-----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, PpYogNDLGPEbPksTjHvKx8H2gAQq95e2vkv95vusUz+c3R7rIkuOqFEYK6n6Sk1t GVUvSyU+6MAre+xKQ2VGvw== 0000950152-98-007270.txt : 19980902 0000950152-98-007270.hdr.sgml : 19980902 ACCESSION NUMBER: 0000950152-98-007270 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980901 SROS: NONE 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-K405 SEC ACT: SEC FILE NUMBER: 001-11373 FILM NUMBER: 98702607 BUSINESS ADDRESS: STREET 1: 5555 GLENDON COURT CITY: DUBLIN STATE: OH ZIP: 43016 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-K405 1 CARDINAL HEALTH, INC. 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-12591 CARDINAL HEALTH, INC. (Exact name of Registrant as specified in its charter)
OHIO 31-0958666 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 5555 GLENDON COURT, DUBLIN, OHIO 43016 (Address of principal executive offices) (Zip Code)
(614) 717-5000 Registrant's telephone number, including area code Securities Registered Pursuant to Section 12(b) of the Act:
COMMON SHARES (WITHOUT PAR VALUE) NEW YORK STOCK EXCHANGE (Title of Class) (Name of each exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the Registrant as of August 21, 1998 was approximately $12,545,020,015. The number of Registrant's Common Shares outstanding as of August 21, 1998, was as follows: Common shares, without par value: 133,591,258 --------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Definitive Proxy Statement to be filed for its 1998 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. 2 TABLE OF CONTENTS
ITEM PAGE - ---- ---- Information Regarding Forward-looking Statements............................................ 3 PART I 1. Business.................................................................................... 3 2. Properties.................................................................................. 6 3. Legal Proceedings........................................................................... 7 4. Submission of Matters to a Vote of Security Holders......................................... 7 Executive Officers of the Company........................................................... 7 PART II 5. Market for the Registrant's Common Shares and Related Shareholder Matters................... 9 6. Selected Financial Data..................................................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................. 11 7a. Quantitative and Qualitative Disclosures About Market Risk.................................. 17 8. Financial Statements and Supplementary Data................................................. 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................................ 41 PART III 10. Directors and Executive Officers of the Registrant.......................................... 41 11. Executive Compensation...................................................................... 41 12. Security Ownership of Certain Beneficial Owners and Management.............................. 41 13. Certain Relationships and Related Transactions.............................................. 41 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 42 Signatures.................................................................................. 47
2 3 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS Portions of this Annual Report on Form 10-K (including information incorporated by reference) 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 this report and in Exhibit 99.01 to this Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. PART I ITEM 1: BUSINESS GENERAL Cardinal Health, Inc., an Ohio corporation formed in 1979, is structured as a holding company conducting business through a number of separate operating subsidiaries. These operating subsidiaries are sometimes collectively referred to as the "Cardinal Health" companies. As used in this report, the "Registrant" and the "Company" refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires otherwise. Except as otherwise specified, information in this report is provided as of June 30, 1998. Subsequent to the end of the 1998 fiscal year, the Company completed a merger transaction with R.P. Scherer Corporation ("Scherer") and terminated its merger agreement with Bergen Brunswig Corporation ("Bergen"). See "Acquisitions" below for further discussion relating to such subsequent matters. The Company is a leading healthcare service provider which offers an array of value-added pharmaceutical distribution services and pharmaceutical-related products and services to a broad base of customers. It is one of the country's leading wholesale distributors of pharmaceutical and related healthcare products to independent and chain drugstores, hospitals, alternate care centers and the pharmacy departments of supermarkets and mass merchandisers located throughout the continental United States. The Company also provides innovative cost-effective pharmaceutical services that improve the medication use process to a broad base of customers nationwide. Through its Pyxis Corporation subsidiary ("Pyxis"), the Company develops, manufactures, leases, sells and services unique point-of-use systems which automate the distribution, management and control of medications and supplies in hospitals and alternate care facilities. Through its Owen Healthcare, Inc. subsidiary ("Owen"), the Company provides pharmacy management and information services to hospitals. The Company is also the largest franchisor of independent retail pharmacies in the United States through its Medicine Shoppe International, Inc. subsidiary ("Medicine Shoppe"). PCI Services, Inc. ("PCI"), another one of the Company's subsidiaries, is a leading international provider of integrated packaging services to pharmaceutical manufacturers. The Company serves as a developer and provider of clinical information management systems through its subsidiary, MediQual Systems, Inc. ("MediQual"), which functions as part of the Cardinal Information Corporation subsidiary ("CIC"). The Company's newest operating subsidiary, Scherer, which was acquired on August 7, 1998, is an international developer and manufacturer of drug delivery systems, including soft gelatin capsules, and is further discussed under "Acquisitions" below. As a full-service wholesale distributor, the Company complements its distribution activities by offering a broad range of value-added support services to assist the Company's customers and suppliers in maintaining and improving their sales volumes. These support services include computerized order entry and order confirmation systems, generic sourcing programs, product movement and management reports, consultation on store operation and merchandising, and customer training. The Company's proprietary software systems feature customized databases specially designed to help its customers order more efficiently, contain costs, and monitor their purchases, which are covered by group contract purchasing arrangements. The Company operates several specialty healthcare businesses which offer value-added services to the Company's customers and suppliers while providing the Company with additional opportunities for growth and profitability. For example, the Company operates a pharmaceutical repackaging program for both independent and chain drugstore customers and serves as a distributor of therapeutic plasma products, oncology products and other specialty pharmaceuticals to hospitals, clinics and other managed care facilities on a nationwide basis through the utilization of telemarketing and direct mail programs. The Company also provides reimbursement consulting services to pharmaceutical, biotechnology and medical products companies. These specialty distribution activities are part of the Company's strategy to develop diversified products and services to enhance the profitability of its business and that of its customers and suppliers. 3 4 ACQUISITIONS Over the last five years, the Company has completed the following business combinations. In May 1993, the Company purchased Solomons Company, a Savannah, Georgia-based pharmaceutical wholesaler servicing customers located primarily in the southeastern region of the United States, in exchange for approximately 1.6 million Cardinal Common Shares, without par value, ("Common Shares"). In December 1993, the Company issued approximately 0.4 million Common Shares in a merger transaction for all of the capital stock of PRN Services, Inc., a distributor of oncology and other specialty products to clinics and physician groups across the United States. In February 1994, the Company completed a merger transaction with Whitmire Distribution Corporation ("Whitmire"), a Folsom, California-based pharmaceutical wholesaler (the "Whitmire Merger") and issued approximately 15.6 million Common Shares in the transaction. On July 1, 1994, the Company purchased Humiston-Keeling, Inc., a Calumet City, Illinois-based pharmaceutical wholesaler serving customers located primarily in the upper Midwest region of the United States for cash of $33 million and assumed liabilities of $94 million. On July 18, 1994, the Company issued approximately 1.4 million Common Shares in a merger transaction with Behrens Inc., a Waco, Texas-based pharmaceutical wholesaler servicing customers located primarily in Texas and adjoining states. On November 13, 1995, the Company completed a merger transaction with Medicine Shoppe, a St. Louis, Missouri-based franchisor of independent, apothecary-style retail pharmacies in the United States and abroad. On May 7, 1996, the Company completed a merger transaction with Pyxis, a San Diego, California-based designer, manufacturer, marketer and servicer of unique point-of-use systems which automate the distribution, management and control of medications and supplies in hospitals and other healthcare facilities. On October 11, 1996, the Company completed a merger transaction with PCI, a Philadelphia, Pennsylvania-based provider of diversified packaging services to the pharmaceutical industry in the United States and Europe. On March 18, 1997, the Company completed a merger transaction with Owen, a Houston, Texas-based provider of pharmacy management and information services to hospitals. On February 18, 1998, the Company completed a merger transaction with MediQual Systems, Inc., a supplier of clinical information management systems and services to the healthcare industry. On May 15, 1998, the Company purchased Comprehensive Reimbursement Consultants, Inc., a provider of reimbursement consulting services to pharmaceutical, biotechnology and medical products companies. On August 7, 1998, the Company completed a merger transaction with Scherer (the "Scherer Merger"), an international developer and manufacturer of drug delivery systems, including soft gelatin capsules, with headquarters located in Troy, Michigan. Scherer is currently developing and commercializing a variety of advanced drug delivery systems. Scherer's drug delivery systems improve the efficacy of drugs by regulating the dosage so as to ease administration, increase absorption, enhance bioavailability and control the time and place of release. Scherer's products and