-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HeyWlR7ujDlPNrQ1b+iDbJdciCXGhJQGaqp5RND/BSuZQcC3ilqGkUsGJ650o2z4 CVf0ftc4BkuIHOh4ubZYyg== 0000950152-01-501688.txt : 20010511 0000950152-01-501688.hdr.sgml : 20010511 ACCESSION NUMBER: 0000950152-01-501688 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11373 FILM NUMBER: 1628869 BUSINESS ADDRESS: STREET 1: 7000 CARDINAL PL CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147175000 MAIL ADDRESS: STREET 1: 5555 GLEDNON COURT CITY: DUBLIN STATE: OH ZIP: 43016 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-Q 1 l88224ae10-q.txt CARDINAL HEALTH, INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarter Ended March 31, 2001 Commission File Number 0-12591 CARDINAL HEALTH, INC. (Exact name of registrant as specified in its charter) OHIO 31-0958666 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7000 CARDINAL PLACE, DUBLIN, OHIO 43017 (Address of principal executive offices and zip code) (614) 757-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of Registrant's Common Shares outstanding at the close of business on April 30, 2001 was as follows: Common Shares, without par value: 445,839,803 2 CARDINAL HEALTH, INC. AND SUBSIDIARIES Index *
Page No. -------- Part I. FINANCIAL INFORMATION: --------------------- Item 1. Financial Statements: Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended March 31, 2001 and 2000 (unaudited).......................................... 3 Condensed Consolidated Balance Sheets at March 31, 2001 and June 30, 2000 (unaudited).......................................................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2001 and 2000 (unaudited)................................................ 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................ 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 17 Part II. OTHER INFORMATION: ----------------- Item 1. Legal Proceedings.................................................................. 18 Item 5. Other Information.................................................................. 18 Item 6. Exhibits and Reports on Form 8-K................................................... 19 * Items not listed are inapplicable.
Page 2 3 PART I. FINANCIAL INFORMATION CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2001 2000 2001 2000 ----------- ------------ ------------ ----------- Revenue: Operating revenue $ 10,334.2 $7,665.9 $28,405.8 $22,172.1 Bulk deliveries to customer warehouses 2,245.9 1,945.6 7,140.8 5,642.7 ----------- ------------ ------------ ----------- Total revenue 12,580.1 9,611.5 35,546.6 27,814.8 Cost of products sold: Operating cost of products sold 9,388.1 6,874.9 25,771.1 19,909.7 Cost of products sold - bulk deliveries 2,245.9 1,945.1 7,139.8 5,641.0 ----------- ------------ ------------ ----------- Total cost of products sold 11,634.0 8,820.0 32,910.9 25,550.7 Gross margin 946.1 791.5 2,635.7 2,264.1 Selling, general and administrative expenses 509.9 425.9 1,469.0 1,289.0 Special charges 86.3 10.7 106.6 53.0 ----------- ------------ ------------ ----------- Operating earnings 349.9 354.9 1,060.1 922.1 Interest expense and other 43.7 38.9 116.9 100.3 ----------- ------------ ------------ ----------- Earnings before income taxes 306.2 316.0 943.2 821.8 Provision for income taxes 113.3 117.6 339.1 310.0 ----------- ------------ ------------ ----------- Net earnings $192.9 $198.4 $604.1 $511.8 =========== ============ ============ =========== Earnings per Common Share: Basic $ 0.43 $0.45 $1.37 $1.16 Diluted $ 0.42 $0.44 $1.33 $1.14 Weighted average number of Common Shares outstanding: Basic 444.3 440.5 441.6 440.0 Diluted 456.5 449.2 453.9 449.6 Cash dividends declared per Common Share $0.020 $0.017 $0.060 $0.050
See notes to condensed consolidated financial statements. Page 3 4 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN MILLIONS)
MARCH 31, JUNE 30, 2001 2000 --------------- ---------------- ASSETS Current assets: Cash and equivalents $396.2 $539.5 Trade receivables, net 2,862.3 2,398.8 Current portion of net investment in sales-type leases 214.3 187.7 Merchandise inventories 6,127.7 4,657.0 Prepaid expenses and other 765.1 663.4 --------------- ---------------- Total current assets 10,365.6 8,446.4 --------------- ---------------- Property and equipment, at cost 3,361.1 3,065.5 Accumulated depreciation and amortization (1,502.1) (1,337.2) --------------- ---------------- Property and equipment, net 1,859.0 1,728.3 Other assets: Net investment in sales-type leases, less current portion 631.8 578.6 Goodwill and other intangibles 1,142.2 1,043.7 Other 231.9 227.1 --------------- ---------------- Total $14,230.5 $12,024.1 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term obligations $12.1 $414.1 Current portion of long-term obligations 11.0 9.3 Accounts payable 5,141.9 3,895.1 Other accrued liabilities 1,185.5 1,228.2 --------------- ---------------- Total current liabilities 6,350.5 5,546.7 --------------- ---------------- Long-term obligations, less current portion 2,169.8 1,524.5 Deferred income taxes and other liabilities 618.0 552.5 Shareholders' equity: Common Shares, without par value 1,766.6 1,509.6 Retained earnings 3,903.3 3,331.7 Common Shares in treasury, at cost (456.4) (346.6) Other comprehensive income (115.9) (81.9) Other (5.4) (12.4) --------------- ---------------- Total shareholders' equity 5,092.2 4,400.4 --------------- ---------------- Total $14,230.5 $12,024.1 =============== ================
See notes to condensed consolidated financial statements. Page 4 5 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
NINE MONTHS ENDED MARCH 31, 2001 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $604.1 $511.8 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 209.0 199.5 Provision for bad debts 16.2 17.0 Change in operating assets and liabilities, net of effects from acquisitions: Increase in trade receivables (460.0) (440.7) Increase in merchandise inventories (1,359.6) (1,404.8) Increase in net investment in sales-type leases (79.8) (108.6) Increase in accounts payable 1,135.7 827.6 Other operating items, net (77.3) 135.1 -------------- -------------- Net cash used in operating activities (11.7) (263.1) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired (323.3) (67.5) Proceeds from sale of property and equipment 17.8 43.3 Additions to property and equipment (234.8) (225.5) Purchase of marketable securities available for sale - (7.7) Proceeds from sale of marketable securities available for sale - 56.1 -------------- -------------- Net cash used in investing activities (540.3) (201.3) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in commercial paper and short-term debt (536.1) 1,072.0 Reduction of long-term obligations (40.7) (158.3) Proceeds from long-term obligations, net of issuance costs 917.7 - Proceeds from issuance of Common Shares 186.9 55.4 Dividends on Common Shares and cash paid in lieu of fractional shares (26.5) (22.6) Purchase of treasury shares (138.8) (341.4) Other (1.4) (0.1) -------------- -------------- Net cash provided by financing activities 361.1 605.0 -------------- -------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (190.9) 140.6 CHANGE IN BINDLEY WESTERN INDUSTRIES' FISCAL YEAR (SEE NOTE 4) 47.6 - -------------- -------------- CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 539.5 228.4 -------------- -------------- CASH AND EQUIVALENTS AT END OF PERIOD $396.2 $369.0 ============== ==============
See notes to condensed consolidated financial statements. Page 5 6 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. The condensed consolidated financial statements of Cardinal Health, Inc. (the "Company") include the accounts of all majority-owned subsidiaries and all significant intercompany amounts have been eliminated. The condensed consolidated financial statements contained herein have been restated to give retroactive effect to the merger transaction with Bindley Western Industries, Inc. ("Bindley") on February 14, 2001, which was accounted for as a pooling of interests business combination (see Note 4). These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles for interim reporting. In the opinion of management, all adjustments necessary for a fair presentation have been included. Except as disclosed elsewhere herein, all such adjustments are of a normal and recurring nature. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (the "2000 Form 10-K"). Without limiting the generality of the foregoing, Note 1 of the "Notes to Consolidated Financial Statements" from the 2000 Form 10-K is specifically incorporated herein by reference. Note 2. Basic earnings per Common Share ("Basic") is computed by dividing net earnings (the numerator) by the weighted average number of Common Shares outstanding during each period (the denominator). Diluted earnings per Common Share is similar to the computation for Basic, except that the denominator is increased by the dilutive effect of stock options outstanding, computed using the treasury stock method. In March 2000, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $750 million. Through March 31, 2001, 7 million Common Shares, having an aggregate cost of approximately $440.2 million had been repurchased via an accelerated share repurchase program and placed into treasury shares. In November 2000, the Company's Board of Directors rescinded the remainder of this repurchase program. During the quarter ended March 31, 2001, the Company issued 750,000 Common Shares for aggregate proceeds of $47.7 million, which are to be used for general corporate purposes. The common shares were issued in order for the Company to be able to satisfy all the conditions to consummation of the merger with Bindley (See Note 4). On November 1, 2000, the shareholders of the Company approved, and the Company's articles of incorporation were amended to effect an increase in the number of authorized Common Shares, without par value, from 500 million to 750 million. On February 27, 2001, the Company declared a three-for-two stock split which was distributed on April 20, 2001 to shareholders of record on April 5, 2001. All share and per share amounts included in the condensed consolidated financial statements have been adjusted to retroactively reflect the stock split. Note 3. The Company's comprehensive income consists of net earnings, foreign currency translation adjustments, unrealized loss on investment and net unrealized loss on derivative instruments as follows:
For the three months ended For the nine months ended (in millions) March 31, March 31, 2001 2000 2001 2000 -------------- --------------- -------------- --------------- Net earnings $ 192.9 198.4 $ 604.1 511.8 Foreign currency adjustments (1.5) (12.5) (22.6) (11.8) Unrealized loss on investment - - (5.4) - Net unrealized loss on derivative instruments (5.5) - (6.0) - ------------- --------------- -------------- --------------- Total comprehensive income $ 185.9 $ 185.9 $ 570.1 $ 500.0 ============== =============== ============== ===============
Page 6 7 Note 4. On February 14, 2001, the Company completed a merger transaction with Bindley ("Bindley Merger") which was accounted for as a pooling of interests. In the Bindley Merger, the Company issued approximately 23.1 million Common Shares to Bindley stockholders and Bindley's outstanding stock options were converted into options to purchase approximately 5.1 million Common Shares. Bindley's fiscal year end was December 31. As a result of changing Bindley's fiscal year end from December 31 to June 30 during the fiscal year ended June 30, 2001, Bindley's results of operations for the six months ended June 30, 2000 are not included in the combined results of operations but are reflected as an adjustment to shareholders' equity. Bindley's net revenue and net earnings excluding special charges were $4.9 billion and $22.9 million, respectively. Including special charges for the same period, Bindley's net loss was $2.8 million. Cash flows from operating activities were $166.7 million, while cash flows used in investing and financing activities were $5.7 million and $113.4 million, respectively. The table below presents a reconciliation of total revenue and net earnings available for Common Shares as reported in the accompanying condensed consolidated financial statements with those previously reported by the Company. The term "Cardinal Health" as used in the table below refers to Cardinal Health, Inc. and subsidiaries prior to the Bindley Merger.
Cardinal (in millions) Health Bindley Combined ----------- ---------- ------------- Three months ended March 31, 2000 Total revenue $ 7,473.1 $ 2,138.4 $ 9,611.5 Net earnings $ 189.5 $ 8.9 $ 198.4 Nine months ended March 31, 2000 Total revenue $ 21,656.3 $ 6,158.5 $ 27,814.8 Net earnings $ 485.0 $ 26.8 $ 511.8
Adjustments affecting net earnings and shareholders' equity as a result of Bindley adopting the Company's accounting practices related solely to the impact of accounting for Bindley's inventory under the LIFO method, which was previously accounted for under the FIFO method. The beginning balance sheet cumulative adjustment was $9.7 million. There were no material intercompany transactions. On August 16, 2000, the Company completed the purchase of Bergen Brunswig Medical Corporation ("BBMC") for approximately $180 million, subject to post-closing adjustments. BBMC distributes medical, surgical and laboratory supplies to doctors' offices, long-term care and nursing centers, hospitals and other providers of care. In addition, the Company also completed several other individually immaterial acquisitions during the quarter and nine months ended March 31, 2001 for approximately $61 million and $143 million, respectively. These transactions were accounted for under the purchase method of accounting. The condensed consolidated financial statements include the results of operations from each of these business combinations as of the date of acquisition. Had the transactions occurred on July 1, 1999, results of operations would not have differed materially from reported results. Page 7 8 Note 5. During the three and nine months ended March 31, 2001 and 2000, the Company recorded costs of effecting mergers and subsequently integrating the operations of the various merged companies. These costs are classified as merger-related costs when incurred. The merger-related costs are primarily a result of the merger transactions with Bindley, Automatic Liquid Packaging, Inc. ("ALP"), Allegiance Corporation ("Allegiance") and R.P. Scherer Corporation ("Scherer"). The following is a summary of the special charges for the three and nine-month periods ended March 31, 2001 and 2000.
