 2/3% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer of this Security or in exchange for -21- or in lieu of this Security, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $....... and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. -22- Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES. Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. .........................................., AS TRUSTEE By......................................... AUTHORIZED OFFICER -23- ARTICLE THREE THE SECURITIES SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the first issuance of a Security of any series, (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of any Securities of the series is payable; (5) the rate or rates at which any Securities of the series shall bear interest, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any such interest payable on any Interest Payment Date; (6) the place or places where the principal of and any premium and interest on any Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or -24- in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (8) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable; (10) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; (11) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of "Outstanding" in Section 101; (12) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined); (13) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (14) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior -25- to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (15) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 1302 or Section 1303 or both such Sections and, if other than by a Board Resolution, the manner in which any election by the Company to defease such Securities shall be evidenced; (16) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 204 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (17) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502; (18) any addition to or change in the covenants set forth in Article Ten which applies to Securities of the series; and (19) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. -26- SECTION 302. DENOMINATIONS. The Securities of each series shall be issuable only in registered form without coupons and only in such denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and -27- (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. TEMPORARY SECURITIES. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are typewritten, printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, -28- omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of a series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the -29- same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. -30- (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture -31- equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder of Securities of such series in the manner set forth in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special -32- Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order. -33- SECTION 310. COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium -34- and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE REMEDIES SECTION 501. EVENTS OF DEFAULT. "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or -35- (2) default in the payment of the principal of or any premium on any Security of that series at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company (including a default with respect to Securities of any series other than that series), or under any mortgage, indenture or instrument (including this Indenture) under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company having an aggregate principal amount outstanding of at least $10 million, whether such indebtedness now exists or shall hereafter be created, which default (A) shall constitute a failure to pay any portion of the principal of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto or (B) shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without, in the case of Clause (A), such indebtedness having been discharged or without, in the case of Clause (B), such indebtedness having been discharged or such acceleration having been rescinded or annulled, in each such case, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled, as the case may be, and stating that such notice is a "Notice of Default" hereunder; or (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any of its Restricted Subsidiaries a bankrupt or insolvent, or approving -36- as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any of its Restricted Subsidiaries under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any of its Restricted Subsidiaries or of any substantial part of its property (or that of any such Restricted Subsidiary), or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any of its Restricted Subsidiaries in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any of its Restricted Subsidiaries or of any substantial part of its property ( or that of any such Restricted Subsidiary), or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any of its Restricted Subsidiaries in furtherance of any such action; or (8) any other Event of Default provided with respect to Securities of that series. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default (other than an Event of Default specified in Section 501(6) or 501(7)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in Section 501(6) or 501 (7) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount -37- Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. -38- SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, -39- disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively. -40- SECTION 507. LIMITATION ON SUITS. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. -41- SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, PROVIDED that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and -42- (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; PROVIDED that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company. SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or -43- impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. NOTICE OF DEFAULTS. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 601: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; -44- (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be -45- accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. MAY HOLD SECURITIES. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. -46- SECTION 608. CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such has a combined capital and surplus of at least $50,000,000 and has its Corporate Trust Office in Louisville, Kentucky. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. -47- If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (B) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. -48- The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts -49- and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to -50- authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 106 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. -51- The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. ........................................, AS TRUSTEE By......................................, AS AUTHENTICATING AGENT By....................................... AUTHORIZED OFFICER ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee (1) semi-annually, not later than January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of the preceding December 31 or June 30, as the case may be, and -52- (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; EXCLUDING from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. REPORTS BY TRUSTEE. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner -53- provided pursuant to such Act; PROVIDED that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, the Company or such successor Person, as the case may be, shall take -54- such steps as shall be necessary effectively to secure the Securities equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely -55- for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, PROVIDED that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities pursuant to the requirements of Section 1008 or otherwise; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, PROVIDED that such action pursuant to this Clause (9) shall not adversely affect the interests of the Holders of Securities of any series. -56- SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than 66 2/3% in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1010, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1010, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(8). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. -57- It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. -58- ARTICLE TEN COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or -59- otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York City, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. -60- SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 1005. EXISTENCE. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1006. MAINTENANCE OF PROPERTIES. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and -61- supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1008. LIMITATION ON LIENS. The Company will not issue, incur, create, assume or guarantee, and will not permit any Restricted Subsidiary to issue, incur, create, assume or guarantee, any debt for borrowed money secured by a mortgage, security interest, pledge, lien, charge or other encumbrance ("mortgages") upon any Principal Property of the Company or any Restricted Subsidiary or upon any shares of stock or indebtedness of any Restricted Subsidiary (whether such Principal Property, shares or indebtedness are now existing or owned or hereafter created or acquired) without in any such case effectively providing concurrently with the issuance, incurrence, creation, assumption or guarantee of any such secured debt, or the grant of a mortgage with respect to any such indebtedness, that the Securities (together with, if the Company shall so determine, any other indebtedness of or guarantee by the Company or such Restricted Subsidiary ranking equally with the Securities) shall be secured equally and ratably with (or, at the option of the Company, prior to) such secured debt. The foregoing restriction, however, will not apply to: (1) mortgages on property existing at the time of acquisition thereof by the Company or any Subsidiary, provided that such mortgages were in existence prior to the contemplation of such acquisition; (2) mortgages on property, shares of stock or indebtedness or other assets of any corporation existing at the time such corporation becomes a Restricted Subsidiary, provided that such mortgages are not incurred in anticipation of such corporation becoming a Restricted Subsidiary; (3) mortgages on property, shares of stock or indebtedness existing at the time of acquisition thereof by the Company or a Restricted Subsidiary or mortgages thereon to secure the payment of all or any part of the purchase price thereof, or mortgages on property, shares of stock or indebtedness to secure any indebtedness for borrowed money incurred prior to, at the time of or within 270 days after, the latest of the acquisition thereof, or, in the case of property, the completion of construction, the completion of improvements, or the commencement of substantial commercial operation of such property for the purpose of financing all or any part of the purchase price thereof, such construction, or the making of such improvements; -62- (4) mortgages to secure indebtedness owing to the Company or to a Restricted Subsidiary; (5) mortgages existing at the date of this Indenture; (6) mortgages on property of a corporation existing at the time such corporation is merged into or consolidated with the Company or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary, provided that such mortgage was not incurred in anticipation of such merger or consolidation or sale, lease or other disposition; (7) mortgages in favor of the United States or any State, territory or possession thereof (or the District of Columbia), or any department, agency, instrumentality or political subdivision of the United States or any State, territory or possession thereof (or the District of Columbia), to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such mortgages; (8) mortgages created in connection with the acquisition of assets or a project financed with, and created to secure, a Nonrecourse Obligation; and (9) extensions, renewals, refinancings or replacements of any mortgage referred to in the foregoing clauses (1), (2), (3), (5), (6), (7) and (8) provided, however, that any mortgages permitted by any of the foregoing clauses (1), (2), (3), (5), (6), (7) and (8) shall not extend to or cover any property of the Company or such Restricted Subsidiary, as the case may be, other than the property, if any, specified in such clauses and improvements thereto, and provided further that any refinancing or replacement of any mortgages permitted by the foregoing clauses (7) and (8) shall be of the type referred to in such clauses (7) or (8), as the case may be. Notwithstanding the restrictions set forth in the preceding paragraph, the Company or any Restricted Subsidiary will be permitted to issue, incur, create, assume or guarantee debt secured by a mortgage which would otherwise by subject to such restrictions, without equally and ratably securing the Securities, provided that after giving effect thereto, the aggregate amount of all debt so secured by mortgages (not including mortgages permitted under clauses (1) through (9) above) does not exceed 10% of the Consolidated Net Tangible Assets of the Company as most recently determined on or prior to such date. -63- SECTION 1009. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. The Company will not, nor will it permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction with respect to any Principal Property, other than any such transaction involving a lease for a term of not more than three years or any such transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, unless: (1) the Company or such Restricted Subsidiary would be entitled to incur indebtedness secured by a mortgage on the Principal Property involved in such transaction at least equal in amount to the Attributable Debt with respect to such Sale and Lease-Back Transaction, without equally and ratably securing the Securities, pursuant to Section 1008; or (2) the Company shall apply an amount equal to the greater of the net proceeds of such sale or the Attributable Debt with respect to such Sale and Lease-Back Transaction within 180 days of such sale to either (or a combination of) the retirement (other than any mandatory retirement, mandatory prepayment or sinking fund payment or by payment at maturity) of debt for borrowed money of the Company or a Restricted Subsidiary that matures more than 12 months after the creation of such indebtedness or the purchase, construction or development of other comparable property. SECTION 1010. LIMITATION ON SUBSIDIARY DEBT. The Company shall not permit any Subsidiary of the Company to Incur or suffer to exist any Debt except: (1) Debt outstanding on the date of this Indenture; (2) Debt issued to and held by the Company or a Wholly Owned Subsidiary of the Company (provided that such Debt is at all times held by the Company or a Person which is a Wholly Owned Subsidiary of the Company); (3) Debt Incurred by a Person prior to the time (a) such Person became a Subsidiary of the Company, (b) such Person merges into or consolidates with a Subsidiary of the Company or (c) another Subsidiary of the Company merges into or consolidates with such Person (in a transaction in which such Person becomes a Subsidiary of the Company), which Debt was not Incurred in anticipation of such transaction and was outstanding prior to such transaction; (4) Debt which is exchanged for, or the proceeds of which are used to refinance or refund, any Debt permitted to be outstanding pursuant to Clauses (1) through (3) hereof (or any extension or renewal thereof), in an aggregate principal amount not to exceed the principal amount of the Debt so exchanged, refinanced or refunded and provided such refinancing or refunding Debt by its terms, or by the terms of any agreement or instrument pursuant to which such Debt is issued (x) does not provide for payments of principal at the stated maturity of such Debt or by way of a sinking fund applicable to -64- such Debt or by way of any mandatory redemption, defeasance, retirement or repurchase of such Debt by the Company (including any redemption, retirement or repurchase which is contingent upon events or circumstances, but excluding any retirement required by virtue of acceleration of such Debt upon an event of default thereunder), in each case prior to the stated maturity of the Debt being refinanced or refunded and (y) does not permit redemption or other retirement (including pursuant to an offer to purchase made by the Company) of such Debt at the option of the holder thereof prior to the stated maturity of the Debt being refinanced or refunded, other than a redemption or other retirement at the option of the holder of such Debt (including pursuant to an offer to purchase made by the Company) which is conditioned upon the change of control of the Company; and (5) Debt having a principal amount and liquidation value not in excess of 20% of the Consolidated Net Tangible Assets of the Company in the aggregate. SECTION 1011. WAIVER OF CERTAIN COVENANTS. Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Company may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such series or in any of Sections 1008 to 1010, inclusive, if before the time for such compliance the Holders of at least 66 2/3% in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OR REPAYMENT OF SECURITIES SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any series which are redeemable or repayable before their Stated Maturity shall be redeemable or repayable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article. -65- SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Company of less than all the Securities of any series (including any such redemption affecting only a single Security), the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, PROVIDED that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. -66- For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Securities of any series consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (5) the place or places where each such Security is to be surrendered for payment of the Redemption Price, and (6) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. SECTION 1105. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and -67- hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 1107. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 1108. RIGHT OF REPAYMENT. In order for any Security that is subject to repayment at the option of the Holder to be repaid, the Paying Agent must receive at least 30 days but not more than 60 days prior to the repayment date (a) appropriate wire instructions and (b) either (i) the Security -68- with the form entitled Option to Elect Repayment (as set forth below) attached to the Security duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States setting forth the name of the Holder of such Security, the principal amount of such Debenture, the portion of the principal amount of such Security to be repaid, the certificate number or a description of the tenor and terms of such Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that such Security to be repaid with the form entitled Option to Elect Repayment attached to such Security duly completed will be received by the Paying Agent not later than five Business Days after the date of such telegram, telex, facsimile transmission or letter and such Security and form duly completed must be received by the Paying Agent by such fifth Business Day. Exercise of the repayment option by the Holder of such Security shall be irrevocable, except as otherwise provided in the Board Resolution establishing the term of the Security. The repayment option may be exercised by the Holder of such Security for less than the entire principal amount of the Security provided that the principal amount of the Security remaining outstanding after repayment is an authorized denomination. No registration of, transfer or exchange of such Security (or, in the event that such Security is to be repaid in part, the portion of the Security to be repaid) will be permitted after exercise of a repayment option. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Security for repayment will be determined by the Company, whose determination will be final, binding and non-appealable. SECTION 1109. FORM OF OPTION TO ELECT REPAYMENT The following text shall be attached to each Security to which the provisions of Section 1108 apply: FORM OF OPTION TO ELECT REPAYMENT ON ___________, __________ I or we hereby irrevocably elect to exercise the option to have the principal sum of together with accrued interest thereon to __________, ___ repaid by the Company on ________________, ______. If less than the entire principal amount of the Security is to be repaid specify the denomination or denominations (which shall be in authorized denominations) of the Securities to be issued to the Holder for the portion of the within Security not being repaid (in the absence of any such specification, one such Security will be issued for the portion not being repaid. - -------------------------------------------------------------------------------- Dated: ------------------------------------------------------------------------- Signed: ------------------------------------------------------------------------ Signature Guarantee: ---------------------------------------------- (Signature must be guaranteed by an eligible institution within the meaning of Rule 17A(d)-15 under the Securities Exchange Act of 1934, as amended) -69- ARTICLE TWELVE SINKING FUNDS SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 301 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of such Securities. SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to any Securities of such series required to be made pursuant to the terms of such Securities as and to the extent provided for by the terms of such Securities; PROVIDED that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. -70- SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 30 days prior to each sinking fund payment date for any Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 20 days prior to each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may elect, at its option at any time, to have Section 1302 or Section 1303 applied to any Securities or any series of Securities, as the case may be, designated pursuant to Section 301 as being defeasible pursuant to such Section 1302 or 1303, in accordance with any applicable requirements provided pursuant to Section 301 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. SECTION 1302. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the -71- same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option (if any) to have this Section applied to any Securities notwithstanding the prior exercise of its option (if any) to have Section 1303 applied to such Securities. SECTION 1303. COVENANT DEFEASANCE. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, (1) the Company shall be released from its obligations under Section 801(3), Sections 1006 through 1010, inclusive, and any covenants provided pursuant to Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such Securities and (2) the occurrence of any event specified in Sections 501(4) (with respect to any of Section 801(3), Sections 1006 through 1010, inclusive, and any such covenants provided pursuant to Section 301(18), 901(2) or 901(7)), 501(5) and 501(8) shall be deemed not to be or result in an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(4)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to the application of Section 1302 or Section 1303 to any Securities or any series of Securities, as the case may be: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 609 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such -72- Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on such Securities on the respective Stated Maturities, in accordance with the terms of this Indenture and such Securities. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 1302 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 1303 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and -73- Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that neither such Securities nor any other Securities of the same series, if then listed on any securities exchange, will be delisted as a result of such deposit. (5) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Securities or any other Securities shall have occurred and be continuing at the time of such deposit or, with regard to any such event specified in Sections 501(6) and (7), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act). (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act unless such trust shall be registered under such Act or exempt from registration thereunder. (9) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 1306, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1304 in respect of any Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its -74- own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 with respect to any Securities which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Securities. SECTION 1306. REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 1302 or 1303 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1305 with respect to such Securities in accordance with this Article; PROVIDED, HOWEVER, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. ----------------------------- -75- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. ALLEGIANCE CORPORATION By /s/ Leonard G. Kuhr -------------------------------------- Attest: /s/ William L. Feather - -------------------------------------- PNC BANK, KENTUCKY, INC. By /s/ Patricia C. Mc Fadden -------------------------------------- Attest: /s/ - -------------------------------------- -76- State of Illinois ) ) ss.: County of Lake ) On the 9th day of October, 1996, before me personally came Leonard G. Kuhr, to me known, who, being by me duly sworn, did depose and say that he is V.P/Treasurer of Allegiance Corporation, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/ Peggy K. Snow ---------------------------------------- State of Kentucky ) ) ss.: County of Jefferson ) On the 9th day of October, 1996, before me personally came Patricia C. McFadden, to me known, who, being by me duly sworn, did depose and say that he is Vice President of PNC Bank, Kentucky, Inc., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. /s/ Mary D. Callan ---------------------------------------- Notary Public, State at Large, KY My Commision expires June 10, 2000 EX-4.2 4 EXHIBIT 4.2 ALLEGIANCE CORPORATION CERTIFICATE OF AUTHORIZED OFFICERS The undersigned, pursuant to resolutions adopted by the Board of Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on September 16, 1996 (the "Board Resolutions"), hereby certify that there is hereby approved and established pursuant to Section 301 of the Indenture, dated as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the Company under the Indenture whose terms shall be as follows (capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture): 1. The Securities of such series shall be known and designated as the "7.30% Notes due October 15, 2006" of the Company. 