manufacturing processes and services are subject to applicable laws and regulations of governmental agencies or departments in each of the countries in which it operates, including the U.S. Federal Food, Drug and Cosmetic Act. Scherer has a number of active patents on its specialized machinery, processes, products and drug delivery systems. Scherer operates a global network of 19 facilities in 12 countries, of which 15 are owned and 4 are leased. Scherer's revenue consists of approximately 34% domestic and 66% foreign sales. Scherer employs approximately 3,600 individuals worldwide. On August 24, 1997, the Company and Bergen announced that they had entered into a definitive merger agreement (as subsequently amended by the parties on March 16, 1998), pursuant to which a wholly owned subsidiary of the Company would be merged with and into Bergen (the "Bergen Merger Agreement"), which was subsequently approved by both companies' shareholders on February 20, 1998. On March 9, 1998, the U.S. Federal Trade Commission ("FTC") filed a complaint in the United States District Court for the District of Columbia seeking a preliminary injunction to halt the proposed merger and on July 31, 1998, the District Court granted the FTC's request for the injunction. On August 7, 1998, the Company and Bergen jointly terminated the Bergen Merger Agreement. The Company continually evaluates possible candidates for merger or acquisition and intends to continue to seek opportunities to expand its healthcare operations and services. For additional information concerning the transactions described above, see Notes 2, 16 and 17 of "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 4 5 CUSTOMERS AND SUPPLIERS The Company distributes pharmaceuticals, surgical and hospital supplies, health and beauty care products, and related products and services to hospitals, independent and chain drugstores, alternate care centers, and pharmacy departments of supermarkets and mass merchandisers located throughout the United States. In addition, the Company markets Pyxis' automated dispensing systems to hospitals and alternate care centers in the United States, Canada and Australia. Through Medicine Shoppe, the Company franchises retail pharmacies in the United States and abroad. Owen provides pharmacy management and information services to hospitals throughout the United States. PCI provides integrated packaging services to pharmaceutical manufacturers located in the United States, Canada and Europe. In fiscal 1998, approximately 91% of the Company's operating revenues were derived from distribution activities. The Company's largest customer, Kmart Corporation ("Kmart"), accounted for approximately 12% of operating revenues (by dollar volume) in fiscal 1998. The Company's business could be adversely affected if Kmart was lost as a customer. The Company obtains its products from many different suppliers, the largest of which accounted for approximately 5% (by dollar volume) of its operating revenue in fiscal 1998. The Company's five largest suppliers accounted for approximately 22% (by dollar volume) of its operating revenue during fiscal 1998 and the Company's relationships with its suppliers are generally very good. The Company's arrangements with its pharmaceutical suppliers typically may be canceled by either the Company or the supplier upon 30 to 90 days prior notice, although many of these arrangements are not governed by formal agreements. The loss of certain suppliers could adversely affect the Company's business if alternative sources of supply were unavailable. While the Company's operations may show quarterly fluctuations, the Company does not consider its business to be seasonal in nature on a consolidated basis. COMPETITION The Company's markets are highly competitive. As a pharmaceutical wholesaler, the Company competes directly with numerous other national and regional wholesalers, direct selling manufacturers, self-warehousing chains, mail-order houses, and specialty distributors on the basis of price, breadth of product lines, marketing programs, and support services. The Company's pharmaceutical wholesaling operations have narrow profit margins and, accordingly, the Company's earnings depend significantly on its ability to distribute a large volume and variety of products efficiently and to provide quality support services. As a marketer of automated pharmaceutical dispensing systems through Pyxis, the Company competes based upon price, its installed base of systems, relationships with customers, customer service and support capabilities, patents and other intellectual property, and its ability to interface with customer information systems. Actual and potential competitors to the Pyxis system include both existing domestic and foreign companies, as well as emerging companies that supply products for specialized markets and other outside service providers. With its Owen subsidiary, the Company competes with both national and regional hospital pharmacy management firms, and self-managed hospitals and hospital systems on the basis of price, its established base of business, the effective use of information systems, the development of clinical programs, and the quality of the services it provides to its customers. Several smaller franchisors compete with Medicine Shoppe in the franchising of pharmacies, where competition is based primarily upon price, benefits offered to both the pharmacist and customer, access to third party programs, and the reputation of the franchise; Medicine Shoppe also needs to be competitive with the option a pharmacist always has