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Proc-Type: 2001,MIC-CLEAR
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE |
For the fiscal quarter ended March 31, 2001 |
OR
[ |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the transition period from ________________ to ________________ |
Commission file number 1-5110
BERGEN BRUNSWIG CORPORATION |
(Exact name of registrant as specified in its charter) |
New Jersey |
22-1444512 |
(State or other jurisdiction of |
(I.R.S. Employer |
4000 Metropolitan Drive, Orange, California |
92868-3510 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code |
(714) 385-4000 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Title of each class of |
Number of Shares Outstanding |
|
Class A Common Stock - |
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par value $1.50 per share |
135,251,990 |
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BERGEN BRUNSWIG CORPORATION
INDEX
Page No. |
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Part I. |
Financial Information |
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Item 1. |
Financial Statements |
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3 |
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5 |
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6 |
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7 |
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Item 2. |
19 |
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Item 3. |
31 |
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Part II. |
Other Information |
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Item 1. |
32 |
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Item 4. |
37 |
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Item 6. |
38 |
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39 |
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40 |
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PART I. FINANCIAL INFORMATION | |||||||||
ITEM 1. FINANCIAL STATEMENTS | |||||||||
BERGEN BRUNSWIG CORPORATION | |||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||
MARCH 31, 2001 AND SEPTEMBER 30, 2000 | |||||||||
(dollars in thousands) | |||||||||
(Unaudited) | |||||||||
|
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March 31, | September 30, | ||||||||
- - ASSETS - - | 2001 | 2000 | |||||||
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CURRENT ASSETS: | |||||||||
Cash and cash equivalents ...................................................... | $ | 57,510 | $ | 94,032 | |||||
Accounts and notes receivable, less allowance | |||||||||
for doubtful receivables: $148,912 at March 31, | |||||||||
2001 and $183,373 at September 30, 2000 .............................. | 1,180,008 | 1,232,300 | |||||||
Inventories ............................................................................... | 2,805,890 | 2,067,335 | |||||||
Income taxes receivable ........................................................... | 16,293 | 72,189 | |||||||
Deferred income taxes .............................................................. | 12,783 | 29,887 | |||||||
Prepaid expenses .................................................................... | 19,256 | 21,783 | |||||||
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Total current assets ............................................................ | 4,091,740 | 3,517,526 | |||||||
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PROPERTY - at cost: | |||||||||
Land ...................................................................................... | 17,058 | 17,210 | |||||||
Buildings and leasehold improvements ...................................... | 115,803 | 115,644 | |||||||
Equipment and fixtures ............................................................ | 227,034 | 225,745 | |||||||
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Total property .................................................................... | 359,895 | 358,599 | |||||||
Less accumulated depreciation and amortization ....................... | 162,388 | 150,091 | |||||||
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Property - net .................................................................... | 197,507 | 208,508 | |||||||
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OTHER ASSETS: | |||||||||
Goodwill - net ......................................................................... | 667,947 | 658,640 | |||||||
Investments ........................................................................... | 8,046 | 18,179 | |||||||
Noncurrent receivables ............................................................ | 15,190 | 16,293 | |||||||
Deferred income taxes ............................................................ | 21,445 | 25,153 | |||||||
Deferred charges and other assets ........................................... | 120,152 | 127,125 | |||||||
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Total other assets ............................................................. | 832,780 | 845,390 | |||||||
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TOTAL ASSETS ....................................................................... | $ | 5,122,027 | $ | 4,571,424 | |||||
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See accompanying Notes to Consolidated Financial Statements. | |||||||||
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BERGEN BRUNSWIG CORPORATION | |||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||
MARCH 31, 2001 AND SEPTEMBER 30, 2000 | |||||||||
(dollars in thousands) | |||||||||
(Unaudited) | |||||||||
|
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March 31, | September 30, | ||||||||
- - LIABILITIES AND SHAREOWNERS' EQUITY - - | 2001 | 2000 | |||||||
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CURRENT LIABILITIES: | |||||||||
Accounts payable .................................................................... | $ | 2,592,629 | $ | 2,017,130 | |||||
Accrued liabilities .................................................................... | 231,749 | 249,712 | |||||||
Customer credit balances ........................................................ | 108,490 | 161,420 | |||||||
Current portion of long-term debt ............................................... | 41,741 | 22,364 | |||||||
Current portion of other long-term obligations ............................. | 1,257 | 1,388 | |||||||
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Total current liabilities ........................................................ | 2,975,866 | 2,452,014 | |||||||
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Long-term debt, net of current portion ......................................... | 1,046,789 | 1,067,282 | |||||||
Other long-term obligations, net of current portion ........................ | 25,804 | 28,879 | |||||||
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Total long-term obligations ................................................. | 1,072,593 | 1,096,161 | |||||||
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COMPANY-OBLIGATED MANDATORILY REDEEMABLE | |||||||||
PREFERRED SECURITIES OF SUBSIDIARY TRUST | |||||||||
HOLDING SOLELY DEBT SECURITIES OF THE COMPANY ....... | 300,000 | 300,000 | |||||||
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SHAREOWNERS' EQUITY: | |||||||||
Capital stock: | |||||||||
Preferred - authorized: 3,000,000 shares; issued: none .......... | - | - | |||||||
Class A Common - authorized: 300,000,000 shares; | |||||||||
issued: 138,337,035 shares at March 31, 2001 | |||||||||
and 137,899,552 shares at September 30, 2000 .................... | 207,506 | 206,849 | |||||||
Paid-in capital ....................................................................... | 824,126 | 821,354 | |||||||
Accumulated other comprehensive income .............................. | 15 | 13 | |||||||
Accumulated deficit ............................................................... | (232,922 | ) | (279,754 | ) | |||||
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Total ............................................................................... | 798,725 | 748,462 | |||||||
Treasury shares at cost: 3,103,376 shares at March 31, 2001 | |||||||||
and 3,110,673 shares at September 30, 2000 ....................... | (25,157 | ) | (25,213 | ) | |||||
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Total shareowners' equity ................................................. | 773,568 | 723,249 | |||||||
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TOTAL LIABILITIES AND SHAREOWNERS' EQUITY ................. | $ | 5,122,027 | $ | 4,571,424 | |||||
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See accompanying Notes to Consolidated Financial Statements. | |||||||||
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BERGEN BRUNSWIG CORPORATION | |||||||||||||||
STATEMENTS OF CONSOLIDATED EARNINGS | |||||||||||||||
FOR THE THREE MONTHS AND SIX MONTHS ENDED | |||||||||||||||
MARCH 31, 2001 AND 2000 | |||||||||||||||
(in thousands except per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
THREE MONTHS | SIX MONTHS | ||||||||||||||
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2001 | 2000 | 2001 | 2000 | ||||||||||||
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Consolidated earnings: | |||||||||||||||
Net sales and other revenues: | |||||||||||||||
Excluding bulk shipments to | |||||||||||||||
customers' warehouses | $ | 4,987,291 | $ | 4,572,727 | $ | 9,764,074 | $ | 9,082,825 | |||||||
Bulk shipments to customers' | |||||||||||||||
warehouses | 914,655 | 1,000,778 | 1,989,826 | 2,116,036 | |||||||||||
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Total net sales and other revenues | 5,901,946 | 5,573,505 | 11,753,900 | 11,198,861 | |||||||||||
Cost of sales | 5,573,080 | 5,257,797 | 11,120,219 | 10,583,643 | |||||||||||
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Gross profit | 328,866 | 315,708 | 633,681 | 615,218 | |||||||||||
Distribution, selling, general | |||||||||||||||
and administrative expenses | 237,518 | 238,831 | 468,030 | 471,472 | |||||||||||
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Operating earnings from continuing operations | 91,348 | 76,877 | 165,651 | 143,746 | |||||||||||
Net interest expense | 37,242 | 24,219 | 69,134 | 48,653 | |||||||||||
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Earnings from continuing operations before | |||||||||||||||
taxes on income and distributions on | |||||||||||||||
preferred securities of subsidiary trust | 54,106 | 52,658 | 96,517 | 95,093 | |||||||||||
Taxes on income from continuing operations | 22,412 | 25,420 | 39,932 | 43,445 | |||||||||||
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Earnings before distributions on preferred | |||||||||||||||
securities of subsidiary trust | 31,694 | 27,238 | 56,585 | 51,648 | |||||||||||
Distributions on preferred securities of | |||||||||||||||
subsidiary trust, net of income tax benefit | (3,513 | ) | (3,513 | ) | (7,052 | ) | (7,052 | ) | |||||||
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Earnings from continuing operations | 28,181 | 23,725 | 49,533 | 44,596 | |||||||||||
Loss from discontinued operations, | |||||||||||||||
net of income tax benefit | - | (6,431 | ) | - | (12,651 | ) | |||||||||
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Net earnings | $ | 28,181 | $ | 17,294 | $ | 49,533 | $ | 31,945 | |||||||
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Basic and diluted earnings (loss) per share: | |||||||||||||||
Basic: | |||||||||||||||
Continuing operations | $ | .21 | $ | .18 | $ | .37 | $ | .33 | |||||||
Loss from discontinued operations | - | (.05 | ) | - | (.09 | ) | |||||||||
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Net earnings | $ | .21 | $ | .13 | $ | .37 | $ | .24 | |||||||
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Diluted: | |||||||||||||||
Continuing operations | $ | .21 | $ | .18 | $ | .36 | $ | .33 | |||||||
Loss from discontinued operations | - | (.05 | ) | - | (.09 | ) | |||||||||
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Net earnings | $ | .21 | $ | .13 | $ | .36 | $ | .24 | |||||||
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Weighted average number of | |||||||||||||||
shares outstanding: | |||||||||||||||
Basic | 135,200 | 134,498 | 135,067 | 134,372 | |||||||||||
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Diluted | 137,006 | 134,594 | 136,573 | 134,476 | |||||||||||
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Cash dividends declared per share of | |||||||||||||||
Class A Common Stock | $ | 0.010 | $ | 0.075 | $ | 0.020 | $ | 0.150 | |||||||
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See accompanying Notes to Consolidated Financial Statements. | |||||||||||||||
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BERGEN BRUNSWIG CORPORATION | ||||||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | ||||||||||
FOR THE SIX MONTHS ENDED | ||||||||||
MARCH 31, 2001 AND 2000 | ||||||||||
(in thousands) | ||||||||||
(Unaudited) | ||||||||||
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2001 | 2000 | |||||||||
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Operating Activities | ||||||||||
Earnings from continuing operations | $ | 49,533 | $ | 44,596 | ||||||
Adjustments to reconcile earnings from continuing | ||||||||||
operations to net cash flows from operating activities: | ||||||||||
Provision for doubtful receivables | 24,834 | 28,871 | ||||||||
Depreciation and amortization of property | 22,631 | 22,801 | ||||||||
Loss on dispositions of property | 1,458 | 25 | ||||||||
Amortization of intangible assets | 11,549 | 18,586 | ||||||||
Amortization of debt financing costs | 5,415 | 5,264 | ||||||||
Deferred compensation | 2,927 | 2,701 | ||||||||
Deferred income taxes | 20,811 | 4,017 | ||||||||
Effects of changes on: | ||||||||||
Receivables | (103,437 | ) | (139,654 | ) | ||||||
Inventories | (738,555 | ) | (422,919 | ) | ||||||
Income taxes receivable | 55,896 | 28,507 | ||||||||
Prepaid expenses and other assets | 2,346 | (7,691 | ) | |||||||
Accounts payable | 575,499 | 434,984 | ||||||||
Accrued liabilities | (413 | ) | 22,612 | |||||||
Customer credit balances | (52,930 | ) | (2,644 | ) | ||||||
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Net cash flows from operating activities | (122,436 | ) | 40,056 | |||||||
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Investing Activities | ||||||||||
Property acquisitions | (14,188 | ) | (52,629 | ) | ||||||
Net proceeds from sale of accounts receivable | 131,998 | 259,998 | ||||||||
Other | (7,809 | ) | (8,070 | ) | ||||||
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Net cash flows from investing activities | 110,001 | 199,299 | ||||||||
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Financing Activities | ||||||||||
Net revolving unsecured bank loan activity | - | 412,483 | ||||||||
Net commercial paper activity | - | (692,891 | ) | |||||||
Repayment of secured bank term loan | (479 | ) | - | |||||||
Reduction of other obligations | (6,842 | ) | (11,030 | ) | ||||||
Distributions paid on trust preferred securities | (17,550 | ) | (11,700 | ) | ||||||
Shareowners' equity transactions: | ||||||||||
Exercise of stock options and issuance of restricted shares | 3,205 | 860 | ||||||||
Employee stock purchase plan | 280 | 1,288 | ||||||||
Cash dividends paid on Common Stock | (2,701 | ) | (20,153 | ) | ||||||
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Net cash flows from financing activities | (24,087 | ) | (321,143 | ) | ||||||
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Discontinued operations | - | (20,437 | ) | |||||||
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Net decrease in cash and cash equivalents | (36,522 | ) | (102,225 | ) | ||||||
Cash and cash equivalents at beginning of period | 94,032 | 116,356 | ||||||||
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Cash and cash equivalents at end of period | $ | 57,510 | $ | 14,131 | ||||||
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Supplemental Cash Flow Disclosures: | ||||||||||
Cash paid (received) during the period for: | ||||||||||
Interest and distributions of trust preferred securities | $ | 81,785 | $ | 54,641 | ||||||
Income taxes - net (refunds) payments | (46,668 | ) | 11,762 | |||||||
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See accompanying Notes to Consolidated Financial Statements. | ||||||||||
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BERGEN BRUNSWIG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. |
Basis Of Presentation |
Bergen Brunswig Corporation, a New Jersey corporation formed in 1956, and its subsidiaries (collectively, the "Company") is a diversified drug and healthcare distribution organization. The Company is one of the nation
' s largest wholesalers of pharmaceuticals and specialty healthcare products to the managed care and retail pharmacy markets, and also distributes pharmaceuticals to long-term care and workers' compensation patients. The Company provides product distribution, logistics, pharmacy management programs, consulting services, and Internet fulfillment services designed to reduce costs and improve patient outcomes.The consolidated financial statements include the accounts of the Company, after elimination of the effect of intercompany transactions and balances.
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for reporting on Form 10-Q and do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. Certain reclassifications have been made in the 2000 consolidated financial statements and notes to conform to fiscal 2001 presentations.
The preparation of the Company's consolidated financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reporting periods. Actual results could differ from these estimates and assumptions.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary for a fair statement of the results of the Company and its subsidiaries for the periods shown and such adjustments are of a normal recurring nature. Results of operations for the first six months of fiscal 2001 are not necessarily indicative of results to be expected for the full fiscal year or any other fiscal period.
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2. |
Discontinued Operations |
On June 26, 2000, the Company announced that it had entered into a definitive agreement to sell the stock of Bergen Brunswig Medical Corporation ("BBMC") to Allegiance Corporation, a subsidiary of Cardinal Health, Inc., for approximately $181 million in cash before retention of certain liabilities and subject to post-closing accounting adjustments which the Company does not believe will have a material effect on its Consolidated Financial Statements. The regulatory approvals and other closing conditions were satisfied during the fourth quarter of fiscal 2000, and the sale was consummated on August 16, 2000. During the fourth quarter of fiscal 2000, the net proceeds from this divestiture were used to pay down a portion of the $200 million Interim Term Loan maturing in October 2001 as required under the Senior Credit Agreement (See Note 8).
On July 5, 2000, the Company announced that it had entered into a definitive agreement to sell the specialty pharmacy assets of Stadtlander Operating Company, LLC ("Stadtlander") to ProCare Pharmacy, Inc., a subsidiary of CVS Corporation, for approximately $124 million in cash before retention of certain liabilities and subject to post-closing accounting adjustments, which the Company does not believe will have a material effect on its Consolidated Financial Statements. The transaction was structured as a sale of assets and was consummated on September 18, 2000. In addition, certain assets of the corrections division of Stadtlander, that portion of the business that provides pharmaceuticals to prison inmate populations, were sold to Secure Pharmacy Plus, Inc. for approximately $8 million in a cash transaction that was consummated on September 20, 2000. During the fourth quarter of fiscal 2000, the net proceeds from the divestitures of the two Stadtlander businesses were used to pay off the remaining portion of the $200 million Interim Term Loan and a portion of other debt as required under the Senior Credit Agreement. The Company expects to receive approximately $132 million of income tax benefits during fiscal 2001 and 2002 in connection with the losses recorded on the Stadtlander divestitures. Approximately $65 million of such benefits were received during the six months ended March 31, 2001.
The Company purchased Stadtlander from Counsel Corporation ("Counsel") on January 21, 1999, and is in disagreement with Counsel and Counsel's independent auditors regarding the valuation of the net assets of Stadtlander at that date. Notwithstanding the sale of the two Stadtlander businesses, the Company did not assign to the purchasers of the assets its claims against Counsel. Any amounts realized from Counsel would be recorded as an adjustment to the Company's purchase price. See Part II, Item 1, "Legal Proceedings" of this Quarterly Report and Part I, Item 3, Section 2 of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 as filed with the SEC.
The Company is in process of negotiating the final disposition price adjustments with the respective buyers of BBMC and Stadtlander and expects a resolution by the end of fiscal 2001.
The Company recognized a loss on the dispositions of BBMC and Stadtlander of approximately $251 million, net of income tax benefits of approximately $132 million, in the quarter ended June 30, 2000. Substantially all of the loss was related to the non-cash write-off of goodwill. Also included in the loss on dispositions were the operating losses of BBMC and Stadtlander, including interest expense allocations, from July 1, 2000 through the transaction closing dates.
The Company has reclassified both BBMC (formerly the principal component of the Other Businesses segment) and the Stadtlander business segment as discontinued operations for the three and six-month periods ended March 31, 2000 in the accompanying Statements of Consolidated Earnings.