2. The aggregate principal amount of the Securities of such series which may be authenticated and delivered under the Indenture is limited to $200,000,000 (except for Securities of such series authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 304, 305, 306, 906 or 1107 of the Indenture and except for Securities which, pursuant to Section 303 of the Indenture, are deemed never to have been authenticated and delivered thereunder). 3. The Stated Maturity of the principal of the Securities of such series shall be October 15, 2006. 4. The Securities of such series shall bear interest at the rate of 7.30% per annum, which will accrue from October 15, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on April 15 and October 15 in each year, commencing April 15, 1997, to the Person in whose name such Securities of such series (or one or more Predecessor Securities) are registered at the close of business on the Regular Record Date next preceding the Interest Payment Date. Each April 15 and October 15 shall be an "Interest Payment Date" for such Securities of such series, and the March 31 and September 30 (whether or not a Business Day), as the case may be, next preceding an Interest Payment shall be the "Regular Record Date" for the interest payable on such Interest Payment Date. 5. Payment of the principal of and interest on the Securities of such series will be made at the office or agency of the Company maintained for such purposes in the City of Louisville, Kentucky; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. 6. The Securities of such series will not be redeemable at the option of the Company. 7. The Company shall not be obligated to redeem or purchase the Securities of such series pursuant to any sinking fund or analogous provision, or at the option of any Holder thereof. 8. The Securities of such series shall be issued in the form of one or more permanent Global Securities registered in the name of The Depository Trust Company or its nominee. 9. The Trustee shall act as paying agent with respect to the Securities of such series. 10. The Securities of such series shall be in such form or forms as may be approved by the officers of the Company as provided in the Board Resolutions, such approval to be evidenced by such officers' manual or facsimile signatures on the Securities of such series, provided that such form or forms of the Securities are not inconsistent with the requirements of the Indenture or the Board Resolutions. * * * * -2- IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th day of October, 1996. /s/ Peter B. McKee ----------------------------------- Name: Peter B. McKee Title: Chief Financial Officer /s/ Leonard G. Kuhr ----------------------------------- Name: Leonard G. Kuhr Title: Corporate Vice President and Treasurer -3- ALLEGIANCE CORPORATION CERTIFICATE OF AUTHORIZED OFFICERS The undersigned, pursuant to resolutions adopted by the Board of Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on September 16, 1996 (the "Board Resolutions"), hereby certify that there is hereby approved and established pursuant to Section 301 of the Indenture, dated as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the Company under the Indenture whose terms shall be as follows (capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture): 1. The Securities of such series shall be known and designated as the "7.80% Debentures due October 15, 2016 of the Company. 2. The aggregate principal amount of the Securities of such series which may be authenticated and delivered under the Indenture is limited to $150,000,000 (except for Securities of such series authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 304, 305, 306, 906 or 1107 of the Indenture and except for Securities which, pursuant to Section 303 of the Indenture, are deemed never to have been authenticated and delivered thereunder). 3. The Stated Maturity of the principal of the Securities of such series shall be October 15, 2016. 4. The Securities of such series shall bear interest at the rate of 7.80% per annum, which will accrue from October 15 , 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on April 15 and October 15 in each year, commencing April 15, 1997, to the Person in whose name such Securities of such series (or one or more Predecessor Securities) are registered at the close -1- of business on the Regular Record Date next preceding the Interest Payment Date. Each April 15 and October 15 shall be an "Interest Payment Date" for such Securities of such series, and the March 31 and September 30 (whether or not a Business Day), as the case may be, next preceding an Interest Payment shall be the "Regular Record Date" for the interest payable on such Interest Payment Date. 5. Payment of the principal of and interest on the Securities of such series will be made at the office or agency of the Company maintained for such purposes in the City of Louisville, Kentucky; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. 6. The Securities of such series will not be redeemable at the option of the Company. 7. The Company shall not be obligated to redeem or purchase the Securities of such series pursuant to any sinking fund or analogous provision, or at the option of any Holder thereof. 8. The Securities of such series shall be issued in the form of one or more permanent Global Securities registered in the name of The Depository Trust Company or its nominee. 9. The Trustee shall act as paying agent with respect to the Securities of such series. 10. The Securities of such series shall be in such form or forms as may be approved by the officers of the Company as provided in the Board Resolutions, such approval to be evidenced by such officers' manual or facsimile signatures on the Securities of such series, provided that such form or forms of the Securities are not inconsistent with the requirements of the Indenture or the Board Resolutions. * * * * -2- IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th day of October, 1996. /s/ Peter B. McKee ----------------------------------- Name: Peter B. McKee Title: Chief Financial Officer /s/ Leonard G. Kuhr ----------------------------------- Name: Leonard G. Kuhr Title: Corporate Vice President and Treasurer -3- ALLEGIANCE CORPORATION CERTIFICATE OF AUTHORIZED OFFICERS The undersigned, pursuant to resolutions adopted by the Board of Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on September 16, 1996 (the "Board Resolutions"), hereby certify that there is hereby approved and established pursuant to Section 301 of the Indenture, dated as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the Company under the Indenture whose terms shall be as follows (capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture): 1. The Securities of such series shall be known and designated as the "7.00% Debentures due October 15, 2026" of the Company. 2. The aggregate principal amount of the Securities of such series which may be authenticated and delivered under the Indenture is limited to $200,000,000 (except for Securities of such series authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 304, 305, 306, 906 or 1107 of the Indenture and except for Securities which, pursuant to Section 303 of the Indenture, are deemed never to have been authenticated and delivered thereunder). 3. The Stated Maturity of the principal of the Securities of such series shall be October 15, 2026. 4. The Securities of such series shall bear interest at the rate of 7.00% per annum, which will accrue from October 15, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on April 15 and October 15 in each year, commencing April 15, 1997, to the Person in whose name such Securities of such series (or one or more Predecessor Securities) are registered at the close of business on the Regular Record Date next preceding the -4- Interest Payment Date. Each April 15 and October 15 shall be an "Interest Payment Date" for such Securities of such series, and the March 31 and September 30 (whether or not a Business Day), as the case may be, next preceding an Interest Payment shall be the "Regular Record Date" for the interest payable on such Interest Payment Date. 5. Payment of the principal of and interest on the Securities of such series will be made at the office or agency of the Company maintained for such purposes in the City of Louisville, Kentucky; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. 6. The Securities of such series will not be redeemable at the option of the Company. 7. The Company shall not be obligated to redeem or purchase the Securities of such series pursuant to any sinking fund or analogous provision, or at the option of any Holder thereof, except that any Holder of a Security of this series may elect to have that Security, or any portion of the principal amount thereof that is a multiple of $1,000, repaid on October 15, 2003 at 100% of the principal amount thereof, together with accrued interest to October 15, 2003. In order for the Holder to exercise this option, the Company must receive at its office or agency in Louisville, Kentucky, during the period beginning on August 15, 2003 and ending at 5:00 p.m. (New York City time) on September 15, 2003, this Security with the form "Option to Elect Repayment on October 15, 2003" duly completed. Any such notice received by the Company during the period beginning on August 15, 2003, and ending at 5:00 p.m. (New York City time) on September 15, 2003 (or, if September 15, 2003 is not a Business Day, the next succeeding Business Day) shall be irrevocable. 8. The Securities of such series shall be issued in the form of one or more permanent Global Securities registered in the name of The Depository Trust Company or its nominee. 9. The Trustee shall act as paying agent with respect to the Securities of such series. 10. The Securities of such series shall be in such form or forms as may be approved by the officers of the Company as provided in the Board Resolutions, such approval to be evidenced by such officers' manual or facsimile signatures on the Securities of such series, provided that such form or forms of the Securities are not inconsistent -5- with the requirements of the Indenture or the Board Resolutions. * * * * -6- IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th day of October, 1996. /s/ Peter B. McKee ----------------------------------- Name: Peter B. McKee Title: Chief Financial Officer /s/ Leonard G. Kuhr ----------------------------------- Name: Leonard G. Kuhr Title: Corporate Vice President and Treasurer -7- EX-10.1 5 EXHIBIT 10.1 CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS. AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT by and between BAXTER HEALTHCARE CORPORATION as Baxter and ALLEGIANCE HEALTHCARE CORPORATION as Allegiance TABLE OF CONTENTS Page ---- 1. Definitions; Rules of Construction. . . . . . . . . . . . . . . . . . . . 1 2. Appointment and Commitment. . . . . . . . . . . . . . . . . . . . . . . . 6 3. Agency Model, Distributor Model, and BCS Kit Model. . . . . . . . . . . . 7 4. Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 6. Prices and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 7. The Council.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 8. Invoicing and Payments. . . . . . . . . . . . . . . . . . . . . . . . . .22 9. Allegiance's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . .22 10. Baxter's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 11. Standard of Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 12. Alternative Acute Care Distribution . . . . . . . . . . . . . . . . . . .22 13. Transfer of Title and Risk of Loss. . . . . . . . . . . . . . . . . . . .24 14. Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 15. Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 16. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 19. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . .33 20. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 21. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 22. Limitation of Liability and Remedy. . . . . . . . . . . . . . . . . . . .37 23. Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . . . . .38 24. Dispute Resolution and Arbitration. . . . . . . . . . . . . . . . . . . .40 25. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 i 26. Authority.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 LIST OF EXHIBITS Exhibit A I.V. Products Exhibit B Nutrition Products Exhibit C Allegiance's Duties Exhibit D Baxter's Duties Exhibit E Supplier Scoreboard Exhibit F Interim Distributor Model ii AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT This AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT (this "Agreement"), dated as of October 1, 1996, by and between BAXTER HEALTHCARE CORPORATION, a Delaware corporation with its principal offices at One Baxter Parkway, Deerfield, Illinois 60015 (hereinafter called "Baxter") and ALLEGIANCE HEALTHCARE CORPORATION, a Delaware corporation with its principal offices at 1430 Waukegan Road, McGaw Park, Illinois 60085 (hereinafter called "Allegiance"). RECITALS Baxter and its parent corporation, Baxter International Inc. ("Baxter International"), have spun-off various businesses by transferring those businesses to Allegiance Corporation ("Allegiance Corporation") (or its subsidiaries) and distributing all of the stock of Allegiance Corporation to the stockholders of Baxter International as a dividend. As a result of the distribution of that dividend, Baxter International and Allegiance Corporation, and their respective subsidiaries, are separate and independent corporations. As a consequence of the foregoing actions, Allegiance will acquire, INTER ALIA, certain business units, including the U.S. Distribution business, that have previously provided various sales and distribution services to business units owned by Baxter. Baxter and Allegiance recognize that it is advisable for Allegiance to continue providing physical distribution and sales support and related services to Baxter. AGREEMENT In consideration of the mutual undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Baxter and Allegiance agree as follows: 1. DEFINITIONS; RULES OF CONSTRUCTION. 1.1 DEFINITIONS. As used in this Agreement: 1.1.1 "Affiliate" shall mean any Person controlling, controlled by or under direct or indirect common control with a party hereto. For the purpose of this definition, the term "control" means the power to direct the management of an entity, directly or indirectly, whether solely through the ownership of voting securities (as in the case of a subsidiary), by contract, or otherwise; and the term "controlled" has a meaning correlative to the foregoing. Allegiance Corporation and Baxter International shall not be deemed to be Affiliates of each other. 1.1.2 "Agreement" shall mean this Agency, Services, and Distribution Agreement dated as of October 1, 1996, including all Exhibits and Schedules attached hereto. 1.1.3 "Base Business Products" shall mean all I.V. Products on Exhibit A that are not designated as Premium Products, as defined herein. 1.1.4 "Best Value Products" shall mean a select offering of Allegiance-distributed and Allegiance-manufactured products * * *. Best Value Products are specially promoted externally to Allegiance customers and internally to Allegiance sales personnel through financial incentives. All Best Value Products are required to meet the following specific criteria: * * *. Notwithstanding the foregoing criteria, the Premium Products listed on Exhibit A from time to time pursuant to Section 4.3 will be deemed Best Value Products; provided, however, that * * * identified on Exhibit A will not be considered to be Best Value Products solely on account of their being identified as Premium Products. 1.1.5 "Competitor" shall mean (a) with respect to Baxter, any Person (including an affiliate of such Person) that during its most recently completed fiscal year has annual net revenues from sales of products competitive with the Products greater than 20% of the total annual net revenues of Baxter from Products during its most recently completed fiscal year; and (b) in the case of Allegiance, any Person (including an affiliate of such Person) that during its most recently completed fiscal year has annual net revenues from the distribution of medical, surgical and laboratory products greater than 20% of the total annual net revenues of Allegiance during its most recently completed fiscal year. 1.1.6 "Cost Management" shall mean the dedication of resources by Allegiance or its Affiliates to deliver cost improvement services to customers. Cost Management services shall focus on activities including, without limitation, reducing product consumption, improving utilization of assets, improving logistics, and reducing or eliminating operating costs. Cost Management transactions shall be those transactions performed by Allegiance pursuant to any comprehensive Cost Management contract which permits Allegiance to share with a customer the risk and reward of cost savings generated by Cost Management as well as obligating the customer to purchase a specified percentage of Best Value Products. As part of such Cost Management transactions, Allegiance may also provide some or all of the following services: (a) ValueLink (as defined herein); (b) PBDS (as defined herein); (c) consulting services; (d) on-site -2- clinical resources; (e) contract materials management; and (f) consolidated service centers. 1.1.7 "Internal Use Sales" shall mean (a) Products transferred to Baxter's Affiliates for internal use (including provision of perfusion services); and (b) Products transferred to another Baxter Division for resale under a distribution agreement with Allegiance. 1.1.8 "I.V. Products" shall mean the products and accessories manufactured by or on behalf of Baxter and listed in Exhibit A hereto together with the parts and components necessary for the repair and replacement thereof. 1.1.9 "Kit" shall mean an aggregation by Allegiance of Baxter, Allegiance, and/or third-party products packaged together or repackaged for specific uses and procedures including, without limitation, such aggregations for programs known prior to the effective date of this Agreement as Baxter Custom Sterile ("BCS"), Baxter Custom Products ("BCP"), and Procedure-Based Delivery Systems ("PBDS"). 1.1.10 "Line of Products" shall mean any specifically identified group of related Products set forth in Exhibits A and B to this Agreement. 1.1.11 Net Sales. 1.1.11.1 "Agency Net Sales" shall mean Baxter's aggregate sales of Products at the Agency Prices (or direct shipment prices) for such Products less all applicable dealer, divisional, and corporate bonuses and discounts, returns, allowances, discounts available at time of purchase, group purchasing organization fees, drug buy-back premiums, and amortized contract procurement costs provided or recognized by Baxter. Agency Net Sales includes all sales of the Products by Baxter in the Territory except Distributor Net Sales, sales to Allegiance of Products, Internal Use Sales, VWR Purchases, Drug Purchases, capital equipment lease extensions and re- signs, or sales and leases of hardware and related software and disposables to nonhealth-care retailers serving end-user customers. 1.1.11.2 "Contract Net Sales" shall mean the sum of Agency Net Sales and Distributor Net Sales. Contract Net Sales amounts shall be recognized for calculation purposes in a manner consistent with Baxter's historical revenue recognition policies and generally accepted accounting principles. 1.1.11.3 "Distributor Net Sales" shall mean a calculation of net sales for all transactions hereunder pursuant to the Distributor Model or the Interim Distributor -3- Model. Distributor Net Sales shall be based upon the volumes of Products sold by Allegiance to customers and calculated as if Baxter had sold such volumes to such customers at the Suggested Sales Prices less all applicable dealer, corporate, and divisional bonuses and discounts, returns, allowances, discounts available at time of purchase, group purchasing organization fees, drug buy-back premiums, and amortized contract procurement costs provided or recognized by Baxter. Distributor Net Sales shall not include sales to Allegiance of Products for use as components of BCS Kits or sales of BCS Kits to customers. 1.1.12 "Notice" shall mean notice given in accordance with Section 23.1. 1.1.13 "Nutrition Products" shall mean the products and accessories manufactured by or on behalf of Baxter and listed in Exhibit B hereto together with the parts and components necessary for the repair and replacement thereof. 1.1.14 "Person" shall mean an individual, corporation, partnership, limited liability company, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator or other legal representative, governmental authority or agency, or any group of Persons acting in concert. 1.1.15 "Premium Products" shall mean all I.V. Products on Exhibit A that are designated as Premium Products. 1.1.16 "Products" shall mean all I.V. Products and all Nutrition Products. 1.1.17 "Term" shall mean the period of time provided in Section 5 hereof, including any and all extensions thereof. 1.1.18 "Territory" shall mean the District of Columbia and the fifty states comprising the United States of America. 1.1.19 "Transfer" shall mean any assignment, transfer, sale or other disposition to a Person that is not an Affiliate of the Transferor, including any Transfer by way of merger or consolidation or otherwise by operation of law. 1.1.20 "ValueLink" shall mean the just-in-time inventory management service known as ValueLink-Registered Trademark-. 1.2 OTHER TERMS. Terms defined in other Sections of this Agreement will have the meanings therein provided. 1.3 RULES OF CONSTRUCTION. -4- 1.3.1 In this Agreement, unless a clear contrary intention appears: 1.3.1.1 the singular number includes the plural number and vice versa; 1.3.1.2 reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; 1.3.1.3 reference to any gender includes the other gender; 1.3.1.4 reference to any Section or Exhibit means such Section of this Agreement or such Exhibit to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; 1.3.1.5 "herein", "hereunder", "hereof", "hereto", and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; 1.3.1.6 "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; 1.3.1.7 "distribute" and "distribution" shall be used interchangeably to refer to Allegiance's duties under the Agency Model, the Distributor Model, the Interim Distributor Model, or the BCS Kit Model and shall not alone imply a legal distributor relationship; 1.3.1.8 relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding" and "through" means "through and including"; 1.3.1.9 reference to any law (including statutes and ordinances) means such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder; 1.3.1.10 accounting terms used herein shall have the meanings historically attributed to them by Baxter and its subsidiaries based upon Baxter's internal financial policies and procedures in effect prior to the spin-off described in the recitals above; 1.3.1.11 in the event of any conflict between the provisions of the body of this Agreement and the Exhibits -5- hereto, the provisions of the body of this Agreement shall control; and 1.3.1.12 the headings contained in this Agreement (except for the Exhibits) have been inserted for convenience of reference only, and are not to be used in construing this Agreement. 1.3.2 This Agreement was negotiated by the parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against either party shall not apply to any construction or interpretation hereof. Subject to Section 23.5 hereof, this Agreement shall be interpreted and construed to the maximum extent possible so as to uphold the enforceability of each of the terms and provisions hereof, it being understood and acknowledged that this Agreement was entered into by the parties after substantial and extended negotiations and with full awareness by the parties of the terms and provisions hereof and the consequences thereof. 2. APPOINTMENT AND COMMITMENT. 2.1 APPOINTMENT OF LIMITED AGENCY. Baxter hereby appoints Allegiance, and Allegiance hereby accepts such appointment, as Baxter's exclusive limited agent to provide under the Agency Model (as defined herein), (1) physical distribution services and sales support services with respect to the Products sold by Baxter to Baxter's customers in the Territory, and (2) sales representative services for sales to surgery centers not affiliated with acute care hospitals (such acute care hospitals as set forth in the then-current AMERICAN HOSPITAL ASSOCIATION GUIDE), subject to the terms and conditions stated herein. Subject to the terms of Section 4.2, Baxter, in its sole and absolute discretion, shall select the customers to whom Allegiance distributes as Baxter's agent under the Agency Model. Subject to the terms of Section 3, all Products shall be sold under the Agency Model except for (a) Kits, and/or (b) Cost Management, ValueLink, and other transactions in which the customer demands that Allegiance issue an Allegiance invoice for Products and, in some instances, Allegiance products; provided that Allegiance shall nevertheless provide sales, sales support, customer service, and physical distribution services for the transactions specified in clauses (a) and (b) of this Section under the Distributor Model or BCS Kit Model, each as defined herein. 