to remain self-employed at his or her current position rather than becoming a franchisee. Through PCI, the Company competes with companies that provide many types of packaging services and those that provide one or a few types of packaging services, based primarily upon quality, variety of available packaging services, customer service, responsiveness and price. EMPLOYEES At August 1, 1998, the Company had approximately 11,200 employees, of which approximately 900 are subject to collective bargaining agreements. Overall, the Company considers its employee relations to be good. INTELLECTUAL PROPERTY The Company has applied to the United States Patent and Trademark Office for registration of a number of trademarks and service marks, certain of which have been registered, and also holds common law rights in various trademarks and service marks. The Company has also applied for trademark and service mark registrations for certain of its trademarks and service marks in certain foreign countries. There can be no assurance that the Company will obtain the registrations for trademarks and service marks for which it has applied. 5 6 The Company holds patents relating to certain aspects of its automated pharmaceutical dispensing systems, automated medication management systems and medication packaging. The Company has a number of pending patent applications in the United States and certain foreign countries, and intends to pursue additional patents as appropriate. The Company also owns certain software, including software used for pharmaceutical purchasing and inventory control, which is copyrighted and subject to the protection of applicable copyright laws. For information with respect to Scherer, see "Acquisitions", above. No assurances can be given that any intellectual property rights of the Company (including Scherer) will provide meaningful protection against competitive products or otherwise be commercially valuable or that the Company will be successful in obtaining additional patents or enforcing its proprietary rights against others. REGULATORY MATTERS The Company, as a distributor of prescription pharmaceuticals (including certain controlled substances), an operator of pharmacy operations, and a pharmaceutical packager is required to register for permits and/or licenses with, and comply with certain operating and security standards of, the United States Drug Enforcement Administration, the Food and Drug Administration (the "FDA") and various state boards of pharmacy or comparable agencies. In addition, the Company is subject to requirements of the Controlled Substances Act and the Prescription Drug Marketing Act of 1987, an amendment to the Food, Drug and Cosmetic Act (the "FDCA") which requires each state to regulate the purchase and distribution of prescription drugs under prescribed minimum standards. The Company is not currently required to register or submit premarket notifications to the FDA for its automated pharmaceutical dispensing systems. There can be no assurance, however, that FDA policy in this regard will not change. Through its Medicine Shoppe subsidiary, the Company is subject to laws adopted by certain states which regulate franchise operations and the franchisor-franchisee relationship, and similar legislation is proposed or pending in additional states. The most common provisions of such laws establish restrictions on the ability of franchisors to terminate or to refuse to renew franchise agreements. Federal Trade Commission rules also require franchisors to make certain disclosures to prospective franchisees prior to the offer or sale of franchises. Owen's pharmacy operations and its pharmacies are subject to comprehensive regulation by state and federal authorities, including state boards of pharmacy and federal authorities with responsibility for monitoring the storage, handling, and dispensing of narcotics and other controlled substances. Owen's contractual arrangements with pharmaceutical manufacturers and healthcare providers also subject it to certain provisions of the federal Social Security Act which (a) prohibit financial arrangements between providers of healthcare services to government healthcare program (including Medicare and Medicaid) beneficiaries and potential referral sources that are designed to induce patient referrals or the purchasing, leasing, ordering or arranging for any good, service or item paid for by such government programs, and (b) impose certain restrictions upon referring physicians and providers of certain designated health services under Medicare and Medicaid programs. The Company's PCI operations in the United Kingdom and Germany are subject to state and local certification requirements, including compliance with the Good Manufacturing Practices adopted by the European Community. The Company is also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous substances. See "Acquisitions" above for information relating to certain regulatory matters of Scherer. ITEM 2: PROPERTIES At August 1, 1998, the Company had 25 principal pharmaceutical distribution facilities; 3 specialty distribution facilities; 1 medical/surgical distribution facility; the Pyxis assembly operation; 6 packaging facilities (2 of which are located in the United Kingdom and 1 of which is located in Germany); and 4 PCI printing facilities (2 of which are located in Puerto Rico). The Company's facilities are located in an aggregate of 20 states, Puerto Rico, the United Kingdom and Germany. Twelve of these facilities are owned by the Company and the balance are leased. See "Acquisitions" above for information relating to certain properties of Scherer. The Company's principal executive offices are currently located in a leased four-story building located at 5555 Glendon Court, Dublin, Ohio, pending construction of a new leased headquarters facility in Dublin, Ohio, scheduled to be completed by the end of the first calendar quarter of 1999. The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company expects to make further additions, improvements, and consolidations of its properties as the Company's business continues to expand. For certain financial information regarding the Company's facilities, see Notes 5 and 9 of "Notes to Consolidated Financial Statements." 