Special Charges Three Months Ended Nine Months Ended March 31, March 31, ----------------------------------------------------------------------------------------------------------- (in millions) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------- Merger-Related Costs: Transaction costs $ (20.8) $ - $ (20.8) $ (1.8) Employee-related costs (29.0) (1.4) (39.7) (21.3) Exit costs - distribution center consolidation (15.0) - (15.0) - Other exit costs - (3.6) (0.2) (8.4) Restructuring costs - (0.5) (1.6) (7.5) Other integration costs (9.7) (5.2) (22.5) (14.0) ----------------------------------------------------------------------------------------------------------- Total merger-related costs $ (74.5) $(10.7) $ (99.8) $ (53.0) Other Special Charges: Distribution center closures $(4.4) $ - $ (4.4) $ - Manufacturing facility closures (2.2) - (2.2) - Employee-related costs (5.2) - (5.2) - Litigation settlement - - 5.0 - ----------------------------------------------------------------------------------------------------------- Total other special charges $ (11.8) $ - $ (6.8) $ - ----------------------------------------------------------------------------------------------------------- Total special charges $ (86.3) $(10.7) $(106.6) $ (53.0) Tax effect of special charges 24.5 1.6 32.8 10.8 ----------------------------------------------------------------------------------------------------------- Net effect of special charges $ (61.8) $( 9.1) $ (73.8) $ (42.2) ===========================================================================================================
Merger-Related Costs During the above stated periods, the Company incurred direct transaction costs related to its merger transactions. These expenses primarily include investment banking, legal, accounting and other professional fees associated with the Bindley and ALP merger transactions. In addition, the Company incurred employee-related costs, which consist primarily of severance and transaction/stay bonuses as a result of the Bindley, ALP, Allegiance and Scherer merger transactions. Partially offsetting the transaction and employee-related costs recorded during the nine months ended March 31, 2000 was a $10.3 million credit recorded in the first quarter of fiscal 2000 to adjust the estimated employee-related costs previously recorded in connection with the Allegiance merger transaction. Actual billings and employee-related costs were less than the amounts originally anticipated, resulting in a reduction of the merger-related costs. The Company recorded a charge of $15.0 million during the three months ended March 31, 2001 associated with the Company's plans to consolidate distribution centers as a result of the Company's merger transaction with Bindley. In connection with such consolidations, the Company has incurred employee-related costs and exit costs related to the termination of contracts and lease agreements during the quarter. Other exit costs relate primarily to costs associated with lease terminations and moving expenses as a direct result of the merger transactions with ALP, Allegiance and Scherer. The Company recorded charges of $1.6 million and $7.5 million during the nine months ended March 31, 2001 and 2000, respectively, associated with the business restructuring as a result of the Company's merger transaction with Scherer. As part of the business restructuring, the Company is closing certain facilities. In connection with such closings, the Company has incurred employee-related costs, asset impairment charges and exit costs related to the termination of contracts and lease agreements. Page 8 9 Other integration costs include charges related to integrating the operations of previous merger transactions. Other Special Charges During the three months ended March 31, 2001, the Company recorded a special charge of $5.0 million related to the rationalization of its pharmaceutical distribution centers. Approximately, $4.4 million related to asset impairments, lease exit costs and duplicate facility costs resulting from the Company's decision to consolidate distribution centers and relocate to a more modern distribution center. The remaining amount related to employee severance costs. In addition, during the three months ended March 31, 2001, the Company recorded a special charge of $6.8 million related to the rationalization of its health and nutrition manufacturing facilities. Approximately, $2.2 million related to lease exit costs. The remaining amount related to employee severance costs associated with the rationalization. During the nine months ended March 31, 2001, Bindley recorded a benefit of approximately $5 million related to a reduction in a litigation settlement accrual, which was previously recorded. The amount of the final settlement was lower than originally anticipated. The net of tax effect of the various special charges recorded during the three months ended March 31, 2001 and 2000 was to reduce net earnings by $61.8 million to $192.9 million and by $9.1 million to $198.4 million, respectively, and to reduce reported diluted earnings per Common Share by $0.14 per share to $0.42 per share and by $0.02 per share to $0.44 per share, respectively. The net of tax effect of the various special charges recorded during the nine months ended March 31, 2001 and 2000 was to reduce net earnings by $73.8 million to $604.1 million and by $42.2 million to $511.8 million, respectively, and to reduce reported diluted earnings per Common Share by $0.16 per share to $1.33 per share and by $0.09 per share to $1.14 per share, respectively. Note 6. The Company is organized based on the products and services it offers. Under this organizational structure, the Company operates in four business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services. The Company has not made any significant changes in the segments reported or the basis of measurement of segment profit or loss from the information provided in the Company's 2000 Form 10-K. The Pharmaceutical Distribution and Provider Services segment involves the distribution of a broad line of pharmaceuticals, healthcare and beautycare products, radiopharmaceuticals, therapeutic plasma and other specialty pharmaceutical products and other items typically sold by hospitals, retail drug stores and other healthcare providers. In addition, this segment provides services to the healthcare industry through integrated pharmacy management, temporary pharmacy staffing, as well as franchising of apothecary-style retail pharmacies. The Medical-Surgical Products and Services segment involves the manufacture of medical, surgical and laboratory products and the distribution of these and other products to hospitals, physician offices, surgery centers and other healthcare providers, as well as providing healthcare consulting services. The Pharmaceutical Technologies and Services segment provides services to the pharmaceutical manufacturing industry through the design of unique drug delivery systems, liquid fill contract manufacturing and comprehensive packaging services. The Automation and Information Services segment provides services to hospitals and other healthcare providers through pharmacy automation equipment and clinical information system services. The Company evaluates the performance of the segments based on operating earnings after the corporate allocation of administrative expenses. Special charges are not allocated to the segments. Page 9 10 The following table includes revenue and operating earnings for the three and nine-month periods ended March 31, 2001 and 2000 for each segment and reconciling items necessary to equal amounts reported in the consolidated financial statements:
For the three months ended For the nine months ended March 31, March 31, ---------------------------- ----------------------------- (in millions) Net Revenue Net Revenue ----------------------------- ---------------------------- 2001 2000 2001 2000 -------------- -------------- ------------- ------------- Operating revenue: Pharmaceutical Distribution and Provider Services $ 8,447.9 $ 6,097.8 $ 22,928.5 $ 17,418.0 Medical-Surgical Products and Services 1,498.2 1,204.3 4,350.4 3,696.3 Pharmaceutical Technologies and Services 301.2 283.5 859.9 805.1 Automation and Information Services 112.3 102.3 321.9 276.2 Other (25.4) (22.0) (54.9) (23.5) -------------- -------------- ------------- ------------- Total operating revenue 10,334.2 7,665.9 28,405.8 22,172.1 Bulk deliveries to customer warehouses: Pharmaceutical Distribution and Provider Services 2,245.9 1,945.6 7,140.8 5,642.7 -------------- -------------- ------------- ------------- Total net revenue $ 12,580.1 $ 9,611.5 $ 35,546.6 $ 27,814.8 ========================================================================================================= Operating Earnings Operating Earnings ----------------------------- ---------------------------- 2001 2000 2001 2000 -------------- -------------- ------------- ------------- Operating earnings: Pharmaceutical Distribution and Provider Services $ 257.7 $ 187.5 $ 640.0 $ 486.6 Medical-Surgical Products and Services 112.0 93.2 320.2 268.6 Pharmaceutical Technologies and Services 50.0 52.5 158.8 148.9 Automation and Information Services 41.1 35.1 109.6 91.1 Corporate (1) (110.9) (13.4) (168.5) (73.1) -------------- -------------- ------------- ------------- Total operating earnings $ 349.9 $ 354.9 $ 1,060.1 $ 922.1 =========================================================================================================
(1) Corporate operating earnings primarily consist of special charges of $86.3 million and $10.7 million for the three months ended March 31, 2001 and 2000, respectively, and $106.6 million and $53.0 million for the nine months ended March 31, 2001 and 2000, respectively, and unallocated corporate depreciation and amortization and administrative expenses. Note 7. On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. Healthcare distribution business, surgical and respiratory therapy business and healthcare cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. In connection with this spin-off, Allegiance, which was acquired by the Company on February 3, 1999, agreed to indemnify certain claims related to the Allegiance Business from Baxter Healthcare Corporation ("BHC"), including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Allegiance will be defending and indemnifying BHC, as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to the litigation assumed by Allegiance. As of March 31, 2001, there were approximately 600 lawsuits involving BHC and/or Allegiance containing allegations of sensitization to natural rubber latex products. Some of the cases are now proceeding to trial. Because of the increase in claims filed and the ongoing defense costs that will be incurred, the Company believes it is probable that it will continue to incur significant expenses related to the defense of cases involving natural rubber latex gloves. At this time, the Company is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. AEIA, one of the insurers for the latex glove litigation, has advised the Company of its intent to resolve through arbitration the extent of its obligation to reimburse the Company for certain defense costs and loss expenses incurred in connection with the litigation. The Company believes a substantial portion of any liability will be covered by Page 10 11 insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company also becomes involved from time-to-time in other litigation incidental to its business, including without limitation inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company intends to vigorously defend itself and does not currently believe that the outcome of any pending litigation will have a material adverse effect on the Company's condensed consolidated financial statements. Note 8. The Company periodically sells trade receivables to a special purpose accounts receivable and financing entity ("SPE"), which is exclusively engaged in purchasing trade receivables from, and making loans to, the Company. During the nine months ended March 31, 2001, the SPE, which is consolidated by the Company, issued $400 million in preferred variable rate debt securities to parties not affiliated with the Company. Those preferred debt securities must be retired or redeemed before the Company can have access to the SPE's receivables. During the nine months ended March 31, 2001, the Company entered into two interest rate swap agreements with a total notional amount of $250 million that mature through January 2003 to hedge interest rate exposures related to a portion of the preferred debt securities. Note 9. During the quarter ended March 31, 2001, the Company issued $500 million of 6.75% Notes due 2011, the proceeds of which were used primarily for early redemption of Bindley debt. After such issuance, the Company has the capacity to issue approximately $450 million of additional equity or debt securities pursuant to a shelf registration statement filed with the Securities and Exchange Commission. During the nine months ended, March 31, 2001, the Company entered into two interest rate swap agreements with a total notional amount of $250 million that mature through February 2011 to hedge a portion of the change in fair value of the 6.75% Notes related to changes in interest rates. Note 10. As of July 1, 2000, the Company adopted the Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended in June 2000 by Statement of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. The adoption of these statements did not have a material impact on the Company's consolidated financial statements. In September 2000, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is effective for any activities occurring after March 31, 2001. SFAS 140 replaces SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", therefore revising the disclosure for securitizations and other transfers of financial assets or collateral. The Company does not anticipate that the adoption of SFAS 140 will have a material impact on the Company's consolidated financial statements. On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" which requires adoption during the fourth quarter of fiscal 2001. The Company does not anticipate that the adoption of SAB 101 will have a material impact on the Company's consolidated financial statements. Page 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's discussion and analysis presented below has been prepared to give retroactive effect to the pooling of interests business combination with Bindley Western Industries, Inc. ("Bindley") on February 14, 2001. The discussion and analysis is concerned with material changes in financial condition and results of operations for the Company's condensed consolidated balance sheets as of March 31, 2001 and June 30, 2000, and for the condensed consolidated statements of earnings for the three and nine-month periods ended March 31, 2001 and 2000. This discussion and analysis should be read together with management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000. Portions of management's discussion and analysis presented below include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe", "expect", "anticipate", "project", and similar expressions, among others, identify "forward-looking statements", which speak only as of the date the statement was made. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to materially differ from those made, projected or implied. The most significant of such risks, uncertainties and other factors are described in Exhibit 99.01 to this Form 10-Q and are incorporated herein by reference. The Company disclaims any obligation to update any forward-looking statement. GENERAL The Company operates within four operating business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services. See Note 6 of "Notes to Condensed Consolidated Financial Statements" for a description of these segments. RESULTS OF OPERATIONS
Operating Revenue Three months ended Nine months ended March 31, 2001 March 31, 2001 -------------------------------------------------------------------- Percent of Total Percent of Total Growth (1) Operating Revenues Growth (1) Operating Revenues - --------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 39% 82% 32% 81% Medical-Surgical Products and Services 24% 14% 18% 15% Pharmaceutical Technologies and Services 6% 3% 7% 3% Automation and Information Services 10% 1% 17% 1% Total Company 35% 100% 28% 100% - ---------------------------------------------------------------------------------------------------------------------
(1) The growth rate applies to the applicable three and nine-month periods ended March 31, 2001 compared to the corresponding periods of the prior year. Total operating revenue for the three and nine months ended March 31, 2001 increased 35% and 28%, respectively, compared to the same period of the prior year. The majority of the operating revenue increase came from existing customers in the form of increased volume and price increases. A portion of the growth was a result of acquisitions during the nine months ended March 31, 2001 (see Note 4 of "Notes to Condensed Consolidated Financial Statements"). The remainder of the growth came from the addition of new customers. The Pharmaceutical Distribution and Provider Services segment's operating revenue growth during the three and nine months ended March 31, 2001 was primarily due to strong sales to all customer segments, especially pharmacy chain stores. All operating revenue growth for this segment was internal and was the result of increased volume to existing customers and new contracts. Page 12 13 The increase in the Medical-Surgical Products and Services segment's operating revenue over the quarter and nine months ended March 31, 2001 was mainly due to an increase in sales of distributed products. Bergen Brunswig Medical Corporation ("BBMC") was acquired in the first quarter of fiscal 2001 and accounted for as a purchase transaction. As prior year revenues for this segment were not restated, the inclusion of BBMC revenues for the three and nine months ended March 31, 2001 significantly increased revenues over the prior year for distributed products. The growth in operating revenue for the Pharmaceutical Technologies and Services segment during the third quarter and first nine months of fiscal 2001 was the result of higher sales volume primarily from strong sales of the Zydis(R) rapid-dissolving drug-delivery technology and sterile-liquid pharmaceutical products. The growth was attributable to a mix of new products and customers and increased volume from existing customers. A decline in the overall market for health and nutrition supplements offset a portion of this segment's growth. The increase in operating revenue for the Automation and Information Services segment during the three and nine months ended March 31, 2001 was primarily due to sales of new products and further penetration of the market with existing automation products. Bulk Deliveries to Customer Warehouses. The Company reports as revenue bulk deliveries made to customers' warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including consolidation within customers' industries, decisions by customers to either begin or discontinue warehousing activities, and changes in policies by manufacturers related to selling directly to customers. Due to the lack of margin generated through bulk deliveries, fluctuations in their amount have no significant impact on the Company's operating earnings.
Gross Margin Three months ended Nine months ended March 31, March 31, - -------------------------------------------------------------------------------------------------------------------- (as a percentage of operating revenue) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 5.41% 5.73% 5.21% 5.47% Medical-Surgical Products and Services 21.97% 23.44% 22.01% 23.13% Pharmaceutical Technologies and Services 31.98% 32.58% 33.39% 33.10% Automation and Information Services 68.81% 70.05% 67.36% 69.69% Total Company 9.15% 10.33% 9.28% 10.21% - --------------------------------------------------------------------------------------------------------------------
The decrease in consolidated gross margin as a percentage of operating revenue during the three and nine months ended March 31, 2001 as compared to the prior year was due primarily to a greater mix of lower margin pharmaceutical distribution, as well as a decrease in margins for the Medical-Surgical Products and Services and Automation and Information Services segments. The Pharmaceutical Distribution and Provider Services segment's mix increased to 82% and 81% of total operating revenues for the three and nine months ended March 31, 2001, respectively, from 79% and 78% for the comparable periods of the prior year. The Pharmaceutical Distribution and Provider Services segment's gross margin as a percentage of operating revenue decreased primarily as a result of lower selling margins due to a greater mix of sales to retail pharmacy chains. Such customers have a relatively lower margin in connection with a lower cost of service (see discussion in selling, general and administrative expenses). This decrease was partially offset by higher vendor margins from favorable price increases and manufacturer marketing programs. The decrease in the Medical-Surgical Products segment's gross margin during the three and nine-month periods ended March 31, 2001 over the comparable periods of prior year was primarily due to the purchase of BBMC. As expected, this transaction shifted product mix toward lower margin distributed products. The decrease in the Pharmaceutical Technologies and Services segment's gross margin during the quarter ended March 31, 2001 was due primarily to surplus manufacturing capacity as a result of the decline in the overall health and nutrition markets. The Company during the quarter recorded a special charge related to the costs to restructure the manufacturing facilities associated with this market (See Note 4 of the "Notes to Condensed Consolidated Statements"). Offsetting this decrease was an increase in margin primarily associated with the continued focus on higher margin pharmaceutical products and services, especially in liquid fill contract manufacturing, which had the strongest growth in this segment. Gross margin during the nine months ended March 31, 2001 was also favorably Page 13 14 impacted by better profitability on certain vitamin products, as well as an improvement in manufacturing processes as a result of improved productivity and ongoing plant modernization. The decrease in gross margin for the Automation and Information Services segment for the periods ended March 31, 2001 was primarily due to product mix.