2.2 GRANT OF DISTRIBUTION RIGHTS. With respect to the transactions specified in clauses (a) and (b) in Section 2.1, Baxter hereby grants to Allegiance and Allegiance hereby accepts the right, which shall be exclusive except as set forth in Section 4.2, to provide sales, sales support, customer service, and physical distribution services, as specified in Section 9, to -6- customers in the Territory under the Distributor Model, the Interim Distributor Model, and the BCS Kit Model, provided that Allegiance shall notify Baxter in advance of the identity of each such customer. 2.3 EXCEPTIONS AND LIMITATIONS. Baxter reserves all rights not expressly granted to Allegiance hereunder. Except as expressly provided herein with respect to Subdistributors, Allegiance shall not grant to any subagents or subdistributors any of its rights or obligations hereunder. 3. AGENCY MODEL, DISTRIBUTOR MODEL, AND BCS KIT MODEL. 3.1 GENERAL. The Products may be distributed pursuant to the Agency Model, the Distributor Model, or the BCS Kit Model. Section 2.1 shall apply to Products distributed pursuant to the Agency Model, and Section 2.2 shall apply to Products distributed pursuant to the Distributor Model or the BCS Kit Model. For the period beginning with the effective date of this Agreement and ending upon the earlier of (a) mutual agreement of the parties or (b) September 30, 1997 (the "Interim Period"), all transactions that would otherwise be treated as Distributor Model transactions under this Agreement will follow the Interim Distributor Model as provided in Exhibit F. Based upon the parties' business prior to the effective date of this Agreement, the parties believe that a significant majority of Baxter's distribution of the Products shall be made by Allegiance under the Agency Model. 3.2 AGENCY MODEL. Under the Agency Model, Baxter shall maintain the principal contractual relationship with the customer and shall be responsible for sales, sales support, customer invoicing, accounts receivable, and customer service in connection with the sales of the Products, and Allegiance shall act as Baxter's agent to facilitate physical distribution of the Products from Baxter to the customer. Baxter shall have the sole right and responsibility for negotiating and contracting with each customer the delivered price from Baxter of the Products (the "Agency Price"). As provided in Section 6, Baxter shall pay Allegiance a percentage of the Agency Net Sales of the Products as a fee for Allegiance's services as set forth in Section 9. 3.3 DISTRIBUTOR MODEL. Under the Distributor Model, Allegiance shall maintain the principal contractual relationship with the customer for sales, sales support, customer invoicing, accounts receivable, and customer service in connection with the supply of the Products in connection with the provision by Allegiance of Kits and Cost Management, ValueLink, and other services consolidated on an Allegiance invoice for Products and, in some instances, Allegiance products (as required by the customer). Baxter shall use reasonable efforts to cooperate with Allegiance and to facilitate Allegiance's fulfillment of its obligations hereunder. Baxter shall provide to Allegiance a suggested direct sale price including Standard Delivery (the -7- "Suggested Sales Price") and an effective Distributor Net Sales price applicable to each such Product in connection with each Distributor Model transaction; provided, however, that Allegiance shall have the sole right and responsibility for negotiating and contracting with each customer the delivered price of the Products. If the customer has a then-current contract with Baxter for such Products, the Suggested Sales Price shall be the then-current contract price. If Baxter has an agreement with any customer for Baxter's provision of Products to such customer and such customer subsequently requests (a) Kits, and/or (b) Cost Management, ValueLink, and other services consolidated on an Allegiance invoice for such Products and, in some instances, Allegiance products, then all such Distributor Model sales of Products to such customer shall apply to any minimum purchase commitments or quantity discounts contained in Baxter's agreement with such customer. 3.4 BCS KIT MODEL. Under the BCS Kit Model, Allegiance shall maintain the principal contractual relationship with the customer for sales, sales support, customer invoicing, accounts receivable, and customer service in connection with the provision by Allegiance of BCS Kits. Baxter shall provide to Allegiance a price for each Product that Allegiance orders from Baxter for use as a component for a BCS Kit, and such price shall be Baxter's Agency Net Sales price for Products from the * * * contract in effect on January 1 of the calendar year in which the BCS Kit component sale takes place (the "BCS Component Price"). Allegiance shall have the sole right and responsibility for negotiating and contracting with each customer the delivered price of the BCS Kits. If Baxter has an agreement with any customer for Baxter's provision of Products to such customer and such customer subsequently requests BCS Kits, all such BCS Kit Model sales of Products to such customer shall apply to any minimum purchase commitments or quantity discounts contained in Baxter's agreement with such customer. 4. EXCLUSIVITY. 4.1 RESTRICTIONS ON ALLEGIANCE. 4.1.1 Unless specifically required by the end-user customer or as permitted below for certain competitive Best Value Products, Allegiance, its Affiliates, and any other Person acting on its or their behalf, shall not, directly or indirectly, market or promote any product or solicit orders through agents or otherwise, to or from any customer or any Affiliate of any customer for any product that competes in the Territory with any Product or Products. The taking by Allegiance of orders not solicited by Allegiance shall not be deemed to be a breach of this Section. Without limiting the generality of the foregoing and at all times subject to availability of the Products, Allegiance, its Affiliates, and any other Person acting on its or their behalf, shall not, directly or indirectly, market or -8- promote any product that competes with any Product or Products as Allegiance's (a) Best Value Product that competes with the Products, (b) first-line substitute or for competitive comparison, or (c) as a substitute for any other product competitive with any Product or Products; except that Allegiance may market and promote as Best Value Products endotracheal tubes, temperature probes, and heat and moisture exchangers (whether with or without filters) and that such competitive Best Value Products shall not be subject to clauses (b) and (c) of this sentence. Allegiance, its Affiliates, and any other Person acting on its or their behalf, shall promote the Premium Products [except for endotracheal tubes, temperature probes, and heat and moisture exchangers (whether with or without filters)]. This Section 4.1.1 shall not apply if the applicable Products are unavailable, and such unavailability is due substantially to Baxter's acts or omissions. 4.1.2 Allegiance, its Affiliates, and any other Person acting on its or their behalf, shall not, directly or indirectly, develop or manufacture any product that competes in the Territory with any Product or Products. 4.1.3 Allegiance, its Affiliates, and any other Person acting on its or their behalf, shall not, directly or indirectly, market to or solicit orders from, or distribute any Product through distributors, agents, or otherwise, to or from any customer or any Affiliate of any customer located outside of the Territory. 4.2 RESTRICTIONS ON BAXTER. Baxter, its Affiliates, and any other Person acting on its or their behalf, shall not, directly or indirectly, provide or engage any Person other than Allegiance to provide physical distribution services or to act as agent or distributor for Baxter in the Territory with respect to the sales and distribution of the Products, provided that Baxter shall have the right to: 4.2.1 distribute the Products in the Territory directly to customers from Baxter manufacturing facilities and/or Baxter's replenishment centers in order to facilitate cost reduction plans; 4.2.2 distribute any Product to any customer in the Territory to the extent necessitated by Baxter's inability to assign to Allegiance any contract or agreement whether pursuant to the Restructuring Agreements or at a later date in connection with a future acquisition; 4.2.3 distribute the Products directly to Baxter's Affiliates or directly to other Baxter Divisions, where such distribution is made in connection with Internal Use Sales; -9- 4.2.4 continue to sell and distribute Products directly to VWR Corporation for resale to industrial customers (all such Products actually sold and distributed to VWR Corporation to be referred to herein as "VWR Purchases"); 4.2.5 continue to distribute directly from Baxter manufacturing facilities any Product sold directly to drug manufacturers (all such Products actually sold and distributed to drug manufacturers to be referred to herein as "Drug Purchases"); 4.2.6 distribute Products to customers within the Territory other than through Allegiance (and Baxter shall be relieved of its obligation to pay fees pursuant to Section 6.3) if and to the extent Allegiance is unable to so distribute the Products due to (a) regulatory requirements; (b) Allegiance's material failure to meet agreed-upon performance standards; or (c) Allegiance being otherwise prohibited or prevented from selling and/or distributing the Products or refusing or being unable to sell and/or distribute the Products to any customer or class of customers other than by customer decision; 4.2.7 direct Allegiance to distribute the Products to third-party distributors ("Subdistributors"), provided that Baxter shall not have the right to direct Allegiance to distribute the Products to acute care hospitals (such acute care hospitals as set forth in the then-current AMERICAN HOSPITAL ASSOCIATION GUIDE) through Subdistributors unless specifically required by the end-user customer; 4.2.8 sell and distribute products which are not Products, as defined herein, through relationships that do not include Allegiance; and 4.2.9 distribute, sell and lease hardware and related software and disposables to nonhealth-care retailers serving end-user customers. This Agreement shall in no way limit the right of Baxter and its Affiliates to market, sell, or otherwise distribute the Products outside the Territory. 4.3 PRODUCT EXCLUSIVITY. Baxter shall: (a) add Products to Exhibits A and B which are new products (including all modifications of, improvements of, substitutes for, and line extensions of the Products) developed or acquired by Baxter that are of the same type and have similar distribution characteristics as the Products set forth in Exhibits A and B as of the effective date of this Agreement; and (b) delete from Exhibits A and B and this Agreement any Product, the manufacture and sale of which has been generally discontinued by Baxter. Exhibits A and B shall be deemed to be amended to reflect any such Product additions and deletions without any further act by any party hereto. Notwithstanding clause (a) above, Baxter shall -10- have the right, but not the obligation, to add newly developed or acquired products to Exhibits A and B pursuant to clause (a) above if such products are part of a new product line or a new line of business, subject to agreement by Allegiance. Baxter shall use commercially reasonable efforts to provide at least 30 days prior written notice to Allegiance of each such addition or deletion. Exhibits A and B, as amended and supplemented from time to time, are incorporated by reference herein and form part of this Agreement. 5. TERM. The initial Term of this Agreement shall begin on the effective date of this Agreement and, except as otherwise provided in this Agreement, end at the end of the day on December 31, 2001. The Term may be extended for successive additional periods, subject to the parties agreeing upon the terms and conditions of such an extension. Beginning no later than July 1, 2000, the parties shall negotiate in good faith regarding the terms and conditions of an extension of this Agreement beyond its expiration on December 31, 2001. Each party may in its absolute discretion determine whether or not the terms of any such proposed extension are acceptable and may refuse to agree to any such extension for any reason whatsoever. 6. PRICES AND FEES. Allegiance and Baxter will keep confidential all amounts paid by either party to the other. 6.1 DISTRIBUTOR MODEL. Baxter shall pay to Allegiance a service fee equal to the applicable percentages (pursuant to Section 6.4) of the Distributor Net Sales of such Products. 6.2 BCS KIT MODEL. Allegiance shall pay to Baxter as the purchase price of the Products purchased by Allegiance pursuant to the BCS Kit Model an amount equal to the aggregate BCS Component Prices of all such Products. 6.3 AGENCY MODEL, DIRECT SALES AND OTHER. Baxter shall pay to Allegiance an agency services fee equal to the applicable percentages (pursuant to Section 6.4) of the Agency Net Sales of all Products sold by Baxter to customers. However, sales to Allegiance of Products, Internal Use Sales, VWR Purchases, Drug Purchases, capital equipment lease extensions and re-signs, and sales and leases of hardware and related software and disposables to nonhealth-care retailers serving end-user customers are excluded from Agency Net Sales. 6.4 APPLICABLE PERCENTAGES. 6.4.1 For all transactions under Sections 6.1 and 6.3 during the period beginning October 1, 1996, and continuing through December 31, 1996, the applicable percentage shall be 11.5% and shall be calculated in the same manner as the internal profit split between Baxter's business units was calculated from January 1, 1996, through September 30, 1996. -11- 6.4.2 The following percentages shall apply to Agency Net Sales and Distributor Net Sales during calendar year 1997 and thereafter unless otherwise agreed to by the parties in accordance with Section 6.4.2.3: 6.4.2.1 * * * * during such calendar year for all Nutrition Products and Base Business Products and Premium Products which are excluded from Best Value Products except for sales of such I.V. Products within the scope of Section 6.4.2.2, and * * * during such calendar year for all Premium Products (except Premium Products which are excluded from Best Value Products); 6.4.2.2 Notwithstanding the above, the percentage applicable to Agency Net Sales and Distributor Net Sales of I.V. Products shall be * * * for sales by Allegiance of such I.V. Products (i) in connection with the provision of cost management services in which Allegiance shares the risk and reward of achieving customer cost savings through shared risk and shared savings agreements which obligate the customer to purchase a specified percentage of Best Value Products or comprehensive cost management agreements which require Allegiance to provide clinical and operational services that reduce the customer's operational costs and which obligate the customer to (A) purchase a specified percentage of Best Value Products, and (B) share the operating cost reductions achieved through specified fees and/or shared savings paid to Allegiance, and the customer has switched to the Base Business Products under a long-term agreement with Baxter on or after the date of the Allegiance/customer agreement and such switch is not as a result of a requirement of a contract between Baxter and a third party; or (ii) when Baxter has agreed that Allegiance's efforts in promoting the I.V. Products warrants the higher percentage. This percentage shall apply for the period ending upon the earliest termination or expiration of the following: (a) this Agreement; (b) the Allegiance/ customer agreement; and (c) the Baxter/customer agreement. 6.4.2.3 Following the completion of Baxter's sales plan for and prior to January 1 of an upcoming calendar year, Baxter will calculate an amount equal to 11.5% of Baxter's aggregate sales plan for Contract Net Sales of I.V. Products. Baxter will then apportion this amount between proposed base business products and proposed premium products and will then develop a proposed base percentage and a proposed premium percentage such that the sum of the proposed percentages when multiplied by the respective sales plan targets for proposed base business products and proposed premium products will produce an amount equal to * * * of Baxter's aggregate sales plan for Contract Net Sales of I.V. Products. Baxter and Allegiance will then negotiate and mutually agree to any changes in Base Business Products, -12- Premium Products, and the applicable percentages with an expectation, but with no commitment, that achievement of Baxter's sales plan as to both Base Business Products and Premium Products will yield Allegiance an amount of earned fees which will aggregate to * * * of Baxter's sales plan for Contract Net Sales of I.V. Products. 6.4.2.4 If the parties' business information systems and/or data processing systems are unable to accommodate the applicable percentages set forth in this Section 6.4.2, the parties shall agree upon a procedure for monthly payment with a quarterly adjustment to achieve the effects of the percentage fees set forth herein based upon the then-current percentages as applied to Agency Net Sales and Distributor Net Sales for each Product category. 6.5 MINIMUM FEE TO ALLEGIANCE FOR CALENDAR YEAR 1997. For calendar year 1997, Baxter shall pay to Allegiance a minimum dollar amount (the "Minimum Fee") calculated by multiplying the actual Contract Net Sales of I.V. Products in calendar year 1996 by * * *. If (a) the agency services fees paid by Baxter to Allegiance in calendar year 1997 pursuant to Section 6.3 for I.V. Products, plus (b) the service fees paid by Baxter to Allegiance pursuant to Section 6.1 in connection with its sales of I.V. Products, is less than (c) the Minimum Fee, then Baxter shall pay the difference to Allegiance on or before January 30, 1998. This Section 6.5 shall not apply if prior to December 31, 1997, Baxter fails to retain, replace, or renew Baxter's contract with any of the following national group purchasing organizations for the purchase of Base Business Products by such organization's members: * * *. 6.6 ADJUSTMENTS FOR ALTERNATE SITE DISTRIBUTORS. 6.6.1 ALTERNATE SITE DISTRIBUTION FEE. Baxter shall pay to Allegiance a minimum dollar amount (the "Alternate Site Distribution Fee") calculated by multiplying * * * by the actual Contract Net Sales of I.V. Products to resellers and subdistributors actually managed by Allegiance's dealer management group and that are reselling to entities other than acute care hospitals (such acute care hospitals as set forth in the then-current AMERICAN HOSPITAL ASSOCIATION GUIDE) (such resellers and subdistributors collectively referred to as "Alternate Site Distributors"). If for any calendar year, the sum of (a) the agency services fees paid by Baxter to Allegiance pursuant to Section 6.3 for sales of I.V. Products to Alternate Site Distributors, plus (b) the service fees paid by Baxter to Allegiance pursuant to Section 6.1 for sales of I.V. Products to Alternate Site Distributors, is less than (c) the Alternate Site Distribution Fee, then Baxter shall pay the shortfall to Allegiance on or before January 30 of the subsequent calendar year. -13- 6.6.2 ALTERNATE SITE DISTRIBUTOR BONUS PROGRAMS. If Allegiance wishes (1) to provide financial incentives to its Alternate Site Distributors to reward such Alternate Site Distributors for achievement of growth in purchases of Products above a predetermined amount, and (2) for Baxter to fund such incentives by payments to Allegiance for such Alternate Site Distributors in addition to those payments otherwise specified in this Agreement, then Baxter must approve the amount of such funding, the purchase requirements applicable to such Alternate Site Distributors, payment criteria to be used by Allegiance, and applicable reporting requirements. During the Term of this Agreement, Allegiance may continue its existing premier bonus program for Alternate Site Distributors with respect to Products, subject to Baxter's right to approve in advance the purchase requirements applicable to such Alternate Site Distributors, payment criteria to be used by Allegiance, and applicable reporting requirements. For each calendar year beginning on or after January 1, 1997, during the Term of this Agreement, in addition to those payments otherwise specified in this Agreement, Baxter will reimburse Allegiance for amounts incurred under such premier bonus program, up to a maximum of * * *. Baxter's reimbursement obligation under this Section 6.6.2 shall be calculated with respect to total sales (rather than incremental sales) by Allegiance to Alternate Site Distributors participating in the premier bonus program. 6.7 DRUG WHOLESALER SUPPORT. Allegiance shall supply the equivalent of one full-time employee who shall possess the requisite level of skill, experience, and/or training to perform drug wholesaler support services as directed by Baxter. Baxter shall pay to Allegiance * * * per month for such services, and payment shall be due on the fifteenth day of each month; provided that Baxter may terminate such services at any time upon 30 days advance written notice without any further liability whatsoever to Allegiance in connection therewith. 6.8 TELEPHONE SALES. Allegiance shall supply the equivalent of one full- time employee who shall possess the requisite level of skill, experience, and/or training to perform telephone sales services to doctors and clinics as directed by Baxter. Baxter shall pay to Allegiance * * * per month for such services, and payment shall be due on the fifteenth day of each month; provided that Baxter may terminate such services at any time upon 30 days advance written notice without any further liability whatsoever to Allegiance in connection therewith. 6.9 INBOUND FREIGHT. 6.9.1 INBOUND FREIGHT EXPENSES. Within fifteen days after receipt by Baxter of a monthly invoice from Allegiance detailing Allegiance's expenses, Baxter shall reimburse Allegiance for its actual out-of-pocket expenses incurred in connection with freight expenses for Products (a) received by -14- Allegiance at its Ontario, California replenishment center and its distribution centers from Baxter manufacturing plants; and (b) received by Allegiance at its distribution centers from Baxter's or Allegiance's replenishment centers. 6.9.2 ALLEGIANCE INBOUND FREIGHT ADMINISTRATIVE SERVICES. Baxter will pay Allegiance a fee for continuing inbound freight administrative services provided in accordance with the first two sentences of Section 1.5.2 of Exhibit C. Baxter will also pay Allegiance any additional fees agreed upon for any additional inbound freight administrative services provided pursuant to the last sentence of Section 1.5.2 of Exhibit C. 6.10 EXPENSES OF REBALANCING INVENTORY. Beginning January 1, 1997, and continuing for the remainder of the Term, Baxter shall reimburse Allegiance for its actual out-of-pocket expenses incurred in connection with moving Products at Baxter's request between distribution centers for purposes of re-balancing stocks, to the extent that such rebalancing expenses exceeded the actual costs so incurred in calendar year 1996. Baxter shall reimburse Allegiance for such rebalancing expenses within 30 days after receipt by Baxter of a monthly invoice from Allegiance detailing its expenses during the preceding month. During the first calendar quarter following the close of each calendar year during the Term, the parties will determine the actual amounts due under this Section 6.10 for the such calendar year and settle any amounts owed. 6.11 OUTBOUND FREIGHT. 6.11.1 GENERAL RULE. Allegiance is responsible for all costs incurred in delivering Products from Allegiance facilities to customers, subject to the following provisions regarding sharing of costs and savings for Standard Delivery and Premium Delivery. 6.11.2 SHARING OF COSTS AND SAVINGS FOR STANDARD DELIVERY. For 1998 and each subsequent calendar year during the Term, the parties will agree in the Council prior to such calendar year upon a target range for costs that are expected to be incurred by Allegiance in providing Standard Delivery (as that term is defined in Section 2.4.1.1 of Exhibit C) for the Products during such calendar year. If during any such calendar year, the actual costs so incurred by Allegiance fall outside such target range (using a consistent methodology for such comparison), then Baxter and Allegiance will share the excess costs or savings on an equal basis. 6.11.3 SHARING OF COSTS AND SAVINGS FOR UNCOLLECTED PREMIUM DELIVERY. -15- 6.11.3.1 For 1997 and each subsequent calendar year during the Term, the parties will agree in the Council prior to such calendar year upon a target range for costs that are expected (1) to be incurred by Allegiance in providing Premium Delivery (as that term is defined in Section 2.4.1.2 of Exhibit C) of Products and (2) not to be collected from customers. (Hereinafter, such costs are referred to as "Uncollected Premium Delivery Costs"). If during any such calendar year, the actual Uncollected Premium Delivery Costs for Products fall outside such target range (using a consistent methodology for such comparison), the parties will share such excess costs or savings as follows: Baxter will reimburse Allegiance * * * of any excess costs; and Allegiance shall pay Baxter * * * of any savings. 6.11.3.2 For 1997, the target range shall be the actual amount of Uncollected Premium Delivery Costs for Products incurred by Baxter in 1995, plus and minus * * *. For all subsequent years, the target range shall be determined by the parties by mutual agreement in the Council, taking into account the percentage change in Agency Net Sales since 1995. 6.11.3.3 Allegiance will report its actual Uncollected Premium Delivery Costs to Baxter on a quarterly basis. During the first calendar quarter following the close of each calendar year during the Term, the parties will determine the actual amounts due under this Section 6.11.3 for such calendar year and settle any amounts owed. 6.11.4 INCREMENTAL DELIVERIES. Baxter will pay Allegiance any amounts agreed upon in respect of Incremental Deliveries pursuant to Section 2.4.1 of Exhibit C. 6.11.5 ALLEGIANCE OUTBOUND FREIGHT ADMINISTRATIVE SERVICES. Baxter will pay Allegiance any additional fees agreed upon for any additional outbound freight administrative services provided pursuant to the last sentence of Section 2.4.3 of Exhibit C. 6.12 CUSTOMER SERVICE REIMBURSEMENT. Beginning January 1, 1997, and continuing for the Term, Allegiance will pay to Baxter monthly the sum of * * *, in order to compensate Baxter for Baxter's increased customer service costs during such period. For the fourth calendar quarter of 1996, Allegiance will pay to Baxter an amount equal to * * * per person per month, for all activated Baxter customer service personnel providing customer service relating to the Products during that month or any preceding month during such calendar quarter. For purposes of this Section 6.12, Baxter customer service personnel are activated when they have received appropriate customer service training relating to the Products and actually begin providing -16- customer service relating to the Products on a full-time basis. Baxter shall bill Allegiance monthly for any amounts due under this Section and Allegiance shall pay any such invoice net 15 days from the end of the applicable month. 