6 7 ITEM 3: LEGAL PROCEEDINGS In November 1993, the Company and Whitmire, one of the Company's wholly owned subsidiaries, as well as other pharmaceutical wholesalers, were named as defendants in a series of purported class action lawsuits which were later consolidated and transferred by the Judicial Panel for Multi-District Litigation to the United States District Court for the Northern District of Illinois. Subsequent to the consolidation, a new consolidated complaint was filed which included allegations that the wholesalers defendants, including the Company and Whitmire, conspired with manufacturers to inflate prices using a chargeback pricing system. In addition to the federal court cases described above, the Company and Whitmire have also been named as defendants in a series of state court cases alleging similar claims under various state laws regarding the sale of brand name prescription drugs. The wholesaler defendants, including the Company and Whitmire, entered into a Judgment Sharing Agreement whereby the total exposure for the Company and its subsidiaries is limited to $1,000,000 or 1% of any judgment against the wholesalers and the manufacturers, whichever is less, and provides for the reimbursement mechanism of legal fees and expenses. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. On April 10, 1995, the Court ruled that the Judgment Sharing Agreement was valid. On April 4, 1996, summary judgment was granted in favor of the wholesaler defendants. The plaintiffs appealed this decision and on August 15, 1997, the Court of Appeals for the Seventh Circuit, along with other rulings, reversed the District Court's decision granting summary judgment to the wholesaler defendants. The wholesaler defendants subsequently filed a petition seeking review of the Court of Appeals decision by the United States Supreme Court, which petition was denied. Trial has been set for the prescription drug litigation to begin on September 14, 1998. In recent months, the wholesaler defendants also have been added as defendants in a series of related antitrust lawsuits brought by independent pharmacies who have opted out of the class action cases and by certain chain drug and grocery stores. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company and Whitmire believe that the allegations are without merit, and they intend to contest such allegations vigorously. On January 17, 1995, Burlington Drug Company ("Burlington Drug") filed a Complaint in the United States District Court for the District of Vermont alleging that certain supply agreements between VHA, Inc. ("VHA") and the Company violated federal antitrust statutes and that the Company had tortiously interfered with Burlington Drug's contractual relations. The Company filed an answer denying the allegations contained in the Complaint. The District Court granted Burlington Drug leave to file an Amended and Supplemental Complaint on July 10, 1997. On July 23, 1997, the Company and VHA each filed Motions to Dismiss Burlington Drug's Amended and Supplemental Complaint. In October 1997, the District Court denied these Motions. On March 28, 1998, the Company and VHA each filed Motions for Summary Judgment, and the parties are awaiting the District Court's decision on these Motions. Burlington Drug is seeking damages in an unspecified amount, as well as injunctive relief. Trial has been set to begin on November 2, 1998. The Company continues to believe that the allegations made against it in this litigation are without merit, and it intends to contest such allegations vigorously. The Company also becomes involved from time-to-time in other litigation incidental to its business. Although the ultimate resolution of the litigation referenced in this Item 3 cannot be forecast with certainty, the Company does not believe that the outcome of these lawsuits will have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fiscal quarter ended June 30, 1998. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows (information provided as of August 21, 1998):
NAME AGE POSITION - --------------------- --- --------------------------------------------------------- Robert D. Walter 53 Chairman and Chief Executive Officer John C. Kane 58 President and Chief Operating Officer
7 8
David A. Abrahamson 58 Executive Vice President; President - Medicine Shoppe International, Inc. David Bearman 52 Executive Vice President and Chief Financial Officer (see below) George H. Bennett, Jr. 45 Executive Vice President, General Counsel and Secretary George L. Fotiades 44 Executive Vice President; Group President - R.P. Scherer Corporation James F. Millar 50 Executive Vice President; Group President - Cardinal Distribution Carl A. Spalding 53 Executive Vice President; Group President - Healthcare Product Services Robert J. Zollars 41 Executive Vice President; Group President - Pharmacy Automation and Management Richard J. Miller 41 Vice President, Controller and Principal Accounting Officer (see below)