The loss from discontinued operations for the three and six months ended March 31, 2000 includes interest expense allocated based on the expected cash proceeds from the sale of the two businesses and the average bank interest rates incurred during the period, and is detailed as follows:
In thousands |
Three |
Six |
|||||
|
|||||||
Net sales and other revenues |
$ |
289,391 |
$ |
592,996 |
|||
Cost of sales |
230,733 |
479,361 |
|||||
|
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Gross profit |
58,658 |
113,635 |
|||||
Distribution, selling, general |
|||||||
and administrative expenses |
63,581 |
123,788 |
|||||
|
|||||||
Operating earnings (loss) |
(4,923 |
) |
(10,153 |
) |
|||
Net interest expense |
5,694 |
10,603 |
|||||
|
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Loss before income tax benefit |
(10,617 |
) |
(20,756 |
) |
|||
Income tax benefit |
(4,186 |
) |
(8,105 |
) |
|||
|
|||||||
Loss from operations |
$ |
(6,431 |
) |
$ |
(12,651 |
) |
|
|
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3. |
Comprehensive Income |
The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in financial statements. This statement defines comprehensive income as all changes in equity during a period from non-owner sources. The Company has no material differences between net earnings and comprehensive income. Therefore, statements of comprehensive income have not been presented.
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4. |
Impairment of Goodwill and Other Long-Lived Assets |
The Company assesses the recoverability of goodwill using a fair value approach, based on discounted future operating cash flows, considering sales and operating earnings trends and other operating factors. In the fourth quarter of fiscal 2000, the Company's PharMerica, Inc. subsidiary ("PharMerica") recorded a $505.3 million impairment charge to write down the amount of recorded goodwill to its fair value.
The Company assesses the impairment of long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows are not sufficient to recover the assets' carrying amounts. An impairment loss is measured by comparing the asset's carrying amount to its fair value, generally using a discounted cash flow analysis.
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5. |
Revenue Recognition |
The Company records revenues when product is shipped and title passes, or services are provided to its customers. Along with other companies in the drug distribution industry, the Company reports as revenues the gross dollar amount of bulk shipments to customers' warehouses and the related costs in cost of sales. Bulk shipment transactions are arranged by the Company with its suppliers at the express direction of the customer, and involve either shipments from the supplier directly to customers' warehouse sites or shipments from the supplier to Company warehouses for immediate shipment to customers' warehouse sites. Gross profit earned by the Company on bulk shipments was not material in any period presented.
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6. |
Accounting Pronouncements |
Effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS 133 was later amended by SFAS No. 137 and SFAS No. 138. This standard requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The adoption of this standard has not had a material effect on the Company's consolidated financial position, results of operations or cash flows.
In December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will be required to adopt SAB 101 in the fourth quarter of fiscal year 2001. The Company does not believe that the adoption of SAB 101 will have a material effect on its consolidated financial position, results of operations or cash flows.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"), a replacement of SFAS No. 125 which has the same title. SFAS 140 revises the standards for securitizations and other transfers of financial assets and expands the disclosure requirements for such transactions, but it carries over most of SFAS No. 125's provisions without change. Under SFAS 140, consistent standards are provided for distinguishing financial asset transfers which are sales from financial asset transfers which are secured borrowings. The provisions of SFAS 140 are effective for transfers of financial assets and extinguishments of liabilities occurring after March 31, 2001, and are to be applied prospectively. Management does not believe that it will change the Company's treatment of financial asset transfers under its Receivables Securitization program, which are accounted for as sales, or have any material effect on the Company's consolidated financial position, results of operations or cash flows. It is expected that any effect will generally be limited to the form and content of the related financial statement disclosures.
In September 2000, the FASB's Emerging Issues Task Force released its discussion on EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". EITF No. 00-10 sets forth guidance on how a seller of goods should classify in the income statement (a) amounts billed to a customer for shipping and handling and (b) costs incurred for shipping and handling. The consensus guidance must be adopted by the fourth quarter of the Company's fiscal year 2001. Management is in the process of evaluating this standard, but believes that any effect will generally be limited to the form and content of its financial statement disclosures.
[ |
] |
|| |
[ |
] |
7. |
Accounts Receivable Securitization |
On December 20, 2000, the Company replaced its Receivables Securitization program by entering into a new Receivables Securitization agreement with a financial institution. The new agreement, which has a five-year term, provides for a longer commitment by the financial institution than did the prior agreement, which had a one-year term. In addition, the new agreement is designed to give the Company additional availability, improved pricing and more flexibility in the timing of receivable sales. Availability is subject to specified percentages of eligible receivables, as defined in the agreement. The initial maximum availability under the program is $350 million, but the Company has the option to increase the maximum up to $450 million upon payment of an additional fee. If the Company increases the maximum availability above $358 million, the Company will make a corresponding reduction in maximum availability of bank borrowings pursuant to the terms of the Senior Credit Agreement (see Note 8).
Through the new Receivables Securitization program, Bergen Brunswig Drug Company ("BBDC") sells, on an ongoing basis, its accounts receivable to Blue Hill
II ("Blue Hill"), a 100%-owned special purpose subsidiary. Blue Hill, in turn, sells an undivided percentage ownership interest in such receivables to various investors. The program qualifies for treatment as a sale of assets under SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Sales are recorded at the estimated fair value of the receivables sold, reflecting discounts for the time value of money based on specified interest rates and estimated credit losses; the weighted average rate for the program was approximately 5.95% at March 31, 2001.As of March 31, 2001 and September 30, 2000, the Company had outstanding net proceeds of $300.0 million and $168.0 million, respectively, from the sale of such receivables under the Receivables Securitization program, and accounts receivable has been reduced by these amounts in the accompanying Consolidated Balance Sheets. After the maximum limit of receivables sold has been reached and as sold receivables are collected, additional receivables may be sold up to the maximum amount available under the program. Aggregate discount and fees of approximately $5.7 million and $4.5 million for the three-month periods ended March 31, 2001 and 2000, and $10.9 million and $5.0 million for the six-month periods, respectively, on the sold receivables are included in net interest expense in the accompanying Statements of Consolidated Earnings.
[ |
] |
|| |
[ |
] |
|
8. |
Long-Term Debt |
Long-term debt at March 31, 2001 and September 30, 2000 consisted of the following:
March 31, |
September 30, |
||||||||||||||
Dollars in thousands |
2001 |
2000 |
|||||||||||||
|
|||||||||||||||
7 3/8% senior notes due 2003 |
$ |
149,799 |
$ |
149,744 |
|||||||||||
7 1/4% senior notes due 2005 |
99,854 |
99,837 |
|||||||||||||
8 3/8% senior subordinated notes due 2008 |
308,119 |
308,119 |
|||||||||||||
Revolving credit facilities averaging |
|||||||||||||||
5.56% and 7.12%, respectively |
55,000 |
55,000 |
|||||||||||||
Term loan due 2005, at 8.27% and |
|||||||||||||||
9.21%, respectively |
254,637 |
254,637 |
|||||||||||||
Term loan due 2006, at 9.81% and |
|||||||||||||||
10.03%, respectively |
190,448 |
190,927 |
|||||||||||||
7% convertible subordinated |
|||||||||||||||
debentures due 2006 |
20,609 |
20,609 |
|||||||||||||
6 7/8% exchangeable subordinated |
|||||||||||||||
debentures due 2011 |
8,425 |
8,425 |
|||||||||||||
Other |
1,639 |
2,348 |
|||||||||||||
|
|||||||||||||||
Total |
1,088,530 |
1,089,646 |
|||||||||||||
Less current portion (see below) |
41,741 |
22,364 |
|||||||||||||
|
|||||||||||||||
Total |
$ |
1,046,789 |
$ |
1,067,282 |
|||||||||||
|
The Company's $1.5 billion Senior Credit Agreement originally consisted of an $800 million revolving facility maturing in April 2003, a $200 million interim term loan maturing in October 2001 ("Interim Term Loan"), a $300 million term loan maturing in March 2005 ("Term A Loan") and a $200 million term loan maturing in March 2006 ("Term B Loan"). In August and September 2000, the Company used the proceeds of the BBMC and Stadtlander dispositions to fully repay the Interim Term Loan and to repay an aggregate $54 million of the Term A and Term B Loans. Borrowings under the Senior Credit Agreement are secured by substantially all of the Company's assets. The availability of revolving loans under the Senior Credit Agreement is tied to a borrowing base formula and certain covenants; the maximum amount of revolving loans outstanding may not exceed specified percentages of the Company's eligible accounts receivable and eligible inventory. There were no outstanding revolving loans at March 31, 2001 and September 30, 2000. Interest accrues at specified rates based on the Company's debt ratings; such rates range from 2.5% to 3.5% over LIBOR or 1.5% to 2.5% over prime, with a weighted average rate of approximately 8.93% at March 31, 2001. The Company pays monthly commitment fees to maintain the availability of revolving loans under the Senior Credit Agreement. The Senior Credit Agreement has loan covenants which require the Company to maintain certain financial statement ratios and places certain limitations on, among other things, acquisitions, investments, methods of operation, dividend payments and capital expenditures. Effective September 29, 2000, the Senior Credit Agreement was amended to exclude the effect of certain special items recorded by the Company in the fourth quarter of fiscal 2000 from the calculation of the required ratios and covenants.
One of the Company's subsidiaries has a $55 million bank revolving credit facility which expires on May 20, 2001. Borrowings under the facility bear interest at 0.5% above LIBOR and are secured by a standby letter of credit under the Senior Credit Agreement for which the Company incurs a fee of 2.75%.
Aggregate borrowings under the Senior Credit Agreement and other revolving credit facilities amounted to approximately $500 million and $501 million at March 31, 2001 and September 30, 2000, respectively. An aggregate of $41 million of such outstanding borrowings at March 31, 2001 has been classified in the current portion of long-term debt based on the scheduled future repayments within the next year as required under the Senior Credit Agreement.
[ |
] |
|| |
[ |
] |
9. |
Preferred Securities of Trust |
In May 1999, Bergen Capital
I (the "Trust"), a wholly-owned subsidiary trust of the Company, issued 12,000,000 shares of 7.80% Trust Originated Preferred Securities (SM) (TOPrS(SM)) (the "Preferred Securities") at $25 per security. The proceeds of such issuances were invested by the Trust in $300 million aggregate principal amount of the Company's 7.80% Subordinated Deferrable Interest Notes due June 30, 2039 (the "Subordinated Notes"). The Subordinated Notes represent the sole assets of the Trust and bear interest at the annual rate of 7.80% per annum, payable quarterly, and are redeemable at the option of the Company beginning in May 2004 at 100% of the principal amount thereof. The obligations of the Trust related to the Preferred Securities are fully and unconditionally guaranteed by the Company.Holders of the Preferred Securities are entitled to cumulative cash distributions at an annual rate of 7.80% of the liquidation amount of $25 per security. The Preferred Securities will be redeemable upon any repayment of the Subordinated Notes at 100% of the liquidation amount beginning in May 2004.
The Subordinated Notes and the related Trust investment in the Subordinated Notes have been eliminated in consolidation and the Preferred Securities are reflected as outstanding in the accompanying Consolidated Financial Statements.
[ |
] |
|| |
[ |
] |
10. |
Earnings (Loss) Per Share |
The following table sets forth the computation of basic and diluted Earnings Per Share ("EPS") for the three and six-month periods ended March 31, 2001 and 2000, respectively.
Three Months |
Six Months |
||||||||||||||||
|
|||||||||||||||||
In thousands, except EPS |
2001 |
2000 |
2001 |
2000 |
|||||||||||||
|
|||||||||||||||||
Numerator for both basic and diluted EPS: |
|||||||||||||||||
Earnings from continuing operations |
$ |
28,181 |
$ |
23,725 |
$ |
49,533 |
$ |
44,596 |
|||||||||
Loss from discontinued operations |
- |
(6,431 |
) |
- |
(12,651 |
) |
|||||||||||
|
|||||||||||||||||
Net earnings |
$ |
28,181 |
$ |
17,294 |
$ |
49,533 |
$ |
31,945 |
|||||||||
|
|||||||||||||||||
Denominator: |
|||||||||||||||||
Denominator for basic EPS - weighted |
|||||||||||||||||
average shares of Class A |
|||||||||||||||||
Common Stock outstanding |
135,200 |
134,498 |
135,067 |
134,372 |
|||||||||||||
Effects of dilutive employees' stock |
|||||||||||||||||
options (dilutive potential |
|||||||||||||||||
common shares) |
1,806 |
96 |
1,506 |
104 |
|||||||||||||
|
|||||||||||||||||
Denominator for diluted EPS - |
|||||||||||||||||
adjusted weighted average shares |
|||||||||||||||||
and assumed conversions |
137,006 |
134,594 |
136,573 |
134,476 |
|||||||||||||
|
|||||||||||||||||
Earnings (loss) per share: |
|||||||||||||||||
Basic: |
|||||||||||||||||
Continuing operations |
$ |
.21 |
$ |
.18 |
$ |
.37 |
$ |
.33 |
|||||||||
Loss from discontinued operations |
- |
(.05 |
) |
- |
(.09 |
) |
|||||||||||
|
|||||||||||||||||
Net earnings |
$ |
.21 |
$ |
.13 |
$ |
.37 |
$ |
.24 |
|||||||||
|
|||||||||||||||||
Diluted: |
|||||||||||||||||
Continuing operations |
$ |
.21 |
$ |
.18 |
$ |
.36 |
$ |
.33 |
|||||||||
Loss from discontinued operations |
- |
(.05 |
) |
- |
(.09 |
) |
|||||||||||
|
|||||||||||||||||
Net earnings |
$ |
.21 |
$ |
.13 |
$ |
.36 |
$ |
.24 |
|||||||||
|
[ |
] |
|| |
[ |
] |
11. |
Dividends |
On May 10, 2001, the Company declared a quarterly cash dividend of $0.01 per share on the Company's Common Stock that will be paid on June 1, 2001 to shareowners of record on May 18, 2001. The Company also paid dividends of $0.01 per share in each of the first two quarters of fiscal 2001. During fiscal 2000 the Company paid dividends of $.075 per share in each of the first and second quarters and $0.01 per share in each of the third and fourth quarters.
[ |
] |
|| |
[ |
] |
12. |
Business Segment Information |
The Company is organized based upon the products and services it provides to its customers. The Company's continuing operating segments have been aggregated into three reportable segments: Pharmaceutical Distribution, PharMerica and Other Businesses.
The Pharmaceutical Distribution segment includes Bergen Brunswig Drug Company ("BBDC") and Bergen Brunswig Specialty Group ("BBSG"), which consists of ASD Specialty Healthcare, Inc. ("ASD"), Integrated Commercialization Solutions, Inc. ("ICS") and The Lash Group, Inc. ("Lash"). BBDC sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products to hospitals, managed care facilities, independent and chain retail pharmacies, food/drug combination stores, and mail order pharmacies. ASD sells specialty pharmaceutical products to physicians, clinics and other providers in the nephrology, oncology, plasma and vaccines sectors. BBDC and ASD also provide promotional, inventory management and information services to their customers. ICS provides commercial outsourcing services to healthcare product manufacturers, while Lash provides healthcare reimbursement consulting services.
The PharMerica segment consists solely of the Company's PharMerica operations. PharMerica provides institutional pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities, and residential living communities. It also provides mail order and on-line pharmacy services to injured workers who are receiving workers' compensation benefits, homebound catastrophically-ill patients, and other consumers.
The Other Businesses segment consists solely of Choice Systems Inc. ("Choice Systems"), which sells inventory management software to hospitals and other healthcare providers.
The segment structure described herein is different from that previously reported in the three and six months ended March 31, 2000 due to (a) the elimination of Stadtlander and BBMC, which are classified as discontinued operations, and (b) realignment of several of the Company's smaller subsidiaries. All fiscal 2000 data shown below has been restated to be consistent with the new organizational structure.
All of the Company's operations are located in the United States or the Commonwealth of Puerto Rico.
The following tables present segment information for the three and six months ended March 31, 2001 and 2000 (in thousands):
Three Months |
Six Months |
||||||||||||||
|
|||||||||||||||
Net Sales and Other Revenues |
2001 |
2000 |
2001 |
2000 |
|||||||||||
|
|||||||||||||||
Pharmaceutical Distribution |
$ |
4,854,352 |
$ |
4.422,005 |
$ |
9,476,862 |
$ |
8,792,170 |
|||||||
PharMerica |
339,924 |
320,056 |
675,090 |
629,500 |
|||||||||||
Other Businesses |
186 |
406 |
366 |
672 |
|||||||||||
Corporate |
114 |
111 |
638 |
578 |
|||||||||||
Intersegment Eliminations |
(207,285 |
) |
(169,851 |
) |
(388,882 |
) |
(340,095 |
) |
|||||||
|
|||||||||||||||
Revenue excluding bulk shipments |
4,987,291 |
4,572,727 |
9,764,074 |
9,082,825 |
|||||||||||
Bulk shipments of pharmaceuticals |
|||||||||||||||
to customers' warehouses |
914,655 |
1,000,778 |
1,989,826 |
2,116,036 |
|||||||||||
|
|||||||||||||||
Total net sales and other revenues |
$ |
5,901,946 |
$ |
5,573,505 |
$ |
11,753,900 |
$ |
11,198,861 |
|||||||
|
Management evaluates segment performance based on revenues excluding bulk shipments to customers' warehouses. For further information regarding the nature of bulk shipments, which only occur in the Pharmaceutical Distribution segment, see Note 5.
Intersegment Eliminations represent the elimination of the Pharmaceutical Distribution segment's sales to PharMerica (BBDC is the principal supplier of pharmaceuticals to PharMerica). The $37.4 million and $48.8 million increases in the three and six months ended March 31, 2001, respectively, are primarily due to increased intersegment shipments in order to support PharMerica's growth.
Three Months |
Six Months |
||||||||||||||
|
|||||||||||||||
Operating Earnings, LIFO Basis |
2001 |
2000 |
2001 |
2000 |
|||||||||||
|
|||||||||||||||
Pharmaceutical Distribution |
$ |
96,665 |
$ |
85,534 |
$ |
173,302 |
$ |
162,324 |
|||||||
PharMerica |
15,224 |
8,464 |
31,265 |
16,234 |
|||||||||||
Other Businesses |
(887 |
) |
(754 |
) |
(1,756 |
) |
(1,623 |
) |
|||||||
Corporate |
(19,654 |
) |
(16,367 |
) |
(37,160 |
) |
(33,189 |
) |
|||||||
|
|||||||||||||||
Total operating earnings |
91,348 |
76,877 |
165,651 |
143,746 |
|||||||||||
Net interest expense |
(37,242 |
) |
(24,219 |
) |
(69,134 |
) |
(48,653 |
) |
|||||||
|
|||||||||||||||
Earnings before taxes on income |
|||||||||||||||
and distributions on preferred |
|||||||||||||||
securities of subsidiary trust |
$ |
54,106 |
$ |
52,658 |
$ |
96,517 |
$ |
95,093 |
|||||||
|
Segment operating profit is evaluated on both a FIFO and LIFO basis. The only operating unit that uses the LIFO inventory method is BBDC; accordingly, for all other operating units, LIFO earnings are the same as FIFO earnings. BBDC's LIFO charge was $1.3 million in each of the three-month periods ended March 31, 2001 and 2000 and $2.5 million in each of the six-month periods of the current and prior year. Since the difference between FIFO and LIFO earnings was immaterial, only the LIFO basis is presented herein. Certain corporate office expenses of a direct operational nature are charged to the segments, but general corporate overhead is not allocated. Also, interest expense is not allocated to the segments.