6.13 BCS KIT FUNDING. 6.13.1 PAYMENT OBLIGATION. Beginning on the effective date of this Agreement and continuing for the Term, for all Products sold under the BCS Kit Model, Baxter will pay Allegiance an amount equal to the excess of the BCS Component Prices over the transfer prices that the applicable Baxter business units charged each other for such Products prior to the effective date of this Agreement. Notwithstanding the immediately preceding sentence, Baxter's total payment obligation to Allegiance under this Section shall not exceed * * * for any calendar year during the Term and shall not exceed * * * for calendar year 1996. 6.13.2 SETTLEMENT PROCEDURE. The parties will settle any amounts owed under Section 6.13.1 as follows: For each month during the Term, Baxter will make payments to Allegiance in the estimated amount of * * * per month, net fifteen days from the end of the applicable month. During the first calendar quarter following the close of each calendar year during the Term, the parties will determine the actual amounts due under Section 6.13.1 for such calendar year and settle any amounts owed within 15 days of such determination. The settlement for the fourth calendar quarter of 1996 will take place during the first calendar quarter of 1997. 6.14 ADJUSTMENTS FOR CHANGES IN APPLICABLE STORAGE REQUIREMENTS. 6.14.1 BAXTER CHANGES IN APPLICABLE STORAGE REQUIREMENTS. The fees set forth in Sections 6.1 and 6.3 are subject to renegotiation if Baxter redefines applicable storage requirements in a way that has a material adverse impact on Allegiance's costs. 6.14.2 LEGAL CHANGES IN APPLICABLE STORAGE REQUIREMENTS. If applicable storage requirements change as a result of changes in laws, regulations, or interpretations or enforcement actions by governmental authorities with jurisdiction over the Products or the subject matter of this Agreement, the otherwise applicable fees set forth in Sections 6.1 and 6.3 may be adjusted, if appropriate, pursuant to the process described in Section 19.3 of this Agreement. 6.15 DEALER MANAGEMENT GROUP FUNDING. If changes in Baxter's business requirements (including, without limitation, increased sales volumes through Allegiance's dealer management group or increased complexity in the sales and/or distribution process through Allegiance's dealer management group) directly -17- cause significant increases in Allegiance's dealer management group operational headcount, Baxter shall pay Allegiance for such increases in Allegiance's operational headcount. The parties shall meet at least twice per year to review the status of Allegiance's dealer management group operations and shall agree upon Allegiance's need, if any, for increases in operational headcount, the cause of such need, and Baxter's payment, if any, for any increases in operational headcount. 6.16 FCA FEES AND EXPENSES. 6.16.1 In addition to the other fees and charges set forth in this Section 6, in 1997 and subsequent years Baxter will pay Allegiance an annual fee equal to (a) * * * times (b) the total number of Product lines affected by FCAs in such year in excess of * * * (the total number of Product lines affected by FCAs in 1995). For purposes of this Section, any FCAs caused by Allegiance's negligence shall be excluded. In addition, for each catalog number affected by an FCA, the total "lines" shall be an amount equal to the sum of (a) the number of notification processing responses completed by Allegiance facilities for that FCA, plus (b) the number of dispositions completed by Allegiance facilities for that FCA. Baxter shall not owe Allegiance any FCA fee under this Section, nor shall Baxter be entitled to any fee or credit from Allegiance, if in 1997 or any subsequent year, the total number of lines affected by FCAs does not exceed * * *. For 1996, the FCA fee will be computed based on the excess of total Product lines affected by FCAs in the last three months of 1996 over the average quarterly total of Product lines affected by FCAs in calendar year 1995. 6.16.2 ADDITIONAL FCA SERVICES. Baxter shall pay Allegiance the fees agreed upon for any additional FCA services requested and approved by Baxter and provided by Allegiance pursuant to Section 1.7.2 of Exhibit C. 6.16.3 THIRD-PARTY INVOICES. Baxter shall reimburse Allegiance for all third-party invoices relating to additional FCA services requested and approved by Baxter and actually paid by Allegiance, pursuant to Section 1.7.2 of Exhibit C. 6.17 PACKAGING FAILURE. Baxter shall reimburse Allegiance for Allegiance's actual expenses (including, without limitation, expenses for repackaging and return of Product) incurred in respect of failure of shipping cartons for Products, provided that such failure is not due to Allegiance's acts or omissions. Such reimbursement shall be paid quarterly and shall be due within 30 days after receipt of Allegiance's invoice therefor together with full supporting documentation. 6.18 COMPENSATION FOR PRODUCT DAMAGE, THEFT OR LOSS. If any Products are damaged, lost or stolen while in an Allegiance replenishment center or distribution center, and -18- Allegiance is responsible under this Agreement for such damage, theft or loss, Allegiance shall compensate Baxter. In addition, if Allegiance is unable to furnish proof of delivery with respect to Products shipped on Allegiance's private fleet, Allegiance shall compensate Baxter for such undelivered Products. For purposes of this Section 6.18, the basis for compensation shall be an amount equal to Baxter's standard costs for such Products as stated in Baxter's inventory valuation reports together with all amounts owed by Baxter to third parties in respect of such Products. Payment shall be due within 30 days after Baxter's request for compensation hereunder. During the Interim Period, in the event of any conflicts between the provisions of this Section 6.18 and the provisions of Exhibit F of this Agreement with respect to transactions under Interim Distributor Model, the provisions of Exhibit F shall control. 7. THE COUNCIL. 7.1 A Baxter/Allegiance Distribution/Materials Management/Transportation Council (the "Council") will be formed to ensure open communication between Allegiance and each of the Baxter divisions, and to provide problem/dispute identification and resolution in the areas of materials management, distribution, and transportation and logistics. Without limitation to the foregoing, the Council will provide a forum for the parties (1) to review jointly their performance in relation to their responsibilities identified in Appendices C and D of this Agreement, (2) to agree upon eligible carriers for Product shipments and to review jointly freight charges and transportation modes, (3) to agree upon target ranges and compensation for Standard Delivery, Premium Delivery and Incremental Deliveries under Section 6.11, and (4) to develop joint recommendations for the parties' respective business executives regarding the management of freight costs and other issues arising under this Agreement. 7.2 Baxter and Allegiance will agree upon the membership of the Council and its procedures. 7.3 The Council will meet at least once per calendar quarter during the Term of this Agreement. Baxter and Allegiance may identify a Steering Committee consisting of fewer than all of the Council members with authority to address issues requiring resolution prior to such quarterly meetings. 8. INVOICING AND PAYMENTS. 8.1 GENERAL. 8.1.1 On or before the fifth business day of each calendar month during the Term, Baxter shall report to Allegiance its Agency Net Sales for the previous calendar month, and shall also provide to Allegiance a service fee report in a format to be -19- agreed upon, showing the service fees payable for Products sold under the Agency Model. Each business day during the Term, Allegiance shall report to Baxter its aggregate sales and returns of Products for the previous business day by code and by customer for Distributor Model and BCS Kit Model transactions, and such reports shall also include, with respect to Distributor Model transactions, the Suggested Sales Price and Allegiance's actual purchase price of the Products. 8.1.2 Allegiance shall make payment to Baxter at the aggregate Suggested Sales Prices, for its aggregate purchases of Products sold by Allegiance under the Distributor Model, net 30 days from the date of shipment of the Product by Allegiance to the customer. Baxter shall make payment to Allegiance of applicable service fees in connection with sales of Products under the Distributor Model, net 30 days from the date of shipment of the Product by Allegiance to the customer. 8.1.3 For sales other than those made under the Distributor Model, Allegiance shall bill Baxter for any fees due hereunder. Baxter shall pay any such invoice net 15 days from the end of the applicable month. 8.1.4 For sales to Allegiance of Products for use as components of BCS Kits, Baxter shall bill Allegiance for the BCS Component Prices for the Products. Allegiance shall pay any such invoice net 60 days from the date of such invoice. 8.1.5 If any amounts due hereunder have not been received by the due date, such overdue amounts shall bear interest from the due date at the rate of * * * per month, or portion thereof, until received. If payment is delayed because a report required by Section 8.1.1 has not been received, interest will not accrue until 30 days after receipt of such report. 8.2 ADDITIONAL SERVICES. Allegiance may provide services ("Additional Services") to customers in connection with Agency Model transactions over and above Allegiance's duties set forth in Exhibit C, provided that such Additional Services are not Cost Management services. Allegiance shall have the right to bill customers directly for the Additional Services. Upon Allegiance's written request, Baxter shall cooperate with Allegiance by performing billing and collection services for Allegiance in connection with the Additional Services as directed by Allegiance. Within 30 days after receipt from the customers, Baxter shall forward to Allegiance any payments received from customers in connection with the Additional Services. 8.3 DISPUTED PAYMENTS. Either party shall have the right to withhold any amounts due hereunder if such party in good faith disputes the amount claimed by the other party to be due hereunder and such party notifies the other party of such dispute within 60 days after the date of each applicable statement from -20- the other party hereunder. The foregoing right to withhold payment of disputed amounts shall be limited to the amounts disputed in good faith, and interest will accrue and be payable on the net amount determined to be payable. 8.4 SUSPENSION OF SERVICE. In addition to any other rights available to it at law or in equity, upon ten days Notice to Baxter, Allegiance may suspend the provision of any services for which an undisputed statement for provision of services hereunder from Allegiance (or one of its Affiliates) has not been satisfied within 30 days of its due date until such statement has been satisfied. 8.5 AUDIT. Allegiance may audit Baxter's books and records and Baxter may audit Allegiance's books and records for the purpose of determining compliance with the terms of this Agreement. The party requesting the audit may use independent auditors, who may participate fully in such audit. In the event that an audit is proposed with respect to information which the party to be audited wishes not to disclose to the other party ("Restricted Information"), then on the written demand of the party to be audited, the individuals conducting the audit with respect to Restricted Information will be limited to the independent auditors of the party requesting the audit. In such event, the party to be audited shall pay the costs of the independent auditors conducting such audit, but only with respect to that portion of the audit relating to the Restricted Information. Such independent auditors shall enter into an agreement with the parties hereto, on terms that are agreeable to both parties hereto, under which such independent auditors shall agree to maintain the confidentiality of the information obtained during the course of such audit and establishing what information such auditors will be permitted to disclose to report the results of any audit of Restricted Information to the party requesting the audit. Any such audit shall be conducted during regular business hours, in a manner that does not interfere unreasonably with the operations of the party being audited. Such audits shall be conducted not more than once in any one year period unless the next preceding audit disclosed a failure to conform to the terms of this Agreement. Subject to the foregoing limitations, any such audit shall be conducted when requested by Notice given not less than 30 days prior to the commencement of the audit. 8.6 RIGHT OF OFFSET. At any time during the Term or after termination or expiration of this Agreement, either party may offset any and all amounts which the other party owes it hereunder against any and all amounts which it owes the other party hereunder. 8.7 INTERIM PERIOD. During the Interim Period, in the event of any conflicts between the provisions of this Section 8 and the provisions of Exhibit F of this Agreement with respect to -21- transactions under Interim Distributor Model, the provisions of Exhibit F shall control. 9. ALLEGIANCE'S DUTIES. During the Term, Allegiance shall maintain the facilities and personnel necessary to provide the physical distribution services and related services in connection with its appointment and grant hereunder including, without limitation, the facilities and personnel necessary to fulfill Allegiance's duties as set forth in Exhibit C attached hereto and made a part hereof. Allegiance will use all reasonable efforts to meet the levels of service specified in Exhibit C. 10. BAXTER'S DUTIES. During the Term, Baxter shall maintain the facilities and personnel necessary to manufacture and distribute the Products as provided for hereunder including, without limitation, the facilities and personnel necessary to fulfill Baxter's duties as set forth in Exhibit D attached hereto and made a part hereof. Baxter will use all reasonable efforts to meet the commitments specified in Exhibit C. 11. STANDARD OF CARE. Each party will use (and will cause its Affiliates to use) commercially reasonable efforts in the performance of its obligations and will do so with the same degree of care, skill and prudence customarily exercised when engaged in similar activities for itself and its Affiliates. Subject to the provisions of Section 22, if a party's performance is inaccurate, incomplete or untimely, such party shall, if practical, promptly perform or reperform such obligations. In performing its responsibilities hereunder, each party shall accord the other party and its Affiliates the same priority as it provides itself and its Affiliates under comparable circumstances. Without limiting the generality of the foregoing, in the provision of services under comparable circumstances, a party will not discriminate against the other party or any of its Affiliates solely because the other party or one of its Affiliates is the recipient of such services. The parties agree to consult with each other with respect to performance of their obligations hereunder. Each party shall give due consideration to any suggestion by the other to improve performance. 11.1 UNIFORM COMMERCIAL CODE. The parties agree that the provisions of Section 2-306(2) of the Uniform Commercial Code ("U.C.C.") shall not apply to services or any other activities or obligations of either of the parties hereunder. 12. ALTERNATIVE ACUTE CARE DISTRIBUTION. If, for any calendar year during the Term of this Agreement after 1996, Agency Net Sales of Products to nonacute care customers for delivery to acute care hospitals (such acute care hospitals as set forth in the then-current AMERICAN HOSPITAL ASSOCIATION GUIDE) ("Alternative Acute Care Distributors") * * *. If, for any calendar year, Agency Net Sales of Products to Alternative Acute Care * * *. Notwithstanding the preceding provisions of this -22- Section, * * *. If in any calendar year, Agency Net Sales of Products to * * *. 13. TRANSFER OF TITLE AND RISK OF LOSS. 13.1 GENERAL. Title and risk of loss with respect to Products sold pursuant to the Agency Model shall pass from Baxter directly to the customer or Subdistributor when such customer or Subdistributor receives the Products from Allegiance whether delivered by Allegiance or a third-party carrier. Prior to such time, title and risk of loss shall remain with Baxter regardless of whether or not Allegiance shall have physical possession and/or control of such Products. Title and risk of loss with respect to Products sold pursuant to the Distributor Model shall pass from Baxter to Allegiance and immediately on to the customer at the time of Allegiance's shipment of the Products to the customer. Title and risk of loss with respect to Products sold to Allegiance for use as components of BCS Kits shall pass from Baxter to Allegiance at the time that Allegiance receives such Products from Baxter. Notwithstanding the foregoing, Allegiance shall be solely responsible for any damage to the Products arising from Allegiance's mishandling of such Products or theft or shrinkage while in Allegiance's possession. 13.2 INTERIM PERIOD. During the Interim Period, in the event of any conflicts between the provisions of this Section 13 and the provisions of Exhibit F of this Agreement with respect to transactions under Interim Distributor Model, the provisions of Exhibit F shall control. 14. WARRANTIES. 14.1 PRODUCT WARRANTY. Baxter warrants to Allegiance that, at the time of delivery to Allegiance: (a) the Products shall not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as amended and the regulations issued thereunder, or products that may not under the provisions of Sections 404, 505, 514 or 515 of said Act be introduced into interstate commerce, or banned devices under Section 516 of said Act; and (b) Baxter shall have good and marketable title to all such Products free and clear of all liens or encumbrances (other than any created by Allegiance). 14.2 DISCLAIMER. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT LIABILITY (INCLUDING NEGLIGENCE) OR OTHERWISE, SHALL BAXTER BE LIABLE TO ALLEGIANCE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. -23- 14.3 LIMITATION OF LIABILITY. ANY LIABILITY OF BAXTER TO ALLEGIANCE UNDER THE WARRANTY CONTAINED IN THIS SECTION 14 SHALL BE LIMITED TO THE TOTAL PRICE PAID BY ALLEGIANCE FOR THE PRODUCTS WHICH ARE THE SUBJECT OF SUCH LIABILITY PLUS ALL COSTS FOR TRANSPORTATION AND OTHER DIRECT EXPENSES INCURRED BY ALLEGIANCE WITH RESPECT TO SUCH PRODUCTS. 15. TRADEMARKS. 15.1 OWNERSHIP. Allegiance acknowledges that Baxter is the owner or licensee of the trademarks and trade names which Baxter uses in the promotion and sale of the Products hereunder, and that Allegiance has no right or interest in such trademarks or trade names. Before commencing any use of the trademarks or trade names connoting Baxter in connection with any catalog, promotional, packaging, or other materials, which use has not been previously approved in writing by Baxter, Allegiance agrees to provide Baxter with proposed specimens of use of such trademarks or trade names and to obtain Baxter's written approval of such proposed use. 15.2 INFRINGEMENT. Allegiance shall notify Baxter promptly of any and all infringements or improper use by any third party of the trademarks and trade names connoting Baxter should Allegiance discover reasonable cause for believing that such infringement or improper use is taking place and shall provide to Baxter all information which Allegiance has available thereon. Baxter shall have sole discretion and control with regard to any proceedings relating to infringement or improper use of its trademarks and trade names. Allegiance may choose to be represented by its own counsel in any such proceedings but such representation shall be solely at Allegiance's expense. 15.3 EQUITABLE REMEDIES. Allegiance acknowledges that Baxter would not have any adequate remedy at law for the breach by the other party of any one or more of the covenants contained in this Section 15 and agrees that, in the event of such breach, Baxter may, in addition to the other remedies which may be available to it, file a suit in equity to enjoin Allegiance from any further breach of any of the terms of this Section 15. 16. TERMINATION. 16.1 CHANGE IN CONTROL. 16.1.1 GENERAL. In the event of a Change in Control of either party hereto or any Affiliate thereof to which any of the rights or obligations hereunder have been assigned as permitted by Section 25, the party (the "Affected Party") with respect to which the Change in Control has occurred, either directly or with respect to one of its Affiliates shall give Notice to the other party (the "Non-Affected Party") within 30 days of the occurrence of such Change in Control. The Non- -24- Affected Party may terminate this Agreement, in whole but not in part, in the event of any such Change in Control with respect to the Affected Party by giving Notice of such termination to the Affected Party as provided below. In the event of a Change in Control of an Affiliate of the Affected Party to which any of the rights or obligations hereunder have been assigned as permitted by Section 25, the Non-Affected Party may terminate this Agreement with respect to such Affiliate by giving Notice to the Affected Party as provided below. The Non-Affected Party may exercise the rights of termination described in the two preceding sentences by giving a Notice of termination, specifying the date of termination, to the Affected Party at any time prior to the end of the 60th day following the receipt by the Non-Affected Party of the applicable Notice of Change in Control given by the Affected Party pursuant to the first sentence of this Section. In the event that the applicable Change in Control involves a Competitor of the Non-Affected Party, the date of termination specified by the Non-Affected Party in the Notice of termination shall be the last day of a calendar month which is not earlier than the sixth full calendar month following the date of the Notice of termination and not later than the twelfth full calendar month following the date of the Notice of termination. In the event that the applicable Change in Control does not involve a Competitor of the Non- Affected Party, the date of termination specified by the Non-Affected Party in the Notice of termination shall be the later of (i) the last day of the twelfth full calendar month following the date of the Notice of termination and (ii) December 31, 1998. 16.1.2 DEFINITIONS. For purposes hereof, "Change in Control" shall mean (i) the acquisition, directly or indirectly, by any Person or Persons of more than *** of the voting stock of either party to this Agreement or any Affiliate thereof, (ii) any merger or consolidation involving the Affected Party or any Affiliate of the Affected Party that requires a vote of the stockholders of the Ultimate Parent of the Affected Party, (iii) the acquisition by the Ultimate Parent of the Affected Party or any Affiliate of the Ultimate Parent of the Affected Party of any Person that (a) is a Rival of the Ultimate Parent of the Non-Affected Party and (b) after such acquisition, constitutes a "significant subsidiary" of the Affected Party within the meaning of Rule 1- 02(w) of Regulation S-X of the Regulations of the Securities and Exchange Commission, substituting *** for 10 percent in the tests used therein to determine significant subsidiary, and (iv) only in the case of an Affiliate of the Affected Party, the Transfer of all or substantially all of the business and assets of such Affiliate. For the purposes hereof, "Rival" shall mean (a) with respect to Baxter, any Person (including an Affiliate of such Person) that during its most recently completed fiscal year has annual net revenues from products competitive with products sold by Baxter and its Affiliates greater than *** of the total annual consolidated net revenues of Baxter International during its most recently completed fiscal year; and (b) with respect to Allegiance, any Person (including an -25- Affiliate of such Person) that during its most recently completed fiscal year has annual net revenues from medical, surgical, and laboratory products greater than * * * of the total annual consolidated net revenues of Allegiance Corporation during the most recently completed fiscal year. For the purposes hereof, "Ultimate Parent" means Baxter International in the case of Baxter and Allegiance Corporation in the case of Allegiance. 16.1.3 TRANSFERS BY BAXTER. In the event that Baxter or any of its Affiliates shall Transfer all or substantially all of the business and assets relating to any Line of Products as permitted by Section 25, Allegiance may terminate this Agreement with respect to such Line of Products in the same manner as provided in Section 16.1.1. In the event that Baxter or any of its Affiliates shall Transfer all or substantially all of the business and assets relating to the Products as permitted by Section 25, Allegiance may terminate this Agreement in its entirety in the same manner as provided in Section 16.1.1. 16.1.4 TRANSFERS BY ALLEGIANCE. In the event that Allegiance or any of its Affiliates shall Transfer any portion of its business and assets relating to Allegiance's distribution network as permitted by Section 25, which portion accounted for net sales during the most recently completed fiscal year in excess of ***, Baxter may terminate this Agreement with respect to the Transferred portion of the distribution network in the same manner as provided in Section 16.1.1. 