Selling, General & Administrative Expenses Three months ended Nine months ended March 31, March 31, - -------------------------------------------------------------------------------------------------------------------- (as a percentage of operating revenue) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 2.36% 2.66% 2.42% 2.68% Medical-Surgical Products and Services 14.49% 15.69% 14.65% 15.86% Pharmaceutical Technologies and Services 15.39% 14.06% 14.92% 14.61% Automation and Information Services 32.20% 35.74% 33.31% 36.69% Total Company 4.93% 5.56% 5.17% 5.81% - --------------------------------------------------------------------------------------------------------------------
The overall improvement in selling, general and administrative expenses as a percentage of operating revenue for the three and nine months ended March 31, 2001 reflects economies of scale associated with the Company's revenue growth, as well as significant productivity gains resulting from continued cost control efforts and the consolidation and selective automation of operating facilities. In addition, the Company is continuing to take advantage of synergies from recent acquisitions to decrease selling, general and administrative expenses as a percentage of operating revenues. Partially offsetting the improvement was an increase in selling, general and administrative expenses as a percentage of revenue for the Pharmaceutical Technologies and Services segment. The unfavorable change is primarily a result of surplus capacity in the health and nutritional manufacturing facilities for this segment (See discussion in the operating revenue section). The selling, general and administrative expenses increased overall during the three and nine months ended March 31, 2001, 20% and 14% compared to the respective periods a year ago, due primarily to increases in personnel costs and depreciation expense. This overall increase in selling, general and administrative expenses compares favorably to the 35% and 28% growth in operating revenue for the same periods. Page 14 15 Special Charges. During the three and nine months ended March 31, 2001 and 2000, the Company recorded costs of effecting mergers and subsequently integrating the operations of the various merged companies. These costs are classified as merger-related costs when incurred. The merger-related costs are primarily a result of the merger transactions with Bindley, Automatic Liquid Packaging, Inc. ("ALP"), Allegiance Corporation ("Allegiance") and R.P. Scherer Corporation ("Scherer"). The following is a summary of the special charges for the three and nine-month periods ended March 31, 2001 and 2000.
Special Charges Three Months Ended Nine Months Ended March 31, March 31, ----------------------------------------------------------------------------------------------------------- (in millions) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------- Merger-Related Costs: Transaction costs $ (20.8) $ - $ (20.8) $ (1.8) Employee-related costs (29.0) (1.4) (39.7) (21.3) Exit costs - distribution center consolidation (15.0) - (15.0) - Other exit costs - (3.6) (0.2) (8.4) Restructuring costs - (0.5) (1.6) (7.5) Other integration costs (9.7) (5.2) (22.5) (14.0) ----------------------------------------------------------------------------------------------------------- Total merger-related costs $ (74.5) $(10.7) $ (99.8) $ (53.0) Other Special Charges: Distribution center closures $(4.4) $ - $ (4.4) $ - Manufacturing facility closures (2.2) - (2.2) - Employee-related costs (5.2) - (5.2) - Litigation settlement - - 5.0 - ----------------------------------------------------------------------------------------------------------- Total other special charges $ (11.8) $ - $ (6.8) $ - ----------------------------------------------------------------------------------------------------------- Total special charges $ (86.3) $(10.7) $(106.6) $ (53.0) Tax effect of special charges 24.5 1.6 32.8 10.8 ----------------------------------------------------------------------------------------------------------- Net effect of special charges $ (61.8) $( 9.1) $ (73.8) $ (42.2) ===========================================================================================================
Merger-Related Costs During the above stated periods, the Company incurred direct transaction costs related to its merger transactions. These expenses primarily include investment banking, legal, accounting and other professional fees associated with the Bindley and ALP merger transactions. In addition, the Company incurred employee-related costs, which consist primarily of severance and transaction/stay bonuses as a result of the Bindley, ALP, Allegiance and Scherer merger transactions. Partially offsetting the transaction and employee-related costs recorded during the nine months ended March 31, 2000 was a $10.3 million credit recorded in the first quarter of fiscal 2000 to adjust the estimated employee-related costs previously recorded in connection with the Allegiance merger transaction. Actual billings and employee-related costs were less than the amounts originally anticipated, resulting in a reduction of the merger-related costs. The Company recorded a charge of $15.0 million during the three months ended March 31, 2001 associated with the Company's plans to consolidate distribution centers as a result of the Company's merger transaction with Bindley. In connection with such consolidations, the Company has incurred employee-related costs and exit costs related to the termination of contracts and lease agreements during the quarter. Other exit costs relate primarily to costs associated with lease terminations and moving expenses as a direct result of the merger transactions with ALP, Allegiance and Scherer. The Company recorded charges of $1.6 million and $7.5 million during the nine months ended March 31, 2001 and 2000, respectively, associated with the business restructuring as a result of the Company's merger transaction with Scherer. As part of the business restructuring, the Company is closing certain facilities. In connection with such Page 15 16 closings, the Company has incurred employee-related costs, asset impairment charges and exit costs related to the termination of contracts and lease agreements. Other integration costs include charges related to integrating the operations of previous merger transactions. Other Special Charges During the three months ended March 31, 2001, the Company recorded a special charge of $5.0 million related to the rationalization of its pharmaceutical distribution centers. Approximately, $4.4 million related to asset impairments, lease exit costs and duplicate facility costs resulting from the Company's decision to consolidate distribution centers and relocate to a more modern distribution center. The remaining amount related to employee severance costs. In addition, during the three months ended March 31, 2001, the Company recorded a special charge of $6.8 million related to the rationalization of its health and nutrition manufacturing facilities. Approximately, $2.2 million related to lease exit costs. The remaining amount related to employee severance costs associated with the rationalization. During the nine months ended March 31, 2001, Bindley recorded a benefit of approximately $5 million related to a reduction in a litigation settlement accrual, which was previously recorded. The amount of the final settlement was lower than originally anticipated. The net of tax effect of the various special charges recorded during the three months ended March 31, 2001 and 2000 was to reduce net earnings by $61.8 million to $192.9 million and by $9.1 million to $198.4 million, respectively, and to reduce reported diluted earnings per Common Share by $0.14 per share to $0.42 per share and by $0.02 per share to $0.44 per share, respectively. The net of tax effect of the various special charges recorded during the nine months ended March 31, 2001 and 2000 was to reduce net earnings by $73.8 million to $604.1 million and by $42.2 million to $511.8 million, respectively, and to reduce reported diluted earnings per Common Share by $0.16 per share to $1.33 per share and by $0.09 per share to $1.14 per share, respectively. The Company estimates that it will incur additional merger-related costs and integration expenses associated with the various mergers it has completed to date (primarily related to the Bindley, BBMC, ALP and Allegiance mergers) of approximately $160.5 million ($101.1 million, net of tax) in future periods (primarily through fiscal 2003), related to facility consolidations, the exit of contractual arrangements, employee-related costs, and costs to properly integrate operations and implement efficiencies. Such amounts will be charged to expense when incurred. Provision for Income Taxes. The Company's provision for income taxes as a percentage of pre-tax earnings was 37.0% and 37.2% for the third quarters of fiscal 2001 and 2000, respectively. For the nine-month periods ended March 31, 2001 and 2000, the Company's income tax provision as a percentage of pre-tax earnings was 36.0% and 37.7%, respectively. The decrease in the effective tax rate for the periods was primarily the result of two factors. First, the tax rate decreased due to lower nondeductible items associated with the business combinations in the current year as compared to the prior year. The second factor resulting in a decrease in the effective tax rate was the favorable mix of international and domestic business. The provision for income taxes excluding the impact of special charges was 35.1% and 36.5%, respectively, for the quarters ended March 31, 2001 and 2000 and 35.4% and 36.7%, respectively, for the nine months ended March 31, 2001 and 2000. LIQUIDITY AND CAPITAL RESOURCES Working capital increased to $4.0 billion at March 31, 2001 from $2.9 billion at June 30, 2000. This increase from June 30, 2000 included additional investments in inventories and trade receivables of $1.5 billion and $0.5 billion, respectively. In addition, the Company paid down its securitized borrowings during the current quarter resulting in a decrease in short term obligations of approximately $0.4 billion. Offsetting the increases in current assets was an increase in accounts payable of $1.2 billion. The Company's inventory levels have risen due to the higher volume of current and anticipated business in pharmaceutical distribution activities. A portion of the inventory increase can also be attributed to the Company investing in inventories in conjunction with various vendor-margin programs. In addition, the change in accounts payable is due primarily to the timing of inventory purchases and related payments. During the first quarter of fiscal 2001, the Company increased the capacity under its commercial paper program from $1.0 billion to $1.5 billion in aggregate maturity value. At March 31, 2001, commercial paper with an aggregate maturity value of $173.6 million was outstanding with a market interest rate based upon LIBOR. The Page 16 17 Company also maintains a $1.5 billion unsecured bank credit facility. This credit facility exists to support issuance of commercial paper and other short-term borrowings. The Company periodically sells trade receivables to a special purpose accounts receivable and financing entity ("SPE"), which is exclusively engaged in purchasing trade receivables from, and making loans to, the Company. During the nine months ended March 31, 2001, the SPE, which is consolidated by the Company, issued $400 million in preferred debt securities to parties not affiliated with the Company. Those preferred debt securities must be retired or redeemed before the Company can have access to the SPE's receivables (see Note 8 of "Notes to Condensed Consolidated Financial Statements"). The Company filed a combination shelf debt and equity registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on September 29, 2000. During the quarter ended March 31, 2001, the Company issued 750,000 Common Shares for aggregate proceeds of $47.7 million, which are to be used for general corporate purposes. The common shares were issued in order for the Company to be able to satisfy all the conditions to consummation of the merger with Bindley (See Note 2 of the "Notes to Condensed Consolidated Financial Statements"). In addition, the Company issued $500 million of 6.75% Notes due 2011, the proceeds of which were used for early redemption of Bindley debt and for repayment of a portion of the Company's commercial paper and general corporate purposes, which include working capital, capital expenditures, repayment or refinancing of indebtedness, acquisitions and investments. After such issuances, the Company has the capacity to issue approximately $450 million of additional equity or debt securities pursuant to the shelf registration statement. Property and equipment, at cost, increased by $295.6 million from June 30, 2000. The increase was the result of two main factors. First, the Company is involved in ongoing plant expansion and manufacturing equipment purchases in certain businesses, as well as additional investments made for management information systems and upgrades to distribution facilities. Second, the Company completed several acquisitions in the first nine months of fiscal year 2001 that were accounted for as purchase transactions (see Note 4 of "Notes to Condensed Consolidated Financial Statements"). Shareholders' equity increased to $5.1 billion at March 31, 2001 from $4.4 billion at June 30, 2000, primarily due to net earnings of $604.1 million and the investment of $186.9 million by employees of the Company through various stock incentive plans. These increases were offset by an increase in treasury stock due to the settlement of the accelerated share repurchase program in the amount of $137.4 million (see Note 2 of "Notes to Condensed Consolidated Financial Statements"). In addition, shareholders' equity decreased due to dividends paid of $26.5 million. On March 16, 2000, the Company's Board of Directors authorized the repurchase of up to an aggregate of $750 million of Common Shares. Through November 2000, approximately 7 million Common Shares, having an aggregate cost of $440.2 million, had been repurchased under an accelerated share repurchase program and placed into treasury shares. In November 2000, the Company's Board of Directors rescinded the remainder of this repurchase program. The Company believes that it has adequate capital resources at its disposal to fund currently anticipated capital expenditures, business growth and expansion, as well as current and projected debt service requirements. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes there has been no material change in its exposure to market risk from that discussed in the Company's Form 10-K for the fiscal year ended June 30, 2000. Page 17 18 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The following disclosure should be read together with the disclosure set forth in the Company's Form 10-K for the fiscal year ended June 30, 2000, Form 10-Q for the quarter ended September 30, 2000 and Form 10-Q for the quarter ended December 31, 2000. To the extent any such statements constitute "forward looking statements" reference is made to Exhibit 99.01 of this Form 10-Q. On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. Healthcare distribution business, surgical and respiratory therapy business and healthcare cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. In connection with this spin-off, Allegiance, which was acquired by the Company on February 3, 1999, agreed to indemnify certain claims related to the Allegiance Business from Baxter Healthcare Corporation ("BHC"), including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Allegiance will be defending and indemnifying BHC, as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to the litigation assumed by Allegiance. As of March 31, 2001, there were approximately 600 lawsuits involving BHC and/or Allegiance containing allegations of sensitization to natural rubber latex products. Some of the cases are now proceeding to trial. Because of the increase in claims filed and the ongoing defense costs that will be incurred, the Company believes it is probable that it will continue to incur significant expenses related to the defense of cases involving natural rubber latex gloves. At this time, the Company is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. AEIA, one of the insurers for the latex glove litigation, has advised the Company of its intent to resolve through arbitration the extent of its obligation to reimburse the Company for certain defense costs and loss expenses incurred in connection with the litigation. The Company believes a substantial portion of any liability will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company also becomes involved from time-to-time in other litigation incidental to its business, including without limitation inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company intends to vigorously defend itself and does not currently believe that the outcome of any pending litigation will have a material adverse effect on the Company's condensed consolidated financial statements. ITEM 5: OTHER INFORMATION On February 28, 2001, John C. Kane retired from the Board of Directors of the Company. The size of the Board has been reduced from 14 to 13 as a result. Page 18 19 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K: Listing of Exhibits: Exhibit Exhibit Description Number 3.01 Amended and Restated Articles of Incorporation, as amended (1) 3.02 Restated Code of Regulations, as amended (2) 4.01 364-Day Credit Agreement dated as of March 29, 2001 among the Company, certain subsidiaries of the Company, certain lenders, Bank One, NA, as Administrative Agent, Bank of America N.A., as Syndication Agent, Citicorp USA, Inc., as Co-Documentation Agent, Credit Suisse First Boston, as Co-Documentation Agent, and Deutsche Banc Alex. Brown Inc., as Co-Documentation Agent 10.01 Bindley Western Industries, Inc. 1993 Stock Option and Incentive Plan (3) * 10.02 Bindley Western Industries, Inc. 2000 Stock Option and Incentive Plan (3) * 10.03 Executive Agreement among William E. Bindley ("Mr. Bindley"), Bindley Western Industries, Inc. ("Bindley") and the Company dated as of December 2, 2000 (Termination Benefits Agreement between Mr. Bindley and Bindley referenced in the Executive Agreement is incorporated by reference as indicated in footnote 4 below)* 99.01 Statement Regarding Forward-Looking Information (5) - ---------------- (1) Included as an exhibit to the Registrant's Current Report on Form 8-K filed November 24, 1998 (File No. 0-12591) and the Registrant's Registration Statement on Form S-4 (No. 333-53394) and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Current Report on Form 8-K filed November 24, 1998 (File No. 0-12591) and incorporated herein by reference. (3) Included as an exhibit to the Company's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-53394-01) and incorporated herein by reference. (4) Included as an exhibit to Bindley Western Industries, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (File No. 0-11355) and incorporated herein by reference. (5) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000 (File No. 0-12591) and incorporated herein by reference. * Management contract or compensation plan or arrangement Reports on Form 8-K: On February 2, 2001, the Company filed a Current Report on Form 8-K under Item 7 which filed as an exhibit a Placement Agency Agreement between the Company and Banc of America Securities LLC dated as of February 2, 2001. On February 8, 2001, the Company filed a Current Report on Form 8-K under Item 7 which filed as exhibits a Form of Underwriting Agreement between the Company and certain underwriters relating to the offering of 6.75% Notes due 2001 by the Company and a Statement Regarding Computation of Ratios of Earnings to Fixed Charges. On February 15, 2001, the Company filed a Current Report on Form 8-K under Item 5 which reported the closing of the Bindley Merger, pursuant to which Bindley became a wholly owned subsidiary of the Company. Page 19 20 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. CARDINAL HEALTH, INC. Date: May 10, 2001 By: /s/ Robert D. Walter ---------------------------- Robert D. Walter Chairman and Chief Executive Officer By: /s/ Richard J. Miller ---------------------------- Richard J. Miller Executive Vice President and Chief Financial Officer EX-4.01 2 l88224aex4-01.txt EXHIBIT 4.01 1 EXHIBIT 4.01 CARDINAL HEALTH, INC. 364-DAY CREDIT AGREEMENT DATED AS OF MARCH 29, 2001 THE SUBSIDIARY BORROWERS PARTY HERETO, THE LENDERS PARTY HERETO AND BANK ONE, NA, AS ADMINISTRATIVE AGENT BANK OF AMERICA, N.A., AS SYNDICATION AGENT CITICORP USA, INC., AS DOCUMENTATION AGENT CREDIT SUISSE FIRST BOSTON, AS DOCUMENTATION AGENT, DEUTSCHE BANC ALEX. BROWN INC., AS DOCUMENTATION AGENT AND BANC ONE CAPITAL MARKETS, INC., AS LEAD ARRANGER AND BOOK MANAGER 2