[ |
] |
|| |
[ |
] |
13. |
Restructuring Charges |
In the fourth quarter of fiscal 2000, the Company recorded a $10.7 million restructuring charge representing the estimated cost of (a) consolidating four BBDC distribution centers into larger existing facilities during fiscal 2001, (b) outsourcing certain BBDC delivery functions and (c) streamlining certain BBDC and BBSG selling and administrative functions. The Albuquerque division was consolidated into the Phoenix facility in October 2000 and the Portland division was consolidated into the Seattle facility in December 2000. During the six months ended March 31, 2001, the Company recorded net charges of approximately $3.7 million against the restructuring liability. These charges consisted primarily of severance payments to terminated employees.
[ |
] |
|| |
[ |
] |
14. |
Business Acquisition |
On February 20, 2001, the Company acquired an additional ownership interest in an entity for a cash price of $10 million, giving the Company a majority ownership interest. Previously, the Company's investment in the entity was accounted for under the equity method. The Company has recorded its acquisition of a majority interest using the purchase accounting method. The Company's aggregate investment was allocated to the identifiable net assets of the entity, and the excess of such investment over such identifiable net assets was recorded as goodwill of approximately $19 million, which is being amortized over 30 years. The operating results of the entity have been included in the Company's consolidated financial statements beginning with the date of the February 2001 investment. Had the Company acquired a majority ownership position at the beginning of fiscal year 2000, the pro forma inclusion of the entity's operating results would not have had a material effect on the Company's consolidated revenues or earnings during fiscal year 2000 or 2001. The entity, which provides services to healthcare providers, is included in the Company's Pharmaceutical Distribution segment.
The interest of the minority owners in the entity's equity is included in other liabilities on the accompanying Consolidated Balance Sheet, and their interest in the entity's earnings is included in net interest expense on the accompanying Statement of Consolidated Earnings. Such amounts were not material in the second quarter of fiscal 2001.
[ |
] |
|| |
[ |
] |
15. |
Pending Merger |
On March 16, 2001, the Company signed a definitive merger agreement with AmeriSource Health Corporation ("AmeriSource"), a distributor of pharmaceuticals and related healthcare products and services, headquartered in Valley Forge, Pennsylvania. The combined company will be known as AmeriSource-Bergen Corporation ("AmeriSource-Bergen"), with headquarters in Valley Forge, Pennsylvania. Under the terms of the merger agreement, which has been unanimously approved by the respective Board of Directors of the Company and AmeriSource, shareowners of the Company would receive 0.37 share of AmeriSource-Bergen common stock in exchange for each outstanding share of the Company's Class A Common Stock, while each share of AmeriSource common stock would be converted into one share of AmeriSource-Bergen common stock. AmeriSource-Bergen will have approximately 103 million shares outstanding, with current AmeriSource shareholders owning approximately 51% of the combined company and the Company's current shareowners owning approximately 49%. Based on closing stock prices on March 16, 2001, AmeriSource-Bergen would have a pro forma market capitalization of approximately $5 billion and approximately $2 billion of debt. The merger of the two companies has been structured as a tax-free transaction for both AmeriSource shareholders and the Company's shareowners. The merger transaction will be accounted for as a purchase for financial reporting purposes, and the combined entity will use the new guidelines for business combinations proposed by the Financial Accounting Standards Board ("FASB") upon issuance.
The merger is currently expected to be completed during the fourth quarter of fiscal 2001, subject to the satisfaction of certain conditions, including approvals by the Company's shareowners and AmeriSource's shareholders, the receipt of certain regulatory approvals and promulgation of the new FASB purchase accounting rules. On May 7, 2001, the Company announced that, as anticipated, it had received a request for additional information and documentary material from the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the merger.
[ |
] |
|| |
[ |
] |
ITEM 2. |
Management's Discussion and Analysis of Financial Condition |
and Results of Operations |
PORTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS PRESENTED BELOW, CONSISTING OF THOSE STATEMENTS WHICH ARE NOT HISTORICAL IN NATURE (INCLUDING, WITHOUT LIMITATION, THE COMPANY'S EXPECTATIONS REGARDING MARGINS, SALES MIX, COST REDUCTION EFFORTS, NURSING HOME ADMISSIONS, CASH AND CAPITAL REQUIREMENTS), MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO MATERIALLY DIFFER FROM THOSE PROJECTED OR IMPLIED. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DESCRIBED IN EXHIBIT 99(A) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000. IN MANY CASES, THE COMPANY CANNOT PREDICT WHAT FACTORS WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT.
RESULTS OF OPERATIONS |
The Company's revenues excluding bulk shipments and its earnings from continuing operations increased 9% and 19%, respectively, during the fiscal quarter ended March 31, 2001 (the second quarter of fiscal year 2001) compared to the second quarter last year. The Company's revenues excluding bulk shipments and its earnings from continuing operations increased 8% and 11%, respectively, during the six months ended March 31, 2001 (the first half of fiscal year 2001) compared to the corresponding period in the prior year. However, net earnings increased 63% and 55% for the second quarter and six months, respectively, primarily because the prior year's results included losses from discontinued operations.
The following table summarizes key line items from the Company's Consolidated Statements of Earnings for the aforementioned periods:
Three Months Ended |
Six Months Ended |
|||||||||||||
March 31, |
|
March 31, |
|
|||||||||||
|
% |
|
% |
|||||||||||
Dollars in millions, except for per share amounts |
2001 |
2000 |
Change |
2001 |
2000 |
Change |
||||||||
|
||||||||||||||
Revenues excluding bulk shipments |
$ |
4,987.3 |
$ |
4,572.7 |
9% |
$ |
9,764.1 |
$ |
9,082.8 |
8% |
||||
|
|
|||||||||||||
Earnings from continuing operations |
$ |
28.2 |
$ |
23.7 |
19% |
$ |
49.5 |
$ |
44.6 |
11% |
||||
Discontinued operations |
- |
(6.4 |
) |
- |
(12.7 |
) |
||||||||
|
|
|||||||||||||
Net earnings |
$ |
28.2 |
$ |
17.3 |
63% |
$ |
49.5 |
$ |
31.9 |
55% |
||||
|
|
|||||||||||||
Diluted earnings per share: |
||||||||||||||
Earnings from continuing operations |
$ |
.21 |
$ |
.18 |
17% |
$ |
.36 |
$ |
.33 |
9% |
||||
Discontinued operations |
- |
(.05 |
) |
- |
(.09 |
) |
||||||||
|
|
|||||||||||||
Net earnings |
$ |
.21 |
$ |
.13 |
62% |
$ |
.36 |
$ |
.24 |
50% |
||||
|
|
Losses from discontinued operations represent losses incurred during the prior year by BBMC and Stadtlander, which were sold by the Company in August and September 2000, respectively. Such losses included an allocation of interest expense based on the consolidated average bank borrowing rate and the expected proceeds from the dispositions, which approximated the amount of debt retired. For further discussion, see the "Discontinued Operations" section herein.
Changes in the Company's operating results between the current and prior year quarters and six-month periods were not significantly affected by acquisitions.
CONTINUING OPERATIONS
The 19% and 11% increases in earnings from continuing operations for the quarter and six months, respectively, were principally due to increases in operating earnings and a lower effective income tax rate, partially offset by higher net interest expense. The following table provides a summarized statement of continuing operations on a consolidated basis, including key line item percentage changes and ratios:
Three Months Ended |
Six Months Ended |
||||||||||||||||
March 31, |
|
March 31, |
|
||||||||||||||
|
% |
|
% |
||||||||||||||
Dollars in millions |
2001 |
2000 |
Change |
2001 |
2000 |
Change |
|||||||||||
|
|||||||||||||||||
Revenues excluding bulk shipments |
$ |
4,987.3 |
$ |
4,572.7 |
9 |
% |
$ |
9,764.1 |
$ |
9,082.8 |
8 |
% |
|||||
Bulk shipments |
914.6 |
1,000.8 |
(9 |
) |
% |
1,989.8 |
2,116.1 |
(6 |
) |
% |
|||||||
|
|
||||||||||||||||
Net sales and other revenues |
$ |
5,901.9 |
$ |
5,573.5 |
6 |
% |
$ |
11,753.9 |
$ |
11,198.9 |
5 |
% |
|||||
|
|
|
|
|
|||||||||||||
Continuing operations: |
|
||||||||||||||||
Gross profit, LIFO basis |
$ |
328.8 |
$ |
315.7 |
4 |
% |
$ |
633.7 |
$ |
615.2 |
3 |
% |
|||||
Operating expenses |
237.5 |
238.8 |
(1 |
) |
% |
468.0 |
471.5 |
(1 |
) |
% |
|||||||
|
|
||||||||||||||||
Operating earnings |
91.3 |
76.9 |
19 |
% |
165.7 |
143.7 |
15 |
% |
|||||||||
Net interest expense |
37.2 |
24.2 |
54 |
% |
69.2 |
48.6 |
42 |
% |
|||||||||
|
|
||||||||||||||||
Earnings from continuing operations |
|||||||||||||||||
before income taxes and distributions |
54.1 |
52.7 |
3 |
% |
96.5 |
95.1 |
1 |
% |
|||||||||
Income taxes |
22.4 |
25.5 |
(12 |
) |
% |
39.9 |
43.4 |
(8 |
) |
% |
|||||||
Distributions on trust preferred securities |
3.5 |
3.5 |
7.1 |
7.1 |
|||||||||||||
|
|
||||||||||||||||
Earnings from continuing operations |
$ |
28.2 |
$ |
23.7 |
19 |
% |
$ |
49.5 |
$ |
44.6 |
11 |
% |
|||||
|
|
|
|
|
|||||||||||||
Percentage of revenues excluding |
|||||||||||||||||
bulk shipments: |
|||||||||||||||||
Gross profit, LIFO basis |
6.59 |
% |
6.90 |
% |
6.49 |
% |
6.77 |
% |
|||||||||
Operating expenses |
4.76 |
% |
5.22 |
% |
4.79 |
% |
5.19 |
% |
|||||||||
Operating earnings |
1.83 |
% |
1.68 |
% |
1.70 |
% |
1.58 |
% |
Revenues excluding bulk shipments increased 9% and 8% in the quarter and six months, respectively, due to growth in both the Pharmaceutical Distribution and PharMerica segments, as described in the "Segment Information" section below.
Along with other companies in its industry, the Company reports bulk shipments of pharmaceuticals in revenues and cost of sales. Bulk shipment transactions are arranged by the Company with its suppliers at the express direction of the customer, and involve either shipments from the supplier directly to customers' warehouse sites or shipments from the supplier to Company warehouses for immediate shipment to customers' warehouse sites. Bulk sales of pharmaceuticals do not impact the Company's inventory since the Company simply processes the orders that it receives from its suppliers directly to the customers' warehouses. The Company serves as an intermediary by paying the supplier and billing the customer for the goods. Due to the insignificant margins generated through bulk shipments, fluctuations in such revenues have only an immaterial impact on the Company's operating earnings.
Gross profit as a percentage of revenues excluding bulk shipments ("gross margin") was 6.59% and 6.90% in the second quarters of fiscal 2001 and 2000, respectively, and 6.49% and 6.77% in the respective six-month periods. The 31 and 28 basis-point decreases were primarily attributable to lower selling margins and sales mix changes in the Pharmaceutical Distribution and PharMerica segments, as described in the "Segment Information" section below.
Operating expenses consist of distribution, selling, general and administrative expenses ("DSG&A"). Operating expenses as a percentage of revenues excluding bulk shipments were 4.76% and 5.22% in the second quarters of fiscal 2001 and 2000, respectively, and 4.79% and 5.19% in the respective six-month periods. The 46 and 40 basis-point decreases were principally due to operating expense improvements in the Pharmaceutical Distribution and PharMerica segments, as described in the " Segment Information" section below.
Operating expenses include the amortization of goodwill, only a portion of which is tax-deductible. Goodwill amortization decreased by approximately $3.3 million during each of the first two quarters of fiscal 2001, substantially all of which resulted from lower amortization of PharMerica goodwill following the $505.3 million goodwill impairment charge recorded in September 2000. The table below provides a summary of goodwill amortization from continuing operations by segment and its effect on net earnings and diluted earnings per share.
Three Months Ended |
Six Months Ended |
||||||||||
March 31, |
March 31, |
||||||||||
|
|
||||||||||
Dollars in millions |
2001 |
2000 |
2001 |
2000 |
|||||||
|
|||||||||||
Pharmaceutical Distribution |
$ |
2.0 |
$ |
1.9 |
$ |
3.9 |
$ |
3.8 |
|||
PharMerica |
2.7 |
6.0 |
5.4 |
12.0 |
|||||||
|
|
||||||||||
Total goodwill amortization |
4.7 |
7.9 |
9.3 |
15.8 |
|||||||
Tax benefit of deductible portion |
(1.0 |
) |
(1.0 |
) |
(2.0 |
) |
(2.0 |
) |
|||
|
|
||||||||||
Reduction of net earnings |
$ |
3.7 |
$ |
6.9 |
$ |
7.3 |
$ |
13.8 |
|||
|
|
||||||||||
Reduction of diluted earnings per share |
$ |
.03 |
$ |
.05 |
$ |
.05 |
$ |
.10 |
|||
|
|
Segment Information
Following is a summary of revenues and operating earnings for the Company's business segments:
Dollars in millions |
|||||||||||||||||
|
|||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||
March 31, |
|
March 31, |
|
||||||||||||||
|
% |
|
% |
||||||||||||||
Revenues Excluding Bulk Shipments |
2001 |
2000 |
Change |
2001 |
2000 |
Change |
|||||||||||
|
|||||||||||||||||
Pharmaceutical Distribution |
$ |
4,854.4 |
$ |
4,422.0 |
10 |
% |
$ |
9,476.9 |
$ |
8,792.1 |
8 |
% |
|||||
PharMerica |
339.9 |
320.1 |
6 |
% |
675.1 |
629.5 |
7 |
% |
|||||||||
Other Businesses |
0.2 |
0.4 |
0.4 |
0.7 |
|||||||||||||
Corporate |
0.1 |
0.1 |
0.6 |
0.6 |
|||||||||||||
Intersegment Eliminations |
(207.3 |
) |
(169.9 |
) |
(22 |
) |
% |
(388.9 |
) |
(340.1 |
) |
(14 |
) |
% |
|||
|
|
||||||||||||||||
Total |
$ |
4,987.3 |
$ |
4,572.7 |
9 |
% |
$ |
9,764.1 |
$ |
9,082.8 |
8 |
% |
|||||
|
|
||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||
|
March 31, |
|
March 31, |
|
|||||||||||||
Operating Earnings (Loss) - |
|
% |
|
% |
|||||||||||||
LIFO Basis |
2001 |
2000 |
Change |
2001 |
2000 |
Change |
|||||||||||
|
|||||||||||||||||
Pharmaceutical Distribution |
$ |
96.7 |
$ |
85.5 |
13 |
% |
$ |
173.3 |
$ |
162.3 |
7 |
% |
|||||
PharMerica |
15.2 |
8.5 |
80 |
% |
31.3 |
16.2 |
93 |
% |
|||||||||
Other Businesses |
(0.9 |
) |
(0.8 |
) |
(1.8 |
) |
(1.6 |
) |
|||||||||
Corporate |
(19.7 |
) |
(16.3 |
) |
(20 |
) |
% |
(37.1 |
) |
(33.2 |
) |
(12 |
) |
% |
|||
|
|
||||||||||||||||
Total |
$ |
91.3 |
$ |
76.9 |
19 |
% |
$ |
165.7 |
$ |
143.7 |
15 |
% |
|||||
|
|
||||||||||||||||
Percentages of revenues excluding |
|||||||||||||||||
bulk shipments: |
|||||||||||||||||
Pharmaceutical Distribution: |
|||||||||||||||||
Gross profit |
4.26 |
% |
4.36 |
% |
4.12 |
% |
4.30 |
% |
|||||||||
Operating expenses |
2.27 |
% |
2.43 |
% |
2.29 |
% |
2.45 |
% |
|||||||||
Operating earnings |
1.99 |
% |
1.93 |
% |
1.83 |
% |
1.85 |
% |
|||||||||
PharMerica: |
|||||||||||||||||
Gross profit |
35.82 |
% |
38.14 |
% |
35.83 |
% |
37.50 |
% |
|||||||||
Operating expenses |
31.34 |
% |
35.50 |
% |
31.20 |
% |
34.92 |
% |
|||||||||
Operating earnings |
4.48 |
% |
2.64 |
% |
4.63 |
% |
2.58 |
% |
Pharmaceutical Distribution:
Revenues increased 10% and 8% in the second quarter and six-month period, respectively, representing growth by both BBDC and BBSG. BBDC's revenues increased 8% and 5%, respectively, reflecting strong growth in the retail category principally due to the addition or expansion of business with several large regional drug store chains, food/drug chains and mail order pharmacies. Health systems revenues, however, declined due to the loss of business from some of the healthcare providers that are members of Novation, a large group purchasing organization that had previously recognized BBDC as an authorized distributor. BBSG's revenues increased 35% and 30%, respectively, primarily representing growth in its oncology business. The BBDC and BBSG increases were comprised of a larger volume of shipments to existing customers as well as to a significant number of new customers. National industry economic conditions were also favorable, with increases in prescription drug usage and higher pharmaceutical prices contributing to this segment's revenue growth.
Operating earnings increased by 13% for the second quarter and 7% for the six months. As a percentage of revenues, operating earnings on a LIFO basis were 1.99% and 1.93% of revenues in the second quarters of fiscal 2001 and 2000, respectively, and 1.83% and 1.85% in the respective six-month periods. The small basis-point changes represent the net effect of reductions in gross margins which were approximately offset by reductions in operating expense ratios.