16.1.5 OBLIGATION TO NEGOTIATE. If demanded in writing by the Non- Affected Party, the Affected Party shall be obligated, during the period following a Notice of termination from the Non-Affected Party, to negotiate in good faith to establish terms and conditions that are acceptable to the Non- Affected Party for an extension of the Term beyond the date of termination specified in the Notice of termination in light of the Change in Control, provided, however, the Non-Affected Party may in its absolute discretion determine whether any proposed terms and conditions are acceptable and may refuse to agree to any such terms and conditions for any reason whatsoever. 16.1.6 CONFIDENTIAL INFORMATION During the period commencing with any such Change in Control and continuing through the end of the Term (and thereafter, if appropriate), the Affected Party shall take any and all action reasonably requested by the Non-Affected Party to protect any confidential information of the Non-Affected Party from disclosure to or use by any Affiliate of the Affected Party other than a Person that, immediately prior to the occurrence of the Change in Control, was an Affiliate of the Affected Party that regularly accessed such confidential information for a reasonable business purpose. 16.2 OTHER TERMINATIONS. Each Party shall have the right to terminate this Agreement effective upon delivery of Notice to the -26- other party if the other party: (a) makes an assignment for the benefit of creditors, or becomes bankrupt or insolvent, or is petitioned into bankruptcy, or takes advantage of any state, federal or foreign bankruptcy or insolvency act, or if a receiver or receiver/manager is appointed for all or any substantial part of its property and business and such receiver or receiver/ manager remains undischarged for a period of 30 days, (b) has its corporate existence terminated by voluntary or involuntary dissolution; or (c) materially defaults in the performance of any of its covenants or obligations contained in this Agreement and such default is not remedied to the nondefaulting party's reasonable satisfaction within 30 days after Notice to the defaulting party of such default, or if such default is not capable of rectification within 30 days, if the defaulting party has not promptly commenced to rectify the default within such 30 day period and is not proceeding diligently to rectify the default. 16.3 PROCEDURES ON TERMINATION. In the event of any termination of this Agreement and if and when requested by Allegiance, Baxter will promptly remove all inventory of Products owned by Baxter from facilities of Allegiance or any of its Affiliates. Such removal will be effected during normal business hours after reasonable advance Notice to Allegiance and will be done in a manner that will not unreasonably disrupt the normal business operations of Allegiance or Baxter. Except as otherwise required pursuant to Sections 21 and 23.9, each party shall destroy or return to the other party all records made or obtained in the course of performance hereunder containing information regarding the other party or its customers that is protected from disclosure under Section 21. In the event that any party shall elect to destroy any records as permitted above, such party shall provide the other party with written confirmation of any such destruction. 16.4 CONTINUED SERVICE. In the event that this Agreement is terminated pursuant to this Section 16, Baxter and Allegiance shall comply fully with this Agreement and use reasonable efforts to service adequately existing customers of the Products until such termination becomes effective. 16.5 PENDING ORDERS. On the expiration or termination of this Agreement for any reason, Allegiance shall continue to honor customer's orders for Products placed up to the date of expiration or termination, and Baxter shall pay the fees due to Allegiance on the terms and conditions set forth in this Agreement. Any consideration due hereunder that is calculated based upon a specified time period shall be prorated for any partial period of time between the end of the last such period and the date of expiration or termination. In the event that Allegiance has elected to terminate this Agreement because of the failure of Baxter to pay amounts due hereunder, Allegiance shall be obligated to perform under the first sentence of this Section -27- 16.5 only after Baxter shall have paid all amounts due and owing to Allegiance hereunder. 16.6 SELL-OFF. Notwithstanding any provision of this Agreement or any other agreement between Baxter, Allegiance, and/or their respective Affiliates, the parties acknowledge that Allegiance and its Affiliates shall be entitled to continue to sell or otherwise dispose of the Products within the Territory from and after the effective date of the expiration or termination of this Agreement if such Products were owned by Allegiance on the date of termination. 16.7 TRUE-UP. No later than 12 months after expiration or termination of this Agreement, Baxter shall report to Allegiance all discounts and bonuses accrued but not earned and/or earned but not accrued on sales made hereunder, and Baxter shall submit either a payment or an invoice for the net of such amounts. 17. INDEMNITY. 17.1 BAXTER'S OBLIGATION. Baxter agrees to indemnify and hold Allegiance and the Allegiance Indemnified Parties harmless from and against, and in respect of, any and all claims by, and liabilities to, third parties ("Third-Party Claims") asserted against or incurred by, and any and all expenses (including all fees and expenses of counsel, travel costs and other out-of-pocket costs) in connection with pending or threatened litigation or other proceedings regarding such Third-Party Claims ("Expenses") incurred by, Allegiance or any of the Allegiance Indemnified Parties (as hereinafter defined) which arise out of or relate to: 17.1.1 any actual or alleged patent, copyright or trademark infringement, or violation of any other proprietary right, arising out of the purchase, sale or use of Products pursuant to this Agreement; 17.1.2 any tort claim, including claims for personal injury, wrongful death or property damage, to the extent such claims are based upon any wrongful or negligent act or omission by Baxter (or its employees or agents) in the course of its performance of this Agreement; 17.1.3 defects in Products; 17.1.4 any actual or alleged breach of warranty or obligation, if any, accompanying the Product or Products, subject to the limitations in Section 14 to the extent provided therein; and 17.1.5 any claim for personal injury, wrongful death or property damage arising out of the use of a Product; -28- PROVIDED that this Section 17.1 shall not apply to any Third-Party Claim or Expense to the extent that the parties agree, or it is finally determined pursuant to Section 17.4 that the Third-Party Claim or Expense is within the scope of Allegiance's indemnity obligation set forth in Sections 17.2.1 and 17.2.2 below. The Allegiance Indemnified Parties shall mean and include (A) Allegiance's Affiliates (B) the respective directors, officers, agents and employees of and counsel to Allegiance and its Affiliates, (C) each other person, if any, controlling Allegiance or any of its Affiliates, and (D) the successors, assigns, heirs and personal representatives of any of the foregoing. Expenses shall be reimbursed or advanced when and as incurred promptly upon submission by Allegiance or any Allegiance Indemnified Party of statements to Baxter. 17.2 ALLEGIANCE'S OBLIGATION. Allegiance agrees to indemnify and hold Baxter and the Baxter Indemnified Parties harmless from and against, and in respect of, any and all Third-Party Claims asserted against or incurred by, and any and all Expenses incurred by, Baxter or any of the Baxter Indemnified Parties (as hereinafter defined) which arise out of or relate to: 17.2.1 any tort claim, including claims for personal injury, wrongful death or property damage, to the extent such claims are based upon any wrongful or negligent act or omission by Allegiance (or its employees or other agents) in the course of its performance of this Agreement including, but not limited to, any Third-Party Claims or Expenses caused by any such wrongful or negligent act or omission constituting a representation concerning the characteristics or method of usage of Products, or relating to the storage, handling, or delivery of Products or selection of Products for inclusion in Kits; and 17.2.2 any actual or alleged patent, copyright or trademark infringement, or violation of any other proprietary right, arising out of any act or omission of Allegiance or any of its Affiliates in connection with the sale of Kits or relating to any intellectual property owned by Allegiance or any of its Affiliates and used in connection with the sale of Kits. The Baxter Indemnified Parties shall mean and include (A) Baxter's Affiliates, (B) the respective directors, officers, agents and employees of and counsel to Baxter and its Affiliates, (C) each other person, if any, controlling Baxter or any of its Affiliates, and (D) the successors, assigns, heirs and personal representatives of any of the foregoing. Expenses shall be reimbursed or advanced when and as incurred promptly upon submission by Baxter or any Baxter Indemnified Party of statements to Allegiance. -29- 17.3 THIRD-PARTY CLAIMS. If any third party shall make any claim or commence any arbitration proceeding or suit against any one or more of the Baxter Indemnified Parties or the Allegiance Indemnified Parties (hereafter, "Indemnified Persons") with respect to which an Indemnified Person intends to make any claim for indemnification against Allegiance under Section 17.2 or against Baxter under Section 17.1 (as the case may be, the "Indemnifying Party"), such Indemnified Persons shall promptly give written notice to the Indemnifying Party of such third party claim, arbitration proceeding or suit and the following provisions shall apply. 17.4 CONTROL OF PROCEEDINGS. 17.4.1 The Indemnifying Party shall have 20 business days after receipt of the notice referred to in Section 17.3 to notify the Indemnified Party that it elects to conduct and control the defense of such claim, proceeding or suit. If the Indemnifying Party does not give the foregoing notice, the Indemnified Party shall have the right to defend, contest, settle or compromise such claim, proceeding or suit in the exercise of its exclusive discretion subject to the provisions of Section 17.5, and the Indemnifying Party shall, upon request from any of the Indemnified Persons, promptly pay to such Indemnified Persons in accordance with the other terms of this Section the amount of any Third-Party Claim resulting from their liability to the third party claimant and all related Expense. 17.4.2 If the Indemnifying Party gives the foregoing notice, the Indemnifying Party shall have the right to undertake, conduct and control, through counsel reasonably acceptable to the Indemnified Party, and at its sole expense, the conduct and settlement of such claim, proceeding or suit, and the Indemnified Party shall cooperate with the Indemnifying Party in connection therewith, provided that (i) the Indemnifying Party shall not thereby permit any lien, encumbrance or other adverse charge to thereafter attach to any asset of any Indemnified Person; (ii) the Indemnifying Party shall not thereby permit any injunction against any Indemnified Person; (iii) the Indemnifying Party shall permit the Indemnified Person and counsel chosen by the Indemnified Person and reasonably acceptable to the Indemnifying Party to monitor such conduct or settlement and shall provide the Indemnified Person and such counsel with such information regarding such claim, proceeding or suit as either of them may reasonably request (which request may be general or specific), but the fees and expenses of such counsel shall be borne by the Indemnified Person unless (1) the Indemnifying Party and the Indemnified Person shall have mutually agreed to the retention of such counsel or (2) the named parties to any such claim, proceeding or suit include the Indemnified Person and the Indemnifying Party and in the reasonable opinion of counsel to the Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts -30- of interest between them, in either of which cases the reasonable fees and disbursements of counsel for such Indemnified Person shall be reimbursed by the Indemnifying Party to the Indemnified Person; and (iv) the Indemnifying Party shall agree promptly to reimburse to the extent required under this Section the Indemnified Person for the full amount of any Third-Party Claim resulting from such claim, proceeding or suit and all related Expense incurred by the Indemnified Person. 17.4.3 In no event shall the Indemnifying Party without the prior written consent of the Indemnified Person, settle or comprise any claim or consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Person a release from all liability in respect of such claim. 17.4.4 If the Indemnifying Party shall not have undertaken the conduct and control of the defense of any claim, suit or proceeding as provided above, the Indemnifying Party shall nevertheless be entitled through counsel chosen by the Indemnifying Party and reasonably acceptable to the Indemnified Person to monitor the conduct or settlement of such claim by the Indemnified Person, and the Indemnified Person shall provide the Indemnifying Party and such counsel with such information regarding such action or suit as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in connection with such monitoring shall be borne by the Indemnifying Party. 17.5 SETTLEMENT OF THIRD-PARTY CLAIMS BY THE INDEMNIFIED PERSON. So long as the Indemnifying Party is contesting any such claim, suit or proceeding in good faith, the Indemnified Person shall not pay or settle any such claim, proceeding or suit. Notwithstanding the foregoing, the Indemnified Person shall have the right to pay or settle any such claim, proceeding or suit, provided that in such event the Indemnified Person shall waive any right to indemnity therefor by the Indemnifying Party, and no amount in respect thereof shall be claimed as Third-Party Claim or Expense under this Section 17. If the Indemnifying Party shall not have undertaken the conduct and control of the defense of any claim, suit or proceeding as provided above, the Indemnified Person, on not less than 30 days' prior written Notice to the Indemnifying Party, may make settlement (including payment in full) of such claim and such settlement shall be binding upon the parties hereto for the purposes hereof, unless within said 30-day period the Indemnifying Party shall have requested the Indemnified Person to contest such claim at the expense of the Indemnifying Party. In such event, the Indemnified Person shall promptly comply with such request and the Indemnifying Party shall have the right to direct the defense of such claim or any litigation based thereon subject to all of the conditions of Section 17.4. Anything in -31- this Section 17 to the contrary notwithstanding, if the Indemnified Person advises the Indemnifying Party that it has determined to make settlement of a claim, the Indemnified Person shall have the right to do so at its own cost and expense, without any requirement to contest such claim at the request of the Indemnifying Party, but without any right under the provisions of this Section 17 for indemnification by the Indemnifying Party. 18. INSURANCE. Each party is responsible for carrying any insurance desired by it in its sole discretion, including comprehensive general liability insurance, insurance to cover its facilities, products liability insurance and business interruption insurance. 19. COMPLIANCE WITH LAWS. 19.1 ALLEGIANCE COMPLIANCE. Allegiance shall, to the extent material to Allegiance and its Affiliates taken as a whole, comply (or cause compliance) with all existing and future federal, state and other laws and regulations in the Territory applicable to the conduct of Allegiance's business or the possession of Products pursuant to this Agreement including, without limitation, the following: 19.1.1 giving prompt written notice to Baxter if Allegiance should become aware of any actual defect or condition which may alter the quality of the Products in any material respect or may render any of the Products in violation of any applicable law or regulation of the Territory including, without limitation, any violation which could require any alteration of the specifications of any Product, affect the sale of any Product, cause revocation of any regulatory approval with respect to any Product or its sale hereunder, or give rise to a claim against Baxter by any person, and Allegiance shall promptly notify Baxter upon becoming aware of any changes in any laws or regulations in the Territory applicable to the manufacture, sale, packaging, labeling, possession or use of the Products; 19.1.2 keeping appropriate records of all lot coded and serial numbered Products shipped to customers; and 19.1.3 making prompt return of any and all Products affected by holds or recalls if so requested by Baxter. To the extent applicable to the subject matter of this Agreement, and pursuant to the requirements of 42 CFR 420.300 ET SEQ., Allegiance hereby agrees to make available to the Secretary of Health and Human Services ("HHS"), the Comptroller of the General Accounting Office ("GAO"), or their authorized representatives, all contracts, books, documents and records relating to the nature and extent of costs hereunder for a period of four (4) -32- years after the furnishing of services hereunder. In addition, if any part of any service is to be provided by subcontract, Allegiance hereby agrees to require by contract that such subcontractor make available to the HHS and GAO, or their authorized representatives, all contracts, books, documents and records relating to the nature and costs thereunder for a period of four (4) years after the furnishing of services thereunder. 19.2 BAXTER COMPLIANCE. Baxter shall, to the extent material to Baxter and its Affiliates taken as a whole, comply (or cause compliance) with all existing and future laws and regulations in the Territory applicable to the conduct of Baxter's business or the manufacture, packaging, labeling and sale to Allegiance of Products pursuant to this Agreement, including, without limitation, the following: 19.2.1 giving prompt written notice to Allegiance if Baxter should become aware of any actual defect or condition which may alter the quality of the Products in any material respect or may render any of the Products in violation of any applicable law or regulation of the Territory, including, without limitation, any violation which could require any alteration of the specifications of any Product, affect the sale of any Product, cause revocation of any federal, state or other regulatory approval with respect to any Product or its sale hereunder or give rise to a claim against Allegiance by any person; and 19.2.2 giving prompt written notice to Allegiance of any and all Products affected by holds or recalls and, if Baxter requests Allegiance to return any of such Products to Baxter, promptly reimburse Allegiance for the price of such returned Products paid by Allegiance under this Agreement and the direct cost of returning such Products to Baxter. The services provided hereunder will not be provided in violation of any applicable Equal Employment Opportunity requirements including those set forth in Section 202 of Executive Order 11246, as amended. 19.3 CONSULTATION. If applicable storage requirements change during the Term of this Agreement as a result of changes in laws, regulations, or interpretations or enforcement actions by governmental authorities with jurisdiction over the Products or the subject matter of this Agreement, the parties will confer regarding the need for and funding of any such changes, in accordance with the following process. The need for any change in storage requirements will be reviewed by senior executives of the parties who are directly responsible for regulatory compliance, who will forward their recommendation for specific change(s) to the Council. The Council will develop a proposal for resolution that will include scope, funding needed, alternatives and its recommendation. The Council will then forward its -33- proposal to a working group of business executives designated by Baxter and Allegiance that will have the authority: (a) to adopt or modify the proposal; (b) to determine the funding method; and (c) if appropriate, to allocate the costs of such resolution between the Parties. 20. FORCE MAJEURE. The obligations of either party to perform under this Agreement shall be excused during each period of delay caused by matters (not including lack of funds or other financial causes) such as strikes, supplier delays, shortages of raw materials, government orders or acts of God, which are reasonably beyond the control of the party obligated to perform; provided that nothing contained in this Agreement shall affect either party's ability or discretion with respect to any strike or other employee dispute or disturbance and all such strikes, disputes or disturbances shall be deemed to be beyond the control of such party. A condition of force majeure shall be deemed to continue only so long as the affected party shall be taking all reasonable actions necessary to overcome such condition. In the event that either party hereto shall be affected by a condition of force majeure, such party shall give the other party prompt Notice thereof, which Notice shall contain the affected party's estimate of the duration of such condition and a description of the steps being taken or proposed to be taken to overcome such condition of force majeure. Any delay occasioned by any such cause shall not constitute a default under this Agreement, and the obligations of the parties shall be suspended during the period of delay so occasioned. During any period of force majeure, the party that is not directly affected by such condition of force majeure shall be entitled to take any reasonable action necessary to mitigate the effects of such condition of force majeure, and the provisions of Section 4 shall be suspended to the extent necessary to permit any such action. 21. CONFIDENTIALITY. 21.1 ALLEGIANCE INFORMATION. Baxter agrees to hold, and to use reasonable efforts to cause its employees and representatives to hold, in confidence all marketing and pricing information of a confidential nature pertaining to the Territory, and all information relating to Allegiance's standard costs, received by Baxter from Allegiance after the Effective Date or obtained from Allegiance in the course of an audit pursuant to Section 8.5, in a manner consistent with Baxter's treatment of its own confidential information. Baxter shall not use such information for any purpose other than as contemplated under this Agreement or verifying compliance with this Agreement, without Allegiance's prior written consent. 21.2 BAXTER INFORMATION. Allegiance agrees to hold, and to use reasonable efforts to cause its employees and representatives to hold, in confidence all information of a confidential nature concerning Baxter or its customers (including all marketing and 34- pricing information relating to Baxter and all standard cost information relating to the Products) in the possession of Allegiance as of the Effective Date or furnished to or obtained by Allegiance after the Effective Date, in a manner consistent with Allegiance's treatment of its own confidential information. Allegiance shall not use such information for any purpose other than as contemplated under this Agreement, without Baxter's prior written consent. 21.3 GENERAL. The obligations of confidentiality and non-disclosure imposed under this Section 21 shall not apply to data and information that the recipient can demonstrate: 21.3.1 is published or is or otherwise becomes available to the general public as part of the public domain without breach of this Agreement; 21.3.2 has been furnished or made known to the recipient without any obligation to keep it confidential by a third party under circumstances which are not known to the recipient to involve a breach of the third party's obligations to a party hereto; 21.3.3 was developed independently of information furnished to the recipient under this Agreement; or 21.3.4 was known to the recipient at the time of receipt thereof from the other party, is not otherwise subject to (a) the confidentiality restrictions contained in the Reorganization Agreement dated as of September 30, 1996 between Baxter International and Allegiance Corporation, or (b) any other obligation to keep it confidential and was not obtained from a third party under circumstances which were known to the recipient to involve a breach of the third party's obligations to a party hereto. 21.4 EQUITABLE RELIEF. Each party (the "first party") acknowledges that the other party would not have an adequate remedy at law for the breach by the first party of any one or more of the covenants contained in this Section 21 and agrees that, in the event of such breach, the other party may, in addition to the other remedies which may be available to it, apply to a court for an injunction to prevent breaches of this Section 21 and to enforce specifically the terms and provisions of this Section. 21.5 REQUIRED DISCLOSURES. The provisions of this Section shall not preclude disclosures required by law; provided, however, that each party will use reasonable efforts to notify the other, prior to making any such disclosure, and permit the other to take such steps as it deems appropriate, including obtaining a protective order, consistent with applicable law, to minimize any loss of confidentiality. -35- 21.6 SECURITY. Each party shall be responsible for preventing unauthorized remote access by such party's own agents and employees to data transferred to or otherwise made available to the other party under this Agreement. 22. LIMITATION OF LIABILITY AND REMEDY. 22.1 DAMAGES. In no event, whether based on contract, indemnity, warranty, tort (including negligence), strict liability or otherwise, shall either party or any of its directors, officers, employees or agents, be liable for special, exemplary, or punitive damages. The foregoing limitation and disclaimer shall apply irrespective of whether the possibility of such special, exemplary, or punitive damages had been disclosed in advance or could have reasonably been foreseen. The limitations and disclaimers of obligations and liabilities contained in this Section 22 are intended to apply to the fullest extent permitted by law; provided that such limitations and disclaimers shall not limit amounts payable with respect to any express indemnity provided for in this Agreement. 