TABLE OF CONTENTS ----------------- PAGE ---- Article I. DEFINITIONS............................................................................................1 Article II. THE CREDITS..........................................................................................11 2.1 Commitments of the Lenders; Revolving Credit Advances..........................................11 2.2 Termination....................................................................................11 2.3 Ratable Loans..................................................................................11 2.4 Types of Advances..............................................................................11 2.5 Facility Fee; Reductions in Aggregate Commitment; Utilization Fee..............................11 2.6 Minimum Amount of Each Advance.................................................................12 2.7 Prepayments....................................................................................12 2.8 Method of Selecting Types and Interest Periods for New Advances................................12 2.9 Conversion and Continuation of Outstanding Advances............................................13 2.10 Method of Borrowing............................................................................13 2.11 Changes in Interest Rate, etc..................................................................13 2.12 Rates Applicable After Default.................................................................14 2.13 Method of Payment..............................................................................14 2.14 Noteless Agreement; Evidence of Indebtedness...................................................14 2.15 Telephonic Notices.............................................................................15 2.16 Interest Payment Dates; Interest and Fee Basis.................................................15 2.17 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................16 2.18 Lending Installations..........................................................................16 2.19 Non-Receipt of Funds by the Administrative Agent...............................................16 2.20 Replacement of Lender..........................................................................17
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Article III. YIELD PROTECTION; TAXES.............................................................................18 3.1 Yield Protection...............................................................................18 3.2 Changes in Capital Adequacy Regulations........................................................19 3.3 Availability of Types of Advances..............................................................19 3.4 Funding Indemnification........................................................................20 3.5 Taxes..........................................................................................20 3.6 Lender Statements; Survival of Indemnity.......................................................22 Article IV. CONDITIONS PRECEDENT.................................................................................22 4.1 Initial Advance................................................................................22 4.2 Each Advance...................................................................................23 Article V. REPRESENTATIONS AND WARRANTIES........................................................................24 5.1 Existence and Standing.........................................................................24 5.2 Authorization and Validity.....................................................................24 5.3 No Conflict; Government Consent................................................................24 5.4 Financial Statements...........................................................................25 5.5 Material Adverse Change........................................................................25 5.6 Taxes..........................................................................................25 5.7 Litigation and Contingent Obligations..........................................................25 5.8 Subsidiaries...................................................................................26 5.9 ERISA..........................................................................................26 5.10 Accuracy of Information........................................................................26 5.11 Regulation U...................................................................................27 5.12 Material Agreements............................................................................27 5.13 Compliance With Laws...........................................................................27 5.14 Plan Assets; Prohibited Transactions...........................................................27
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5.15 Environmental Matters..........................................................................27 5.16 Investment Company Act.........................................................................28 5.17 Public Utility Holding Company Act.............................................................28 5.18 Default........................................................................................28 Article VI. COVENANTS............................................................................................28 6.1 Financial Reporting............................................................................28 6.2 Use of Proceeds................................................................................29 6.3 Notice of Default..............................................................................29 6.4 Conduct of Business............................................................................29 6.5 Taxes..........................................................................................30 6.6 Insurance......................................................................................30 6.7 Compliance with Laws...........................................................................30 6.8 Inspection.....................................................................................30 6.9 Merger.........................................................................................30 6.10 Sale of Assets.................................................................................31 6.11 Investments....................................................................................32 6.12 Liens..........................................................................................32 6.13 Subsidiary Indebtedness........................................................................34 6.14 Limitation on Restrictions on Significant Subsidiary Distributions.............................35 6.15 Contingent Obligations.........................................................................35 6.16 Minimum Net Worth..............................................................................35 Article VII. DEFAULTS............................................................................................35 Article VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.....................................................37 8.1 Acceleration...................................................................................37 8.2 Amendments.....................................................................................38
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8.3 Preservation of Rights.........................................................................38 Article IX. GENERAL PROVISIONS...................................................................................39 9.1 Survival of Representations....................................................................39 9.2 Governmental Regulation........................................................................39 9.3 Headings.......................................................................................39 9.4 Entire Agreement...............................................................................39 9.5 Several Obligations; Benefits of this Agreement................................................39 9.6 Expenses; Indemnification......................................................................40 9.7 Numbers of Documents...........................................................................40 9.8 Accounting.....................................................................................40 9.9 Severability of Provisions.....................................................................41 9.10 Nonliability of Lenders........................................................................41 9.11 Confidentiality................................................................................41 9.12 Nonreliance....................................................................................41 Article X. THE AGENT.............................................................................................42 10.1 Appointment; Nature of Relationship............................................................42 10.2 Powers.........................................................................................42 10.3 General Immunity...............................................................................42 10.4 No Responsibility for Loans, Recitals, etc.....................................................42 10.5 Action on Instructions of Lenders..............................................................43 10.6 Employment of Agents and Counsel...............................................................43 10.7 Reliance on Documents; Counsel.................................................................43 10.8 Administrative Agent's Reimbursement and Indemnification.......................................44 10.9 Notice of Default..............................................................................44 10.10 Rights as a Lender.............................................................................44
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10.11 Lender Credit Decision.........................................................................45 10.12 Successor Administrative Agent.................................................................45 10.13 Administrative Agent's Fee.....................................................................46 10.14 Delegation to Affiliates.......................................................................46 10.15 Administrative Agent, Syndication Agent, Documentation Agents, Lead Arranger, etc..............46 Article XI. SETOFF; RATABLE PAYMENTS.............................................................................46 11.1 Setoff.........................................................................................46 11.2 Ratable Payments...............................................................................47 Article XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS...................................................47 12.1 Successors and Assigns.........................................................................47 12.2 Participations.................................................................................47 12.2.1. Permitted Participants; Effect........................................................47 12.2.2. Voting Rights.........................................................................48 12.2.3. Benefit of Setoff.....................................................................48 12.3 Assignments....................................................................................48 12.3.1. Permitted Assignments.................................................................48 12.3.2. Effect; Effective Date................................................................49 12.4 Dissemination of Information...................................................................49 12.5 Tax Treatment..................................................................................49 12.6 Transfer to an SPC.............................................................................50 Article XIII. NOTICES............................................................................................50 13.1 Notices........................................................................................50 13.2 Change of Address..............................................................................51 Article XIV. COUNTERPARTS........................................................................................51
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Article XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.........................................51 15.1 CHOICE OF LAW..................................................................................51 15.2 CONSENT TO JURISDICTION........................................................................51 15.3 WAIVER OF JURY TRIAL...........................................................................52
EXHIBITS: - -------- Exhibit A.........Form of Opinion Exhibit B.........Compliance Certificate Exhibit C.........Assignment Agreement Exhibit D.........Loan/Credit Related Money Transfer Instructions Exhibit E.........Note SCHEDULES: - --------- 1........Subsidiary and Other Investments 3........Eurodollar Payment Offices of the Agent 4........Lending Installations 7........Litigation and contingent Obligations 8........Persons Authorized to Give Telephone Instructions vi 8 364-DAY CREDIT AGREEMENT This Agreement, dated as of March 29, 2001, is among Cardinal Health, Inc. (the "Company"), certain Subsidiaries of the Company (the "Subsidiary Borrowers", and together with the Company, the "Borrowers"), the lenders party hereto from time to time (the "Lenders"), and Bank One, NA, as Administrative Agent (the "Administrative Agent"). The parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- As used in this Agreement: "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Company or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Adjusted Tangible Net Worth" means, as of any date, (i) the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of the Company and its consolidated Subsidiaries, but excluding the amount of any foreign currency translation adjustment account shown as a capital account, less (ii) the net book value of all items of the following character which are included in the assets of the Company and its consolidated Subsidiaries: (a) goodwill, including, without limitation, the excess of cost over book value of any asset, (b) organization or experimental expenses, (c) unamortized debt discount and expense, (d) patents, trademarks, trade names and copyrights, (e) treasury stock, (f) franchises, licenses and permits, and (g) other assets which are deemed intangible assets under Agreement Accounting Principles. "Administrative Agent" means Bank One, NA (Main office Chicago) in its capacity as contractual representative of the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. "Advance" means a borrowing hereunder, (i) made by the Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or 1 9 other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. As of the date of this Agreement, the original Aggregate Commitment was $750,000,000. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles in the United States of America in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4; provided, however, that if any change in Agreement Accounting Principles from those applied in preparing such financial statements affects the calculation of any financial covenant contained in this Agreement, the Borrowers and the Administrative Agent hereby agree to negotiate in good faith towards making appropriate amendments acceptable to the Required Lenders to the provisions of this Agreement to reflect as nearly as possible the effect of the financial covenants as in effect on the date hereof. "Applicable Fee Rate" means, at any time, the percentage rate per annum at which Facility Fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to any Eurodollar Loan, Floating Rate Loan or the Facility Fee, as the case may be at any time, the applicable percentage which is applicable at such time set forth in the Pricing Schedule provided that upon the occurrence and during the continuation of a Default, the Applicable Margin shall be the highest Applicable Margin set forth in the Pricing Schedule. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the Chief Financial Officer, Principal Accounting Officer or Treasurer of a Borrower, or their equivalent, acting singly. "Bank One" means Bank One, NA (Main office Chicago) in its individual capacity, and its successors. "Borrowers" means the Company and the Subsidiary Borrowers, and "Borrower" means any of them, as the context may require. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.8. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are 2 10 open in Chicago, Detroit and New York for the conduct of substantially all of their commercial lending activities and on which dealings in Eurodollars are carried on in the London interbank market, and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Detroit for the conduct of substantially all of their commercial lending activities. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means (i) short-term obligations of, or fully guaranteed by, the United States of America, (ii) commercial paper rated A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts maintained in the ordinary course of business, (iv) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000, (v) banker's acceptances, (vi) money-market funds, provided that such funds invest solely in securities otherwise described in this definition, (vii) variable rate demand notes, (viii) municipal preferred stock, (ix) cash market preferred stock, and (x) short term municipal notes; provided in each case that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Company, provided, however, that the acquisitions by or on behalf of a Plan, an employee stock purchase plan of the Company, or by Persons who before such acquisition were officers, directors, employees or who held in the aggregate not less than 5% of the outstanding shares of voting stock of the Company shall not be included in determining whether a Change in Control shall have occurred. "Closing Date" shall mean March 29, 2001. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Company" means Cardinal Health, Inc., an Ohio corporation, and its successors and assigns. 3 11 "Consolidated or "consolidated" means, when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated basis in accordance with Agreement Accounting Principles. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person for Indebtedness, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership, provided, however, that any assumption, guaranty, endorsement or undertaking with respect to any liability of any of its Subsidiaries to any other of its Subsidiaries shall not be a Contingent Obligation of the Company. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.9. "Default" means an event described in Article VII. "Defaulting Lender" means any Lender that (a) on any Borrowing Date fails to make available to the Administrative Agent such Lender's Loans required to be made to a Borrower on such Borrowing Date or (b) shall not have made available to the Administrative Agent its proportionate share of the Unpaid Amount as required pursuant to Section 2.19(b). Once a Lender becomes a Defaulting Lender, such Lender shall continue as a Defaulting Lender until such time as such Defaulting Lender makes available to the Administrative Agent the amount of such Defaulting Lender's Loans together with all other amounts required to be paid to the Administrative Agent or any other Lender pursuant to this Agreement. "Documentation Agents" means Citicorp USA, Inc. and Credit Suisse First Boston "Dollars" and "$" shall mean the lawful currency of the United States of America. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. 4 12 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which, except as otherwise provided in Section 2.12, bears interest at the applicable Eurodollar Rate. "Eurodollar Payment Office" of the Administrative Agent shall mean the office, branch, affiliate or correspondent bank of the Administrative Agent specified as the "Eurodollar Payment Office" in Schedule 3 hereto or such other office, branch, affiliate or correspondent bank of the Administrative Agent as it may from time to time specify to the Borrowers and each Lender as its Eurodollar Payment Office. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Reference Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Eurodollar Reference Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period the rate determined by the Administrative Agent to be the rate at which Bank One offers to place deposits in Dollars with first-class banks in the London interbank market at 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period in the approximate amount of the relevant Eurodollar Loan of Bank One and having a maturity equal to such Interest Period. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes (and any interest, fees or penalties for late payment thereof) imposed on it by (i) the jurisdiction under the laws of which such Lender or the Administrative Agent is incorporated or organized or (ii) the jurisdiction in which the Administrative Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. "Facility Termination Date" means March 28, 2002, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for such day, the average of the quotations at approximately 10:00 a.m. (Detroit time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. 