Gross margin on a LIFO basis was 4.26% and 4.36% in the second quarters of fiscal 2001 and 2000, respectively, and 4.12% and 4.30% in the respective six-month periods. The 10 and 18 basis-point reductions in the second quarter and six months, respectively, primarily reflect lower BBDC gross margins. BBDC's margins declined mainly due to intense price competition within the industry, as well as to a change in BBDC's sales mix, with a greater proportion of revenues coming from high-volume, low-margin customers. This selling price erosion was partially offset by an increase in buyside margins resulting from a higher level of seasonal inventory investment buying in fiscal 2001. In the second quarter of fiscal 2000, BBDC's gross margins were adversely impacted because BBDC did not fully participate in seasonal investment buying activity during the winter months due to the limited availability of funds preceding the refinancing of the Company's revolving credit facility in April 2000 (see Note 8 of Notes to Consolidated Financial Statements). In comparison with the respective prior year periods, BBSG's gross margins were lower in the second quarter and essentially flat for the six months. The second quarter gross margin reduction was primarily due to selling price competition in the oncology business, partially offset by a recovery in the plasma market from unfavorable conditions in the prior year.
In the Company's wholesale distribution businesses, it is customary to pass on manufacturers' price increases to customers. Investment buying enables distributors such as the Company to benefit by purchasing goods in advance of anticipated manufacturers' price increases. Consequently, the rate or frequency of future price increases by manufacturers, or the lack thereof, affects the profitability of the Company.
Management anticipates further downward pressure on sell-side gross margins in the pharmaceutical distribution businesses during the remainder of fiscal 2001 because of continued selling price competition influenced by high-volume customers. Management expects that these pressures may be offset to some extent by an increased sales mix of more profitable products and services and continued reduction of operating expenses as a percentage of revenues. However, no assurance can be given that such improved sales mix or expense reduction can be achieved since many of the factors that impact such results (e.g. the effect of group purchasing agreements, competitive inroads, market conditions, etc.) are outside of the Company's control.
Operating expenses as a percentage of revenues excluding bulk shipments were 2.27% and 2.43% in the second quarters of fiscal 2001 and 2000, respectively, and 2.29% and 2.45% in the respective six-month periods. The 16 basis-point reductions were primarily attributable to continued operating efficiencies and the spreading of fixed costs over a larger revenue base. This segment's distribution infrastructure has been able to process increasing volume without a proportionate increase in operating expenses. Contributing to this efficiency in fiscal 2001 was the consolidation of two distribution centers, the outsourcing of deliveries, and the streamlining of administrative functions pursuant to BBDC's restructuring plan announced in the fourth quarter of fiscal 2000 (see Note 13 of the accompanying Notes to Consolidated Financial Statements). Also, the aforementioned shift in the distribution businesses' mix towards high-volume customers reduced the operating expense ratios because these customers are less costly to serve due to economies of scale in transportation and certain other functions.
PharMerica:
PharMerica's revenues increased 6% and 7% in the second quarter and six-month period, respectively. These increases were mainly attributable to growth in the workers' compensation services business, which reported revenue increases of 37% and 35% for the quarter and six-month period, respectively. Long-term care revenues were essentially flat for the second quarter and were 3% higher for the six months. Second quarter long-term care revenues were adversely affected by the sale of two large unprofitable pharmacies in February 2001. Additionally, PharMerica's long-term care business has tightened its credit and pricing policies during the past year, which has slowed its growth rate. In early May 2001, PharMerica's agreement with its largest long-term care customer, Beverly Enterprises, Inc., was renewed for a five-year term with an opportunity to continue the agreement for an additional five years thereafter.
PharMerica's operating earnings, as a percentage of revenues, were 4.48% and 2.64% in the second quarters of fiscal 2001 and fiscal 2000, respectively, and 4.63% and 2.58% for the respective six-month periods. The significant improvements resulted from a reduction in the operating expense ratio of approximately 400 basis points in each period, partially offset by an approximate 200 basis-point reduction in gross margin in each period. These ratios were significantly impacted by a change in the sales mix, with a greater proportion of PharMerica's revenues coming from the workers' compensation business, which has lower gross margins and lower operating expenses than the long-term care business. The reduction in gross margin also reflects continued selling price pressures, partially offset by the benefits of PharMerica's increased participation in Bergen's purchasing programs.
Approximately one-fourth of the operating expense basis-point reduction is attributable to the aforementioned $3.3 million decrease in goodwill amortization during each of the first two quarters of fiscal 2001. The remaining operating expense ratio reduction is mainly due to lower employee costs and other efficiencies resulting from the consolidation of several pharmacies, the outsourcing of deliveries, the conversion of a majority of disparate pharmacy computer systems to a common AS400 platform, and other programs which have been implemented to streamline operations. Also, the bad debt provision was lower in fiscal 2001, partially due to the benefits derived from the new credit policies and guidelines implemented in late fiscal 2000.
Over the past two years, PharMerica's revenues and gross margins have been adversely affected by negative industry trends resulting from dramatically lower reimbursement to nursing homes for Medicare patients under the Prospective Payment System (" PPS"). The Company has seen stabilization of these PPS trends in fiscal 2000 and early fiscal 2001. However, lower Medicaid reimbursement levels resulting from the previously-disclosed reductions in Average Wholesale Prices and Federal Upper Limit prices will continue to adversely affect PharMerica's gross margins in the last half of fiscal 2001.
Other Businesses:
Revenues decreased by $0.2 million and $0.3 million in the second quarter and six-month period, respectively, while operating losses increased by $0.1 million and $0.2 million in the respective periods. Choice Systems continues to operate at an unprofitable level.
Corporate:
Corporate expenses, net of minor revenue, increased $3.4 million and $3.9 million in the second quarter and six months, respectively. The unusually large increase in the second quarter reflects a combination of factors, including higher l itigation-related legal expense and higher costs associated with certain corporate benefit and administrative programs. As a percentage of consolidated revenues, corporate expenses were 0.38% and 0.37% for the six-month periods in fiscal 2001 and 2000, respectively.
Intersegment Eliminations:
These amounts represent the elimination of the Pharmaceutical Distribution segment's sales to PharMerica (BBDC is the principal supplier of pharmaceuticals to PharMerica). The increases are generally attributable to the higher volume of intersegment shipments necessary to support PharMerica's growth.
Interest Expense and Distributions on Preferred Securities
The Company's financing expenses for its continuing operations are comprised of two line items on the Statements of Consolidated Earnings:
Three Months Ended |
Six Months |
|||||||||||||||
March 31, |
|
March 31, |
|
|||||||||||||
|
% |
|
% |
|||||||||||||
Dollars in millions |
2001 |
2000 |
Change |
2001 |
2000 |
Change |
||||||||||
|
||||||||||||||||
Net interest expense (pre-tax) |
$ |
37.2 |
$ |
24.2 |
54 |
% |
$ |
69.2 |
$ |
48.6 |
42 |
% |
||||
Distributions on preferred securities of |
||||||||||||||||
subsidiary trust (before tax benefit) |
5.8 |
5.8 |
- |
% |
11.7 |
11.7 |
- |
% |
||||||||
|
|
|||||||||||||||
Total financing expenses for continuing |
||||||||||||||||
operations |
$ |
43.0 |
$ |
30.0 |
43 |
% |
$ |
80.9 |
$ |
60.3 |
34 |
% |
||||
|
|
Total financing expenses increased $13.0 million and $20.6 million in the second quarter and six-month period, respectively. These increases were primarily due to both higher interest rates and higher borrowings on the Company's bank credit facilities and Receivables Securitization program. The higher rates principally reflect higher interest rates and fees associated with the Senior Credit Agreement as compared to the previous credit facilities. Borrowings were higher primarily because the Company was able to use the increased availability of funds under the Senior Credit Facility and Receivables Securitization program, in comparison with the previous credit facilities, to participate more fully in seasonal inventory investment buying during the winter months.
Taxes on Income
Taxes on income, excluding the tax benefit on distributions on the Company's Preferred Securities, were 41.4% and 48.3% of pre-tax earnings in the second quarters of fiscal 2001 and 2000, respectively, and 41.4% and 45.7% in the respective six-month periods. The reductions in the effective tax rates are primarily attributable to the aforementioned decrease in nondeductible PharMerica goodwill amortization.
DISCONTINUED OPERATIONS
On June 26, 2000, the Company announced that it had entered into a definitive agreement to sell the stock of BBMC to Allegiance Corporation, a subsidiary of Cardinal Health, Inc., for approximately $181 million in cash before retention of certain liabilities and subject to post-closing accounting adjustments. The regulatory approvals and other closing conditions were satisfied during the fourth quarter, and the sale was consummated on August 16, 2000. The net proceeds from this divestiture were used to pay down the $200 million Interim Term Loan maturing in October 2001.
On July 5, 2000, the Company announced that it had entered into a definitive agreement to sell the specialty pharmacy assets of Stadtlander to ProCare Pharmacy, Inc., a subsidiary of CVS Corporation, for approximately $124 million in cash before retention of certain liabilities and subject to post-closing accounting adjustments. The transaction was structured as a sale of assets and was consummated on September 18, 2000. In addition, certain assets of the corrections division of Stadtlander, that portion of the business that provides pharmaceuticals to prison inmate populations, were sold to Secure Pharmacy Plus, Inc. for approximately $8 million in a cash transaction which was consummated on September 20, 2000. The net proceeds from the divestitures of the two Stadtlander businesses were used to pay off the remaining portion of the $200 million Interim Term Loan and a portion of other debt.
The Company has reclassified both BBMC and Stadtlander as discontinued operations in the accompanying Consolidated Financial Statements. The $6.4 million and $12.7 million losses from discontinued operations in the second quarter and first six months of fiscal 2000 principally reflect losses at Stadtlander, which experienced unprofitable operations due to low gross margins, high bad debt provisions, and costs associated with its restructuring. BBMC reported a small loss in each period.
For further information on Discontinued Operations, see Note 2 of the accompanying Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES |
Following is a summary of the Company's capitalization at the end of the most recent quarter and fiscal year:
March 31, |
September 30, |
|
|
||
Debt, net of cash |
49% |
49% |
Equity, including the Preferred Securities |
51% |
51% |
The debt and equity percentages at March 31, 2001 were unchanged from the most recent fiscal year-end because a small increase in net debt, which resulted mainly from lower cash balances, was offset by an increase in equity, which resulted mainly from the Company's net earnings for the first six months of fiscal 2001. Although the Company's debt did not increase during the six-month period, the Company did increase its utilization of the Receivables Securitization program (described below) by $132 million in order to finance higher seasonal inventory purchases.
The Company's $1.5 billion Senior Credit Agreement originally consisted of an $800 million revolving facility maturing in April 2003, a $200 million interim term loan maturing in October 2001 ("Interim Term Loan"), a $300 million term loan maturing in March 2005 ("Term A Loan") and a $200 million term loan maturing in March 2006 ("Term B Loan"). In August and September 2000, the Company used the proceeds of the BBMC and Stadtlander dispositions to fully repay the Interim Term Loan and to repay an aggregate $54 million of the Term A and Term B Loans. Borrowings under the Senior Credit Agreement are secured by substantially all of the Company's assets. The availability of revolving loans under the Senior Credit Agreement is tied to a borrowing base formula and certain covenants; the maximum amount of revolving loans outstanding may not exceed specified percentages of the Company's eligible accounts receivable and eligible inventory. There were no outstanding revolving loans at March 31, 2001 and September 30, 2000. Interest accrues at specified rates based on the Company's debt ratings; such rates range from 2.5% to 3.5% over LIBOR or 1.5% to 2.5% over prime, with a weighted average rate of approximately 8.93% on outstanding borrowings at March 31, 2001. The Company pays monthly commitment fees to maintain the availability of revolving loans under the Senior Credit Agreement. The Senior Credit Agreement has loan covenants which require the Company to maintain certain financial statement ratios and places certain limitations on, among other things, acquisitions, investments, methods of operation, dividend payments and capital expenditures. Effective September 29, 2000, the Senior Credit Agreement was amended to exclude the effect of certain special items recorded by the Company in the fourth quarter of fiscal 2000 from the calculation of the required ratios and covenants.
One of the Company's subsidiaries has a $55 million bank revolving credit facility which expires on May 20, 2001. Borrowings under the facility bear interest at 0.5% above LIBOR and are secured by a standby letter of credit under the Senior Credit Agreement for which the Company incurs a fee of 2.75%.
On December 20, 2000, the Company replaced its Receivables Securitization program by entering into a new Receivables Securitization agreement with a financial institution. The new agreement, which has a five-year term, provides for a longer commitment by the financial institution than did the prior agreement, which had a one-year term. In addition, the new agreement is designed to give the Company additional availability, improved pricing and more flexibility in the timing of receivable sales. Availability is subject to specified percentages of eligible receivables, as defined in the agreement. The initial maximum availability under the program is $350 million, but the Company has the option to increase the maximum up to $450 million upon payment of an additional fee. If the Company increases the maximum availability above $358 million, the Company will make a corresponding reduction in maximum availability of bank borrowings pursuant to the terms of the Senior Credit Agreement.
Through the new Receivables Securitization program, BBDC sells, on an ongoing basis, its accounts receivable to Blue Hill, a 100%-owned special purpose subsidiary. Blue Hill, in turn, sells an undivided percentage ownership interest in such receivables to various investors. The program qualifies for treatment as a sale of assets under SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". As of March 31, 2001, the Company had outstanding net proceeds of $300 million from the sale of such receivables under the new Receivables Securitization program, and accounts receivable was reduced by this amount in the accompanying Consolidated Balance Sheet.
On May 26, 1999, the Company's Trust issued 12,000,000 shares of its Preferred Securities at $25 per security. The proceeds of such issuances were invested by the Trust in $300 million aggregate principal amount of the Company's Subordinated Notes due June 30, 2039. The Subordinated Notes represent the sole assets of the Trust and bear interest at the rate of 7.80% per annum, payable quarterly, and are redeemable at the option of the Company beginning in May 2004 at 100% of the principal amount thereof. The obligations of the Trust related to the Preferred Securities are guaranteed by the Company.
See Notes 7, 8 and 9 of the accompanying Notes to Consolidated Financial Statements for further information regarding the Receivables Securitization program, the Senior Credit Agreement and the Preferred Securities.
On May 10, 2001, the Company declared a quarterly cash dividend of $0.01 per share on the Company's Common Stock that will be paid on June 1, 2001 to shareowners of record on May 18, 2001. The Company also paid dividends of $0.01 per share in each of the first two quarters of fiscal 2001. During fiscal 2000, the Company paid dividends of $.075 per share in each of the first and second quarters and $0.01 per share in each of the third and fourth quarters.
The Company's cash flows during the first six months of fiscal 2001 and 2000 are summarized in the following table:
Six Months Ended |
|||||||
March 31, |
|||||||
|
|||||||
Dollars in millions |
2001 |
2000 |
|||||
|
|||||||
Earnings from continuing operations, excluding |
|||||||
non-cash charges |
$ |
139.2 |
$ |
126.9 |
|||
Increases in operating assets and liabilities |
(261.6 |
) |
(86.8 |
) |
|||
|
|||||||
Net cash flows from operating activities |
(122.4 |
) |
40.1 |
||||
Property acquisitions |
(14.2 |
) |
(52.6 |
) |
|||
Net proceeds from sale of accounts receivable |
132.0 |
260.0 |
|||||
Net repayment of debt and other obligations |
(7.3 |
) |
(291.4 |
) |
|||
Cash dividends on Common Stock |
(2.7 |
) |
(20.2 |
) |
|||
Distributions on Preferred Securities |
(17.6 |
) |
(11.7 |
) |
|||
Discontinued operations |
- |
(20.4 |
) |
||||
Other - net |
(4.3 |
) |
(6.0 |
) |
|||
|
|||||||
Net decrease in cash and cash equivalents |
$ |
(36.5 |
) |
$ |
(102.2 |
) |
|
|
For the six months ended March 31, 2001, the Company generated $122.4 million of negative cash flows from operations, compared with $40.1 million of positive cash flows from operations in the comparable period in fiscal 2000. The negative cash flows in fiscal 2001 were primarily attributable to BBDC's increased inventory levels due to a higher participation in seasonal inventory investment buying activity. In the prior year, BBDC did not fully participate in seasonal buying activity during the winter months primarily due to the limited availability of funds preceding the refinancing of the Company's revolving credit facility in April 2000. During the second quarter of fiscal 2001, the Company generated $88.3 million of positive cash flows from operations.
The Company believes that internally generated cash flows, funding available under the Senior Credit Agreement, the Receivables Securitization program, trade credit extended by suppliers in the ordinary course of business, and funds potentially available in the private and public capital markets will be sufficient to meet anticipated cash and capital requirements. However, actual results could differ from this forward-looking statement as a result of, among other things, unanticipated capital requirements, changes in supplier trade credit terms, or an inability to access the capital markets on acceptable terms when, and if, necessary. The Company's debt ratings are an important factor in its ability to access capital on acceptable terms.
Property acquisitions relate principally to the purchase of warehouse, pharmacy and data processing equipment, and included the purchase of the Company's previously-leased Corporate headquarters building in October 1999.
NEW ACCOUNTING PRONOUNCEMENTS |
Effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. During the remaining six months of fiscal 2001, the Company plans to adopt several additional new pronouncements issued by the FASB and the SEC. SFAS 133 and the new pronouncements have not had and are not expected to have a significant impact on the Company's reported consolidated financial position, results of operations or cash flows. See Note 6 of the accompanying Notes to Consolidated Financial Statements for further information.
PENDING MERGER |
On March 16, 2001, the Company signed a definitive merger agreement with AmeriSource Health Corporation ("AmeriSource"), a distributor of pharmaceuticals and related healthcare products and services, headquartered in Valley Forge, Pennsylvania. The combined company will be known as AmeriSource-Bergen Corporation ("AmeriSource-Bergen"), with headquarters in Valley Forge, Pennsylvania. Under the terms of the merger agreement, which has been unanimously approved by the respective Board of Directors of the Company and AmeriSource, shareowners of the Company would receive 0.37 share of AmeriSource-Bergen common stock in exchange for each outstanding share of the Company's Class A Common Stock, while each share of AmeriSource common stock would be converted into one share of AmeriSource-Bergen common stock. AmeriSource-Bergen will have approximately 103 million shares outstanding, with current AmeriSource shareholders owning approximately 51% of the combined company and the Company's current shareowners owning approximately 49%. Based on closing stock prices on March 16, 2001, AmeriSource-Bergen would have a pro forma market capitalization of approximately $5 billion and approximately $2 billion of debt. The merger of the two companies has been structured as a tax-free transaction for both AmeriSource shareholders and the Company's shareowners. The merger transaction will be accounted for as a purchase for financial reporting purposes, and the combined entity will use the new guidelines for business combinations proposed by the Financial Accounting Standards Board ("FASB") upon issuance. Additional information regarding this proposed merger is set forth in the Company's Current Report on Form 8-K dated March 16, 2001, as filed with the SEC, and is incorporated herein by reference. See also Note 15 of the accompanying Notes to Consolidated Financial Statements for further information regarding this merger.