22.2 EXCLUSIVE REMEDIES. 22.2.1 BAXTER'S EXCLUSIVE REMEDIES. Except in the case of the gross negligence or willful misconduct of Allegiance or its Affiliates, Baxter's exclusive remedies against Allegiance for any breach of, or other act or omission arising out of or relating to, this Agreement shall be: 22.2.1.1 the right to receive payment of amounts owed under Sections 6 and 8 hereof; 22.2.1.2 the right to require reperformance of any service to the extent required pursuant to Section 11; 22.2.1.3 the right to indemnification as provided in Section 17; 22.2.1.4 the right to injunction, specific performance or other equitable non-monetary relief when available under applicable law; 22.2.1.5 the right to terminate this Agreement for material breach as set forth in Section 16; and 22.2.1.6 the right to actual damages for breach of Section 21. 22.2.2 ALLEGIANCE'S EXCLUSIVE REMEDIES. Except in the case of the gross negligence or willful misconduct of Baxter or its Affiliates, Allegiance's exclusive remedies against Baxter -36- for any breach of, or other act or omission arising out of or relating to, this Agreement shall be: 22.2.2.1 the right to receive payment of amounts owed under Sections 6 and 8 hereof; 22.2.2.2 with respect to Interim Distributor Model transactions only, the right to require Baxter to repair or replace (at Baxter's option and expense) any Product that proves not to be in conformity with applicable labeling or specifications, and Baxter shall pay the transportation and other costs incurred by Allegiance with respect to any Products returned to Baxter for repair or replacement under this Section 22.2.2.2, or at Baxter's option, reimburse Allegiance for any such costs; 22.2.2.3 the right to indemnification as provided in Section 17; 22.2.2.4 the right to injunction, specific performance or other equitable non-monetary relief when available under applicable law; 22.2.2.5 the right to terminate this Agreement for material breach as set forth in Section 16; and 22.2.2.6 the right to actual damages for breach of Section 21. 23. MISCELLANEOUS PROVISIONS. 23.1 NOTICES. All notices and other communications required under this Agreement shall be in writing and shall be deemed to have been given if delivered by hand, or sent by courier or facsimile transmission (provided that in the case of facsimile transmission, a confirmation copy of the notice shall be delivered by hand or sent by courier within 2 days of transmission), addressed: To Baxter: Baxter Healthcare Corporation One Baxter Parkway Deerfield, Illinois 60015 Attention: General Counsel with copies to: Baxter Healthcare Corporation Route 120 and Wilson Road Round Lake, Illinois 60073 Attention: President--I.V. Systems Division -37- if to Allegiance to: Allegiance Healthcare Corporation McGaw Park Building A/B 1430 Waukegan Road McGaw Park, Illinois 60085 Attention: General Counsel with a copy to: Allegiance Healthcare Corporation McGaw Park Building A/B 1430 Waukegan Road McGaw Park, Illinois 60085 Attention: President--Distribution until notice of a change in address or addressee is given as provided in this Section. All notices given in accordance with this Section shall be effective, if delivered by hand or by courier, at the time of delivery, and, if communicated by facsimile transmission, at the time of transmission. 23.2 ENTIRE AGREEMENT. This Agreement is the entire agreement between the parties hereto with respect to the subject matter hereof, there being no prior written or oral promises or representations not incorporated herein. 23.3 CHOICE OF LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Illinois and the federal laws of the United States of America applicable therein, as though all acts and omissions related hereto occurred in Illinois. Any lawsuit arising from or related to this Agreement shall only be brought in the United States District Court for the Northern District of Illinois or the Circuit Court of Lake County, Illinois. To the extent permissible by law, the parties hereby consent to the jurisdiction and venue of such courts. Each party hereby waives, releases and agrees not to assert, and agrees to cause its Affiliates to waive, release and not assert, any rights such party or its Affiliates may have under any foreign law or regulation that would be inconsistent with the terms of this Agreement as governed by Illinois law. 23.4 AMENDMENT; WAIVER. No amendment or modification of the terms of this Agreement shall be binding on either party unless reduced to writing and signed by an authorized representative of the party to be bound. The waiver by either party of any particular default by the other party shall not affect or impair the rights of the party so waiving with respect to any subsequent default of the same or a different kind; nor shall any delay or omission by either party to exercise any right arising from any default by the other affect or impair any rights which the -38- nondefaulting party may have with respect to the same or any future default. 23.5 SEVERABILITY. In the event that any of the provisions of this Agreement is held to be invalid, illegal, void or otherwise unenforceable in any jurisdiction by reason of any rule of law, administrative decision, judicial decision, public policy or otherwise, such provision shall be ineffective in such jurisdiction to the extent of such invalidity, illegality, voidness or unenforceability without affecting, impairing or invalidating the remaining provisions, if any, of this Agreement. Any such invalid, illegal, void or otherwise unenforceable provisions shall be replaced by valid and enforceable substitute provisions which are as similar as possible to such invalid, illegal, void or otherwise unenforceable provisions in terms of economic and other commercial effect upon the parties, which substitute provisions shall be established pursuant to the dispute resolution procedure set forth in Section 24.2. 23.6 RELATIONSHIP OF THE PARTIES. By virtue of this Agreement, neither party constitutes the other as its agent (except as otherwise expressly provided), partner, joint venturer, or legal representative and neither party has express or implied authority to bind the other in any manner whatsoever. 23.7 SURVIVAL. The rights and obligations of the parties under Sections 8.5, 8.6, 11, 13.1, 14, 16.3, 16.4, 16.5, 16.6, 16.7, 17, 19.1, 19.2, 20, 21, 22, 23, and 24 as well as all rights and obligations with respect to any amounts that remain unpaid under Sections 6 and 8 hereof as of the date of termination, shall survive any termination of this Agreement. 23.8 COUNTERPARTS. For convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes. 23.9 RECORDS RETENTION. Each party will retain all information obtained or created in the course of performance hereunder in accordance with the records retention guidelines of the other party existing from time to time. Each party has advised the other of its respective guidelines as in effect on the Effective Date and will advise the other party of any subsequent changes therein. 23.10 BENEFICIARIES. Except for the provisions of Section 17 hereof, which are also for the benefit of the other Persons indemnified, this Agreement is solely for the benefit of the parties hereto and their respective Affiliates, successors and permitted assigns and shall not confer upon any other Person any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement. 24. DISPUTE RESOLUTION AND ARBITRATION. -39- 24.1 ESCALATION. The parties agree that they will attempt to settle any claim or controversy arising out of this Agreement through good faith negotiations in the spirit of mutual cooperation between business executives with authority to resolve the controversy. Prior to taking action as provided in Section 24.2, the parties shall first submit such claim or controversy to the appropriate Divisional Presidents of each party for resolution, and if such Divisional Presidents are unable to resolve such claim or controversy, either party may request that their respective chief executive officers, or their respective delegees, attempt to resolve the dispute. The officers or delegees to whom any such claim or controversy is submitted as provided above shall attempt to resolve the dispute through good faith negotiations over a reasonable period, not to exceed 30 days in the aggregate unless otherwise agreed. Such 30 day period shall be deemed to commence on the date of a Notice from either party describing the particular claim or controversy. 24.2 ARBITRATION. Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach or validity hereof, whether at common law or pursuant to any statute, regulation, rule or policy, that is not resolved by good faith negotiations in the spirit of mutual cooperation pursuant to Section 24.1 will, upon the written request of either party, be resolved by binding arbitration conducted in accordance with the Rules of the CPR Institute for Dispute Resolution by a sole arbitrator who is a member of the National Health Lawyers Association or another mutually agreeable individual. Such arbitrator shall set a schedule for determination of such dispute that is reasonable under the circumstances. Such arbitrator shall determine the dispute in accordance with this Agreement and the substantive rules of law (but not the rules of procedure) that would be applied by a federal court sitting in Illinois. The arbitration shall take place in Lake County, Illinois. The arbitration will be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16 and the Patent Arbitration Act, 35 U.S.C. Section 294. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. Where this Agreement provides for future agreement by the parties, failure to reach such agreement shall not constitute a dispute subject to the provisions of this Section 24 except as expressly provided otherwise. 24.3 INJUNCTIVE RELIEF. Nothing contained in this Section 24 shall prevent either party from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent serious and irreparable injury to one Party or to others. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely either party's right to assert any claim or defense. 25. ASSIGNMENT. -40- 25.1 GENERAL. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided, however, that, except as provided below, neither party may Transfer its interest in the Agreement, including Transfers by operation of law such as by way of merger or consolidation, without the prior written consent of the other party, which consent may not be unreasonably withheld. Notwithstanding the foregoing sentence, either party may Transfer its rights and obligations under this Agreement to any corporation or other entity that shall acquire all or substantially all of such party's business and assets and assume in writing all of such party's obligations hereunder and deliver a signed copy of such assumption instrument to the other party; and, upon the other party's receipt of such assumption instrument, the assigning party shall be fully released and discharged from its obligations under this Agreement. In the event of such a Transfer, the Non-Affected Party shall have the right to terminate this Agreement as provided in Section 16.1. 25.2 CERTAIN OTHER TRANSFERS BY BAXTER. Notwithstanding the foregoing provisions of this Section, to the extent that (a) any Person that is not a Competitor of Allegiance shall acquire all or substantially all of Baxter's business and assets relating to any Line of Products, or (b) any Person shall acquire all or substantially all of Baxter's business and assets relating to the Products; then Baxter may Transfer the portion of its rights hereunder relating to such Line of Products or all of its rights hereunder, respectively, to such acquiring Person, provided that any such acquiring Person shall assume in writing all of Baxter's obligations hereunder which correspond to the portion of rights Transferred, and shall deliver a signed copy of such assumption instrument to Allegiance. Baxter shall remain liable for all of the obligations under this Agreement notwithstanding any such Transfer. In the event of any Transfer described in this paragraph, Allegiance shall have the right to terminate the portion of this Agreement relating to such Line of Products as provided in Section 16.1. 25.3 CERTAIN OTHER TRANSFERS BY ALLEGIANCE. Notwithstanding the foregoing provisions of this Section, to the extent that any Person shall acquire all or any portion of Allegiance's business and assets relating to the Allegiance's distribution network, Allegiance may Transfer the portion of its rights hereunder relating to such portion of its distribution network to such acquiring Person, provided that any such acquiring Person shall assume in writing the portion of Allegiance's obligations hereunder relating to the portion of the distribution network so Transferred, and shall deliver a signed copy of such assumption instrument to Baxter. Allegiance shall remain liable for all of the obligations under this Agreement notwithstanding any such Transfer. In the event of any Transfer described in this paragraph, Baxter shall have the right to terminate this Agreement as provided in Section 16.1. -41- 26. AUTHORITY. Each party represents and warrants that, as of the effective date of this Agreement, the terms of this Agreement do not violate any existing obligations or contracts of, or any law, rule, regulation, judgment or order binding on, such party. Each party shall indemnify and hold harmless the other party from and against any and all liabilities, damages, losses and expenses (including reasonable attorney's fees) resulting from any third party claim, arbitration proceeding or suit which is hereafter made or brought against the other party and which alleges any such violation, all as provided in Section 17 herein with respect to the indemnification provided in Section 17.1 and Section 17.2. * * * * * * IN WITNESS WHEREOF, the parties have by their duly authorized officers executed this Agreement as of the date first above written. BAXTER: ALLEGIANCE: BAXTER HEALTHCARE CORPORATION ALLEGIANCE HEALTHCARE CORPORATION By: /s/ Jack L. McGinley By: /s/ William L. Feather ---------------------- -------------------------- Name: Jack L. McGinley Name: William L. Feather Title: Group Vice President-- Title: Senior Vice President I.V. Systems and General Counsel -42- AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT EXHIBIT A I.V. PRODUCTS See attached listing. A-1 AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT EXHIBIT B NUTRITION PRODUCTS See attached listing. B-1 AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT EXHIBIT C ALLEGIANCE'S DUTIES 1. GENERAL DUTIES UNDER AGENCY MODEL, DISTRIBUTOR MODEL AND BCS KITS MODEL. 1.1 CORPORATE AGREEMENT BONUS PROGRAM. Allegiance shall participate in the corporate agreement bonus program for the Products as follows: 1.1.1 EXISTING AGREEMENTS. 1.1.1.1 The "Existing Corporate Agreements" shall mean Baxter's agreements with stand-alone hospitals and regional and national health systems with effective dates prior to September 30, 1996, which provide for annual bonus or discount payments based, inter alia, upon the quantity of Baxter-manufactured products purchased by the customer. 1.1.1.2 Allegiance will accept assignment of the Existing Corporate Agreements and will administer the Existing Corporate Agreements on behalf of itself and Baxter. 1.1.1.3 Allegiance shall honor and administer each Existing Corporate Agreement through its expiration or earlier termination pursuant to its terms. 1.1.1.4 The corporate agreement bonus funding process will be the same as prior to October 1, 1996, I.E., the corporate agreement bonuses will be funded by Baxter and Allegiance, the allocation will be made based on the estimated total year-end payout and actual May year-to-date sales and gross profit recognized from the applicable customers, the bonus allocation will be invoiced by Allegiance to Baxter on a monthly basis (terms of payment will be net 30 days), and on or before May 31 of each year, any over-accrual or under-accrual will be allocated to Allegiance or Baxter based upon the foregoing allocation for the applicable year. 1.1.1.5 Allegiance shall prepare and present the corporate agreement bonus payments to the customers, and Baxter shall have the right to have Baxter representatives present. 1.1.2 FUTURE AGREEMENTS. For any corporate bonus agreements entered into on or after the effective date of this C-1 Agreement with stand-alone hospitals and regional and national health systems, Allegiance shall meet in advance with each Baxter business unit to determine whether such Baxter business unit desires to participate in any such agreements. 1.2 SALES SUPPORT. Allegiance shall use commercially reasonable efforts to support sales of the Products (including sales to Surgery Centers and to Alternate Site Distributors) in accordance with the following and such efforts are in lieu of any standard of performance implied by Section 2-306(2) of the U.C.C.: 1.2.1 Allegiance field service representatives (customer service representatives in the field) or other Allegiance customer service representatives shall direct customer inquiries regarding the Products to Baxter's customer service support organization for resolution. 1.2.2 If Allegiance receives a request for proposal or request for bid relating to the Products, Allegiance will advise Baxter of such receipt, and will also advise Baxter whether the customer appears interested in purchasing the Products under the Agency Model or the Distributor Model. 1.2.3 Allegiance account managers shall: (a) provide Baxter with access to the customer decision-makers; (b) generate sales interest in the Products; (c) actively support the joint customer satisfaction strategy between Allegiance and Baxter; and (d) work with Baxter (in a manner similar to that prior to the effective date of this Agreement) relative to account segmentation rating of Baxter customers. Allegiance segmentation of customers for the Products shall not affect Allegiance's obligations under the Agency Model. 1.2.4 Allegiance will use commercially reasonable efforts to monitor critical business indicators in the areas of customer service, materials management, distribution services, pricing/billing, and compliance with all specific service requirements set forth in this Exhibit C. Without limitation to the foregoing sentence, Allegiance will use commercially reasonable efforts to measure and assess customer satisfaction for Allegiance sales processes and sales representatives, to the extent Allegiance provides such sales-related functions under this Agreement. 1.2.5 Allegiance shall participate with Baxter in a semi-annual review of regional account segmentation, performance to critical business indicators, and regional sales to be conducted between the leaders of their respective regional sales organizations. Allegiance and Baxter will work together in good faith to develop action plans to improve customer satisfaction in areas that are mutually identified as key factors for customer growth and retention, or areas where Baxter's performance is C-2 significantly (statistically defined) below that of its competitors. 1.2.6 Allegiance's sales generalist sales force shall continue to promote sales of the Products in the same manner as prior to the effective date of this Agreement. 1.2.7 Allegiance will provide telephone sales services for deployment purposes or strategic account management, at Baxter's request, for an additional fee to be agreed upon. 1.2.8 Allegiance shall make available to Baxter its electronic catalog listing each party's products. 1.2.9 Upon termination or expiration of any pre-existing customer contract with a third-party supplier for products that compete with any Product or Products, except for permitted competitive Best Value Products, Allegiance shall encourage and facilitate use of the Products (rather than any product competing with any Product or Products) through appropriate means including, but not limited to, use of Best Value Product incentives, Allegiance customer contract provisions, and/or sales representative incentives. 1.2.10 TRANSITION. During the period beginning with the effective date of this Agreement and ending on December 31, 1996, Allegiance will continue to use reasonable business efforts to provide substantially the same level of customer service relating to the Products through substantially the same personnel as Baxter's U.S. Distribution business provided as of July 1, 1996. Allegiance's responsibilities under the preceding sentence shall end as and to the extent that Baxter customer service personnel are activated. Baxter will use reasonable efforts to meet the agreed-upon transition schedule. 1.3 MARKETING SUPPORT. Allegiance shall use commercially reasonable efforts to support marketing of the Products in accordance with the following, and such efforts are in lieu of any standard of performance implied by Section 2-306(2) of the U.C.C.: 1.3.1 Allegiance shall provide marketing services (other than product management services which will be provided by Baxter) to Surgery Centers and to Alternate Site Distributors. 1.3.2 Allegiance shall maintain its own communications resources and shall coordinate the communications messages with Baxter when appropriate. 1.3.3 Allegiance shall attempt whenever possible to share with Baxter expenses for convention fees, industry organizations, and industry databases when and where appropriate. C-3 1.3.4 Prior to publication, Allegiance shall submit to Baxter for Baxter's approval all Allegiance promotional/communication endeavors specifically referencing the Products or any Baxter services. 1.3.5 Either as part of the promotion of Best Value Products or as part of a general promotion, Allegiance shall represent the Products fully and prominently in Allegiance's product and service literature or any other media, including field sales support tools. 1.3.6 Allegiance shall include Baxter sales volume by Product category on Allegiance's sales reports in a similar format as provided by Allegiance prior to the effective date of this Agreement. 1.3.7 For a fee to be agreed upon from time to time, Allegiance shall provide literature distribution services to Baxter. 1.4 NATIONAL SAMPLE CENTER. From the effective date of this Agreement through the period ending December 31, 1997, Allegiance shall provide the following services in connection with the National Sample Center: 1.4.1 Allegiance shall maintain the Sample Center for the Products. 1.4.2 Allegiance shall order the Products to be stocked in the Sample Center which shall remain owned by Baxter. 1.4.3 Allegiance shall maintain the MAS90 system for the Sample Center inventory. 1.4.4 Allegiance shall provide to Baxter a monthly spreadsheet with the Product-related activity for the month, I.E., rep name, cost center, product ordered, and service charge. 1.4.5 Allegiance shall charge Baxter a handling charge of $6.50/order to cover the overhead associated with receiving, storing, and shipping the Products. 1.4.6 Allegiance shall apply special handling charges to priority shipments as follows: (a) next day shipments will be charged an additional $7.00; and (b) second day air shipments will be charged an additional $5.50. 1.4.7 Allegiance shall bill Baxter monthly for applicable charges. 1.4.8 Allegiance shall conduct an annual inventory and/or routine cycle counting to maintain inventory integrity in the National Sample Center. C-4 1.4.9 Allegiance shall continue to provide the same customer service functions to the sales representatives as was provided prior to the effective date of this Agreement. 1.4.10 Allegiance shall continue to check expiration dates on all Sample Center Products. 1.4.11 Allegiance shall maintain contact with Baxter's finance personnel regarding inventory status and financial transactions. 1.4.12 Allegiance shall send monthly reports to Baxter providing inventory levels. 1.5 MATERIALS MANAGEMENT. Allegiance and Baxter shall use commercially reasonable efforts to make the supply chain as efficient as possible for both parties. Future opportunities to improve efficiency include, but are not limited to, EDI, bar coding, custom palletization, network channels and the use of returnable totes. Both parties agree to work in good faith to achieve this goal. 1.5.1 FINISHED GOODS REQUIREMENTS PLANNING. 1.5.1.1 Both parties agree that the echeloning of products based on line item usage generally makes sense. Assuming there are no significant customer contractual issues or financial impacts to Baxter, Baxter agrees to the parameters set forth by the rationalized supply chain. If after the appropriate review there are significant customer contractual issues or financial impacts to Baxter, 1995 will be used as the baseline for where products are stocked and the number of low velocity SKU's will not exceed 1995 levels. 1.5.1.2 Allegiance will not be required to carry more than 1995 average Days Inventory On Hand. 1.5.2 ALLEGIANCE INBOUND FREIGHT ADMINISTRATIVE SERVICES. Allegiance shall continue to provide the following administrative services for all inbound freight shipments (i.e., shipments of Products from manufacturing plants to replenishment centers and distribution centers or from replenishment centers to distribution centers) to the extent that such services were normally being provided by Baxter's U.S. Distribution business to Baxter's I.V. Division prior to the effective date of this Agreement: (a) freight payments, (b) audit of freight payments, (c) transportation cost reporting, and (d) logistics analysis/distribution technology to include network planning and replenishment center sourcing. Allegiance's compensation for such services shall be determined in accordance with the methodology used by Baxter prior to the effective date of this Agreement. For an additional fee to be agreed upon, Allegiance C-5 may agree to provide to Baxter additional inbound freight administrative services beyond the scope of the services normally being furnished by Baxter's U.S. Distribution business to Baxter's I.V. Division prior to the effective date of this Agreement. 1.6 DISTRIBUTION. 1.6.1 RECEIVING (NOTIFICATION AND PLANNING). 1.6.1.1 Product will be system received within one and one-half business days of arrival at Allegiance's replenishment center or distribution center. 