Unless indicated to the contrary, the business experience summaries provided below for the Company's executive officers describe positions held by the named individuals during the last five years but may exclude other positions held with subsidiaries of the Company. ROBERT D. WALTER has been a Director, Chairman of the Board and Chief Executive Officer of the Company since its formation in 1979 and has served as a director and officer of certain of the Company's subsidiaries since their formation or acquisition by the Company. Mr. Walter also serves as a director of Banc One Corporation, CBS, Inc. and Karrington Health, Inc. JOHN C. KANE has been a Director of the Company since August 1993 and has been the Company's President and Chief Operating Officer since joining the Company in February 1993. Mr. Kane also serves as a director of Connetics Corporation and LXR Biotechnology Inc. DAVID A. ABRAHAMSON has been an Executive Vice President of the Company since August 1996 and President of Medicine Shoppe International, Inc. since May 1990. Mr. Abrahamson also serves as a director of Angelica Corporation. DAVID BEARMAN has been an Executive Vice President of the Company since February 1994 and, prior to that, served as a Region President from May 1991 to February 1994 and as a Senior Vice President of the Company from October 1989. Mr. Bearman also served as the Company's Chief Financial Officer since joining the Company in October 1989. Mr. Bearman recently announced that he has accepted a position with another company, and will resign from the Company, effective early September. Richard J. Miller, the Company's Vice President, Controller and Principal Accounting Officer, has been named as acting Chief Financial Officer until a permanent replacement for Mr. Bearman is named. GEORGE H. BENNETT, JR. has been Secretary of the Company since July 1994 and an Executive Vice President of the Company since February 1994. Prior to that, Mr. Bennett was a Senior Vice President and Chief Administrative Officer of the Company from May 1991. Mr. Bennett has also served as General Counsel of the Company since joining the Company in January 1984. GEORGE L. FOTIADES has been an Executive Vice President of the Company since August 1998 and President of R.P. Scherer Corporation since January 1998. Previously, Mr. Fotiades served as President and Chief Operating Officer of Scherer since January 1998, and Group President, Americas and Asia Pacific of Scherer from June 1996 to January 1998. Prior to that, Mr. Fotiades was employed by Warner-Lambert Company (a pharmaceutical and consumer health products manufacturer), where he served most recently as President, Warner Wellcome Consumer Healthcare division. 8 9 JAMES F. MILLAR has been an Executive Vice President of the Company since February 1994, and was named as Group President of the Company's Cardinal Distribution pharmaceutical wholesaling business in June 1996. Prior to February 1994, Mr. Millar served in a series of increasingly senior regional operating positions within the Company's pharmaceutical wholesaling business since he was hired in 1987. CARL A. SPALDING joined the Company in June 1998, as an Executive Vice President and Group President-Healthcare Product Services. Prior to that, Mr. Spalding served as a corporate officer of Abbott Laboratories (a pharmaceutical and health care manufacturer), where he served most recently as Vice President of Pediatric Products of the Ross Laboratories Division. ROBERT J. ZOLLARS joined the Company in January 1997, as an Executive Vice President and Group President-Pharmacy Automation and Management. Prior to that, Mr. Zollars served as Group Vice President of Allegiance Corporation since October 1996 and was a corporate officer of Baxter Healthcare, Inc., most recently as President, U.S. Distribution. Mr. Zollars also serves as a director of Epitope, Inc. RICHARD J. MILLER has been the Company's Principal Accounting Officer since August 1996 and has served as Vice President, Controller since August 1995. Upon joining the Company in July 1994, and until August 1995, he served as Vice President, Auditing. Prior to that, Mr. Miller was a partner at Deloitte & Touche LLP (an international accounting firm). In connection with Mr. Bearman's resignation (see discussion above), Mr. Miller has been named as acting Chief Financial Officer of the Company until a permanent replacement for Mr. Bearman has been named. PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS The Common Shares are quoted on the New York Stock Exchange under the symbol "CAH." The following table reflects the range of the reported high and low last sale prices of the Common Shares as reported on the New York Stock Exchange Composite Tape and the per share dividends declared thereon for the fiscal years ended June 30, 1998 and 1997. The information in the table has been adjusted to reflect retroactively all applicable stock splits through June 30, 1998.
HIGH LOW DIVIDENDS ----------- --------- ----------- Fiscal 1997: Quarter Ended September 30, 1996 $ 55.08 $ 44.67 $ 0.0200 December 31, 1996 58.38 51.92 0.0250 March 31, 1997 64.13 54.38 0.0250 June 30, 1997 62.00 51.63 0.0250 Fiscal 1998: Quarter Ended September 30, 1997 $ 71.06 $ 54.63 $ 0.0250 December 31, 1997 77.81 68.63 0.0250 March 31, 1998 88.19 70.00 0.0300 June 30, 1998 96.25 85.63 0.0300 Fiscal 1999: Through August 21, 1998 $ 101.88 $ 92.63 $ 0.0375