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Quantitative and Qualitative Disclosures About Market Risk |
The Company's most significant "market risk" exposure is the effect of changing interest rates. The Company manages its interest expense by using a combination of fixed and variable-rate debt. At March 31, 2001, the Company's debt consisted of approximately $588.8 million of fixed-rate debt with a weighted average interest rate of 7.86% and $500.1 million of variable-rate debt (consisting principally of bank borrowings under the Senior Credit Agreement) with a weighted average interest rate of 8.56%. The amount of the variable-rate debt fluctuates during the year based on the Company's cash requirements. If interest rates on the Senior Credit Agreement were to increase by 86 basis points (one-tenth of the rate at March 31, 2001), the impact on the pre-tax earnings from continuing operations during the three months ended March 31, 2001 would be a decrease of approximately $1.1 million.
The Company periodically evaluates various financial instruments that could mitigate a portion of its exposure to variable interest rates. However, there are no assurances that such instruments will be available on terms acceptable to the Company.
The Company also believes that its interest rate exposure could be somewhat mitigated due to the favorable effect which inflation may have on the Company, specifically, manufacturers' price inflation which may accelerate concurrently with a general increase in interest rates, to the extent that the Company can take advantage of such inflation in purchasing and selling inventory. The Company's ability to take advantage of such inflation is contingent upon various factors, including, but not limited to, the availability of inventory and capital on terms acceptable to the Company.
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BERGEN BRUNSWIG CORPORATION
PART II. OTHER INFORMATION
ITEM 1 |
LEGAL PROCEEDINGS |
There have been no new material developments or new material matters in the legal proceedings as previously reported in Part II, Item 1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2000 filed with the Securities and Exchange Commission on February 14, 2001, except as otherwise might be set forth below.
The following discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management's opinion based on a variety of factors, including the uncertainties involved in the proof of legal and factual matters in complex legal proceedings.
Section 1.
1.1 State Antitrust Actions
1.1.1 As previously reported, between August 3, 1993 and February 14, 1994, the Company, along with various other pharmaceutical industry-related companies, was named as a defendant in eight separate state antitrust actions in three courts in California. These lawsuits are more fully detailed in "Item 1 - Legal Proceedings" of Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 as filed with the Securities and Exchange Commission and is incorporated herein by reference. In April 1994, these California state actions were all coordinated as Pharmaceutical Cases I, II and III, and assigned to a single judge in San Francisco Superior Court. On August 22, 1994, a Consolidated Amended Complaint ("California Complaint"), which supersedes and amends the eight prior complaints, was filed in these actions. The California Complaint alleges the Company and 35 other pharmaceutical industry-related companies violated California's Cartwright Act, Unfair Practices Act, and the Business and Professions Code unfair competition statute. The California Complaint alleges the defendants jointly and separately engaged in secret rebating, price fixing and price discrimination between plaintiffs and plaintiffs' alleged competitors who sell pharmaceuticals to patients or retail customers. Plaintiffs seek, on behalf of themselves and a class of similarly situated California pharmacies, injunctive relief and treble damages in an amount to be determined at trial. The judge struck the class allegations from the Unfair Practices Act claims, and on June 26, 1995, granted plaintiffs' motion for class certification of the consolidated actions. On September 8, 1995, the court entered an order staying all proceedings in the consolidated actions pending resolution of the federal action. To date, the action is still stayed. In addition, on November 13, 2000, the Company was sued in Santa Clara Superior Court in the State of California, along with 24 pharmaceutical manufacturers and 2 other wholesalers, in an antitrust suit under California state law entitled Paradise Drugs, Inc. et al. v. Abbott Laboratories, et al., No. CV 793852. The complaint alleges essentially the same claims as those raised in the above-described California Complaint on behalf of a group of retail pharmacies that opted out of both the federal and state class actions. Defendants have requested that this action be coordinated with the other state actions discussed above. Pending this determination, no responsive pleading has been filed. Similar actions were also filed against the Company and other wholesalers and manufacturers in Mississippi, Montgomery Drug v. UpJohn, et. al., No. 97-0103, and in Tennessee, Graves v. Abbott, et. al., No. 25,109-II. In March of 2001, the action in Tennessee was voluntarily dismissed. No trial date has been set in the Mississippi action.
1.2 Federal Opt Out Antitrust Actions
1.2.1 As previously reported, in addition to the above-mentioned state court actions in Section 1.1, the Company and other wholesale defendants have been added as defendants in a series of related federal antitrust lawsuits brought by certain independent pharmacies who have opted out of the class action cases. After a successful motion by the Company and other wholesalers, the damage period in these cases was limited to October 1993 to the present. On July 17, 2000, the wholesaler defendants filed a motion for summary judgment. On November 6, 2000, the court granted the motion, dismissing all claims against the wholesalers. An Arkansas group of opt out plaintiffs filed a motion for reconsideration, requesting that their Arkansas state law claims not be dismissed. That motion was granted on January 9, 2001. The plaintiffs in these opt out actions have filed a notice of appeal of the entry of judgment on behalf of the wholesaler defendants on the Sherman Act claims. Briefing in the Seventh Circuit is complete and the parties are awaiting a hearing date.
1.2.2 On October 21, 1994, the Company entered into a sharing agreement with five other wholesalers and 26 pharmaceutical manufacturers. Among other things, the agreement provides that: (a) if a judgment is entered against both the manufacturer and wholesaler defendants, the total exposure for joint and several liability of the Company is limited to the lesser amount of either 1% of each shared judgment or an aggregate amount of $1 million on all shared judgments in all actions; (b) if a settlement is entered into by, between, and among the manufacturer and wholesaler defendants, the Company has no monetary exposure for such settlement amount; (c) the six wholesaler defendants will be reimbursed by the 26 pharmaceutical defendants for related legal fees and expenses in an amount agreed to by the manufacturers (of which the Company will receive a proportionate share); and (d) the Company is to release certain claims which it might have had against the manufacturer defendants for the claims presented by the plaintiffs in these cases. The agreement covers all antitrust actions raising the issues described above and which allege joint and several liability with at least one manufacturer, including the cases described in this Section 1.
1.3 Proposition 65 - Gottesfeld
1.3.1 As previously reported, in February 1999, Perry Gottesfeld, an individual, filed a lawsuit against the Company and approximately sixteen other defendants in the case entitled, Perry Gottesfeld v. Alva-Amco, et. al., alleging that manufacturers and distributors of over the counter dandruff shampoos containing coal tar expose consumers to coal tar, a Proposition 65-listed carcinogen, without providing a warning. Shortly after Gottesfeld filed suit, the California Attorney General filed a separate action covering the same products. Under Proposition 65 and California's Business and Professions Code Section 17200 (Unfair Trade Practices), both Gottesfeld and the State are seeking substantial civil penalties, restitution, injunctive relief, attorney's fees and costs from the defendants. Both cases have been consolidated and are pending in San Francisco County Superior Court. The Company has filed an answer to both plaintiffs' claims and responded to discovery requests.
1.3.2 On March 14, 2000, Gottesfeld filed a citizen's petition with the federal Food and Drug Administration ("FDA") requesting FDA to restrict the sale of pharmaceuticals containing coal tar to prescription only and to require additional warnings for cancer. The basis for the Gottesfeld Petition is an invalidated scientific study concerning exposure to coal tar oil in mice, which is the same scientific evidence that both Gottesfeld and the Attorney General assert as the basis of their Proposition 65 claim.
1.3.3 On September 22, 2000, the Court granted the Company's request for a stay of the action pending the FDA review of the Gottesfeld Petition. On February 22, 2001, FDA rejected Gottesfeld's Petition, finding that the scientific studies and data on which Gottesfeld based his request for FDA to restrict the sale of coal tar products and/or require them to be sold with cancer warnings was not valid. In its ruling FDA reaffirmed the current regulations, including formulation and labeling requirements. FDA specifically stated that cancer warnings on coal tar shampoo were not warranted. The trial is scheduled for the Fall of 2001.
1.4 EPA Butterworth Landfill Site
1.4.1 As previously reported, on or about March 5, 1999, the Company was notified that it was a potentially responsible party ("PRP") in connection with the Butterworth Landfill Site ("Butterworth Site") located in Grand Rapids, Michigan and that the U.S. EPA had entered into a Court-ordered consent decree ("Decree") with five principal PRP's to spend approximately $9.6 million on immediate responsive activities at the Butterworth Site, including remedial investigation and feasibility studies. In addition and pursuant to Section 107 of the CERCLA, the U.S. Department of the Interior has asserted a claim for damages caused to natural resources.
1.4.2 The Company tendered $53,000 in exchange for statutory contribution protection and a covenant not to sue in the Decree. In August 2000, the U.S. District Court Judge for the Western District of Michigan granted the United States' Motion for Entry of the Decree, however, a group of 18 non-settling parties, known as the Varnum Group, appealed that order. After extensive negotiations, the Varnum Group reached agreement with EPA in early 2001 and agreed to drop their appeal of the order approving the settlement. EPA has negotiated an amendment to the Decree to account for the terms of the Varnum Group's settlement. The Company's rights and obligations under the original agreement are not affected by these amendments, and the Company has signed the Proposed Order modifying the Decree. Lead PRP counsel is gathering signatures from all of the original settling parties and plans, along with EPA, to submit the proposed amended Decree for the court's approval sometime in May 2001.
1.5 PharMerica Securities Litigation
1.5.1 As previously reported, in November 1998 and February 1999, two putative securities class actions were filed against PharMerica and certain individuals ("Defendants") in the United States District Court for the Middle District of Florida. The Court consolidated the actions into one putative class action and appointed two groups as co-lead Plaintiffs for the proposed class, who filed a Consolidated Amended Complaint. The proposed classes consist of all persons who purchased or acquired stock of PharMerica between January 7, 1998 and July 24, 1998. The Consolidated Amended Complaint seeks monetary damages but does not specify any amount. In general, the Consolidated Amended Complaint alleges that the Defendants made material misrepresentations with respect to an alleged violation of generally accepted accounting principles, and omissions by withholding from the market information related to the costs associated with certain acquisitions. The Consolidated Amended Complaint alleges claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Defendants' Motion to Dismiss was assigned to a Magistrate for a Report and Recommendation ("R&R"). On April 18, 2001, the Magistrate issued a R& R recommending that Defendants' Motion be granted and the plaintiffs' Consolidated Amended Complaint be dismissed without prejudice for failure to satisfy the elements of the Private Securities Litigation Reform Act. The R&R also recommends that the plaintiffs be allowed to attempt to cure their pleading deficiencies. The R&R will be submitted to the District Court for its consideration.
1.6 OIG Investigation of PharMerica/Hollins Manor
1.6.1 The United States Department of Health and Human Services Office of Inspector General ("OIG") subpoenaed documents in the custody and control of PharMerica related to PharMerica's acquisition of the Hollins Manor I, LLC pharmacy in Roanoke, Virginia. The acquisition was completed in December 1997, which was sixteen months prior to the acquisition of PharMerica by the Company. On March 2, 2001, the Company was informed by the OIG that PharMerica was a target of an investigation into possible violations of Federal fraud and abuse laws resulting from the Hollins Manor transaction. The Company is cooperating with the investigation and is conducting its own internal investigation to determine whether any liability exists.
Due to the nature of the business of PharMerica that involves payments under various federal and state programs, PharMerica is regularly subject to audit, review and investigation processes of government entities, quasi-governmental entities and third-party payors.
Although the amount of liability at March 31, 2001 with respect to the referenced proceedings in Section 1 above cannot be ascertained, in the opinion of management, based upon information currently available to management, any resulting liability is not likely to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
Section 2.
2.1 Bergen Securities, Trust and Derivative Actions
2.1.1 As previously reported, following the Company's October 14, 1999 announcement that it would not meet analysts' consensus earnings estimates for its fourth quarter and fiscal year ended September 30, 1999, due to, in part, lower than expected results at Stadtlander and PharMerica, 10 purported shareholder class action lawsuits were commenced against the Company and certain of its officers and directors in federal court in California. By order of the court, the 10 cases were consolidated into a single action in the Southern Division of the United States District Court for the Central District of California (the "Bergen securities action"). The Bergen securities action is purportedly brought on behalf of a class of the Company's shareholders who purchased or otherwise acquired the Company's common stock from March 16, 1999 through October 14, 1999, and were allegedly damaged thereby. The Bergen securities action asserts, among other things, various similar claims under sections 11, 12 and 15 of the Securities Act 1933, and under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
2.1.2 In addition to the Bergen securities action, two separate lawsuits alleging violations of certain federal securities laws were commenced in federal court in California, and another lawsuit was commenced in federal court in Delaware, that name as defendants, along with the Company and certain of its officers and directors, Bergen Capital Trust I (the "Trust"), a wholly-owned subsidiary of the Company, as well as various investment banks. By order of the Court, the Trust securities cases were also consolidated into a single action in the Southern Division of the United States District Court for the Central District of California (the "Trust securities action"), and have been coordinated with the Bergen securities action as related cases for pre-trial purposes. The Trust securities action purportedly is brought on behalf of a class of persons who purchased shares of the Trust's Preferred Securities pursuant to the May 26, 1999 offering of such securities, including, in two of the cases, persons who thereafter acquired any such Preferred Securities on the open market prior to October 14, 1999. The Trust securities action asserts claims under sections 11, 12 and 15 of the Securities Act of 1933, as well as claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
2.1.3 On March 15, 2000, the Company accepted service of a purported shareholder derivative action pending in the Orange County Superior Court (the "Bergen derivative action"). The Bergen derivative action asserts several purported state law causes of action against the directors and certain senior officers of the Company (the "individual defendants"), and also against the Company (as a nominal defendant), alleging, in general terms, various alleged fiduciary breaches and related claims arising from the alleged failure of the individual defendants to conduct adequate due diligence before proceeding with the Stadtlander acquisition and causing the Company to allegedly violate federal securities laws, as alleged in the Bergen securities action and Trust securities action. The Company and the individual defendants removed the Bergen derivative action to federal court and requested the derivative complaint be consolidated and/or coordinated with the Bergen securities action and the Trust securities action. To that end, the Bergen derivative action has been assigned to the same Court in which the Bergen securities action and the Trust securities action are pending.
2.1.4 As previously disclosed, the Company has reached a settlement agreement with plaintiffs' counsel in the various actions, together with its directors' and officers' liability insurance carriers. The parties have executed a Memorandum of Understanding ("MOU") regarding the settlement of the various actions, without any admission of liability or fault by the Company or its officers and directors. The MOU was reviewed and approved by the Company's applicable insurance carriers, and has been submitted to the Court. Thereafter, the parties negotiated and executed Stipulations of Settlement with respect to the Bergen securities action and the Trust securities action, which were reviewed and approved by the Company's directors' and officers' liability insurance carriers, and which were entered by the Court on or about April 9, 2001. The parties are currently in the process of finalizing the Stipulation of Settlement with respect to the Bergen derivative action. The Court has scheduled a hearing to approve the settlement of the various actions on July 9, 2001.
2.1.5 Various notices will be sent to the respective class members in accordance with the provisions of the Stipulations of Settlement in May 2001, which will describe the terms and conditions of the settlement of the actions in detail. Bergen's contribution to the settlement is not material to its consolidated financial condition, results of operations or cash flows. The settlement of the various actions remains subject to the finalization and approval of the Stipulation of Settlement in the Bergen derivative action, and approval by the Court of the settlement papers in all of the various actions. The Company believes, based upon current information and analysis, that it is likely that the Court ultimately will approve the settlement of the various actions. However, if the Court does not approve the pending settlement, the Company will continue to vigorously defend against the claims asserted in the various actions. In that regard, due to the incipient stage of the litigation, its ongoing status, and the necessary uncertainties involved in all litigation, the Company does not believe it is currently feasible to predict or determine the outcome or resolution of this proceeding, or to estimate the amounts of, or potential range of, loss, if any, with respect to this proceeding.
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BERGEN BRUNSWIG CORPORATION
PART II. OTHER INFORMATION (Continued)
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Annual Meeting of Shareowners of the Company was held on February 13, 2001 in Orange, California and the following matters, as described in the Proxy Statement dated January 12, 2001, were voted upon:
(1) All of management's nominees for the Company's Board of Directors were elected to a three-year term by the following vote: |
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Nominee |
For |
Withheld |
Robert E. Martini (2004) |
116,951,369 |
1,471,331 |
Neil F. Dimick (2004) |
116,946,404 |
1,476,296 |
Charles C. Edwards, M.D. (2004) |
117,251,414 |
1,171,286 |
Directors whose term of office continued after the Annual Meeting were: Jose E. Blanco, Sr., Rodney H. Brady, Charles J. Lee, George R. Liddle, Brent R. Martini, James R. Mellor, George E. Reinhardt, Jr. and Francis G. Rodgers. |
(2) Proposal to approve the 2001 Employee Stock Purchase Plan was approved |
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For |
Against |
Abstained |
116,159,854 |
1,663,458 |
599,388 |
(3) Proposal recommending that the Board of Directors sell the Company to the |
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For |
Against |
Abstained |
3,967,519 |
88,612,317 |
1,416,173 |
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BERGEN BRUNSWIG CORPORATION
PART II. OTHER INFORMATION (Continued)
EXHIBITS AND REPORTS ON FORM 8-K |
(a) |
EXHIBITS |
|
10(a) |
Bergen Brunswig Corporation Fourth Amended and Restated Supplemental Executive Retirement Plan, as of February 13, 2001. |
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10(b) |
Bergen Brunswig Corporation Second Amended and Restated Executive Loan Program, as of February 13, 2001. |
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* |
99(a) |
The Company's Current Report on Form 8-K dated March 19, 2001, relating to execution of a definitive merger agreement with AmeriSource Health Corporation, is incorporated by reference in Part I, Item 2 of this Quarterly Report. |
* |
99(b) |
Statement Regarding Forward-Looking Information is set forth as Exhibit 99(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. |
* |
Document has heretofore been filed with the Securities and Exchange Commission and is incorporated herein by reference and made a part hereof. |
(b) |
REPORTS ON FORM 8-K : |
On March 19, 2001, a Current Report on Form 8-K, dated March 16, 2001, was filed reporting under Item 5, that the Company entered into a definitive merger agreement with AmeriSource Health Corporation. |
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SIGNATURES
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.