1.6.1.2 Allegiance will coordinate with Baxter to schedule receiving appointments for Products coming from manufacturing facilities and replenishment centers, and in unloading Products. Allegiance will follow Bill of Lading (BOL) instructions regarding receipt unless late arrival prevents Allegiance from doing so, and alternative arrangements have not been made. 1.6.1.3 Allegiance will receive products at distribution centers using Baxter's and Allegiance's computer systems or an Allegiance warehouse management system that will upload to such computer systems. 1.6.2 WAREHOUSE MANAGEMENT. 1.6.2.1 Allegiance will be responsible for the management of its replenishment centers and distribution centers. 1.6.2.2 Allegiance will hold Baxter inventory in Allegiance's replenishment center or its distribution centers. 1.6.2.3 Except as otherwise agreed, Allegiance will adhere to existing storage, shipping and receiving practices, including practices regarding time-sensitive Products. 1.6.2.4 Allegiance will measure and report to Baxter on a monthly basis Product damage or loss that occurs at Allegiance facilities. Allegiance shall compensate Baxter pursuant to Section 6.18 of this Agreement for any damage or loss that is Allegiance's responsibility under this Agreement. 1.6.2.5 Allegiance will measure and report to Baxter on a monthly basis Product damage that occurs prior to arrival at Allegiance's distribution centers or its replenishment center. C-6 1.6.3 CYCLE COUNTS AND PHYSICAL INVENTORIES. 1.6.3.1 Allegiance will continue to perform counts of Baxter's Product inventory in all Allegiance facilities through annual physical inventories or cycle counts, following substantially the same practices as employed by Baxter and Baxter's U.S. Distribution business prior to the effective date of this Agreement, at no additional cost to Baxter. 1.6.3.2 Allegiance facilities that performed cycle counts for the Products prior to the effective date of this Agreement will continue to do so consistent with practices utilized prior to the date hereof. 1.6.3.3 Allegiance shall provide Baxter with the results of its cycle counts by the tenth business day after the count was taken. 1.6.3.4 Baxter personnel and external auditors for Baxter shall have the right to audit an Allegiance cycle count of the Products at any time up to 90 days after the end of the month in which the cycle count is conducted. 1.6.3.5 Baxter personnel and external auditors for Baxter shall have the right to audit Product inventory in Allegiance facilities at any mutually-acceptable time upon not more than five business days advance notice. 1.6.3.6 Allegiance facilities that performed annual physical inventories prior to the effective date of this Agreement will continue to do so during the Term of this Agreement. The annual physical inventory will take place in October of each year during the Term of this Agreement. Baxter will select a day in October acceptable to Allegiance on which the physical inventory will take place. 1.6.3.7 Allegiance will have 20 business days from the day of the physical inventory to reconcile, system enter, and report the physical inventory results to Baxter. 1.6.3.8 Each Allegiance facility participating in the physical inventory must demonstrate a gross variance of the dollar value of the Product inventory on TOPS within a range of -5% to +5%. Baxter may require Allegiance facilities that do not meet this standard to perform another physical inventory in April of the following calendar year. If the gross variance is outside of the range of -1.5% to +1.5%, Baxter may require Allegiance to perform specified Product physical inventory counts. 1.6.3.9 To the extent practicable, Baxter and Allegiance shall record any annual physical inventory C-7 adjustments into their respective accounting records at the same time. 1.6.3.10 Baxter shall have the right to have Baxter personnel and external auditors present at Allegiance facilities on the day that the physical inventory is conducted. In addition, Baxter shall have the right to audit Allegiance's annual physical inventory results at any time up to 3 months after the date on which Allegiance records its annual inventory adjustments into its accounting records. 1.6.4 ORDER FULFILLMENT. When customer orders are released through Baxter's computer system to Allegiance's computer system, Allegiance personnel will pick, pack, load and stage and ship-verify the customer order for delivery within the Allegiance distribution center. For Agency Model transactions, Allegiance personnel will continue to provide problem resolution for electronic data interchange (EDI) orders to the same extent as provided by Baxter's U.S. Distribution business to Baxter's I.V. Division immediately prior to the effective date of this Agreement, at no additional charge to Baxter. 1.6.5 OUTBOUND SHIPMENT. 1.6.5.1 Allegiance personnel will be responsible for the selection and routing, private fleet or commercial carrier, of the Baxter customer order. 1.6.5.2 Allegiance shipments will be based on BOL instructions. If no specific instruction appears on the in BOL, shipments will occur on the next scheduled delivery or within a maximum of two business days (if no scheduled delivery). 1.6.6 FREIGHT CLAIMS. 1.6.6.1 Allegiance will be responsible for filing freight claims and resolving product shortages and overages, including providing proof of delivery, with respect to all Product shipments. 1.6.6.2 If Allegiance is unable to furnish proof of delivery with respect to Products shipped on Allegiance's private fleet within a reasonable period of time thereafter, it shall compensate Baxter for such undelivered Product in accordance with Section 6.18 of this Agreement. 1.6.7 LOT TRACKING. Allegiance shall provide lot tracking capabilities as provided by Baxter for the Products prior to the effective date of this Agreement. 1.6.8 RETURN GOODS MANAGEMENT. C-8 1.6.8.1 Allegiance shall arrange for and pick up, process and dispose of returned Products at Baxter's request. 1.6.8.2 In the event of returned Products, a return goods authorization will be issued by Baxter Customer Service and Allegiance will arrange for and pick up such Products within 5 business days. However, if the customer is located in a remote area where pick-up within 5 business days would be impracticable, Allegiance will use commercially reasonable efforts to pick up the returned Products at the next scheduled delivery, but in no event later than 30 days after its receipt of such return goods authorization. 1.6.8.3 Allegiance will continue practices existing immediately prior to the effective date of this Agreement regarding returned goods processing, including unloading, segregation, inspection, product disposition (restocking, disposal, or transport for restocking), documentation, and forwarding paperwork for Baxter to administer credit. 1.6.8.4 Return goods processing time (receipt date at distribution center to paperwork receipt at Baxter) will not exceed 30 days. 1.6.8.5 Allegiance shall use commercially reasonable efforts to dispose of returned Products in a cost-effective manner, subject to Baxter's instructions. 1.7 PRODUCT FIELD CORRECTIVE ACTIONS. 1.7.1 Allegiance shall perform field corrective action ("FCA") services in a manner consistent with the quality systems, procedures and specifications as of the effective date of this Agreement. Allegiance shall provide the following FCA services for the fee stated in Section 6.16.1: a. FCA notification processing; b. FCA disposition processing; c. storage of Products affected by an FCA inside an Allegiance distribution center for up to six months from the date of initiation of the FCA; d. transportation of all Products affected by the FCA to Baxter, freight collect; e. rework or inspections of Products by Allegiance employees; f. discard and destruction of Products utilizing nonhazardous waste disposal methods; g. delivery of recall report information to Baxter; C-9 h. incoming inspection of all Baxter Products for open FCAs for twelve months from the date of initiation of the FCA; i. third-party invoices for any of the services listed above; and j. third-party invoices for any services in addition to those listed above as performed in 1996. 1.7.2 At Baxter's request and with Baxter's approval, Allegiance shall perform FCA services not included in Section 1.7.1 for additional compensation to be agreed upon. Baxter will be invoiced separately for such additional services pursuant to Section 6.16.2 of this Agreement. Examples of additional FCA services addressed by this Section 1.7.2 include: a. all third-party invoices related to expenses incurred by Allegiance (except expenses related to the discard and destruction of non-hazardous Products) that arise out of the need for Baxter to issue an FCA for Products; b. computer system upgrades requested by Baxter or Baxter for Allegiance FCA systems; c. storage of Products affected by an FCA for periods longer than six months or storage of such Products in rented trailers; and d. incoming inspection of all Products for open FCAs for periods longer than 12 months from the date of initiation of the initiation of the FCA. 1.7.3 For purposes of the subsequent provisions of this Section 1.7, Allegiance shall use commercially reasonable efforts to accomplish the FCA tasks identified within the time periods indicated. If extraordinary volume or other circumstances make such time periods impracticable, Baxter and Allegiance will make adjustments by extending time periods, setting priorities or otherwise. 1.7.4 Allegiance shall perform FCA notification to Allegiance's distribution centers and replenishment center based upon priorities. Priority A notification requires extraordinary and immediate action. Priority B notification requires notification to all Allegiance distribution centers and its replenishment center within one business day. Priorities will be based on the urgency of the FCA as determined primarily by Baxter. 1.7.5 For FCAs involving Products sold under the Distributor Model, Allegiance shall provide customer lists to Baxter the next business day for requests received before 1:00 p.m. Central Standard Time. C-10 1.7.6 Allegiance shall perform stock checks based upon priorities. Priority A requires extraordinary and immediate action. Priority B requires processing and reporting on the same day. Priority C will be negotiated based upon needs but generally requires processing and reporting in 2 to 5 business days. Priorities will be based on the urgency of the FCA as determined primarily by Baxter. 1.7.7 Initial inventory reports shall be issued in 5 business days from initial FCA notification to Allegiance's distribution centers or replenishment center unless otherwise requested. 1.7.8 Subject to local restrictions regarding discard of the products, routine dispositions (as designated by Baxter) shall be issued to Allegiance's distribution centers and replenishment center in 5 business days. Allegiance's distribution centers and replenishment center shall then have 5 business days to process the routine disposition. 1.7.9 Subject to local restrictions regarding discard of the Products, expedited dispositions (as designated by Baxter) shall be issued to Allegiance's distribution centers and replenishment center within 1 business day. Allegiance's distribution centers and replenishment center shall then have five business days to process the expedited disposition. 1.7.10 Subject to local restrictions regarding discard of the Products, extraordinary dispositions (as designated by Baxter) shall be issued within 1 business day. Allegiance's distribution centers and replenishment center shall then have one business day to process the extraordinary disposition. 1.7.11 Reconciled disposition reports for quantity variance shall be negotiated between Allegiance and Baxter at the time of disposition. 1.7.12 The necessity for and content of sampling plans and protocols shall be negotiated at the time of the FCA. 1.7.13 Allegiance shall cooperate with Baxter in performing any FCA by identifying affected Products and customers, developing an action-specific management plan detailing specific responsibilities, and notifying customers of any such action. Allegiance shall encourage customers to follow instructions related to any hold or recall situation. 1.7.14 FCAS FOR KITS. Allegiance shall implement and report, as necessary, any Product FCAs for Kits, following, to the extent commercially reasonable, the same instructions and priorities provided for Products sold pursuant to the Agency Model or the Distributor Model. Allegiance shall provide to Baxter a customer list for specialized distribution such as C-11 ValueLink and other low unit of measure ("LUM") programs. Allegiance shall implement the FCA for such specialized distribution. Allegiance shall reconcile the Kit portion of any recall and provide Baxter with all required recall data. 1.8 DIVISIONAL BONUS PROGRAM. 1.8.1 Allegiance shall participate in the Baxter divisional bonus programs for the Products if and to the extent that such programs include Allegiance products and such programs are in existence as of the effective date of this Agreement. 1.8.2 Allegiance shall continue to bill the customer for sales of Allegiance products and promptly provide to Baxter information related to such sales necessary to calculate the divisional bonus. Baxter will invoice the bonus allocation to Allegiance. 1.8.3 Baxter shall prepare and present the divisional bonus payments to customers, and Allegiance shall have the right to have Allegiance representatives present at the presentation. 1.8.4 Allegiance shall use commercially reasonable efforts to cooperate with Baxter in the event customers request that divisional bonus payments be made by alternative means, for example, through credits on Allegiance statements of account. 1.8.5 Beginning with calendar year 1997, Allegiance shall pay to Baxter Allegiance's share of operations and systems expenses required to support the administration of the divisional bonus program based upon Allegiance's share of the divisional bonus as a percentage of the total divisional bonus. Notwithstanding the preceding sentence, Allegiance's share of such operations and systems expenses shall not exceed $150,600. 1.9 PRIOR NOTICE. To the extent practicable, Allegiance shall provide at least six months prior written notice to Baxter before making any change in its business operations that is likely to impact materially Baxter's business operations, revenues or costs. Such changes include, but are not limited to, Allegiance's closure of one or more of its distribution centers. 2. AGENCY MODEL. 2.1 GENERAL. 2.1.1 Allegiance will system receive the Products into Baxter's computer system. C-12 2.1.2 Allegiance will receive the shipping documentation from Baxter's computer system and pick-up information by facsimile. 2.1.3 Allegiance will perform shipment verification on Baxter's computer system. 2.2 CUSTOMER SERVICE. Allegiance shall provide customer service support and order entry as follows for Products sold to Subdistributors (except for EIS customers and anaesthesia dealers, for whom Baxter will provide all dealer management services): 2.2.1 When utilizing the dealer management group as an agent to service Alternate Site Distributors and Alternative Acute Care Distributors: 2.2.1.1 Allegiance's dealer management group will act as Baxter's agent in negotiating agreements with Alternate Site Distributors and Alternative Acute Care Distributors as designated by Baxter for Products and will act as the primary interface with such Alternate Site Distributors and Alternative Acute Care Distributors. 2.2.1.2 Allegiance shall seek Baxter's approval which must be obtained by the Allegiance dealer management group prior to setting up any accounts for Alternate Site Distributors or Alternative Acute Care Distributors. 2.2.1.3 Baxter will establish sales strategies, selling terms, ordering policies, and pricing for sales to Alternate Site Distributors and Alternative Acute Care Distributors. 2.2.1.4 Allegiance shall provide operational support including order entry/customer service, billing/contract and pricing administration, collection, dealer rebates, trace sales, return processing, accounts receivable dispute resolution, system support, and new account set-up. 2.3 PRICING/BILLING. 2.3.1 When utilizing the dealer management group as an agent to sell and service Alternate Site Distributors and Alternative Acute Care Distributors: 2.3.1.1 Allegiance's dealer management group must seek approval from Baxter which must be obtained prior to any agreement with an Alternate Site Distributor or an Alternative Acute Care Distributor to fund margin or pay sales tracing fees. C-13 2.3.1.2 Allegiance's dealer management group will perform the billing function for Baxter using Baxter's computer system. 2.3.2 When Allegiance's surgery center sales force is promoting Baxter's sale of the Products to surgery centers, Allegiance's sales force shall operate within the price guidelines set by Baxter. 2.3.3 ADDITIONAL CUSTOMER-REQUESTED SERVICES. In conjunction with the Agency Model, if a customer requests Product-related services from Allegiance that are in addition to the services that Allegiance has agreed to provide under the foregoing provisions of Exhibit C, Allegiance will provide to Baxter a description of the additional services requested and its associated fees for such services. Baxter will conduct all preliminary negotiations with the customer relative to such additional services. Based on these negotiations, Baxter will advise Allegiance as to whether (a) Baxter will contract directly with Allegiance for provision of such additional services, or (b) Allegiance should contract directly with the customer for provision of such services. 2.4 DISTRIBUTION. 2.4.1 OUTBOUND SHIPMENT. 2.4.1.1 Allegiance shall provide the following standard delivery services ("Standard Delivery"): (a) with respect to customer contracts in connection with new relationships beginning after September 30, 1996, Allegiance shall provide delivery of carton quantities, palletized, delivered to the customer's receiving area (loading dock) at least two days per week (or three days per week for shipments to alternate site customers); or (b) with respect to all other transactions, delivery services consistent with Allegiance's performance at the customer level immediately preceding the effective date of this Agreement. Allegiance will share with Baxter the costs and savings associated with Standard Delivery as set forth in Section 6.11. 2.4.1.2 Allegiance shall deliver Products by air freight or by messenger ("Premium Delivery") when requested by Baxter. Allegiance will share with Baxter the costs and savings associated with Uncollected Premium Delivery Costs as set forth in Section 6.11 of this Agreement. 2.4.1.3 Allegiance shall make deliveries of Products in addition to Standard Delivery ("Incremental Deliveries") when requested by Baxter. For calendar year 1997 Allegiance will be compensated by Baxter for providing such Incremental Deliveries in an amount equal to * * * of the amount, if any, that Baxter invoices to its customers C-14 for such Incremental Deliveries. For 1998 and subsequent calendar years during the Term, the parties will agree in Council prior to the beginning of each year upon Allegiance's compensation for providing such Incremental Deliveries. 2.4.1.4 During calendar year 1997, Allegiance will review with Baxter on a quarterly basis in the Council the operational and financial effects of the terms of this Agreement regarding Incremental Deliveries, and will renegotiate such terms for 1997 if necessary to keep both parties financially whole. Without limiting the foregoing sentence, the parties will renegotiate such terms for 1997 if (a) the total number of Incremental Deliveries of Products increase substantially more rapidly than Agency Net Sales, and (b) Allegiance's costs incurred in providing such Incremental Deliveries (net of freight and net of any reimbursement by Baxter pursuant to Exhibit D, Section 1.5.4), increase substantially. 2.4.1.5 Allegiance shall provide enhanced delivery services (e.g., custom palletization, inside delivery, etc.) that are outside the basic agreements ("Enhanced Delivery"), when requested by Baxter, for compensation to be agreed upon in accordance with Section 2.3.3 of this Exhibit C (Additional Services). 2.4.1.6 Allegiance will ship-verify shipments of Products to customers by private fleet or commercial carriers within one business day. 2.4.2 FREIGHT CLAIMS. Allegiance will pay to Baxter any amounts recovered with respect to freight claims filed on behalf of Baxter within 30 days of receipt, except that (1) Allegiance may set-off against such payments any amounts that it has previously paid to Baxter with respect to the same claim; and (2) during the Interim Period, the provisions of Exhibit F shall control with respect to payment of any amounts recovered with respect to such freight claims for Products shipped to customers under the Interim Distributor Model. 2.4.3 ALLEGIANCE OUTBOUND FREIGHT ADMINISTRATIVE SERVICES. Allegiance shall continue to provide the following administrative services for all outbound freight shipments (i.e., shipments of Products from Allegiance facilities to customers) to the extent such services were normally being provided by Baxter's U.S. Distribution business to Baxter's I.V. Division prior to the effective date of this Agreement: (a) freight payments, (b) audit of freight payments, (c) transportation cost reporting, and (d) logistics analysis/distribution technology to include network planning and replenishment center sourcing, at no additional cost to Baxter. For an additional fee to be agreed upon, Allegiance may agree to provide to Baxter additional outbound freight C-15 services beyond the scope of the services normally being furnished by Baxter's U.S. Distribution business to Baxter's I.V. Division prior to the effective date of this Agreement. 3. DISTRIBUTOR MODEL AND BCS KIT MODEL. 3.1 GENERAL. 3.1.1 Allegiance system receives the Products into its computer system. 3.1.2 Each business day during the Term, Allegiance shall report to Baxter its aggregate sales of Products for the previous business day by code and by customer for Distributor Model transactions and BCS Kits, and such reports shall also include, with respect to Distributor Model transactions, the Suggested Sales Price, Allegiance's actual purchase price of the Products, and sufficient information regarding customer discounts, returns, allowances and all other applicable customer debits and credits to permit Baxter to calculate Distributor Net Sales. 3.1.3 For all transactions under the Distributor Model, Allegiance will provide Baxter each business day with customer Product demand information by product code to support Baxter's finished goods requirements planning. 3.2 CUSTOMER SERVICE. Allegiance shall provide customer service support and order entry as follows for all Products sold under the Distributor Model and the BCS Kits Model: 3.2.1 PRE-SALES SERVICES. Allegiance shall perform the following pre-sales services: 3.2.1.1 PRODUCT/SERVICE SPECIFICATIONS - Allegiance shall forward to Baxter any requests for Product information not available on Allegiance systems. 3.2.1.2 PRICING/CONTRACTING INFORMATION - Allegiance shall develop and maintain contract information for all contracts, and such information shall be accessible to Allegiance via its computer system. 3.2.1.3 PRODUCT AVAILABILITY - Allegiance shall provide fill rate and product availability information from Allegiance and Baxter computer systems to all Allegiance customer service personnel. 3.2.1.4 COMPETITIVE PRODUCT CROSS-REFERENCING - Allegiance shall update information cross-referencing Products and competitive products on a consistent time frame and provide it to its service personnel via Allegiance's computer system. C-16 3.2.1.5 SALES REPRESENTATIVE INFORMATION - Allegiance shall provide Allegiance sales representative identification to the customer. This information will reside in the Allegiance customer master file and be updated as needed. 3.2.1.6 HARDWARE SALES - Specific questions regarding hardware sales should be referred to Baxter's hardware order entry personnel. 3.2.1.7 NEW CUSTOMER SET-UP - Allegiance customer service personnel will ensure effective and efficient coding of all new customers into the customer master files. 3.2.2 ORDER FULFILLMENT/SALES PROCESS. 3.2.2.1 ORDER PLACEMENT - Allegiance customer service personnel will be the initial access point for customer into Allegiance and will handle inquiries and order placement efficiently and effectively. The order entry activity will function on Allegiance's computer system. 3.2.2.2 ORDER TRACKING - Allegiance shall maintain the ability to identify to customers the location of Products in the order process. 3.2.2.3 SPECIAL REQUEST PROCESSING - Allegiance customer service personnel will be required to process special handling requests by customer such as drop shipping, alternate shipping, special handling, lot holding, etc., and will work within contract guidelines and procedural boundaries to service the customer. 3.2.2.4 INVOICING - Allegiance will perform billing for the Products via appropriate computer systems. 3.2.2.5 CUSTOMER SATISFACTION - Allegiance's service personnel are accountable for the customer's satisfaction regarding the service provided. Allegiance will conduct annual surveys of customer satisfaction levels and manage improvement plans. 3.2.3 POST-SALES SERVICE. 3.2.3.1 DISCOUNTS - Allegiance will pass all appropriate sales information to Baxter which will calculate discounts and incentives for all customers. 3.2.3.2 CREDIT AND COLLECTION - Allegiance is responsible for collecting on outstanding invoices. Allegiance shall have the sole authority to issue credits. C-17 3.2.3.3 CREDITS FOR RETURNED GOODS, SHORTAGES, DAMAGES, AND MISDELIVERIES - Allegiance shall be responsible for issuing credits and resolving customer issues relating to returned goods, shortages, damages and misdeliveries. Allegiance shall use commercially reasonable efforts to advise Baxter of all Product-related credits and any other customer resolutions likely to affect Baxter's relationship with the customer. 3.2.3.4 PRICING DISPUTES - Pricing disputes will be handled by Allegiance. 3.2.3.5 BACK ORDER STATUS AND RESOLUTION - Allegiance will be accountable for managing customer communications of back orders to provide accurate and timely information on resolution. Allegiance will communicate appropriate product substitution information to the customer. 3.2.3.6 PRODUCT COMPLAINT - Initial customer Product complaints will be logged by Allegiance customer service. Such complaints may be escalated for resolution. 3.3 PRICING/BILLING. 3.3.1 Allegiance will negotiate the delivered price for the Products. 