5 13 "Financial Contract" of a Person means (a) any exchange-traded or over the counter futures, forward, swap or option contract or other financial instrument with similar characteristics or (b) any Rate Hedging Agreement. "Five Year Credit Agreement" means the Five Year Credit Agreement dated March 31, 1999, among the Company, the Subsidiary Borrowers party thereto, the Lenders and the Administrative Agent, as Administrative Agent, as such agreement may be amended, restated or extended from time to time. "Floating Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Floating Rate Advance" means an Advance which, except as otherwise provided in Section 2.12, bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which, except as otherwise provided in Section 2.12, bears interest at the Floating Rate. "Guarantor" means the Company, and its successors and assigns. "Guaranty" means that certain Guaranty dated the date hereof executed by the Guarantor in favor of the Administrative Agent, for the ratable benefit of the Lenders, as it may be amended or modified and in effect from time to time. "Indebtedness" of a Person means, as of any date, such Person's (i) obligations for borrowed money or evidenced by bonds, notes, acceptances, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv) obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (v) Capitalized Lease Obligations, (vi) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person, (vii) any Rate Hedging Obligations of such Person, and (viii) all Contingent Liabilities of such Person with respect to or relating to the indebtedness, obligations and liabilities of others similar in character to those described in clauses (i) through (viii) of this definition. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such 6 14 Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; any certificate of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person. "Lead Arranger" means Banc One Capital Markets, Inc., a Delaware corporation, and its successors. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or Affiliate of such Lender or the Administrative Agent selected by such Lender and the Administrative Agent pursuant to Section 2.18. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's loan made pursuant to Article II (or any conversion or continuation thereof). "Loan Documents" means this Agreement, the Notes, the Guaranty and any other instrument or document executed in connection with any of the foregoing at any time. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company to perform its obligations under the Loan Documents to which it is a party, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder. "Moody's" means Moody's Investors Service, Inc. 7 15 "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Company is a party to which more than one employer is obligated to make contributions. "Net Worth" means at any time the consolidated stockholder's equity of the Company and its Subsidiaries calculated on a consolidated basis as of such time in accordance with Agreement Accounting Principles . "Non-U.S. Borrower" is defined in Section 3.1(b). "Non-U.S. Lender" is defined in Section 3.5(iv). "Note" means any promissory note issued at the request of a Lender pursuant to Section 2.14 in the form of EXHIBIT E. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrowers to the Lenders or to any Lender, the Administrative Agent or any indemnified party arising under the Loan Documents. "Other Taxes" is defined in Section 3.5(ii). "Overdue Rate" means a per annum rate that is equal to the sum of two percent (2%) plus the Floating Rate, changing as and when the Floating Rate changes. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each calendar quarter, commencing June 30, 2001. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and as to which the Company or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means a rate per annum equal to the prime rate of interest announced from time to time by Bank One or its Parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned or leased by such Person. "Purchasers" is defined in Section 12.3.1. 8 16 "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 51% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 51% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurodollar liabilities. "Significant Subsidiary" means any Subsidiary of the Company that would be a "significant subsidiary" within the meaning of Rule 1-02 of the Securities and Exchange Commission's Regulation S-X if 5% were substituted for 10% wherever it occurs in such Rule. "S&P" means Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. 9 17 "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Single Employer Plan" means a Plan maintained by the Company or any member of the Controlled Group for employees of the Company or any member of the Controlled Group. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Company. "Subsidiary Borrower" means each Subsidiary of the Company listed as a Subsidiary Borrower on Schedule 1 as amended from time to time in accordance with Section 5.8. "Substantial Portion" means, with respect to the Property of the Company and its Subsidiaries, Property which (i) represents more than 20% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 20% of the consolidated net sales or of the consolidated net income of the Company and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "Syndication Agent" means Bank of America, N.A. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or 10 18 more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1 COMMITMENTS OF THE LENDERS; REVOLVING CREDIT ADVANCES. From and including the date of this Agreement and prior to the Facility Termination Date, each Lender agrees, for itself only, subject to the terms and conditions set forth in this Agreement, to make Loans to the Borrowers from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitments to lend hereunder shall expire on the Facility Termination Date. 2.2 TERMINATION. Any outstanding Advances together with any other unpaid Obligations then due and payable shall be paid in full by the Borrowers on the Facility Termination Date. 2.3 RATABLE LOANS. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.4 TYPES OF ADVANCES. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the relevant Borrowers in accordance with Sections 2.8 and 2.9. 2.5 FACILITY FEE; REDUCTIONS IN AGGREGATE COMMITMENT; UTILIZATION FEE. The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee, determined in accordance with the Pricing Schedule, calculated on the Aggregate Commitment, whether used or unused, payable quarterly in arrears for the ratable benefit of the Lenders from the date of this Agreement until the Facility Termination Date. The Aggregate Commitment may be reduced by the Company in multiples of $10,000,000 upon three Business Days' prior written notice. For each day on which the aggregate principal amount of outstanding Advances exceeds 33% of the Aggregate Commitment, a utilization fee at the per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of outstanding Advances for the ratable benefit of the Lenders, payable in arrears on each Payment Date until the Facility Termination Date, and such utilization fee shall increase as set forth on the Pricing 11 19 Schedule if the aggregate principal amount of outstanding Advances exceeds 67% of the Aggregate Commitment. 2.6 MINIMUM AMOUNT OF EACH ADVANCE. Each Eurodollar Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 in excess thereof, and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.7 PREPAYMENTS. The Borrowers may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon one Business Days' prior notice to the Administrative Agent. The Borrowers may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Administrative Agent. 2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW ADVANCES. The Company or the relevant Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Company or the relevant Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Detroit time) on the Borrowing Date of each Floating Rate Advance and not later than 11:00 a.m. (Detroit time) three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrower, (ii) the Borrowing Date, which shall be a Business Day, of such Advance, (iii) the aggregate amount of such Advance, (iv) the Type of Advance selected, and (v) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Detroit time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available to the Administrative Agent at its address specified pursuant to Article XIII. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 12 20 2.9 CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time each such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.6, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances, provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Detroit time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying: i. the requested date, which shall be a Business Day, of such conversion or continuation, and ii. the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. 2.10 METHOD OF BORROWING. On each Borrowing Date, each Lender shall make available its Loan or Loans, not later than noon, Detroit time, in Federal or other funds immediately available to the Administrative Agent, in Detroit, Michigan at its address specified in or pursuant to Article XIII. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the relevant Borrower at the Administrative Agent's aforesaid address. Notwithstanding the foregoing provisions of this Section 2.10, to the extent that a Loan made by a Lender matures on the Borrowing Date of a requested Loan, such Lender shall apply the proceeds of the Loan it is then making to the repayment of principal of the maturing Loan. 2.11 CHANGES IN INTEREST RATE, ETC. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a 13 21 Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Floating Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Administrative Agent as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.12 RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Administrative Agent or any Lender. 2.13 METHOD OF PAYMENT. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds by wire transfer to the Administrative Agent at (except as set forth in the next sentence) the Administrative Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Administrative Agent among the Lenders. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. 2.14 NOTELESS AGREEMENT; EVIDENCE OF INDEBTEDNESS. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan 14 22 made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and, if applicable, the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note (a "Note"). In such event, the relevant Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender in a form supplied by the Administrative Agent and reasonably acceptable to the Company. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by a Note payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. 2.15 TELEPHONIC NOTICES. The Borrowers hereby authorize the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices given to the Administrative Agent by any person or persons listed on Schedule 8, as such Schedule may be revised by the Company from time to time in accordance with Section 13.1, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrowers agree to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent regarding the telephonic notice shall govern absent manifest error. 2.16 INTEREST PAYMENT DATES; INTEREST AND FEE BASIS. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest on Floating Rate Loans shall be calculated for actual days elapsed on the basis of a 365 or 366-day year, as appropriate. Interest accrued on that portion of the outstanding principal 15 23 amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable in arrears on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender, the Company and the relevant Borrower of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender and the Company prompt notice of each change in the Floating Rate. 2.18 LENDING INSTALLATIONS. Each Lender will book its Loans at the appropriate Lending Installation listed on Schedule 4 or such other Lending Installation designated by such Lender in accordance with the final sentence of this Section 2.18. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by not less than one days' prior written notice to the Administrative Agent and the Borrowers in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.19 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. (a) Unless the relevant Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of such Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by 16 24 the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day, or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. (b) The failure of any Lender to make the Loan to be made by it as part of any Advance shall not relieve any other Lender of its obligation hereunder to make its Loan on the date of such Advance, but no Lender, except as otherwise provided in the next sentence of this Section 2.19(b), shall be responsible for the failure of a Defaulting Lender to make the Loan to be made by such Defaulting Lender on the date of any Advance. Notwithstanding the foregoing sentence, but otherwise subject to the terms and conditions of this Agreement, the Administrative Agent shall notify each Lender of the failure by a Defaulting Lender to make a Loan required to be made by it hereunder (the "Unpaid Amount"), and each Lender shall immediately transfer to the Administrative Agent on such date the lesser of such Lender's proportionate share (based on its Commitment divided by the Commitments of all Lenders that have not so failed to fund their Loans) of the Unpaid Amount and its unused Commitment. Any such transfer shall be deemed to be a Floating Rate Loan by such Lender. Each Defaulting Lender shall pay on demand to each other Lender that makes a payment under this Section 2.19(b) the amount paid by such other Lender to cover such failure, together with interest thereon, for each day from the date such payment was made until the date such other Lender has been paid such amount in full, at a rate per annum equal to the Federal Funds Effective Rate plus two percent (2%). 2.20 REPLACEMENT OF LENDER. If any Borrower is required pursuant to Section 3.1, 3.2 or 3.5 to make any additional payment to any Lender or if any Lender's obligation to make or continue, or to convert Floating Rate Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.3, or if any Lender shall become a Defaulting Lender (any Lender so affected an "Affected Lender"), the Company may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Lender as a Lender party to this Agreement, provided that no Default or Unmatured Default shall have occurred and be continuing at the time of such replacement, and provided further that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Company and the Administrative Agent shall agree, as of such date, to purchase for cash the Advances and other Obligations due to the Affected Lender pursuant to an assignment substantially in the form of EXHIBIT C and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 12.3 applicable to assignments, and (ii) the Borrowers shall pay to such Affected Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrowers hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5. Nothing herein shall release any Defaulting Lender from any obligation it may have to any Borrower, the Administrative Agent or any other Lender. 17 25 ARTICLE III YIELD PROTECTION; TAXES 3.1 YIELD PROTECTION. (a) If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of maintaining its Commitment or making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to its Commitment or the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within 30 days of demand by such Lender, the relevant Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. (b) NON-U.S. RESERVE COSTS OR FEES WITH RESPECT TO LOANS TO NON-U.S. BORROWERS. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive of any jurisdiction outside of the United States of America or any subdivision thereof (whether or not having the force of law) imposes or deems applicable any reserve requirement against or fee with respect to assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation, and the result of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or 18 26 maintaining its Eurodollar Loans to any Borrower that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Borrower") or its Commitment to any Non-U.S. Borrower or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans to any Non-U.S. Borrower or Commitment to any Non-U.S. Borrower, then, within 30 days of demand by such Lender, such Non-U.S. Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received, provided that such Non-U.S. Borrower shall not be required to compensate any Lender for such non-U.S. reserve costs or fees to the extent that an amount equal to such reserve costs or fees is received by such Lender as a result of the calculation of the interest rate applicable to Eurodollar Advances pursuant to clause (i)(b) of the definition of "Eurodollar Rate." 3.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change (as defined below), then, within 15 days of demand by such Lender, the Company shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3 AVAILABILITY OF TYPES OF ADVANCES. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type, currency and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Administrative Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances at the end of the then current Interest Period for the affected Eurodollar Advance. 19 27 3.4 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by a Borrower for any reason other than default by the Lenders, the Borrowers will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5 TAXES. (i) All payments by the Borrowers to or for the account of any Lender or the Administrative Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrowers hereby agree to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrowers hereby agree to indemnify the Administrative Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Administrative Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Administrative Agent or such Lender makes demand therefor pursuant to Section 3.6. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of the Company and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement from the Company and any other Borrower that is not a Non-U.S. Borrower without deduction or withholding of any United States federal income taxes, or (ii) deliver to each of the Company and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Company and the Administrative Agent (x) renewals or additional copies of such 20 28 form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Company or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Company and the Administrative Agent that it is not capable of receiving payments from the Company and any other Borrower that is not a Non-U.S. Borrower without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Company with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Company shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this Section 3.5(vii) shall survive the payment of the Obligations and termination of this Agreement. 21 29 3.6 LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrowers to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrowers (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrowers in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type, currency and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrowers of such written statement. The obligations of the Borrowers under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT 4.1 INITIAL ADVANCE. The Lenders shall not be required to make the initial Advance hereunder unless the Borrowers have satisfied the following conditions: (a) Each Borrower has furnished to the Administrative Agent with sufficient copies for the Lenders: (i) Copies of the articles or certificate of incorporation of such Borrower, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of such Borrower, of its by-laws or code of regulations and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which such Borrower is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of such Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of such Borrower authorized to sign the Loan Documents to which such Borrower is a party, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Borrower. 22 30 (iv) A certificate, signed by the Chief Financial Officer or Treasurer of such Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of such Borrower's counsel, addressed to the Lenders in substantially the form of EXHIBIT A. (vi) Any Notes requested by a Lender pursuant to Section 2.14 payable to the order of each such requesting Lender. (vii) Written money transfer instructions, in substantially the form of EXHIBIT D, addressed to the Administrative Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested. (viii) A pro forma covenant compliance certificate in form and substance reasonably satisfactory to the Administrative Agent from the Chief Financial Officer or Treasurer of the Company. (ix) The Guaranty, duly executed by the Company. (x) Such other documents as any Lender or its counsel may have reasonably requested. (b) Payment of the fees described in the letter agreement referred to in Section 10.13. 