BERGEN BRUNSWIG CORPORATION |
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By |
/s/ Robert E. Martini |
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Robert E. Martini |
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By |
/s/ Neil F. Dimick |
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Neil F. Dimick |
May 11, 2001
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BERGEN BRUNSWIG CORPORATION
INDEX TO EXHIBITS
EXHIBIT |
PAGE |
|
10(a) |
Bergen Brunswig Corporation Fourth Amended and Restated Supplemental Executive Retirement Plan, as of February 13, 2001. |
41 |
10(b) |
Bergen Brunswig Corporation Second Amended and Restated Executive Loan Program, as of February 13, 2001. |
91 |
*99(a) |
The Company's Current Report on Form 8-K dated March 19, 2001, relating to execution of a definitive merger agreement with AmeriSource Health Corporation, is incorporated by reference in Part I, Item 2 of this Quarterly Report. |
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*99(b) |
Statement Regarding Forward-Looking Information is set forth as Exhibit 99(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. |
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* |
Document has heretofore been filed with the Securities and Exchange Commission and is incorporated herein by reference and made a part hereof. |
Exhibit 10(a)
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BERGEN BRUNSWIG
FOURTH AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Of February 13, 2001)
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TABLE OF CONTENTS |
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Page |
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1 |
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2 |
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2.1 |
2 |
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2.2 |
3 |
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2.3 |
4 |
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2.4 |
4 |
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2.5 |
5 |
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2.6 |
5 |
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2.7 |
5 |
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2.8 |
5 |
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2.9 |
5 |
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2.10 |
6 |
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2.11 |
6 |
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2.12 |
7 |
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2.13 |
7 |
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2.14 |
7 |
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2.15 |
8 |
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2.16 |
8 |
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2.17 |
8 |
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2.18 |
8 |
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2.19 |
9 |
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2.20 |
9 |
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2.21 |
9 |
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2.22 |
9 |
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2.23 |
9 |
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2.24 |
9 |
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2.25 |
9 |
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2.26 |
9 |
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2.27 |
10 |
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2.28 |
11 |
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2.29 |
11 |
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2.30 |
11 |
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11 |
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3.1 |
11 |
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3.2 |
13 |
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13 |
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4.1 |
13 |
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17 |
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5.1 |
17 |
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5.2 |
22 |
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22 |
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6.1 |
22 |
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6.2 |
22 |
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6.3 |
22 |
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6.4 |
24 |
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6.5 |
25 |
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6.6 |
25 |
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6.7 |
26 |
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6.8 |
26 |
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26 |
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7.1 |
26 |
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7.2 |
27 |
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7.3 |
28 |
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7.4 |
29 |
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7.5 |
32 |
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33 |
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8.1 |
33 |
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8.2 |
34 |
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34 |
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9.1 |
34 |
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9.2 |
34 |
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9.3 |
35 |
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35 |
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10.1 |
35 |
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10.2 |
36 |
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10.3 |
Adoption of Plan to Cover Other Companies, Facilities or Groups |
36 |
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10.4 |
37 |
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10.5 |
40 |
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10.6 |
40 |
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10.7 |
40 |
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10.8 |
43 |
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10.9 |
44 |
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10.10 |
44 |
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10.11 |
45 |
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10.12 |
46 |
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10.13 |
46 |
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10.14 |
46 |
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10.15 |
46 |
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10.16 |
46 |
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10.17 |
46 |
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10.18 |
46 |
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10.19 |
46 |
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10.20 |
47 |
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10.21 |
47 |
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ARTICLE I
PLAN HISTORY
Bergen Brunswig Corporation, a New Jersey corporation (sometimes hereinafter referred to as the "Company") adopted the Bergen Brunswig Capital Accumulation Plan in 1980. The Capital Accumulation Plan was frozen effective October 7, 1987. To replace the Capital Accumulation Plan, the Board of Directors of Bergen Brunswig Corporation adopted this Supplemental Executive Retirement Plan, effective January 1, 1991. The Supplemental Executive Retirement Plan was amended and restated, effective July 28, 1994, and further amended and restated effective as of March 3, 1995 in order to provide the Participants (as hereinafter defined) with certain additional benefits in the event of a Change in Control (as hereinafter defined). The Company amended and restated the Supplemental Executive Retirement Plan in order to modify the method used to determine accrued benefits under Article IV and the definition of Compensation (within the meaning of Section 2.9 below) effective with respect to Participants who are Employees (as defined below) on or after September 24, 1998, and such other amendments and modifications (the Third Amendment and Restatement of the Supplemental Executive Retirement Plan dated September 24, 1998). On February 13, 2001, the Board of Directors made certain changes in the titles of its executive management and such changes, and other administrative amendments and modifications, require an amendment to this Supplemental Executive Retirement Plan. This Fourth Amendment and Restatement of the Supplemental Executive Retirement Plan is effective as of February 13, 2001 and incorporates all prior amendments (as herein amended and restated, the "Plan").
While the Plan is not intended to qualify under the Code as a qualified plan, the Plan is intended to be a pension benefit plan which, although subject to ERISA, is exempt from Parts 2, 3 and 4 of Title I of ERISA because it is (solely for purposes of ERISA) an unfunded plan that only covers a select group of management or highly compensated employees. Persons become participants as provided herein. Benefits under the Plan become payable on account of a Participant's retirement, termination or death.
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ARTICLE II
DEFINITIONS
The following terms, when capitalized, shall have the meaning specified below unless the context clearly indicates a contrary meaning.
(a) the individual's benefit under Section 4.1 before application of the offsets set forth in Section 4.1(c), and
(b) a fraction, the numerator of which is the individual's Credited Service and the denominator of which is the greater of
(i) the total Credited Service the individual could earn before his or her Normal Retirement Age, or
(ii) the result determined by subtracting from fifteen the individual's years of Service completed prior to performing any services for the Employer in a Credited Service position.
In no event shall a Participant's fraction under this subsection exceed one. See Section 4.1(d) for special benefit calculation rules that apply when a Participant is demoted.
(c) For all benefit purposes, if a Participant accumulates eighty "points" before his or her fraction in subsection (b) above equals one, his or her fraction in subsection (b) above shall be raised to one. A Participant shall accumulate 1 "point" for each year of age, and 1 "point" for each year of Employment prior to becoming employed in a position covered by this Plan and 1.5 "points" for each year of Employment subsequent to becoming employed in a position covered by this Plan.
(d) For purposes of this Section, a person shall be considered to have been employed in a position covered by this Plan if the position is a position for which he or she receives Credited Service credit.
(a) Each Participant shall have the right, at any time, to designate his or her Beneficiary (both primary as well as contingent) to receive any benefits payable under the Plan to a Beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. A Participant shall designate his or her Beneficiary by completing and signing a Beneficiary Designation Form, in form and substance satisfactory to the Plan Administrator, and returning it to the Plan Administrator for acceptance. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator.
(b) A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Rules as in effect from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Plan Administrator prior to his or her death.
(c) A Participant can designate someone other than his or her Spouse as Beneficiary, but only with written spousal consent.
(d) If a deceased Participant has not properly designated a Beneficiary, the Participant's Spouse shall be treated as the Beneficiary.
(e) If a deceased Participant is survived neither by a Spouse nor a properly designated Beneficiary, the Participant's estate shall be treated as the Beneficiary.
(f) With the Plan Administrator's consent and subject to any conditions which the Plan Administrator may specify, the Participant may designate more than one person to be his or her Beneficiary, provided that one Beneficiary is designated as the "measuring life" on which the duration and amount of the joint and survivor annuity is to be calculated and the portion of the survivor annuity to be paid to each Beneficiary is specified (e.g., my mother, Jane Doe, and my invalid daughter, Janet Doe, shall share equally in survivor benefits while they both live; any survivor benefits payable following the death of either my mother, Jane Doe, or my invalid daughter, Janet Doe, shall be paid to the survivor; survivor benefits are to be determined as if only my invalid daughter, Janet Doe, were the Beneficiary).
2.8 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(a) Adopting Employers. Bergen Brunswig Corporation, any related company designated by Bergen Brunswig Corporation, any successor entity which continues the Plan or such companies collectively; and
(b) Non-Adopting Employers. Companies that have not adopted the Plan but are related to the adopting Employers as described in subsection (e).
(c) All Employees of adopting and non-adopting Employers shall be treated as employed by a single company for all Plan purposes, including Service crediting, except that no person shall be eligible to become a Participant or accrue Credited Service except while employed by an adopting Employer.
(d) In contexts in which actions are required or permitted to be taken or notice is to be given, the Employer shall mean Bergen Brunswig Corporation.
(e) A company is a "related company" while it and the Employer are members of a controlled group of corporations or a group of trades or businesses under common control (within the meaning of Code Sections 414(b) and (c)).
(a) Service shall be measured in days. Service shall commence with the first day on which an individual performs or resumes performing services for the Employer as an Employee (e.g., the day the individual first performs an "hour of service" for which he or she is entitled to payment by the Employer). Except as provided in subsection (b), an Employee's Service shall thereafter end on the day on which his or her Employment ends, as determined under Section 10.4. An Employee shall be credited with one year of Service for each three hundred and sixty-five days in his or her period or periods of Service; fractional results shall be rounded up to the nearest whole year.
(b) No more than three hundred and sixty-five days of Service will be credited for any continuous period during which an individual is an Employee but performs no duties as an Employee (except as required by law with respect to military leaves and maternity and paternity absences (see Section 10.4(d)). If an individual's Employment terminates but it resumes within three hundred and sixty-five days (i.e., before he or she incurs a Break in Service), the period between the termination and resumption will be included in his or her period of Service.
(c) If an individual has more than one period of Service, the periods shall be aggregated. However, a Participant's prior period of Service shall be ignored if thereafter the Participant completed five consecutive Breaks in Service before he or she has earned a Vested Accrued Benefit.
2.29 "Vested" shall mean nonforfeitable.
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ARTICLE III
PARTICIPATION
3.1 Requirements for Participation.
(a) Executive Benefits. A person shall become and be a Participant in the Executive Benefits portion of the Plan on the date he or she first becomes an officer of Bergen Brunswig Corporation and, as part of his or her title, he or she at any time holds the title of Senior Executive Vice President, President, Chief Operating Officer, Chief Executive Officer or Chairman of the Board, or any combination thereof, on or after February 13, 2001.
(b) Key Management Benefits. A person shall become and be a Participant in the Key Management Benefits portion of the Plan on the date he or she becomes an officer of Bergen Brunswig Corporation with a title other than set forth in Section 3.1(a) above, or if such person shall become an officer of a wholly-owned subsidiary of Bergen Brunswig Corporation or becomes a director of a corporate department of Bergen Brunswig Corporation and is selected by the Plan Administrator to be a Participant.
(c) Change in Status. Whenever a Participant is promoted, the Plan Administrator shall determine, in his or her sole discretion, whether such Participant is in a position that is covered by the Key Management portion of the Plan or a position that is not covered by the Plan. If the Plan Administrator makes no such determination within thirty (30) days of the change in position, the Participant shall remain in the portion of the Plan in which he or she was covered prior to the position change. As part of the Plan Administrator's administrative duties, the Plan Administrator, from time to time, shall maintain a list of the Participants in the Executive Benefits and Key Management Benefits portions of this Plan and provide a copy of said lists to the Secretary of the Company.
(d) Termination. A Participant shall cease to be a Participant when his or her Employment terminates (see Section 2.13), unless the Participant becomes totally and permanently disabled while a Participant or the Compensation/Stock Option Committee of the Board determines otherwise in which case he or she shall remain a Participant until he or she attains age sixty-two. (A Participant shall be considered totally and permanently disabled while the Participant is receiving long-term disability benefits under the Bergen Brunswig Long Term Disability Plan (or would receive such benefits if the individual were covered by that plan)). A totally and permanently disabled Participant shall continue to earn Vesting Service during such disability. However, the individual shall not be granted Credited Service for any period of disability. At the option of the Plan Administrator, the Plan Administrator can terminate the Plan with respect to all the Participants and pay them the Equivalent of his or her Vested Accrued Benefit in an immediate cash lump sum payment or a monthly annuity for a term of years to be determined by the Plan Administrator, in his or her sole discretion, provided that such term of years shall not exceed the life expectancy of the Participant. If the Plan Administrator exercises his or her option, the Participant shall be deemed to be fully Vested, whether or not he or she meets the requirements set forth in Article V.
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ARTICLE IV
AMOUNT OF BENEFIT
(a) Executive Benefits. The benefit shall be a single life annuity (1983 Group Annuity Table) based on the Participant's life expectancy at the Normal Retirement Age and payable monthly commencing the month after the Participant reaches the Participant's Normal Retirement Age, equal to eighty percent (80%) of Compensation, subject to reduction under the fractional accrual rule in Section 2.1 and subject to the offsets described below. Notwithstanding the foregoing, for purposes of determining the benefit of a Participant who is an Employee on or after September 24, 1998, sixty percent (60%) shall be substituted for eighty percent (80%) in the preceding sentence. A Participant's benefit shall be subject to the following offsets (each to be expressed as an Equivalent amount commencing at the Participant's Normal Retirement Age in an Optional Benefit Form).
(b) Key Management Benefits. A Participant in the Key Management Benefits portion of the Plan shall receive a benefit equal to sixty-five percent (not eighty percent) of his or her Compensation subject to reduction, if any, under the fractional accrual rule in Section 2.1 and subject to the offsets, if any, described in of Section 4.1(c) below. Notwithstanding anything in the foregoing sentence to the contrary, a Participant in the Key Management benefits portion of the Plan and who has the status of an Employee on or after September 24, 1998, said Participant shall receive a total Accrued Benefit of forty-eight percent (48%), not sixty percent (60%), of his or her Compensation and the term "Compensation" shall be interpreted to include his or her annual salary and all bonuses as described in Section 2.9.
(c) A Participant's benefit (whether an Executive Benefit or a Key Management Benefit) shall be subject to the following offsets (each to be expressed as an Equivalent amount commencing at the Participant's Normal Retirement Age), if applicable:
(i) the Participant's primary insurance amount payable at age 62 under the Social Security Act with the assumption that the Participant's benefit payable under the Social Security Act is not reduced because of other income of a Participant;
(ii) the Participant's paid benefit under the Capital Accumulation Plan;
(iii) the monthly annuity the Participant could have purchased under the Bergen 401(k) Plan, if the Participant had made annual contributions to the Bergen 401(k) Plan of six percent of his or her taxable compensation (but not more than the maximum contribution, if any, allowable under Code Section 402(g)) and had received an annual matching Employer contribution of fifty percent of that amount or, if different, the amount determined under the table set forth below, from later of (i) the adoption of the Bergen 401(k) Plan or (ii) the date of the Participant's fortieth birthday through his or her termination. The sum of such hypothetical contributions for any calendar year shall not exceed the amount then applicable under Code Section 415(c)(1)(A). Such hypothetical contributions shall be deemed to have been made to the Bergen 401(k) Plan on the last day of each calendar year and shall be credited with earnings at a rate equal to the average yield of the Bergen 401(k) Plan's guaranteed income fund, or successor fund as determined by the Plan Administrator, as of the beginning of the plan year of the Bergen 401(k) Plan. The matching Employer contribution rate used for the calendar years in question shall be as follows:
Employer |
||
Matching |
||
Calendar |
Contribution |
|
Year |
Rate |
|
1985 |
1.5% |
|
1986 |
1.7% |
|
1987 |
1.2% |
|
1988 |
3.0% |
|
1989 |
6.0% |
|
1990 through 1998 |
3.0% |
|
After 1998 |
4.0% |
Notwithstanding anything in the foregoing in this Section 4.1(c) to the contrary, for Participants who have the status of an Employee on or after September 24, 1998, and for the purpose of determining their entire Accrued Benefit under this Plan, a Participant's contributions (whether or not hypothetical) shall not be taken into account for purposes of determining the reduction of the Participant's benefits under this Plan pursuant to this subsection (iii) but only the actual matching Employer contribution shall be used as an offset pursuant to this subsection (iii).
The offset required by this Section 4.1(c) shall apply without regard to whether the Participant was eligible for the Bergen 401(k) Plan or actually made any contributions. In calculating the offset, hypothetical contributions shall not be deemed to have been made in calendar years prior to 1985 or in calendar years beginning before the Participant's fortieth birthday, whichever is later.
(d) If a Participant who is covered by the Key Management Benefits portion of the Plan becomes covered by the Executive Benefits portion of the Plan, the Participant's benefit shall be calculated entirely under the Executive Benefits portion of the Plan. If a Participant who is eligible for the Executive Benefits portion of the Plan thereafter becomes eligible only for the Key Management Benefits portion of the Plan, his or her benefits under the Plan shall be the greater of (i) the benefit, if any, he or she would have had if his or her Employment terminated when the Participant ceased to be covered by the Executive Benefits portion of the Plan, or (ii) his or her benefit calculated under the Key Management Benefits portion of the Plan. If a Participant who is eligible for the Executive Benefits portion of the Plan or the Key Management Benefits portion of the Plan ceases to be employed in a position covered by this Plan, his or her benefits shall be determined as if his or her Employment terminated when the Participant ceased to be employed in a position covered by this Plan.
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ARTICLE V
VESTING
5.1 Vesting of Accrued Benefit.
(a) General Vesting Provisions. Payments Upon Change in Control. Except as otherwise provided in Section 5.1(b) below, a Participant's Accrued Benefit shall become fully Vested upon completion of five years of Vesting Service or, if earlier, upon the later of the Participant's attainment of age sixty-two while an Employee or his or her fifth anniversary of becoming a Participant.
(b) Vesting and Payment of Benefits Upon a Change in Control.