3.3.2 Allegiance will quote the Allegiance price to the customer in response to market conditions but may quote as its price the Suggested Sales Price, plus any markup or less any markdown it feels is appropriate, including any markup for added services. 3.3.3 Each customer will sign a bid or contract with Allegiance and an addendum or new contract with Baxter that states that such customer has reached agreement with Allegiance on the final price such customer will pay. The customer must comply with the purchase requirements of the bilateral contract with Baxter, and such bilateral contract shall continue to constitute a binding commitment of the customer to Baxter. Shortfall charges and cancellation fees, if any, under such bilateral contract will be calculated using the Suggested Sales Price and will be administered by Baxter. 3.3.4 Allegiance shall process all billing to the customer on its computer system. C-18 AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT EXHIBIT D BAXTER'S DUTIES 1. GENERAL DUTIES UNDER AGENCY MODEL, DISTRIBUTOR MODEL, AND BCS KITS MODEL. 1.1 CORPORATE AGREEMENT BONUS PROGRAM. Baxter shall participate in the Existing Corporate Agreements bonus program as follows: 1.1.1 Baxter shall provide to Allegiance comparable sales and gross profit data as it provided prior to October 1, 1996, for each applicable customer participating in the Existing Corporate Agreements Bonus Program. 1.1.2 Beginning with calendar year 1997, Baxter shall pay to Allegiance Baxter's share of operations and systems expenses required to support the administration of the Existing Corporate Agreements bonus plan based upon Baxter's share of the corporate agreement bonus as a percentage of the total corporate agreement bonus. Notwithstanding the preceding sentence, Baxter's share of such operations and systems expenses shall not exceed * * *. 1.1.3 Baxter may have a representative(s) present when Allegiance presents each bonus check to each customer. 1.2 SALES. 1.2.1 Baxter will use commercially reasonable efforts to monitor critical business indicators in the areas of customer service, materials management, distribution services, pricing/billing and compliance with all specific service requirements set forth in this Exhibit D. Without limitation to the foregoing sentence, Baxter will use commercially reasonable efforts to measure and assess customer satisfaction for Baxter sales processes and sales representatives, to the extent Baxter provides such sales-related functions under this Agreement. Baxter will also use commercially reasonable efforts to measure and assess critical business indicators relating to other customer- related services provided by Baxter under this Agreement (e.g., customer fill rate, pricing accuracy). 1.2.2 Baxter shall participate with Allegiance in a semi-annual review of regional account segmentation, performance to critical business indicators, and regional sales to be conducted between the leaders of their respective regional sales organizations. Allegiance and Baxter will work together in good faith to develop action plans to improve customer satisfaction in D-1 areas that are mutually identified as key factors for customer growth and retention, or areas where Baxter's performance is significantly (statistically defined) below that of its competitors. 1.2.3 COMPETITIVE PRODUCT SUBSTITUTIONS - Baxter shall update competitive product substitution information on a consistent time frame and provide it to Allegiance customer service personnel via Baxter's system. 1.3 MARKETING. Baxter shall use commercially reasonable efforts to market the Products in accordance with the following: 1.3.1 During the Term of this Agreement, Baxter shall continue to devote substantially the same degree of effort to marketing and promoting the Products (such effort to be judged in the aggregate) as it did prior to the effective date of this Agreement. 1.3.2 Baxter shall provide product management services to surgery centers and to Alternate Site Distributors. 1.3.3 Baxter shall provide marketing services to the Long Term/Subacute and Homecare customers. 1.3.4 Baxter shall provide product and service development in the same manner as provided by Baxter prior to the effective date of this Agreement. 1.3.5 Baxter shall maintain its own communications resources and will coordinate communications messages with Allegiance where appropriate. 1.3.6 Baxter shall attempt whenever possible to share with Allegiance expenses for convention fees, industry organizations, and industry databases where appropriate, and convention assets originally purchased by Baxter shall remain Baxter's. 1.3.7 Baxter shall provide sales reports by Product category for inclusion on Allegiance sales reports as provided by Baxter prior to the effective date of this Agreement. 1.4 NATIONAL SAMPLE CENTER. Baxter shall own the Products stocked in the Sample Center. 1.5 MATERIALS MANAGEMENT. Allegiance and Baxter shall use commercially reasonable efforts to make the supply chain as efficient as possible for both parties. Future opportunities to improve efficiency include, but are not limited to, EDI, bar coding, custom palletization, new work channels and the use of returnable totes. Both parties shall work in good faith to achieve this goal. D-2 1.5.1 FINISHED GOODS REQUIREMENTS PLANNING. 1.5.1.1 Baxter manufacturing planning will evaluate all pipeline segments for domestic customers. 1.5.1.2 Baxter will establish appropriate stocking levels for all product codes of Products to meet required customer service commitments. 1.5.1.3 Baxter shall not require Allegiance to carry more than 1995 average Days Inventory On Hand. Stocking levels should be consistent with Baxter's planned turn improvement for the Products. 1.5.1.4 Both parties agree that the echeloning of products based on line item usage generally makes sense. Assuming there are no significant customer contractual issues or financial impacts to Baxter, Baxter agrees to the parameters set forth by the rationalized supply chain. If after the appropriate review there are significant customer contractual issues or financial impacts to Baxter, 1995 will be used as the baseline for where products are stocked and the number of low velocity SKU's will not exceed 1995 levels. 1.5.2 PIPELINE VISIBILITY. Baxter will provide to Allegiance visibility to actual inventory levels for all Baxter segments of the Product pipeline. 1.5.3 INBOUND FREIGHT SHIPMENTS. 1.5.3.1 Baxter will ship all products to appropriate Baxter or Allegiance replenishment centers as directed by the replenishment center sourcing model. 1.5.3.2 Product will move on carriers agreed upon by the parties in the Council. 1.5.3.3 The physical replenishment of Products from replenishment centers to distribution centers will use the following process: (a) variable review, (b) load build, and (c) pick, pack, schedule delivery, load and ship. 1.5.3.4 Baxter will coordinate with Allegiance to schedule receiving appointments for Products shipped to Allegiance facilities from manufacturing facilities and replenishment centers, and in unloading Products. Baxter will provide Bill of Lading (BOL) instructions regarding receipt, where appropriate. 1.5.3.5 Baxter is ultimately responsible for freight charges for shipments of Products from Baxter manufacturing facilities to Baxter or Allegiance D-3 replenishment centers and from Baxter and Allegiance replenishment centers to Allegiance distribution centers. 1.5.4 OUTBOUND SHIPMENT 1.5.4.1 Standard Delivery -- Baxter shall use commercially reasonable efforts to implement Standard Delivery when negotiating new customer agreements or renegotiating expiring customer agreements, with the goal of reducing Allegiance's overall number of Product deliveries and its related delivery costs. Baxter will share with Allegiance the costs and savings associated with Standard Delivery as set forth in Section 6.11 of this Agreement. 1.5.4.2 Premium Delivery -- When Baxter's customers are required to pay for Premium Delivery of Products, Baxter will collect such amounts from the customers and pay the amounts collected to Allegiance on a quarterly basis in accordance with Section 6.11 of this Agreement. Baxter will share with Allegiance the costs and savings associated with Uncollected Premium Delivery Costs as set forth in Section 6.11 of this Agreement. 1.5.4.3 Incremental Deliveries -- For calendar year 1997, Baxter will pay Allegiance an amount equal to * * * of the amount, if any, that Baxter invoices to its customers for Incremental Deliveries of Products. Such payments shall be made on a quarterly basis in accordance with Section 6.11 of this Agreement. For 1998 and subsequent calendar years during the Term, the parties will agree in Council upon Allegiance's compensation for providing such Incremental Deliveries, prior to the beginning of each year. 1.5.4.4 For calendar year 1997, Baxter shall review with Allegiance in the Council on a quarterly basis the operational and financial effects of the terms of this Agreement regarding Incremental Deliveries of Products, and agrees to renegotiate such terms for 1997 if necessary to keep both parties financially whole. Without limiting the preceding sentence, Baxter shall renegotiate such terms with Allegiance if (a) the total number of Incremental Deliveries of Products increase substantially more rapidly than Agency Net Sales, and (b) Allegiance's costs (net of freight) incurred in providing such Incremental Deliveries, net of any payments by Baxter under this Section, increase substantially. 1.5.5 FREIGHT CLAIMS. Baxter will use commercially reasonable efforts to assist Allegiance in carrying out its responsibilities under this Agreement regarding filing freight claims and resolving product shortages and overages, including proof of delivery. D-4 1.5.6 PACKAGING QUALITY AND LOAD BUILD CONFIGURATION. Quality of packaging and load build configuration will conform to uniform distribution standards (E.G., palletized, etc.) as agreed by the parties in the Council. 1.5.7 WAREHOUSE INVENTORY MANAGEMENT. 1.5.7.1 Baxter will specify storage requirements for the Products. 1.5.7.2 Baxter will manage inventory levels for Baxter products within the replenishment centers utilizing the "Compass" inventory system or equivalent system. 1.5.8 CYCLE COUNTS AND PHYSICAL INVENTORIES. 1.5.8.1 Baxter will provide at least 5 days advance notice prior to conducting inventory counts at any Allegiance locations. 1.5.8.2 Baxter shall not audit Allegiance cycle counts more than 90 days after the month in which such cycle count was conducted. 1.5.8.3 For each year during the Term of this Agreement, Baxter shall agree with Allegiance upon the day in October on which the annual physical inventory will take place. 1.5.8.4 To the extent practicable, Baxter and Allegiance shall record any annual physical inventory adjustments into their respective accounting records at the same time. 1.5.8.5 Baxter may audit Allegiance's physical inventory results at any time up to 3 months after the date on which Allegiance records its annual inventory adjustments into its accounting records. 1.5.8.6 Baxter shall be solely responsible for determining (a) the gross variance of the dollar value of the Product inventory on TOPS for each Allegiance facility participating in the physical inventory, and (b) whether each such variance is within the permitted range. 1.6 PRODUCT FCAS. 1.6.1 Baxter shall provide to Allegiance in a format to be agreed upon by the parties all information reasonably required by Allegiance to perform Allegiance's duties in connection with Product FCAs. Such information shall include, D-5 without limitation, product identifiers, reason priority, and any information related to disposition plans. 1.6.2 Baxter shall have sole authority to initiate any FCA. If Baxter is required to initiate an FCA for any Product, Baxter's Vice President of Quality Management (or such person's designee) shall notify Allegiance's Vice President of Quality Management (or such person's designee). 1.6.3 Baxter shall cooperate with Allegiance in performing any FCA by identifying affected Products and customers, developing an action-specific management plan detailing specific responsibilities, and notifying customers of any such action. Baxter and Allegiance shall encourage customers to follow instructions related to any FCA situation. 1.6.4 Baxter shall be solely responsible for all communications with the U.S. Food and Drug Administration in connection with the Products. 1.7 DIVISIONAL BONUS PROGRAM. 1.7.1 Baxter shall be responsible for administering the divisional bonus program. The divisional bonus allocation will be based on actual calendar year-end payments and actual calendar year-end sales to applicable customers. 1.7.2 Baxter shall prepare and present the divisional bonus payments to customers, and Allegiance shall have the right to have Allegiance representatives present at the presentation. 1.7.3 Baxter shall use commercially reasonable efforts to cooperate with Allegiance in the event customers request that divisional bonus payments be made by alternative means, for example, through credits on Allegiance statements of account. 2. AGENCY MODEL AND DIRECT SALES. 2.1 CUSTOMER SERVICE. Baxter shall be responsible for order entry, pricing and invoicing for all Products sold under the Agency Model or sold directly to customers. Beginning January 1, 1997, Baxter shall be responsible for all customer service support for all Products sold under the Agency Model or sold directly to customers. 2.1.1 PRE-SALES SERVICES. Baxter shall perform the following pre- sales services: 2.1.1.1 PRODUCT/SERVICE SPECIFICATIONS - Baxter shall provide Product information as resident on Baxter systems. Additional information shall be provided through D-6 the Product Information Center or as requested by Allegiance Customer Service. (Requests for Product information not available on Allegiance systems shall be forwarded to Baxter customer service). 2.1.1.2 PRODUCT AVAILABILITY - Baxter shall provide fill rate and product availability information to all service personnel and regions, and such information shall reside in Allegiance and Baxter systems. 2.1.2 ORDER FULFILLMENT/SALES PROCESS. 2.1.2.1 ORDER TRACKING - Baxter shall maintain the ability to identify to customers the location of Products in the order process. 2.1.2.2 SPECIAL REQUEST PROCESSING - Baxter customer service personnel will be required to identify special handling requests by customer such as drop shipping, alternate shipping, special handling, lot holding, etc., and will work within contract guidelines and procedural boundaries to service the customer. 2.1.3 POST-SALES SERVICE. 2.1.3.1 CREDIT AND COLLECTION - Baxter is responsible for collecting on outstanding invoices. Baxter shall use commercially reasonable efforts to advise Allegiance of any significant customer credit problems. 2.1.3.2 CREDITS FOR RETURNED GOODS, SHORTAGES, DAMAGES, AND MISDELIVERIES - Baxter shall be responsible for issuing all credits to customers and resolving customer issues relating to returned goods, shortages, damages and misdeliveries. Baxter shall use commercially reasonable efforts to advise Allegiance of any Product-related credits or other customer resolutions likely to affect Allegiance's relationship with the customer. 2.1.3.3 RETURN GOODS MANAGEMENT - In the event of returned Products, a return goods authorization will be issued by Baxter. Baxter shall resolve the returned Products problem (issue credit, deliver substitute, etc.). 2.1.3.4 BACK ORDER STATUS AND RESOLUTION - Baxter will be accountable for managing customer communication of back orders to provide accurate and timely information on resolution. Baxter will communicate appropriate product substitution information to customers. D-7 2.1.3.5 PRODUCT COMPLAINT - Initial customer Product complaints will be logged by Baxter customer service. Such complaints may be escalated for resolution. 2.1.3.6 TECHNICAL SUPPORT - Basic Product -related information as resident on Baxter's computer system will be provided. Additional information including technical letters and clinical information will be provided by Baxter's product information center. 2.1.3.7 TECHNICAL SERVICE, PARTS AND REPAIR - Parts information as provided in Baxter's computer system or Product file will be shared with customer by Baxter customer service. Baxter will also provide, as appropriate, additional transfer or access to specialist. 2.1.4 OTHER ISSUES/SERVICES. 2.1.4.1 TELEMARKETING - Telemarketing can be provided by Allegiance or Baxter as needed for deployment purposes and strategic account management. Fees to be determined as needed. 2.2 PRICING/BILLING. 2.2.1 Pricing will be solely Baxter's responsibility. Baxter will negotiate the delivered product price with the customer. Baxter will submit all requests for bids, bilaterals, quotes, etc., to the customer. 2.2.2 Baxter will contract directly with the customer at a product price which includes Standard Delivery. Should a customer require services in excess of Standard Delivery, Baxter will discuss with Allegiance the method of reimbursing Allegiance for additional delivery services. Baxter will determine the method of charging the customer therefor. 2.2.3 Baxter will bill the customer on its computer system. 2.2.4 When utilizing the dealer management group as an agent to service Alternate Site Distributors and Alternate Acute Care Distributors: 2.2.4.1 Baxter will set pricing including guidelines for the Allegiance dealer management group for pricing to Alternate Site Distributors and Alternate Acute Care Distributors; 2.2.4.2 Baxter will work with the customer to obtain the appropriate two-party contract signed between the customer and Baxter to adjust Baxter's obligations under any existing bilateral agreement; D-8 2.2.4.3 Baxter will be responsible for determining all pricing and contract terms for a Baxter agreement with a Alternate Site Distributor or an Alternate Acute Care Distributor. 2.2.5 Baxter will set the price including guidelines for the Allegiance surgery center sales force when such sales force solicits orders from surgery centers, and Baxter will process all billing relating to surgery center customers on Baxter's computer system. D-9 3. DISTRIBUTOR MODEL. 3.1 If a customer approaches Baxter rather than Allegiance in connection with a Distributor Model transaction, Baxter will advise the customer that the customer must obtain the delivered price from Allegiance, and Baxter will advise Allegiance of the Suggested Sales Price. Baxter may inform the customer that it will provide a Suggested Sales Price to Allegiance, and Allegiance could use the Suggested Sales Price as a starting point. Nevertheless, Allegiance shall have the sole right to set the delivered price. 3.2 Baxter will transfer to Allegiance's computer system all inventory level information related to the Products. 3.3 Baxter will cooperate with Allegiance in developing and implementing Allegiance's proposed vendor managed inventory ("VMI")system. 3.4 Baxter will administer customer contracts on its computer system including, without limitation, account number set-up, ship-to/sold-to information, licensing information and ongoing customer contract maintenance. 3.5 Baxter will transfer to Allegiance's computer system the Suggested Sales Price related to the Products. D-10 AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT EXHIBIT E SUPPLIER SCOREBOARD See attached. E-1 AGENCY, SERVICES AND DISTRIBUTION AGREEMENT EXHIBIT F INTERIM DISTRIBUTOR MODEL 1. GENERAL PROVISIONS. 1.1 All transactions under the Distributor Model during the Interim Period will follow the Interim Distributor Model set forth in this Exhibit F. 1.2 Except as expressly stated in or necessarily implied by this Exhibit F, all provisions of the body of this Agreement having general applicability, and all provisions specifically relating to the Distributor Model, shall also apply to the Interim Distributor Model set forth in this Exhibit F. 1.3 Allegiance will use commercially reasonable efforts, and Baxter will cooperate with Allegiance to install all necessary systems and make all other necessary preparations to permit terminating the Interim Distributor Model and implementing the Distributor Model as set forth in the main text of this Agreement as soon as possible, but in no event later than September 30, 1997. 2. INTERIM DISTRIBUTOR MODEL. Notwithstanding Section 3.3 of this Agreement, for all transactions under the Interim Distributor Model: Allegiance shall maintain the principal contractual relationship with the customer for sales, sales support, customer invoicing, accounts receivable, and customer service in connection with the supply of the Products under the Interim Distributor Model. Such Interim Distributor Model shall apply to the provision by Allegiance of Kits (except BCS Kits), Cost Management, ValueLink, and other services consolidated on an Allegiance invoice for Products and, in some instances Allegiance products (as required by the customer). Baxter shall use reasonable efforts to cooperate with Allegiance and to facilitate Allegiance's fulfillment of its obligations hereunder. Baxter shall sell the Products to Allegiance at a price generally applicable to all of Baxter's distributors of the Products (the "Distributor List Price"). Baxter shall not change its Distributor List Price for any Product more frequently than once per calendar year. Baxter shall provide to Allegiance a Suggested Sales Price for the Products; provided, however, that Allegiance shall have the sole right and responsibility for negotiating and contracting with each customer the delivered price of the Products. If the customer has a then-current F-1 contract with Baxter for such Products, the Suggested Sales Price shall be the then-current contract price. If Baxter has an agreement with any customer for Baxter's provision of Products to such customer and such customer subsequently requests (a) Kits (except BCS Kits), and/or (b) Cost Management, ValueLink, and other services consolidated on an Allegiance invoice for such Products and, in some instances, Allegiance products, then all such Interim Distributor Model sales of Products to such customer shall apply to any minimum purchase commitments or quantity discounts contained in Baxter's agreement with such customer. For all Products sold under the Interim Distributor Model, Allegiance will deduct from its purchase payments to Baxter an amount equal to the amount, if any, by which the Distributor List Price exceeds the Suggested Sales Price (the "Vendor Rebate"). Such Vendor Rebate shall be in addition to the service fee and other payments set forth in Section 6 of this Agreement. 3. INVOICING AND PAYMENTS FOR INTERIM DISTRIBUTOR MODEL. Notwithstanding any contrary provisions of Section 8 of this Agreement: 3.1 On or before the fifth business day of each calendar month during the Interim Period, Baxter shall provide to Allegiance a service fee report in a format to be agreed upon, showing the service fees payable for Products sold under the Interim Distributor Model during the previous month. On or before the second business day of each month during the Interim Period, Allegiance shall report to Baxter its aggregate sales and returns of Products for the preceding month by code and by customer for Interim Distributor Model transactions, and such reports shall also include the Suggested Sales Price, the Distributor List Price, and the applicable Vendor Rebate for such Products. 3.2 Allegiance shall pay Baxter for its aggregate purchases of Products under the Interim Distributor Model, net 60 days from the date of Baxter's invoice to Allegiance. Allegiance may deduct from such purchase payments to Baxter any Vendor Rebates then owed to Allegiance by Baxter. 3.3 Baxter shall pay Allegiance any applicable service fees in connection with sales of Products under the Interim Distributor Model on the fifteenth day of the month following the month in which such sales are reported. 3.4 Notwithstanding the foregoing provisions of this Section 3 of Exhibit F, Allegiance's payment for Products transferred by Baxter to Allegiance prior to October 1, 1996 shall occur on November 15, 1996. 4. TRANSFER OF TITLE AND RISK OF LOSS UNDER THE INTERIM DISTRIBUTOR MODEL. F-2 4.1 Notwithstanding Section 13 of this Agreement, title and risk of loss with respect to Products to be sold pursuant to the Interim Distributor Model shall pass from Baxter to Allegiance at the time Allegiance receives the Products in Allegiance's computer systems. 4.2 Notwithstanding Section 4.1 of this Exhibit F and Sections 6.17 and 6.18 of this Agreement, if any Products purchased by Allegiance under the Interim Distributor Model are damaged, lost or stolen while in an Allegiance replenishment center or distribution center - (1) Baxter will issue a credit memo to Allegiance for such damaged, lost or stolen Products at Baxter's applicable Distributor List Price, and (2) Baxter will invoice Allegiance monthly for such damaged, lost or stolen Products (but not carton failure) at its applicable standard cost as stated in Baxter's inventory valuation reports. 4.3 Notwithstanding Section 1.6.7.2 of Exhibit C of the Agreement, during the Interim Period, Allegiance rather than Baxter shall have the right to any amounts recovered with respect to freight claims for Products shipped from Allegiance facilities to customers under the Interim Distributor Model. 5. TERMINATION OF INTERIM DISTRIBUTOR MODEL. 5.1 On the date agreed upon for termination of the Interim Distributor Model and the transition to the Distributor Model, but no later than September 30, 1997, Baxter will purchase from Allegiance all Products then in Allegiance's inventory at Baxter's Distributor List Price. Baxter will issue Allegiance a credit memorandum reflecting such purchase within 30 days after receipt of Allegiance's invoice for such inventory. Baxter and Allegiance will cooperate with each other in providing any inventory reports or conducting any audits in connection with such transition. 5.2 Once the parties have made the transition to the Distributor Model as contemplated in Section 1.2 of this Exhibit F, the provisions of this Exhibit F relating to the Interim Distributor Model shall have no further effect, except that both parties shall have the right to receive any amounts owed under the Interim Distributor Model. F-3 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONDENSED COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 13 0 506 28 641 1,256 1,541 683 3,300 531 0 0 0 55 1,372 3,300 3,295 3,295 2,610 3,104 (5) 2 0 191 73 118 0 0 0 118 0 0 GROSS INFORMATION NOT APPLICABLE FOR PERIODS PRESENTED
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