4.2 EACH ADVANCE. The Lenders shall not be required to make, continue or convert any Advance unless on the applicable Borrowing Date or date of conversion or continuation: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V (other than Section 5.5, 5.7 and 5.15) are true and correct in all material respects as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel. (iv) Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. 23 31 ARTICLE V REPRESENTATIONS AND WARRANTIES The Company and each of the Borrowers represents and warrants to the Lenders that: 5.1 EXISTENCE AND STANDING. Each of the Company and its Significant Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.2 AUTHORIZATION AND VALIDITY. Each Borrower has the power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by each Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate or other proceedings, and the Loan Documents to which such Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3 NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery by the Borrowers of the Loan Documents to which they are a party, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on any Borrower or (ii) any Borrower's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, code or regulations, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which any Borrower is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of any Borrower pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by a Borrower, is required to be obtained by any Borrower in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by such Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 24 32 5.4 FINANCIAL STATEMENTS. The following consolidated financial statements heretofore delivered to the Lenders were prepared in accordance with Agreement Accounting Principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Company and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject, in the case of such interim statements, to routine year-end audit adjustments: (i) June 30, 2000 audited consolidated financial statements of the Company and its Subsidiaries; and (ii) December 31, 2000 unaudited interim consolidated financial statements of the Company and its Subsidiaries. 5.5 MATERIAL ADVERSE CHANGE. Since December 31, 2000 there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6 TAXES. The Company and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. No tax liens have been filed and no claims are being asserted with respect to any such taxes which could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7 LITIGATION AND CONTINGENT OBLIGATIONS. Except as set forth on Schedule 7, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Loans. As of the date of this Agreement, other than any liability incident to any litigation, arbitration or proceeding which (i) could not reasonably be expected to have a Material Adverse Effect or (ii) is set forth on Schedule 7, the Company has no material Contingent Obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 25 33 5.8 SUBSIDIARIES. Schedule 1 contains an accurate list of all Subsidiaries of the Company (other than immaterial or inactive Subsidiaries) and each Subsidiary Borrower as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Company or other Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable, except to the extent that the lack of such status could not reasonably be expected to have a Material Adverse Effect. The Company may amend Schedule 1 from time to time by delivering to the Administrative Agent an updated list of Subsidiaries, and the Company may designate any Subsidiary thereon which is directly or indirectly 80% (or, in the case of R.P. Scherer S.A., 75%) or more owned by the Company as a Subsidiary Borrower hereunder so long as (a) the Company guarantees the obligations of such new Subsidiary Borrower pursuant to the terms of the Guaranty, (b) such new Subsidiary Borrower delivers all corporate or organizational documents and authorizing resolutions and legal opinions reasonably requested by the Administrative Agent and (c) such new Subsidiary Borrower agrees to the terms and conditions of this Agreement and the Borrowers and the new Subsidiary Borrower execute all agreements and take such other action reasonably requested by Administrative Agent. Schedule 1 may be amended to remove any Subsidiary as a Subsidiary Borrower upon (i) written notice by the Company to the Administrative Agent to such effect and (ii) repayment in full of all outstanding Loans of such Subsidiary Borrower. 5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $75,000,000. Each Single Employer Plan complies in all material respects with all applicable requirements of law and regulations where the failure to so comply could reasonably be expected to have a Material Adverse Effect. No Reportable Event has occurred with respect to any Plan where such occurrence could reasonably be expected to have a Material Adverse Effect. Neither the Company or any of its Significant Subsidiaries has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Single Employer Plan where in either instance a liability in excess of $75,000,000 could reasonably be expected to result. 5.10 ACCURACY OF INFORMATION. No information, exhibit or report furnished by the Company or any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading; provided, however, that to the extent any such information, exhibits or reports include or incorporate by reference any forward-looking statement (each, a "Forward-Looking Statement") which reflects the Company's current view (as of the date such Forward-Looking Statement is made) with respect to future events, prospects, projections or financial performance, such 26 34 Forward-Looking Statement is subject to uncertainties and other factors which could cause actual results to differ materially from such Forward-Looking Statement. 5.11 REGULATION U. Margin stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Company and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12 MATERIAL AGREEMENTS. Neither the Company nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 5.13 COMPLIANCE WITH LAWS. The Company and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14 PLAN ASSETS; PROHIBITED TRANSACTIONS. The Company is not an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss. 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.15 ENVIRONMENTAL MATTERS. In the ordinary course of its business, the officers of the Company consider the effect of Environmental Laws on the business of the Company and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Company due to Environmental Laws. On the basis of this consideration, the Company has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 27 35 5.16 INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.18 DEFAULT. There exists no Default or Unmatured Default under Article VII of this Agreement. ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1 FINANCIAL REPORTING. The Company will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with Agreement Accounting Principles, and furnish to the Lenders: (i) Within 120 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in Agreement Accounting Principles and required or approved by the Company's independent certified public accountants) audit report certified by independent certified public accountants reasonably acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss statements, and a statement of cash flows, accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. (ii) Within 60 days after the close of each of the first three quarterly periods of each fiscal year, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated unaudited profit and loss statements and a consolidated unaudited statement of cash flows for the period from the beginning of such fiscal 28 36 year to the end of such quarter, all certified by its Chief Financial Officer, Controller, or Treasurer. (iii) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of EXHIBIT B signed by its Chief Financial Officer, Controller, or Treasurer and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within 10 Business Days after the Company knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Financial Officer, Controller, or Treasurer of the Company, describing said Reportable Event and the action which the Company proposes to take with respect thereto. (v) As soon as possible and in any event within 10 Business Days after receipt by the Company, a copy of (a) any notice or claim to the effect that the Company or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Company, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Company or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Such other information (including non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request. 6.2 USE OF PROCEEDS. The Company will, and will cause each Subsidiary to, use the proceeds of the Advances for general corporate purposes, including Acquisitions and commercial paper back-up. The Company will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U). 6.3 NOTICE OF DEFAULT. The Company will, and will cause each Borrower and Significant Subsidiary to, give prompt notice in writing to the Administrative Agent of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4 CONDUCT OF BUSINESS. The Company will, and will cause each Significant Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted or fields related thereto (except that the Company and its Significant Subsidiaries shall have no duty to renew or extend contracts which expire by their terms) and do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its 29 37 business is conducted, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.5 TAXES. The Company will, and will cause each Significant Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6 INSURANCE. The Company will, and will cause each Significant Subsidiary to, maintain as part of a self-insurance program or with financially sound and reputable insurance companies insurance on all their Property in such amounts (with such customary deductibles, exclusions and self-insurance) and covering such risks as is consistent with sound business practice. 6.7 COMPLIANCE WITH LAWS. The Company will, and will cause each Significant Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.8 INSPECTION. The Company will, and will cause each Significant Subsidiary to, permit the Administrative Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Company and each Significant Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Significant Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable prior notice at such reasonable times and intervals as the Administrative Agent or any Lender may designate, provided that neither the Company nor any of its Subsidiaries shall be responsible for the costs and expenses incurred by the Administrative Agent, any Lender, or their representatives in connection with such inspection prior to the occurrence and continuation of a Default. 6.9 MERGER. The Company will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into any other Person, except that, provided that no Default or Unmatured Default shall have occurred and be continuing or would result therefrom on a pro forma basis reasonably acceptable to the Administrative Agent, the Company may merge or consolidate with 30 38 any other U.S. corporation and each Significant Subsidiary may merge or consolidate with any other Person, provided, further, that (i) in the case of any such merger or consolidation involving the Company, the Company is the surviving corporation and (ii) in the case of any such merger or consolidation involving a Significant Subsidiary which is a Subsidiary Borrower, the surviving corporation assumes all of such Borrower's obligations under this Agreement and remains or becomes a Subsidiary Borrower. 6.10 SALE OF ASSETS. The Company will not, nor will it permit any Significant Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person (other than the Company or another Subsidiary), except: (i) Sales of inventory in the ordinary course of business. (ii) Sales or other dispositions in the ordinary course of business of fixed assets for the purpose of replacing such fixed assets, provided that such fixed assets are replaced within 360 days of such sale or other disposition with other fixed assets which have a fair market value not materially less than the fixed assets sold or otherwise disposed of. (iii) Sales or other dispositions outside the ordinary course of business of accounts receivable, lease receivables, leases or equipment which had been leased by the Company or such Significant Subsidiary, provided that any such sale or other disposition is for reasonably equivalent value and could not reasonably be expected to have a Material Adverse Effect. (iv) Other leases, sales (including sale-leasebacks) or other dispositions of its Property that, together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i), (ii) and (iii) above) as permitted by this Section during the twelve-month period ending with the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Company and its Subsidiaries, or together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i) and (ii) above) as permitted by this Section during the period from the date of this Agreement to the end of the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute 35% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the fiscal year in which any such lease, sale or other disposition occurs. Notwithstanding anything in this Section 6.10 to the contrary, (a) no such leases, sales or other dispositions of property may be made (other than pursuant to clause (i) above) if any Default or Unmatured Default has occurred and is continuing, and (b) all leases, sales and other dispositions of Property at any time shall be for not less than the fair market value of such Property as determined in good faith by the Company. 31 39 6.11 INVESTMENTS. The Company will not, nor will it permit any Significant Subsidiary to, make or suffer to exist any Investments, or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, except: (i) Cash Equivalent Investments. (ii) Investments in Subsidiaries. (iii) other Investments in existence on the date hereof. (iv) Other Investments provided that the aggregate amount of such Investments made in any fiscal year does not exceed 25% of Adjusted Tangible Net Worth as of the beginning of such fiscal year. 6.12 LIENS. The Company will not, nor will it permit any Significant Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Company or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as landlord's, carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation (other than Liens in favor of the PGBC). (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Company or its Subsidiaries. (v) Liens existing on the date hereof. (vi) Liens on any assets which exist at the time of acquisition of such assets by the Company or any of its Subsidiaries, or liens to secure the payment of all of any part of the purchase price of such assets upon the acquisition of such assets by the Company or any of its 32 40 Subsidiaries or to secure any Indebtedness incurred or guaranteed by the Company or any of its Subsidiaries prior to, at the time, of or within 360 days after, such acquisition (or, in the case of real property, the completion of construction (including any improvements on an existing asset) or commencement of full operation of such asset, whichever is later), which Indebtedness is incurred or guaranteed for the purpose of financing all or any part of the purchase price thereof or, in the case of real property, construction or improvements thereon, provided, however, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to such assets theretofore owned by the Company or any of its Subsidiaries other than, in the case of any such construction or improvement, any real property on which the property so constructed, or the improvement, is located, provided further, however, that the aggregate outstanding principal amount of Indebtedness secured by Liens permitted by this Section 6.12(vi) shall not at any time exceed $250,000,000. (vii) Liens in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction), of the assets subject to such liens (including without limitation liens incurred in connection with pollution control, industrial revenue or similar financings). (viii) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses, provided, however, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured prior to such extension, renewal or replacement and that such extension, renewal or replacement Lien shall be limited to all or a part of the assets which secured the Lien so extended, renewed or replaced (plus improvements and construction on such real property). (ix) So long as no Default under Section 7.9 would occur in connection therewith, Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company or any of its Subsidiaries with respect to which the Company or such Subsidiary is in good faith prosecuting an appeal or proceeding for review or for which the time to make an appeal has not yet expired; or final unappealable judgment Liens which are satisfied within 15 days of the date of judgment; or Liens incurred by the Company or any of its Subsidiaries for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company or such Subsidiary is a party. (x) Liens securing Indebtedness described in Section 6.14(iv) and (v). (xi) Liens securing Indebtedness and not otherwise permitted by the foregoing provisions of this Section 6.12, provided that the aggregate outstanding principal amount of the Indebtedness secured by all such Liens shall not at any time exceed 25% of Adjusted Tangible Net Worth. 33 41 6.13 SUBSIDIARY INDEBTEDNESS. The Company will not permit any Subsidiary to create, incur or suffer to exist any Indebtedness, except: (i) The Loans. (ii) Indebtedness outstanding on the date of this Agreement or incurred pursuant to commitments in existence on the date of this Agreement.. (iii) Indebtedness of any Subsidiary to the Company or any other Subsidiary. (iv) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that such Indebtedness existed at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary. (v) Any refunding or refinancing of any Indebtedness referred to in clauses (i) through (iv) above, provided that any such refunding or refinancing of Indebtedness referred to in clause (ii), (iii) or (iv) does not increase the principal amount thereof. (vi) Indebtedness arising from (a) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, or (b) the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business. (vii) Indebtedness arising from guarantees of loans and advances by third parties to employees and officers of a Subsidiary in the ordinary course of business for bona fide business purposes, provided that the aggregate outstanding principal amount of such Indebtedness does not at any time exceed $100,000,000. (viii) Indebtedness of a Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations or from guarantees, letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries incurred or assumed in connection with the disposition of any business, property or Subsidiary. (ix) Indebtedness arising from Rate Hedging Obligations. (x) Contingent Obligations. (xi) Indebtedness outstanding under investment grade commercial paper programs. (xii) Other Indebtedness; provided that, at the time of the creation, incurrence or assumption of such other Indebtedness and after giving effect thereto, the aggregate amount of all such other Indebtedness of the Subsidiaries does not exceed an amount equal to 25% of Adjusted Tangible Net Worth at such time. 34 42 6.14 LIMITATION ON RESTRICTIONS ON SIGNIFICANT SUBSIDIARY DISTRIBUTIONS. The Company will not, and will not permit any Significant Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Significant Subsidiary of the Company to (i) pay dividends or make any other distributions in respect of any capital stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (ii) make loans or advances to the Company or any other Subsidiary of the Company or (iii) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (a) any restrictions existing under the Loan Documents, (b) any restrictions with respect to a Significant Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of all or substantially all of the capital stock or assets of such Subsidiary, and (c) any restrictions with respect to assets encumbered by a Lien permitted by Section 6.12 so long as such restriction applies only to the asset encumbered by such permitted Lien. 6.15 CONTINGENT OBLIGATIONS. The Company will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (i) by endorsement of instruments for deposit or collection in the ordinary course of business, (ii) the Guaranty, (iii) Contingent Obligations of special-purpose finance Subsidiaries, provided that no Person has recourse against the Company or any Significant Subsidiary for such Contingent Obligations, (iv) Contingent Obligations arising from the sale by Pyxis Corporation of lease receivables, leases or equipment, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 10% of Adjusted Tangible Net Worth, (v) Contingent Obligations arising out of operating or synthetic leases entered into by Subsidiaries of the Company, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 25% of Adjusted Tangible Net Worth, and (vi) Contingent Obligations in addition to those described in (i)-(v) above, provided that the aggregate amount of such additional Contingent Obligations (without duplication) do not at any time exceed 25% of Adjusted Tangible Net Worth. 