(i) Notwithstanding any other provisions of the Plan, upon the occurrence of a Change in Control (as defined below), each Participant's Accrued Benefit shall deemed to be fully Vested under the Plan and each Executive Participant shall be entitled to benefits under the Plan in accordance with the following: (A) As of the date of the Change in Control, such Executive Participant shall be deemed to have attained the Normal Retirement Age; (B) with respect to each year between such Executive Participant's actual age as of the date of the Change in Control (if less than the Normal Retirement Age) and the Normal Retirement Age (the "Interim Period"), such Executive Participant shall be deemed to have been continuously employed by the Company in, and to have continuously performed (without any Breaks in Service) the duties of, the position with the Company that such Executive Participant held as of the date of the Change in Control; (C) such Executive Participant shall be deemed to be entitled to Credited Service for all times during the Interim Period; (D) such Executive Participant's base salary, as of the date of the Change in Control, and the Executive Participant's highest average annual bonus amount received for any three years during the last five year period immediately preceding a Change in Control, shall be used for the purposes of calculating the entire benefit under this Plan and the base salary and annual bonus amount (as calculated) shall be deemed to have increased at a rate of 4.0% per year each year during the Interim Period, resulting in a corresponding increase in the Executive Participant's Compensation for purposes of calculating a Participant's benefits under this Plan; (E) such Executive Participant's Accrued Benefit under this Plan shall be calculated in accordance with the assumptions set forth in the preceding clauses (A) - (D); and (F) prior to or upon the consummation of the transactions giving rise to the Change in Control, the Company shall pay to such Executive Participant, by certified or bank cashier's check, a cash lump sum payment that is the Equivalent of such Executive Participant's Vested Accrued Benefit determined in accordance with this Section 5.1(b).
(ii) A "Change in Control" shall be deemed to occur 90 days prior to the occurrence of any of the following events:
(w) any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act" ), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bergen Brunswig Corporation representing 50% or more of the combined voting power of Bergen Brunswig Corporation's then outstanding securities, provided, however, that for purposes of this calculation, purchases by employee benefit plans of Bergen Brunswig Corporation and purchases by Bergen Brunswig Corporation itself shall be disregarded; or
(x) there shall be consummated: (A) any consolidation, merger or transaction in the nature of a Section 351 transaction under the Code (whether or not it meets the requirements for nonrecognition of gain under Section 351 of the Code) of Bergen Brunswig Corporation in which either Bergen Brunswig Corporation is not the continuing or surviving corporation, the majority of the common stock of Bergen Brunswig Corporation is no longer held by holders of Bergen Brunswig Corporation common stock immediately prior to the transaction or pursuant to which shares of Bergen Brunswig Corporation's common stock would be converted into cash, securities or other property; provided, however, that a consolidation, merger or transaction in the nature of a Section 351 transaction under the Code in which the holders of Bergen Brunswig Corporation's common stock immediately prior to the merger own, on a proportionate basis, at least 80% of the common stock of the surviving corporation immediately after the transaction shall not be considered a Change in Control; or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the operating assets of Bergen Brunswig Corporation; or
(y) the stockholders of Bergen Brunswig Corporation approve a plan or proposal for the liquidation or dissolution of Bergen Brunswig Corporation; or
(z) during any rolling period of two consecutive years ending on any date after the date hereof, individuals who at the beginning of such period constituted the Board of Directors and any new director whose election or nomination for election was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; provided, however, that no director shall be considered to have been so approved if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) other than the Board of Directors (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.
(iii) In the event of a Change in Control, upon payment to each Executive Participant of the cash lump sum payment referred to in clause (F) of subsection 5.1(b)(i) above, the Company shall also pay to such Executive Participant, by certified or bank cashier's check, a cash lump sum payment equal to (x) the amount of excise tax for which such Executive Participant is or may become liable under Internal Revenue Code Section 4999 (or any successor provision) with respect to the payments made under this Section 5.1(b), taking into account all compensation includable in the computation under Internal Revenue Code Section 280G (or any successor provision), including, without limitation, payments under this subsection (iii) plus (b) the amount of such Executive Participant's income tax liability arising from the Company's payment of the excise tax liability referred to in the preceding clause (a), such that the payments under clauses (a) and (b) taken together shall provide such Participant with sufficient after-income tax dollars to pay such Participant's liability for Internal Revenue Code Section 4999 excise taxes. The maximum combined marginal federal and applicable state(s) income tax rate in effect for the year in which the payments under this subsection (iii) are to be made shall be used in computing the amount of such payments. In the event that the Company and the Executive Participant are unable to agree upon the amount of the payment required under this subsection (iii), such amount shall be determined by Tax Counsel (as defined below). The decision of such Tax Counsel shall be final and binding upon both the Company and the Executive Participant. All fees and expenses of such Tax Counsel shall be paid by the Company. As used in this subsection (iii), the term "Tax Counsel" shall mean an attorney at law or certified public accountant who is a partner at a law firm of at least 25 attorneys or a partner at a "Big 6" accounting firm, respectively, provided that such firm has not provided services to the Company or the respective Executive Participant or any affiliate of the Company or such Executive Participant within the last year.
(iv) Upon the occurrence of a Change in Control, (x) this subsection 5.1(b) shall become irrevocable, and (y) Sections 6.8, 7.4(h), 7.4(i), 7.5 and 10.11 hereof shall cease to apply, none of such sections shall ever thereafter be reinstated, and no similar provisions shall ever be adopted hereunder.
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ARTICLE VI
PAYMENT OF BENEFITS
6.3 Joint and Survivor Annuities.
(a) Subject to Section 6.4, a Participant's Vested Accrued Benefit shall be paid in the Normal Benefit Form. Distribution shall also be made in the form of a joint and survivor annuity if a former Spouse is entitled to survivor annuity benefits under a qualified domestic relations order, as provided in Section 10.7. More than one Spouse may be entitled to joint and survivor annuity benefits. For example, two former Spouses may have been awarded survivor benefits and there may also be a current Spouse. In such cases, this Section shall be applied by dividing the Participant's Vested Accrued Benefit in proportion to the spousal entitlements and then applying this Section to each portion as if each portion were a separate Vested Accrued Benefit belonging to the Participant and the Spouse or former Spouse in question.
(b) After a Participant has received the explanation required by subsection (c) of this Section 6.3, the Participant and his or her Spouse, if any, if such Spouse is a Beneficiary (or former Spouse if such Spouse has the power to do so under a qualified domestic relations order), may elect, with the consent of the Plan Administrator and in the manner prescribed by it, not to receive a joint and survivor annuity, in which case the Participant shall receive his or her Vested Accrued Benefit in an Optional Benefit Form. This election may be made at any time but must be made no later than one year preceding the time benefit payments would otherwise commence under Section 6.1. This election shall become irrevocable one year preceding the time benefit payments would otherwise commence under Section 6.1. Spousal consents to elections waiving joint and survivor annuity benefits that are required must be given in writing witnessed by a representative of the Plan Administrator or a notary public. A spousal consent will only be valid if it also consents to both the alternative form of payment chosen and the Beneficiary, if any, thereunder and only if the form of payment and the Beneficiary cannot be changed without future spousal consent (unless the written spousal consent expressly permits such changes to be made and the Spouse acknowledges that he or she understands that he or she does not have to grant this permission). A Spouse's written consent must acknowledge the effect of the payment and the Beneficiary election to which he or she is consenting. The Plan Administrator in its discretion may refuse to recognize a spousal consent if it believes for any reason that the consent is invalid. Spousal consent shall be waived by the Plan Administrator if a Participant has no Spouse and may be waived if the Spouse cannot be located or for such other reasons authorized in applicable Treasury Regulations. Revocations of previous elections to waive the joint and survivor annuity may be made at any time and any number of times within the election period and new waiver elections may thereafter be made. Revocations of elections to waive the joint and survivor annuity may be made without spousal consent. A spousal consent given by one Spouse shall be invalid as to any former or subsequent Spouse (but no benefit shall be payable under this Section to a person who becomes the Participant's Spouse after the Participant's benefit payments under the Plan have commenced).
(c) Assuming sufficient notice of termination of Employment has been provided to the Plan Administrator, no less than thirty nor more than ninety days before termination of Employment, the Plan Administrator shall furnish each Participant with a written explanation of the terms and conditions of the Normal Benefit Form, the Participant's right to make an election to waive the Normal Benefit Form or to revoke a previous election and the effect of such election or revocation, the rights of the Participant's Spouse in connection with an election by the Participant, and the relative values of the Optional Benefit Forms then available under the Plan.
(a) A cash lump sum which is the Equivalent of the Participant's Vested Accrued Benefit.
(a) If the amount payable under this Article cannot be ascertained or the person to whom it is payable has not been determined or located and reasonable efforts to do so have been made, then distributions under this Article shall commence, retroactive to the date they would normally have commenced, within a reasonable time after such amount is ascertained or such person is determined or located.
(b) Distribution of benefits to a Participant shall not be triggered by the transfer of the Participant to any other job (whether or not with the Employer or an affiliate) if the transfer is arranged by the Employer. The Participant's benefit will commence when the Participant ceases to be employed by the Employer or by any other company for which the Participant worked in an Employer-arranged job.
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ARTICLE VII
ADMINISTRATION OF THE PLAN
(a) To determine, consistent with this Plan, all questions relating to the future eligibility of persons to participate;
(b) To determine the amount and kind of benefits, consistent with this Plan, that are payable to Participants;
(c) To maintain all records necessary for the administration of the Plan;
(d) To provide for disclosure of all information and filing or provision of all reports and statements to Participants, Spouses, Beneficiaries or governmental bodies as shall be required by ERISA or any other federal law;
(e) To adopt or modify Plan Rules, as necessary, for the regulation or application of the Plan; such Rules may establish administrative procedures or requirements which modify the terms of this Plan but Plan Rules shall not substantially alter significant requirements or provisions of the Plan;
(f) To administer, consistent with this Plan, the claims procedure set forth in Section 7.4 below;
(g) To delegate any power or duty to any firm or person in accordance with Section 7.2 below; and
(h) To exercise all other powers or duties granted to the Plan Administrator by other provisions of the Plan.
7.2 Delegation of Administrative.
(a) The Plan Administrator may delegate all or any portion of its administrative responsibilities with respect to the Plan to any other person pursuant to this Section.
(b) A delegation under this Section shall be accomplished by a written instrument executed by the Plan Administrator specifying responsibilities delegated and the fiduciary responsibilities allocated to such delegate. The delegation of such responsibilities shall be effective upon the date specified in the delegation, subject to written acceptance by the delegate. Any delegation of responsibilities shall provide for reports, no less often than annually, by such delegate to the Plan Administrator of such information necessary to fully inform the Plan Administrator of the status and operation of the Plan and of the delegate's discharge of responsibilities delegated.
7.3 Compensation, Expenses and Indemnity.
(a) The Plan Administrator and any delegate under Section 7.2 above who is an Employee shall serve without compensation for services to the Plan. The Employer shall furnish the Plan Administrator or any such delegate with all clerical or other assistance necessary in the performance of his or her duties. The Plan Administrator is authorized to employ such legal counsel and advisors as it may deem advisable to assist in the performance of its duties hereunder.
(b) All costs of administering the Plan (including the cost of legal services described in subsection (a)) shall be paid by the Employer. Except as the Plan Administrator otherwise directs, any expenses incurred in resolving disputes among different claimants as to their entitlement to a benefit shall be charged against the benefit, which shall be reduced accordingly.
(c) To the extent permitted by applicable law, the Employer shall indemnify and save harmless the Board of Directors, the Plan Administrator and any delegate appointed pursuant to Section 7.2 above who is an Employee against any and all expenses, liabilities and claims (including legal fees incurred to defend against such liabilities and claims) arising out of their discharge in good faith of responsibilities under or incident to the Plan. Expenses and liabilities arising out of willful misconduct shall not be covered under this indemnity. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Employer or provided by the Employer under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, as such indemnities are permitted under applicable law. Payments with respect to any indemnity and payment of expenses or fees shall be made only from assets of the Employer.
(a) Normally, a Participant, Beneficiary Contingent Annuitant or Spouse need not present a formal claim in order to qualify for rights or benefits under this Plan. However, if any such person (a "claimant") does not believe he or she will receive the benefits to which the person is entitled or believes that the Plan is not being operated properly, the claimant must file a formal claim under the procedures set forth in this Section. A formal claim must be filed within six months of the date upon which the claimant (or his or her predecessor in interest) first knew (or should have known) of the facts upon which the claim is based.
(b) A claim by any person shall be presented to the Plan Administrator in writing. A claims official appointed by the Plan Administrator shall, within ninety days of receiving the claim, consider the claim and issue his or her determination thereon in writing. The claims official may extend the determination period for up to an additional ninety days by giving the claimant written notice. If the claim is granted, the benefits or relief the claimant seeks will be provided.
(c) If the claim is wholly or partially denied, the claims official shall, within ninety days (or such longer period as described above), provide the claimant with written notice of the denial, setting forth, in a manner calculated to be understood by the claimant,
(i) the specific reason or reasons for the denial,
(ii) specific references to pertinent Plan provisions on which the denial is based,
(iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why the material or information is necessary, and
(iv) an explanation of the Plan's claim review procedure.
If the claims official fails to respond to the claim in a timely manner, the claimant may treat the claim as having been denied by the claims official.
(d) Each claimant shall have the opportunity to appeal in writing the claims official's denial of a claim to a review official (which may be a person or a committee) designated by the Plan Administrator for a full and fair review. A claimant must request review of a denied claim within sixty days after receipt by the claimant of written notice of denial of his or her claim or within sixty days after such written notice was due, if the written notice was not sent. In connection with the review proceeding, the claimant or his or her duly authorized representative may review pertinent documents and may submit issues and comments in writing. The claimant may only present evidence and theories during the review which the claimant presented during the claims procedure, except for information which the claims official requested the claimant to provide to perfect the claim (see subsection (c)(iii) of this Section 7.4). Any claims which the claimant does not in good faith pursue through the review stage of the procedure shall be treated as having been irrevocably waived.
(e) The Plan Administrator shall adopt procedures pursuant to which claims shall be reviewed and may, in its discretion, adopt different procedures for different claims without being bound by past actions. Any procedures adopted, however, shall be designed to afford a claimant a full and fair review of his or her claim.
(f) The decision by the review official upon review of a claim shall be made not later than sixty days after the written request for review is received by the Plan Administrator, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of the request for review.
(g) The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based.
(h) If a claimant pursued his or her claim through the review stage of the claims procedure and the claim was denied (or the review official failed to decide the claim on a timely basis, in which case it shall be deemed denied), the claimant will be permitted to appeal the denial by arbitration pursuant to Section 7.5 below of the Plan. In no event shall any claim to which this procedure applies be subject to resolution by any means (such as in a court of law) other than by this claim procedure or arbitration under Section 7.5 below.
(i) This Section shall apply to a claim notwithstanding any failure by the Plan Administrator or its delegates to follow the procedures in this Section with respect to the claim. However, an arbitrator reviewing such a claim may permit a claimant to present additional evidence or theories if the arbitrator determines that the claimant was precluded from presenting them during the claim and review procedures due to procedural errors of the Plan Administrator or its delegates.
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ARTICLE VIII
AMENDMENT AND TERMINATION OF THE PLAN
(a) Bergen Brunswig Corporation, through its Board of Directors, reserves the right at any time to amend the Plan or to merge, consolidate, divide or otherwise restructure the Plan prospectively or retroactively, in accordance with this Article VIII, subject to the restrictions and accrued rights of Participants as set forth in Articles III, IV, V and VI and Section 7.5, which take effect upon the occurrence of a change in control (as defined in Section 5.1(b)(ii)).
(b) All amendments or other changes shall be adopted in writing by resolution of the Board of Directors or, in the case of an amendment that does not substantially alter the nature or expense of the Plan, by the Plan Administrator without Board approval.
(c) Any material modification of the Plan by amendment or termination shall be communicated to all interested parties in the time and manner required by law.
(d) No Plan amendment shall be applied retroactively to decrease the Vested percentage or Vested Accrued Benefit of a Participant or former Participant whose Employment terminated before the date the amendment became effective.
(e) No Plan amendment shall be applied retroactively to decrease the amount of Service credited to any person for Employment before the date the amendment became effective.
(f) Except as provided in subsections (d) and (e) of this Section 8.1, all rights under the Plan shall be determined under the terms of the Plan as in effect at the time the determination is made.
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ARTICLE IX
FUNDING OF BENEFITS
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ARTICLE X
MISCELLANEOUS PROVISIONS
(a) In the event any amount becomes payable under the Plan to a minor or a person who, in the sole judgment of the Plan Administrator, is considered to be unable to give a valid receipt for the payment by reason of physical or mental condition, the Plan Administrator may direct that payment be made to any person found by the Plan Administrator, in its sole judgment, to have assumed the care of the person in question. Any payment made pursuant to such a finding shall constitute payment by the Plan and result in a full release and discharge of the Plan Administrator, the Employer and their officers, directors, employees, agents and representatives.
(b) Payment of benefits to the person entitled thereto may be made by a check sent first class mail, address correction requested, to the last known address on file with the Plan Administrator. If within six months from the date of issuance of the check the payment letter cannot be delivered to the person entitled thereto or the check has not been negotiated, all benefits under the Plan may be forfeited at the discretion of the Plan Administrator.
(c) If the Plan Administrator retains at the Plan's expense a private investigator or other person or service to assist in locating a missing person, all costs incurred for such services shall be charged to the benefit to which the missing person was entitled (which shall be reduced by the amount of the costs incurred), except as the Plan Administrator may otherwise direct.
10.4 Termination of Employment
(a) A person's Employment shall terminate upon the first to occur of his or her resignation from or discharge by the Employer, or his or her death or retirement. A person's Employment shall not terminate on account of an authorized leave of absence, sick leave or vacation, or on account of a military leave described in subsection (b) of this Section 10.4, a direct transfer between Employers or a temporary layoff for lack of work. However,
(i) continuation upon a temporary layoff for lack of work for a period in excess of the number of months allowable under applicable personnel policies of the Employer shall be considered a discharge effective as of the end of the last day of such period,
(ii) failure to return to work upon expiration of any leave of absence, sick leave or vacation or within the time period allowed under applicable personnel policies of the Employer after recall from a temporary layoff for lack of work shall be considered a resignation effective as of the expiration of such leave of absence, sick leave, vacation or layoff, and
(iii) solely for purposes of this Plan, Employment shall not terminate until the expiration of all severance benefits payable by the Employer.