As of August 21, 1998, there were approximately 2,560 shareholders of record of the Company's Common Shares. On August 12, 1998, the Company's Board of Directors authorized a three-for-two stock split of the Company's common shares payable on October 30, 1998, to shareholders of record at the close of business on October 9, 1998. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment 9 10 and amount of future dividends remain within the discretion of the Company's Board of Directors and will depend upon the Company's future earnings, financial condition, capital requirements and other factors. ITEM 6: SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company was prepared giving retroactive effect to the business combinations with Whitmire on February 7, 1994, Medicine Shoppe on November 13, 1995, Pyxis on May 7, 1996, PCI on October 11, 1996, and Owen on March 18, 1997, all of which were accounted for as pooling-of-interests transactions. The consolidated financial data includes all purchase transactions that occurred during these periods. See "Item 1: Business--Acquisition" for additional information regarding such combinations. The information does not reflect the Company's August 7, 1998, acquisition of Scherer, which will be accounted for as a pooling-of-interests. For the fiscal years ended June 30, 1996, 1995 and 1994, the information presented is derived from consolidated financial statements which combine data from Cardinal, Whitmire, Medicine Shoppe and Pyxis for the fiscal years ended June 30, 1996, 1995 and 1994 with data from PCI for the fiscal years ended September 30, 1996, 1995 and 1994, respectively, and Owen for the fiscal years ended November 30, 1995, 1994 and 1993, respectively. For the fiscal year ended June 30, 1997, the information presented is derived from the consolidated financial statements which combine Cardinal for the fiscal year ended June 30, 1997 with PCI's financial results for the nine months ended June 30, 1997 and Owen's financial results for the period of June 1, 1996 to June 30, 1997 (excluding Owen's financial results for December 1996 in order to change Owen's November 30, fiscal year end to June 30 ). The impact of the merger transaction with MediQual Systems, Inc. (the "MediQual Merger"), on a historical basis, was not significant. Accordingly, prior period financial statements have not been restated for the MediQual Merger, although they will be restated in the first quarter of fiscal 1999 as a result of the acquisition of Scherer. The selected consolidated financial data below should be read in conjunction with the Company's consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations." CARDINAL HEALTH, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30, (1) ---------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------------- ---------------- --------------- -------------- -------------- Earnings Statement Data: Revenue (2): Operating revenue $ 12,926,778 $ 10,968,042 $ 9,407,591 $ 8,472,302 $ 6,374,734 Bulk deliveries to customer warehouses 2,991,360 2,469,138 2,178,532 1,779,512 561,827 ------------- ------------- ------------- ----------- ------------ Total revenue $ 15,918,138 $ 13,437,180 $ 11,586,123 $ 10,251,814 $ 6,936,561 Net earnings $ 247,081 $ 184,599 $ 127,240 $ 146,587 $ 88,884 Basic earnings per Common Share (3) (4) (5) $ 2.25 $ 1.72 $ 1.22 $ 1.46 $ 0.97 Diluted earnings per Common Share (3) (4) (5) $ 2.22 $ 1.69 $ 1.19 $ 1.40 $ 0.89 Balance Sheet Data: Total assets $ 3,961,077 $ 3,091,750 $ 2,959,401 $ 2,363,752 $ 1,789,455 Long-term obligations 272,575 277,766 320,327 267,677 247,715 Shareholders' equity 1,625,198 1,334,730 1,095,225 866,474 617,464 Cash dividends declared per Common Share (4) (5) $ 0.11 $ 0.095 $ 0.08 $ 0.08 $ 0.07
10 11 (1) Amounts reflect business combinations in all periods presented. Fiscal 1998, 1997, 1996 and 1994 amounts reflect the impact of mergers-related costs. See Note 2 of "Notes to Consolidated Financial Statements" for a further discussion of mergers-related costs affecting fiscal 1998, 1997 and 1996. (2) The Company, beginning in fiscal 1998, is reporting bulk deliveries to customer warehouses as part of total revenue. Previously, only the gross margin from such sales had been classified in revenue. Such sales have been reclassified into revenue and cost of product sold for all periods presented. See Note 1 of "Notes to Consolidated Financial Statements" for a further discussion. (3) Effective for the fiscal year ended June 30, 1998, the Company adopted SFAS No. 128, "Earnings per Share." In accordance with SFAS No. 128, the basic and diluted EPS have been restated for all periods presented. (4) Net earnings and cash dividends per Common Share have been adjusted to retroactively reflect all stock dividends and stock splits through June 30, 1998. (5) On August 12, 1998, the Company declared a three-for-two stock split which will be effected as a stock dividend and distributed on October 30, 1998, to shareholders of record at the close of business on October 9, 1998. Giving retroactive effect to the stock split, the earnings per Common Share and cash dividends declared will be restated as follows upon distribution on October 30, 1998:
Fiscal Year Ended June 30, ------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ------------ ------------ ----------- ---------------- Basic earnings per Common Share $ 1.50 $ 1.15 $ 0.82 $ 0.97 $ 0.65 Diluted earnings per Common Share $ 1.48 $ 1.13 $ 0.80 $ 0.94 $ 0.59 Cash dividends declared per Common Share $ 0.07 $ 0.06 $ 0.05 $ 0.05 $ 0.05