6.16 MINIMUM NET WORTH. The Company shall not permit its Net Worth to be less than $2,550,000,000 at any time. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1 Any representation or warranty made or deemed made by or on behalf of the Company or any of its Subsidiaries to the Lenders or the Administrative Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 35 43 7.2 Nonpayment of principal of any Loan within one day after the same becomes due, or nonpayment of interest upon any Loan or of any commitment fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3 The breach by the Company of Sections 6.3, 6.9, 6.10, 6.13, 6.15, or 6.16. 7.4 The breach by any Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within thirty days after written notice from the Administrative Agent or any Lender. 7.5 Failure of the Company or any of its Significant Subsidiaries to pay when due any principal, interest or other amounts, subject to any applicable grace period, or the default by the Company or any of its Significant Subsidiaries in the performance beyond the applicable grace period with respect thereto, if any, of any term, provision or condition contained in the Five Year Credit Agreement or any agreement or agreements under which any Indebtedness in excess of 2% of Adjusted Tangible Net Worth was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Company or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Company or any of its Significant Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6 The Company or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7 Without the application, approval or consent of the Company or any of its Significant Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Company or any of its Significant Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Company or any of its Significant Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8 Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Company and its Subsidiaries which, when taken together with all other Property of the Company and its 36 44 Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9 The Company or any of its Significant Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge one or more (i) judgments or orders for the payment of money (not covered by insurance)in excess of 2% of Adjusted Tangible Net Worth (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in either such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith. 7.10 Any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $75,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Single Employer Plan with Unfunded Liabilities in excess of $20,000,000 (a "Material Plan") shall be filed under Section 4041(c) of ERISA by any member of the Controlled Group, any plan administrator or any combination of the foregoing; or PBGC shall institute proceedings under which it is likely to prevail under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which causes one or more members of the Controlled Group to incur a current payment obligation in excess of $75,000,000. 7.11 Any Change in Control shall occur. 7.12 The Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or the Company shall fail to comply with any of the terms or provisions of the Guaranty, or the Company shall deny that it has any further liability under the Guaranty, or shall give notice to such effect. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1 ACCELERATION. If any Default described in Section 7.6 or 7.7 occurs with respect to the Company or any of its Significant Subsidiaries, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs and is continuing, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the 37 45 Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Company hereby expressly waives. If, within 60 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Company) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Company, rescind and annul such acceleration and/or termination. 8.2 AMENDMENTS. Subject to the provisions of this Article VIII, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrowers may enter into written agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or waiving any Default hereunder; provided, however, that no such supplemental written agreement shall, without the consent of all of the Lenders: (i) Extend the final maturity of any Loan or postpone any regularly scheduled payment of principal of any Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Facility Termination Date or reduce the amount or extend the payment date for, the mandatory payments required under Section 2.2, or increase the amount of the Aggregate Commitment or of the Commitment of any Lender hereunder, or permit any Borrower to assign its rights under this Agreement (other than as may be permitted pursuant to Section 6.9). (iv) Amend this Section 8.2. (v) Release the Company as guarantor of any Advance. No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent. The Administrative Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. Notwithstanding anything herein to the contrary, no Defaulting Lender shall be entitled to vote (whether to consent or to withhold its consent) with respect to any amendment, modification, termination or waiver requiring the consent of the Required Lenders, and, for purposes of determining the Required Lenders, the Commitments and the Loans of each Defaulting Lender shall be disregarded. 8.3 PRESERVATION OF RIGHTS. 38 46 No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of a Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrowers contained in this Agreement shall survive the making of the Loans herein contemplated. 9.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrowers in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3 HEADINGS. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and understanding among the Borrowers, the Administrative Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Administrative Agent and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. 9.5 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Lead Arranger shall enjoy the benefits of 39 47 the provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6 EXPENSES; INDEMNIFICATION. (i) The Borrowers shall reimburse the Administrative Agent and the Lead Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent but subject to any limitations contained in the letter from Dickinson Wright PLLC to Bank One dated March 9, 2001) paid or incurred by the Administrative Agent or the Lead Arranger in connection with the preparation, investigation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents, whether incurred prior to or subsequent to the Closing Date. The Borrowers also agree to reimburse the Administrative Agent, the Lead Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, the Lead Arranger and the Lenders, which attorneys may be employees of the Administrative Agent, the Lead Arranger or the Lenders) paid or incurred by the Administrative Agent, the Lead Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Company hereby further agrees to indemnify the Administrative Agent, the Lead Arranger and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Administrative Agent, the Lead Arranger or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Company under this Section 9.6 shall survive the termination of this Agreement. 9.7 NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 9.8 ACCOUNTING. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles except that any calculation or determination which is to be made on a consolidated basis shall be made for the Company and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Company's audited financial statements. 40 48 9.9 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10 NONLIABILITY OF LENDERS. The relationship between the Company on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower and lender. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any fiduciary responsibilities to the Company solely by reason of being a party to this Agreement. Neither the Administrative Agent, the Lead Arranger nor any Lender undertakes any responsibility to the Company to review or inform the Company of any matter in connection with any phase of the Company's business or operations. The Company agrees that neither the Administrative Agent, the Lead Arranger nor any Lender shall have liability to the Company (whether sounding in tort, contract or otherwise) for losses suffered by the Company in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any liability with respect to, and the Company hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages suffered by the Company in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11 CONFIDENTIALITY. Each of the Administrative Agent and each Lender agrees to hold any confidential information which it may receive from the Company pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or the Administrative Agent or, subject to Section 12.4, to a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender's contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, (vii) permitted by Section 12.4, and (viii) to rating agencies if requested or required by such agencies in connection with a rating relating to the Advances hereunder, provided that reasonable advance written notice is given to the Company. 9.12 NONRELIANCE. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. 41 49 ARTICLE X THE AGENT 10.1 APPOINTMENT; NATURE OF RELATIONSHIP. Bank One is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the "Administrative Agent") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Administrative Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Administrative Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2 POWERS. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent. 10.3 GENERAL IMMUNITY. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Company, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. 10.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, 42 50 warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Administrative Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Company or any guarantor of any of the Obligations or of any of the Company's or any such guarantor's respective Subsidiaries. The Administrative Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Company to the Administrative Agent at such time, but is voluntarily furnished by the Company to the Administrative Agent (either in its capacity as Administrative Agent or in its individual capacity). 10.5 ACTION ON INSTRUCTIONS OF LENDERS. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document. 10.7 RELIANCE ON DOCUMENTS; COUNSEL. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to 43 51 legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. 10.8 ADMINISTRATIVE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Company for which the Administrative Agent is entitled to reimbursement by the Company under the Loan Documents (other than the fee payable pursuant to Section 10.13), (ii) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Administrative Agent and (ii) any indemnification required pursuant to Section 3.5(vii) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Administrative Agent has received written notice from a Lender or the Company referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. 10.10 RIGHTS AS A LENDER. In the event the Administrative Agent is a Lender, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, at any time when the Administrative Agent is a Lender, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may 44 52 accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Subsidiaries in which the Company or such Subsidiary is not restricted hereby from engaging with any other Person. The Administrative Agent, in its individual capacity, is not obligated to remain a Lender. 10.11 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on the financial statements prepared by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Company, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, forty-five days after the retiring Administrative Agent gives notice of its intention to resign. The Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Company and the Lenders, a successor Administrative Agent, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If no successor Administrative Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Administrative Agent may appoint, on behalf of the Company and the Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, without the consent of any Lender but upon thirty days prior written notice to the Lenders and the Company, the Administrative Agent may appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If the Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, the Lenders may perform all the duties of the Administrative Agent hereunder and the Company shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $5,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such 45 53 successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of the Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article X shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. 10.13 ADMINISTRATIVE AGENT'S FEE. The Company agrees to pay to the Administrative Agent, for its own account, the fees agreed to by the Company, the Lead Arranger and the Administrative Agent pursuant to that certain letter agreement dated March 8, 2001 or as otherwise agreed from time to time. 10.14 DELEGATION TO AFFILIATES. The Company and the Lenders agree that the Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Administrative Agent is entitled under Articles IX and X. 10.15 ADMINISTRATIVE AGENT, SYNDICATION AGENT, DOCUMENTATION AGENTS, LEAD ARRANGER, ETC. Neither the Syndication Agent, the Documentation Agents nor the Lead Arranger shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders or the Administrative Agent shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Administrative Agent in Section 10.11. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1 SETOFF. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Borrower becomes insolvent, however evidenced, or any Default occurs and is continuing, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of any Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 46 54 11.2 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of the Company to a Lender other than Indebtedness comprised of Loans made by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness comprised of such Loans. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns, except that (i) the Borrowers shall not have the right to assign their rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrowers or the Administrative Agent, assign all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of the rights to any Loan or any Note agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Loan. 12.2 PARTICIPATIONS. 12.2.1. PERMITTED PARTICIPANTS; EFFECT. Any Lender may, in its sole discretion, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities 47 55 ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrowers under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. VOTING RIGHTS. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, extends the Facility Termination Date, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases the Company as guarantor of any such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. 12.2.3. BENEFIT OF SETOFF. The Company agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3 ASSIGNMENTS. 12.3.1. PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more financial institutions, mutual funds, insurance companies or other entities engaged in the business of extending credit for borrowed money ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of EXHIBIT C or in such other form as may be agreed to by the parties thereto. The consent of the Company and the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the 48 56 Company shall not be required. Such consent shall not be unreasonably withheld or delayed. The assignor shall give prompt written notice to the Company of any assignment becoming effective without the consent of the Company. Each such assignment with respect to a Purchaser which is not a Lender or an Affiliate thereof shall (unless each of the Company and the Administrative Agent otherwise consents) be in an amount not less than the lesser of (i) $5,000,000 and in multiples of $1,000,000 or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or outstanding Loans (if the applicable Commitment has been terminated). 12.3.2. EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Administrative Agent of an assignment, together with any consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Administrative Agent for processing such assignment (unless such fee is waived by the Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Company, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Administrative Agent and the Borrowers shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4 DISSEMINATION OF INFORMATION. The Company authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Company and its Subsidiaries, provided that each Transferee and prospective Transferee agrees in writing to be bound by Section 9.11 of this Agreement. 12.5 TAX TREATMENT. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv). 49 57 12.6 TRANSFER TO AN SPC. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Company, the option to provide to the Borrowers all or any part of any Loan (other than an Alternate Currency Loan) that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; PROVIDED that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary in this Section 12.6, any SPC may (i) with notice to, but without the prior written consent of, the Company and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. As this Section applies to any particular SPC, this section may not be amended without the written consent of such SPC. ARTICLE XIII NOTICES 13.1 NOTICES. Except as otherwise permitted by Section 2.15 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrowers or the Administrative Agent, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrowers in accordance with the provisions of this Section 13.1. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is 50 58 deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. 13.2 CHANGE OF ADDRESS. The Borrowers, the Administrative Agent and any Lender may each change the address for service of notice upon it by 5 days' prior written notice to the other parties hereto. ARTICLE XIV COUNTERPARTS ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrowers, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by facsimile transmission or telephone that it has taken such action. ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL ------------------------------------------------------------ 15.