(b) Any Employee who leaves the Employer directly to perform service in the Armed Forces of the United States or in the United States Public Health Service under conditions entitling the Employee to reemployment rights, as provided in the laws of the United States, shall be on military leave. An Employee's military leave shall expire if such Employee voluntarily resigns from the Employer during the leave or if he or she fails to make application for reemployment within the period specified by such laws for the preservation of reemployment rights. In such event, the individual's Employment shall be deemed to terminate by resignation on the date the military leave expired.
(c) If a Participant ceases to be employed by the Employer and all related companies, as determined under Section 2.12(e), because of the disposition by the Employer or a related company of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) or substantially all of the assets (within the meaning of Code Section 409(d)(2)) used by the Employer or a related company in a trade or business, the Participant's Employment shall be considered terminated for all Plan purposes. This subsection shall not apply to the extent it is overridden by any contrary or inconsistent provision in applicable sales documents or any related documents, whether adopted before or after the sale and any such contrary or inconsistent provision shall instead apply and is hereby incorporated in the Plan by this reference.
(d) If an Employee is absent from work because of such individual's pregnancy, the birth of a child, placement of an adopted child, or caring for an adopted or natural child following birth or placement, determinations of whether the Employee has incurred a Break in Service because of the absence shall be made in accordance with the following special rules:
(i) If the maternity/paternity absence is an Employer-approved leave of absence, it shall be treated as any other approved leave of absence (i.e., a Break in Service will not occur until the individual's Employment terminates because he or she quits or is discharged or he or she is considered terminated pursuant to Section 10.4(a)).
(ii) If the maternity/paternity absence is not an Employer-approved leave of absence the individual's Employment will be deemed terminated as of the date determined under applicable personnel policies of the Employer but the individual shall not incur a Break in Service until the end of the second three hundred and sixty-five consecutive day period of his or her absence from Employment. If the individual returns to Employment during the first three hundred and sixty-five consecutive days of absence, the period of absence shall be treated as Service. If the individual returns to Employment during the second three hundred and sixty-five consecutive day period of absence, the portion of that second period which precedes the individual's return to Employment will not be a Break in Service but will not count as Service.
(e) No credit shall be given under subsection (d) unless the Employee files a written request which establishes valid reasons for the absence, as determined by the Plan Administrator.
(f) Except to the extent that a maternity or paternity absence constitutes an authorized leave of absence from the Employer under applicable personnel policies, an Employee who is absent from work for reasons of maternity or paternity shall be deemed to have terminated Employment for all purposes of this Plan other than the special rules in subsection (d).
10.7 Division of Benefits by Domestic Relations Orders.
(a) This Plan will follow the terms of any qualified domestic relations order issued with respect to a Participant. However, except as provided in subsection (e), the Plan will only follow orders which meet all of the requirements of subsection (b) or subsection (c). Subsection (c) establishes an optional standardized procedure.
(b) A "qualified domestic relations order" is any judgment, decree or order, including the approval of a property settlement agreement, issued by a court of competent jurisdiction, provided that
(i) the order relates to the provision of child support, alimony or marital property rights and is made pursuant to state domestic relations or community property laws;
(ii) the order creates or recognizes the existence of an alternate payee's right to receive all or a portion of a Participant's Accrued Benefit;
(iii) the order specifies the name and last known mailing address of the Participant and each alternate payee covered by the order;
(iv) the order precisely specifies the amount or percentage of the Participant's Accrued Benefit to be paid to each alternate payee or the manner in which the amount or percentage is to be determined;
(v) the order specifies the number of payments or the period to which the order applies;
(vi) the order specifically names this Plan as the plan to which the order applies;
(vii) the order does not require this Plan to provide any type of benefits or form of benefits not otherwise provided under this Plan;
(viii) the order does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined by the Plan Administrator to be a qualified domestic relations order; and
(ix) (if the order requires that payments to the alternate payee commence before they commence with respect to the Participant) the order (x) specifies that payments will not commence before the earlier of (1) the date on which the Participant attains age fifty or the first date on which the Participant could begin receiving benefits under the Plan if the Participant's Employment terminated, whichever is later, or (2) the date benefits first become payable to the Participant and (y) does not permit the alternate payee to elect a joint and survivor annuity covering the alternate payee and a spouse (other than the Participant).
A qualified domestic relations order may provide that a former Spouse of the Participant is to be treated as a surviving Spouse for purposes of the pre-retirement or post-retirement joint and survivor annuity provisions of this Plan. Subsection (d) of this Section 8.7 sets forth the procedures under which the Plan Administrator shall determine whether a domestic relations order properly qualifies.
(c) The Plan Administrator at its discretion may furnish on request a standard form of qualified domestic relations order to a Participant or any other person. This order may provide for an immediate lump sum payment of the Equivalent of the amount to which the Plan Administrator shall treat it as a qualified domestic relations order and shall pay benefits to the alternate payee in accordance with its terms. If this procedure is not followed, the alternate payee (i) must wait until the time described in subsection (b)(ix) of this Section 10.7 before benefits which are not in pay status can become payable to the alternate payee and (ii) cannot use any special forms of benefit payment authorized in the standard form of order. Any special benefit form provisions in standard domestic relations orders adopted by the Plan Administrator shall be authorized as benefit options under this Plan, but only as Plan Administrator shall treat it as a qualified domestic relations order and shall pay benefits to the alternate payee in accordance with its terms. If this procedure is not followed, the alternate payee (x) must wait until the time described in subsection (b)(ix) of this Section 10.7 before benefits which are not in pay status can become payable to the alternate payee and (y) cannot use any special forms of benefit payment authorized in the standard form of order. Any special benefit form provisions in standard domestic relations orders adopted by the Plan Administrator shall be authorized as benefit options under this Plan, but only as to alternate payees for whom the standard order has been used.
(d) The Plan Administrator need not treat any judgment, decree or order as a qualified domestic relations order unless it meets all of the requirements set forth in subsection (b) or (c) of this Section 10.7 and is sufficiently precise and unambiguous so as to preclude any interpretative disputes. If the order meets these requirements, the Plan Administrator shall follow the terms of the order whether or not this Plan has been joined as a party to the litigation out of which the order arises. Upon receipt of a domestic relations order, the Plan Administrator shall notify the Participant and each alternate payee of (i) its receipt of the order and (ii) its need to determine the qualified status of the order in accordance with subsection (b) or (c) of this Section 10.7. An alternate payee may designate a representative to receive copies of future notices with respect to the qualified status of the order. To the extent an order calls for benefits to be paid to an alternate payee before the qualified nature of the order is determined, a separate account shall be established to hold the benefit payments affected by the order. This account shall be administered in accordance with the rules set forth in Section 206(d)(3)(H) of ERISA.
(e) The Plan Administrator in its discretion may treat a property settlement agreement or stipulation which is not contained in a judgment, decree or order as a qualified domestic relations order if it meets all of the other requirements of this Section.
10.8 Legal Costs; Increased Benefit.
(a) The Employer shall pay to a Participant all reasonable attorneys' fees and necessary costs and disbursements incurred by or on behalf of such Participant in connection with or as a result of a dispute under this Agreement, whether or not the Participant ultimately prevails. Attorneys' fees shall be paid by the Employer within 30 days of presentment by the Participant to the Employer of an invoice received by the Participant from the Participant's attorneys. Any late payments under this Section shall bear interest at a rate of twenty percent (20%) per month.
(b) If the Employer disputes any position taken by a Participant under this Agreement and the Participant prevails, the Participant's benefit under this Plan shall be doubled and the increased amount shall become immediately due and payable to the Participant.
(a) Every person with an interest in the Plan or claiming benefits under the Plan shall furnish the Plan Administrator on a timely and accurate basis with such documents, evidence or information as it considers necessary or desirable for the purpose of administering the Plan. The Plan Administrator may postpone payment of benefits until such information and such documents have been furnished.
(b) Once every twelve months every person claiming a benefit under this Plan shall file a signed, written notice to the Plan Administrator of his or her post office address and each change of post office address. Any communication, statement or notice addressed to such a person at his or her latest post office address as filed with the Plan Administrator will, on deposit in the United States mail with postage prepaid, be as binding upon such person for all purposes of the Plan as if it had been received, whether actually received or not. If a person fails to give notice of his or her correct address, the Plan Administrator, the Employer and Plan fiduciaries shall not be obliged to search for, or to ascertain, his or her whereabouts.
10.16 Plurals. Where the context so indicates, the singular shall include the plural and vice versa.
IN WITNESS WHEREOF, the Company has caused this Amendment and Restatement to be executed by its duly authorized officer as of the 13th day of February, 2001.
By Order of the Board of Directors of
BERGEN BRUNSWIG CORPORATION, a New Jersey corporation
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Chairman of the Board and |
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Chief Executive Officer |
Chief Legal Officer and Secretary |
Exhibit 10(b)
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BERGEN BRUNSWIG CORPORATION
SECOND AMENDED AND RESTATED
EXECUTIVE LOAN PROGRAM
AS OF FEBRUARY 13, 2001
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BERGEN BRUNSWIG CORPORATION
SECOND AMENDED AND RESTATED
EXECUTIVE LOAN PROGRAM
AS OF FEBRUARY 13, 2001
This Amended and Restated Executive Loan Program (the "Program") of Bergen Brunswig Corporation (the "Company"), effective this 13th day of February, 2001, supersedes and replaces the Company's Amended and Restated Executive Loan Program effective as of the 3rd day of March, 1995 and original Executive Loan Program effective as of April 19, 1990 (the "Original Plan") and governs all loans made under the Original Plan and all loans made hereunder after the date hereof.
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ARTICLE I
PURPOSE
The purpose of the Program is to provide interest-free loans to certain designated corporate officers of the Company.
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ARTICLE II
ELIGIBILITY
Except those officers who are also members of the Board of Directors, all corporate officers of the Company who have, on or after February 13, 2001, as part of their title, the title of Senior Executive Vice President, President, Chief Operating Officer, Chief Executive Officer or Chairman of the Board, or any combination thereof, are eligible to participate in the Program.
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ARTICLE III
INITIAL LOAN
An eligible corporate officer of the Company may borrow from the Company up to one hundred twenty-five percent of the borrower's annual rate of base salary in effect on the date the loan is requested. The loan shall be interest-free. (Interest may, nevertheless, be imputed for tax purposes.) The loan shall mature upon the borrower's termination of employment, unless the loan is earlier forgiven and cancelled in accordance with Article VI or Section 7.4 hereof. For purposes of the Program, a borrower's employment shall terminate on account of resignation, discharge, retirement, death or the indefinite suspension of employment duties on account of disability. Upon maturity, the loan shall be repaid to the Company upon the Company's demand, unless the loan is earlier forgiven and cancelled in accordance with Article VI or Section 7.4 hereof. The Company acknowledges that it is obligated to forgive on August 7, 2001, certain debt evidenced by certain executive loans pursuant to the terms and conditions of an agreement between the Company and said executives entered into on or about August, 1997.
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ARTICLE IV
LOAN CONDITIONS
4.1 In order to obtain a loan under the Program, a borrower must execute all loan documents the Company requires (e.g., promissory notes and security agreements). Collateral must be pledged to secure each loan. Any real or personal property acceptable to the Company, as determined by the Company in its sole and absolute discretion, may be used as collateral. The value of the collateral at all times must be at least one hundred twenty-five percent of the amount of the loan, as the Company shall, in good faith, determine. The Company has the right to require additional collateral if the value of the collateral falls below this required level. In such a case, if additional collateral is not provided, the loan shall become due and payable and the Company may demand repayment in full.
4.2 All pledges of collateral shall be made in accordance with applicable law.
4.3 The one hundred twenty-five percent collateral requirements shall be reduced to one hundred percent to the extent the loan proceeds are pledged as collateral and invested in a Company-approved investment.
4.4 Any earnings on collateral shall belong to the borrower who pledged the collateral and shall not become part of the collateral.
4.5 A borrower shall, with approval of the Company, be entitled to substitute assets as collateral.
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ARTICLE V
ADDITIONAL LOANS
5.1 No earlier than three years after the date this Program is funded, and at the end of every three-year period thereafter, each borrower may request additional loans. The maximum amount of any additional loan shall be the difference between the amount the borrower previously borrowed and one hundred twenty-five percent of the individual's annual rate of base salary on the date the additional loan is requested.
5.2 To receive any additional loans, the individual must meet the same conditions required for initial loans, including the collateral requirement. In addition, the individual shall sign any required loan documents, including documents which consolidate the additional loans with any prior loan.
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ARTICLE VI
CHANGE IN CONTROL PROVISIONS
6.1 Any promissory note evidencing a loan issued pursuant to the Program may, at the Company's option, provide that such loan shall be automatically forgiven and cancelled upon the occurrence of a Change in Control (as defined below) without any further action required on the part of the Company or its Board of Directors and that the Company shall in such event take such steps as the borrower under such loan may reasonably request in order to evidence such forgiveness and cancellation of such loan and the immediate release of the collateral securing such loan.
6.2 In the event any loan issued hereunder is forgiven and cancelled in accordance with this Article VI, the Company shall be further obligated to pay to the borrower under such loan, by certified or bank cashier's check within three (3) days of demand therefor by such borrower, a lump sum payment equal to (a) the amount of excise tax (if any) for which such borrower is or may become liable under Internal Revenue Code Section 4999 (or any successor provision), taking into account all compensation includable in the computation under Internal Revenue Code Section 280G (or any successor provision), including, without limitation, payments under this Section 6.2, plus (b) the amount of such borrower's income tax liability arising from the Company's payment of the excise tax liability referred to in the preceding clause (a), such that the payments under clauses (a) and (b) taken together shall provide such borrower with sufficient after-income tax dollars to pay such borrower's liability for Internal Revenue Code Section 4999 excise taxes. The maximum combined marginal federal and applicable state(s) income tax rate in effect for the year in which the payments under this Section 6.2 are to be made shall be used in computing the amount of such payments. In the event that the Company and the borrower are unable to agree upon the amount of the payment required under this Section 6.2, such amount shall be determined by Tax Counsel (as defined below). The decision of such Tax Counsel shall be final and binding upon both the Company and the borrower. All fees and expenses of such Tax Counsel shall be paid by the Company.
6.3 As used in this Article VI, the term "Change in Control" shall mean:
a. any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities, provided however that for purposes of this calculation, purchases by employee benefit plans of the Company and purchases by the Company itself shall be disregarded; or
b. there shall be consummated:
i) any consolidation, merger or transaction in the nature of a Section 351 transaction under the Internal Revenue Code of 1986, as amended from time to time (the "Code") (whether or not it meets the requirements for nonrecognition of gain under Section 351 of the Code) of the Company in which either the Company is not the continuing or surviving corporation, the majority of the common stock of the Company is no longer held by holders of the Company's common stock immediately prior to the transaction or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property; provided, however, that a consolidation, merger or transaction in the nature of a Section 351 transaction under the Code in which the holders of the Company's common stock immediately prior to the merger own, on a proportionate basis, at least 80% of the common stock of the surviving corporation immediately after the transaction shall not be considered a change in control; or
ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the operating assets of the Company; or
c. the stockholders of the Company approve a plan or proposal for the liquidation or dissolution of the Company; or
d. during any rolling period of two consecutive years ending on any date after the date hereof, the individuals who at the beginning of such period constituted the Board of Directors of the Company and any new director whose election or nomination for election was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors; provided, however, that no director shall be considered to have been so approved if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) other than the Board of Directors (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.
6.4 As used in this Article VI, the term "Tax Counsel" shall mean an attorney at law or certified public accountant who is a partner at a law firm of at least 25 attorneys or a partner at a "Big 6" accounting firm, respectively, provided that such firm has not provided services to the Company or the respective borrower or any affiliate of the Company or such borrower within the last year.
6.5 This Article VI shall be deemed a part of and incorporated by reference into each promissory note that includes a Change in Control provision pursuant hereto, and the borrower under each such promissory note shall be provided a copy of this Program and shall be entitled to enforce the provisions of this Article VI (including but not limited to the obligations of the Company to pay certain of such borrower's tax liabilities as set forth above in Section 6.2) against the Company.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 The Program shall be administered by the plan administrator, which shall be the Company acting through its Chief Executive Officer or such officer's delegate. The plan administrator shall have the power to make all determinations needed in connection with the Program, to adopt forms of loan documents, to exercise all rights and powers allocated to the Company under this Program and to do anything else which is helpful or necessary to the proper operation of the Program.
7.2 The Company reserves the right, at any time, to require an individual to sign substitute loan documents, provided the substitute documents do not require additional collateral, accelerate the loan's maturity date, or impose an interest charge, except as may be required to comply with applicable law.
7.3 The Company reserves the right at any time to amend, modify or terminate the Program; provided that no such amendment, modification or termination shall in any manner require additional collateral, accelerate the maturity date, impose an interest charge or otherwise alter the terms of any outstanding loans in a manner adverse to the borrowers under such loans, except as may be required to comply with applicable law.
7.4 The Company reserves the right at any time to discontinue making new loans or to cancel any outstanding loan by forgiving it.
7.5 The Program is an unfunded deferred compensation plan which is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). Accordingly, federal law shall govern this Program. To the extent federal law is inapplicable, New Jersey law shall apply.
7.6 The Program is strictly a voluntary undertaking on the part of the Company and shall not constitute a contract between the Company and any individual, or consideration for, or an inducement or condition of, the employment of an individual. Nothing contained in the Program shall give any individual the right to be retained in the service of the Company or to interfere with or restrict the right of the Company, which is hereby expressly reserved, to discharge or retire any individual at any time for any reason not prohibited by statute, without the Company being required to show cause for the termination.
7.7 Certain Executives participating in this Program shall have the following amounts of debt under this program forgiven on August 7, 2001 without future act or condition:
L. Burkett |
$275,000 |
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C. Carpenter |
$281,250 |
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N. Dimick |
$406,250 |
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B. Martini |
$281,250 |
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R. Martini |
$1,400,000 |
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M. Sawdei |
$262,500 |
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C. Scherman |
$218,750 |
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V. Tabib |
$150,000 |
On or about August 7, 2001, the Company shall cancel all evidence of the indebtedness listed above and terminate all security instruments and arrangements related thereto.
Executed at Orange, California, on the date first set forth above.
BERGEN BRUNSWIG CORPORATION, |
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a New Jersey corporation |
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By: |
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Chairman of the Board and |
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Chief Executive Officer |
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By: |
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Executive Vice President, |
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Chief Legal Officer and Secretary |
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