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2 CONSENT TO JURISDICTION. EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE 51 59 ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3 WAIVER OF JURY TRIAL. THE BORROWERS, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 52 60 IN WITNESS WHEREOF, the Borrowers, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written. CARDINAL HEALTH, INC. By: /s/ DONNA BRANDIN -------------------------------------- Print Name: DONNA BRANDIN ------------------------------ Title: Senior Vice President and Treasurer ----------------------------------- By: -------------------------------------- Print Name: ------------------------------ Title: ----------------------------------- 7000 Cardinal Place Dublin, Ohio 43017 Attention: Suzanne L. Stoddard Telephone: (614) 757-7542 Fax: (614) 757-8542 53 61 Commitment: $60,000,000 BANK ONE, NA (Main office Chicago), Individually and as Administrative Agent By: /s/ Paul A. Harris --------------------------------- Print Name: Paul A. Harris -------------------- Title: First Vice President ----------------------------- 100 East Broad Street 7th Floor Columbus, OH 43215 Attention: Paul A. Harris Telephone: (614) 248-1780 Fax: (614) 248-5518 54 62 Commitment: $60,000,000 BANK OF AMERICA, N.A. Individually and as Syndication Agent By: /s/ Lawrence J. Gordon --------------------------- Print Name: Lawrence J. Gordon ------------------------ Title: Principal -------------------- 100 N. Tryon Street, Floor 17 Charlotte, NC 28079 Attention: Bryan Smith or Terry Kelley Telephone: (704) 388-1464 or 387-2112 Fax: (704) 409-0486 55 63 Commitment: $60,000,000 CITICORP USA, INC. Individually and as Documentation Agent By: /s/ Emily Rosenstock ------------------------- Print Name: Emily Rosenstock ---------------------- Title: Managing Director/Midwest Market Manager ------------------------------------------ 500 West Madison, 7th Floor Chicago, IL 60661 Attention: Carrie Stead Telephone: (312) 627-3983 Fax: (312) 627-5150 56 64 Commitment: $60,000,000 CREDIT SUISSE FIRST BOSTON Individually and as Documentation Agent By: /s/ William S. Lutkins ----------------------------------- Print Name: William S. Lutkins --------------------------- Title: Vice President -------------------------------- By: /s/ Robert N. Finney ----------------------------------- Print Name: Robert N. Finney --------------------------- Title: Managing Director -------------------------------- 11 Madison Avenue New York, NY 10010-3629 Attention: William S. Lutkins Telephone: (212) 325-9705 Fax: (212) 325-8319 57 65 Commitment: $60,000,000 DEUTSCHE BANK AG New York Branch and/or Cayman Islands Branch By: /s/ Iain Stewart ------------------------------- Print Name: Iain Stewart ----------------------- Title: Vice President ---------------------------- By: /s/ Stephanie Strohe ------------------------------- Print Name: Stephanie Strohe ----------------------- Title: Associate ---------------------------- DEUTSCHE BANC ALEX. BROWN INC. As Documentation Agent By: /s/ Iain Stewart ------------------------------- Print Name: Iain Stewart ----------------------- Title: Vice President ---------------------------- By: /s/ Stephanie Strohe ------------------------------- Print Name: Stephanie Strohe ----------------------- Title: Associate ---------------------------- 31 W. 52nd Street New York, NY 10019 Attention: Iain Stewart Telephone: (212) 469-8279 Fax: (212) 469-8701 58 66 Commitment: $45,000,000 FIRST UNION NATIONAL BANK By: /s/ Ruth E. Leone ------------------------------- Print Name: Ruth E. Leone ----------------------- Title: Vice President ---------------------------- 301 South College Street, 5th Floor Charlotte, NC 28288-0760 Attention: Ruth E. Leone Telephone: (215) 786-2183 Fax: (215) 973-4156 59 67 Commitment: $45,000,000 THE BANK OF TOKYO MITSUBISHI, LTD., CHICAGO BRANCH By: /s/ Hisashi Miyashiro --------------------------- Print Name: Hisashi Miyashiro ----------------------- Title: Deputy General Manager ----------------------------- 227 W. Monroe Street, Suite 2300 Chicago, IL 60606 Attention: William Murray Telephone: (312) 696-4653 Fax: (312) 696-4535 60 68 Commitment: $45,000,000 PNC BANK, NATIONAL ASSOCIATION By: /s/ Jeffrey L. Stein ------------------------------- Print Name: Jeffrey L. Stein ----------------------- Title: Vice President ---------------------------- 201 East Fifth Street Cincinnati, OH 45201-1198 Attention: Jeffrey L. Stein Telephone: (513) 651-8692 Fax: (513) 651-8951 61 69 Commitment: $45,000,000 WACHOVIA BANK, NA By: /s/ Jessica S. Wright -------------------------- Print Name: Jessica S. Wright ----------------------- Title: Senior Vice President ----------------------------- 191 Peachtree Street, NE 29th Fl Atlanta, GA 30303 Attention: Jessica S. Wright Telephone: (404) 332-5397 Fax: (404) 332-4136 62 70 Commitment: $45,000,000 FLEET NATIONAL BANK By: /s/ Philip A. Davi ------------------------------- Print Name: Philip A. Davi ----------------------- Title: Vice President ------------------------- 300 Broad Hollow Road Mailcode: NY LI 32904E Melville, NY 11747-4852 Attention: Philip A. Davi Telephone: (631) 547-7834 Fax: (631) 547-7815 63 71 Commitment: $45,000,000 BARCLAYS BANK PLC By: /s/ Marlene Wechselblatt ----------------------------- Print Name: Marlene Wechselblatt ----------------------- Title: Vice President ------------------------- 222 Broadway, 8th Floor New York, NY 10038 Attention: Marlene Wechselblatt Telephone: (212) 412-7642 Fax: (212) 412-7590 64 72 Commitment: $25,000,000 NATIONAL CITY BANK By: /s/ Patricia A. Jackson ---------------------------- Print Name: Patricia A. Jackson ----------------------- Title: Vice President ------------------------- 155 E. Broad Street Columbus, OH 43215 Attention: Patricia A. Jackson Telephone: (614) 763-8665 Fax: (614) 463-6776 65 73 Commitment: $25,000,000 BANCA COMMERCIALE ITALIANA - CHICAGO BRANCH By: /s/ Jakob Dickerhof ------------------------ Print Name: Jakob Dickerhof --------------------- Title: Vice President ------------------------- One William Street New York, NY 10004 Attention: Jakob Dickerhof Telephone: (212) 607-3896 Fax: (212) 809-2124 By: /s/ Frank Maffei ----------------------------- Print Name: Frank Maffei --------------------- Title: Vice President -------------------------- One William Street New York, NY 10004 Attention: Frank Maffei Telephone: (212) 607-3880 Fax: (212) 809-2124 66 74 Commitment: $25,000,000 FIRSTAR BANK, N.A. By: /s/ James C. Blythe ------------------------- Print Name: James C. Blythe --------------------- Title: Vice President ------------------------- 175 South Third Street, 4th Fl Columbus, OH 43215 Attention: Celia Conlon, Vice President Telephone: (614) 232-8194 Fax: (614) 232-8098 67 75 Commitment: $25,000,000 THE NORTHERN TRUST COMPANY By: /s/ Chris Mckean ------------------------------- Print Name: Chris Mckean ----------------------- Title: Officer ---------------------------- 50 S. LaSalle, 11th Fl Chicago, IL 60675 Attention: Chris McKean Telephone: (312) 557-2638 Fax: (312) 444-5055 68 76 Commitment: $25,000,000 THE BANK OF NEW YORK By: /s/ Jonathan Rollins ------------------------- Print Name: Jonathan Rollins ---------------------- Title: Vice President ------------------------- One Wall Street, 8th Fl New York, NY 10286 Attention: Jonathan Rollins Telephone: (212) 635-7901 Fax: (212) 635-1481 69 77 Commitment: $22,500,000 THE FUJI BANK, LIMITED By: /s/ Takeyuki Kuroki ------------------------ Print Name: Takeyuki Kuroki --------------------- Title: VICE PRESIDENT & SENIOR TEAM LEADER ----------------------------------- 225 West Wacker Drive, Suite 2000 Chicago, IL 60606 Attention: Ken Zeglin Telephone: (312) 621-0503 Fax: (312) 621-3386 70 78 Commitment: $22,500,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ Hideki Shirato --------------------------------- Print Name: Hideki Shirato Title: DEPUTY GENERAL MANAGER/S.V.P. ----------------------------- 227 West Monroe Street, Suite 2600 Chicago, IL 60606 Attention: Koichi Zaiki Telephone: (312) 855-8254 Fax: (312) 855-8200 71 79 Commitment: $10,000,000 SUNTRUST BANK By: /s/ Linda L. Dash ------------------------------- Print Name: Linda L. Dash ----------------------- Title: Vice President ------------------------- 303 Peachtree Street, N.E., 3rd Floor Mail Code 1928 Atlanta, GA 30308 Attention: Linda L. Dash Telephone: (404) 658-4923 Fax: (404) 658-4905 72 EX-10.03 3 l88224aex10-03.txt EXHIBIT 10.03 1 EXHIBIT 10.03 EXECUTIVE AGREEMENT This Agreement among William E. Bindley (the "Employee"), Bindley Western Industries, Inc., an Indiana corporation (the "Corporation"), and Cardinal Health, Inc., an Ohio corporation ("Parent"), is made as of December 2, 2000. WHEREAS, the Employee and the Corporation are parties to a Termination Benefits Agreement dated as of April 1, 1996 (the "TBA"); and WHEREAS, the Corporation has entered into an Agreement and Plan of Merger, (as the same may be amended from time to time, the "Merger Agreement"), dated as of December 2, 2000, with Parent and Brick Merger Corp., an Indiana corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Corporation (the "Merger"); and WHEREAS, the approval of the Merger by the Corporation's shareholders will be a "Change in Control" for purposes of the TBA; and WHEREAS, Parent and the Corporation desire to assure themselves of the benefit of the Employee's services and experience for a period of time following the effective time of the Merger, and to settle certain of the Corporation's obligations under the TBA, and the Employee is willing to enter into an agreement to those ends upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto agree as follows: 2 1. CONSIDERATION. In consideration of the Employee's agreements and covenants set forth below in this Agreement, if the Employee remains employed by the Corporation through the Effective Time (as defined in the Merger Agreement), or has sooner been terminated by the Corporation for any reason other than those set forth in clauses (A), (B), (C) and (D) of Section 3 of the TBA, then immediately following the Effective Time, the Corporation shall pay the Employee the sum of $16,300,000 subject to withholding of all taxes and similar charges required by applicable law to be withheld. It is acknowledged and agreed that this sum includes (i) the amount of severance that would be payable to the Employee under the TBA, if the Employee were to experience a termination of employment covered by Section 6 of the TBA on the date of this Agreement, and (ii) additional consideration for the covenants set forth below in this Agreement. In addition, if and to the extent so directed by Parent, the Corporation shall pay to the Employee, on or before December 31, 2000, all or a portion of the estimated amount of the Employee's annual bonus for 2000. 2. CONFIDENTIALITY. The Employee agrees to regard and preserve as confidential all Confidential Information (as defined below) that has been or may be obtained by the Employee in the course of his employment with and/or provision of services to Parent, the Corporation or any of their respective subsidiaries and affiliates (all such entities, the "Affiliated Companies"), whether he has such information in his memory or in writing or any other form. The Employee shall not at any time, without prior written authority from Parent to do so, use for his benefit or purposes, or disclose to any other person, firm, partnership, corporation or other entity, any Confidential Information, except as required in connection with the performance by the Employee of his duties and responsibilities as an employee of or consultant to any of the Affiliated Companies. "Confidential Information" means any proprietary or confidential -2- 3 information relating to the business of any of the Affiliated Companies that has not previously been publicly released by their duly authorized representatives, and includes (but shall not be limited to) information encompassed in all research, product development, designs, plans, formulations and formulating techniques, proposals, marketing and sales plans, financial information, costs, pricing information, strategic business plans, customer information, and all methods, concepts, or ideas in or reasonably related to any business of the Affiliated Companies. 3. NONCOMPETITION. During the Noncompetition Period (as defined below), the Employee shall not, without the prior written consent of the Chief Executive Officer of Parent, engage in or become associated with a Competitive Activity (as defined below). For purposes of this Agreement: (i) the "Noncompetition Period" means the period beginning at the Effective Time and ending on the second anniversary of the end of the Employee's Service Period (as defined below); (ii) a "Competitive Activity" means any of the following: (X) the pharmaceutical distribution business; (Y) any other business or endeavor of a kind being conducted by Brick or any of its affiliates immediately before the Effective Time; and (Z) any other business or endeavor of a kind that is conducted by any of the Affiliated Companies during the Employee's Service Period and in which the Employee is involved in the course of his service to any of the Affiliated Companies during his Service Period; (iii) the Employee shall be considered to have become "associated with a Competitive Activity" if the Employee becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity; and (iv) the Employee's "Service Period" means the period beginning on the date of this Agreement and ending on the last to occur of the -3- 4 termination of the Employee's employment with the Affiliated Companies, the end of the Continued Employment Period (as defined below), or the last day of his service as a member of the Board of Directors of Parent. Notwithstanding the foregoing: (I) the Employee may make and retain investments in less than one percent of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market; and (II) nothing in this Section 3 shall prevent or restrict in any respect whatsoever the involvement of the Employee with Priority Healthcare Corporation as a director and shareholder and Chairman of the Board, except to the extent that Priority Healthcare Corporation hereafter engages (as a result of any acquisition or internal expansion) in full-line, full-service wholesale distribution of pharmaceutical drugs and/or related health-care products. 4. NONSOLICITATION OF EMPLOYEES AND CUSTOMERS. The Employee shall not, at any time during the Noncompetition Period, without the prior written consent of the Chief Executive Officer of Parent, on his own behalf or on behalf of any other person, (i) employ, or solicit the employment or service of (whether as an employee, officer, director, agent, consultant or independent contractor), any person who was or is at any time during the previous twelve (12) months an employee, representative, officer or director of any of the Affiliated Companies (except for such employment by or service to any of the Affiliated Companies), or (ii) solicit, service, or accept in connection with any Competitive Activity the business of any person that is, at any time during the Employee's Service Period, either (A) a significant customer of any of the Affiliated Companies or (B) a potentially significant customer of any of the Affiliated Companies that the Employee knew to be identified as an actual or prospective customer. Notwithstanding the foregoing, it shall not be considered a violation of clause (i) of the preceding sentence if any person becomes employed by, or is engaged to render services to, a -4- 5 person with which the Employee is affiliated (including without limitation Priority Healthcare Corporation) on such person's own initiative and without the involvement of the Employee. In addition, notwithstanding the foregoing, it shall not be considered a violation of clause (ii) of the preceding sentence if Priority Healthcare Corporation engages in an activity described in clause (ii) without the involvement of the Employee. 5. ENFORCEMENT. The Employee acknowledges and agrees that: (i) the purpose of the foregoing covenants, including without limitation the noncompetition covenant of Section 3, is to protect the goodwill, trade secrets and other Confidential Information of the Corporation being acquired by Parent in the Merger; (ii) because of the nature of the businesses in which the Affiliated Companies are engaged and because of the nature of the Confidential Information to which the Employee has had and will have access, it would be impractical and excessively difficult to determine the actual damages of the Affiliated Companies in the event the Executive breached any of the foregoing covenants; and (iii) remedies at law (such as monetary damages) for any breach of the Employee's obligations under the foregoing covenants would be necessarily inadequate. The Employee therefore agrees and consents that if he commits any breach of any of the foregoing covenants or threatens to commit any such breach, Parent and the Corporation shall have the right (in addition to, and not in lieu of, any other right or remedy that may be available to them) to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage. With respect to any provision of this Agreement finally determined by a court of competent jurisdiction to be unenforceable, the Employee, Parent and the Corporation hereby agree that such court shall have jurisdiction to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law, and the -5- 6 parties agree to abide by such court's determination. If any of the covenants of Sections 2, 3 and 4 of this Agreement is determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish any right of Parent and the Corporation to enforce any such covenant in any other jurisdiction. 6. CONTINUED EMPLOYMENT. If the Employee remains employed with the Corporation through the Effective Time, then immediately following the Effective Time, his employment shall be transferred to Parent, and he shall serve Parent as a part-time employee for the Continued Employment Period, as defined in the next sentence. The "Continued Employment Period" means the period beginning immediately following the Effective Time and ending on the second anniversary of the Effective Time; provided, that the Employee and Parent shall each have the right to terminate the Continued Employment Period on or after the end of the 18th month after the Effective Time by giving the other written notice thereof at least 90 days before the date of termination of the Continued Employment Period. During the Continued Employment Period, the Employee shall make himself available to Parent and the Corporation for such services, relating to the integration of the Corporation into the businesses of Parent and the other Affiliated Companies, as the Chief Executive Officer of Parent shall from time to time request. Such services shall include specifically services relating to the integration of the Corporation's management team into the management structure of Parent and the other Affiliated Companies, key customer relationships, and strategic and international planning. Such services shall be performed at such times and locations as shall be mutually convenient to the Employee and Parent. In no event shall the Employee be required to perform such services for more than 20 hours per month. In consideration of such services, Parent shall pay the Employee a salary at the rate of $75,000 per year and shall reimburse the Employee for all reasonable expenses that he -6- 7 may incur in rendering such services, upon receipt of proper documentation thereof. It is expressly acknowledged and agreed that during the Continued Employment Period, the Employee shall be treated for all purposes as an employee of Parent, and shall be eligible to participate in the Cardinal Health Profit Sharing, Retirement and Savings Plan or any successor thereto, but shall not be entitled to receive any other compensation or employee benefits from any of the Affiliated Companies on account of his service during the Continued Employment Period, except as a member of the Board of Directors of Parent or as specifically provided in the TBA and this Agreement. 7. NOTICES. Any notices pursuant to this Agreement or the TBA shall be given in accordance with Section 12 of the TBA; provided, that such notices shall be addressed as follows: if to the Corporation: Bindley Western Industries, Inc. 8909 Purdue Road Indianapolis, Indiana 46268 Attention: Chief Executive Officer Telecopy No.: (317) 704-4603 with a copy to: James A. Aschleman, Esq. Baker & Daniels 300 North Meridian Street, Suite 2700 Indianapolis, Indiana 46204 Telecopy No.: (317) 237-1000 if to Parent: Cardinal Health, Inc. 7000 Cardinal Place Dublin, Ohio 43017 Attention: Steven Alan Bennett Executive Vice President, General Counsel and Secretary Telecopy No.: (614) 757-6948 -7- 8 with a copy to: David A. Katz, Esq. Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telecopy No.: (212) 403-2000 if to the Employee: William E. Bindley 1330 Regal Drive Carmel, Indiana 46032 or to such other address of which any such party may give the other parties notice in accordance with the foregoing. 8. EFFECT OF AGREEMENT; TERMINATION. (a) This Agreement supersedes Sections 1, 2, 3, 4, 5, 6(A), 6(B), 6(D), 9 and 10 of the TBA in their entirety. The Employee acknowledges and agrees that payment in accordance with Section 1 of this Agreement shall be deemed to constitute a full settlement and discharge of any and all obligations of the Corporation to the Employee arising out of the TBA or out of his employment by the Corporation and its subsidiaries and affiliates before the Effective Time, except for (i) the obligations of the Corporation under Sections 6(C), 7, 8, 11, 12, 13, 14, 15, 16 and 17 of the TBA and (ii) any vested rights the Employee may have under any insurance, pension, supplemental pension, thrift, deferred compensation, employee stock ownership, or stock option plans sponsored or made available by the Corporation before the Effective Time. Without limiting the generality of the foregoing, the Employee agrees that except as specifically provided in this Agreement, he shall not be entitled to receive any separation, severance or termination pay or benefits from the -8- 9 Corporation, Parent or any of the other Affiliated Companies, under the TBA or otherwise, upon the termination of his employment for any reason after the date hereof. (b) Except as set forth in this Agreement, the TBA shall remain in full force. (c) Notwithstanding any other provision of this Agreement, if the Merger Agreement is terminated without the Effective Time having occurred, then this Agreement shall be null and void and of no effect ab initio. -9- 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BINDLEY WESTERN INDUSTRIES, INC. By: /s/ Michael D. McCormick -------------------------- Title: Executive Vice President and General Counsel CARDINAL HEALTH, INC. By: /s/ Brendan A. Ford --------------------------- Title: Executive Vice President /s/ William E. Bindley ------------------------------ William E. Bindley -----END PRIVACY-ENHANCED MESSAGE-----