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis has been prepared giving retroactive effect to the pooling-of-interests business combinations with Medicine Shoppe on November 13, 1995, Pyxis on May 7, 1996, PCI on October 11, 1996 and Owen on March 18, 1997. On February 18, 1998, the Company completed a merger with MediQual, which was accounted for as a pooling-of-interests. The impact of the MediQual Merger, on a historical basis, is not significant. Accordingly, prior period financial statements have not been restated for the MediQual Merger (see Note 2 of "Notes to Consolidated Financial Statements,") although they will be restated in the first quarter of fiscal 1999 as a result of the Company's August 7, 1998, acquisition of Scherer. The discussion and analysis presented below should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-K. RESULTS OF OPERATIONS - --------------------- OPERATING REVENUE. Operating revenue for fiscal 1998 increased 18% as compared to the prior year. Distribution businesses' (those whose primary operations involve the wholesale distribution of pharmaceuticals, representing 91% of total operating revenue) operating revenue (including approximately $196 million sold to Owen, eliminated in consolidation) grew at a rate of 19% during the fiscal year ended June 30, 1998, while Service businesses' (those that provide services to the healthcare industry, primarily through pharmacy franchising, pharmacy automation equipment, pharmacy management and pharmaceutical packaging) operating revenue grew at a rate of 22% during the fiscal year ended June 30, 1998, primarily on the strength of the Company's pharmacy automation and pharmacy management businesses. The majority of the operating revenue increase (approximately 80% for the year ended June 30, 1998) came from existing customers in the form of increased volume and pharmaceutical price increases. The remainder of the growth came from the addition of new customers. 11 12 Operating revenue for fiscal 1997 increased 17%, as compared to the prior year. Distribution businesses' operating revenue (including approximately $22 million sold to Owen, eliminated in consolidation) grew at a rate of 17% during the fiscal year ended June 30, 1997, while Service businesses grew at a rate of 13%, primarily on the strength of the Company's pharmacy management business. The increase resulted from internal growth generated primarily by the addition of new customers, and, to a lesser extent, increased volume from existing customers and price increases. Expansion of the Company's relationship with Kmart Corporation ("Kmart") and opportunities created by the deterioration of the financial condition of a major pharmaceutical distribution competitor also contributed to the increases during fiscal 1997. BULK DELIVERIES TO CUSTOMER WAREHOUSES. Along with other companies in its industry, the Company has begun reporting as revenue bulk deliveries made to customers' warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. All years presented have been restated to include these bulk deliveries as revenue (previously, only the service fees related to such bulk deliveries were reported as revenue, although service fees were not significant in any period presented). Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including consolidation within the chain drugstore industry, decisions by chains to either begin or discontinue warehousing activities, and changes in policy by manufacturers related to selling directly to chain drugstore customers. Due to the insignificant margins generated through bulk deliveries, fluctuations in their amount have no significant impact on operating earnings. GROSS MARGIN. For fiscal 1998 and 1997, gross margin as a percentage of operating revenue was 8.06% and 8.20%, respectively. The fiscal 1998 decrease in the gross margin as a percentage of operating revenue is due to declines in the Distribution businesses' gross margin, and to a lesser extent, declines in the Service businesses' gross margin. The Distribution businesses' gross margin as a percentage of operating revenue decreased from 5.82% in fiscal 1997 to 5.57% in fiscal 1998. The decrease is primarily due to the impact of lower selling margins, as a result of a highly competitive market and a greater mix of high volume customers, where a lower cost of distribution and better asset management enable the Company to offer lower selling margins to its customers. The Service businesses' gross margin as a percentage of operating revenue was 31.47% and 32.52% in fiscal 1998 and 1997, respectively. The slight decline in gross margin rates experienced by the Service businesses is primarily a function of the mix of the various businesses. Revenue growth has been greater in the relatively lower margin pharmacy management and pharmaceutical packaging businesses than it has been in the higher margin pharmacy franchising business. For fiscal 1997 and 1996, gross margin as a percentage of operating revenue was 8.20% and 8.61%, respectively. The change in gross margin for the year was primarily due to the shift in revenue mix caused by significant increases in the relatively lower margin pharmaceutical distribution activities. The impact of this shift was partially offset by increased merchandising and marketing programs with customers and suppliers. The Company's gross margin continues to be affected by the combination of a highly competitive environment and a greater mix of high volume customers, where a lower cost of service and better asset management enable the Company to offer lower selling margins and still achieve higher operating margins relative to other customer business. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses as a percentage of operating revenue improved to 4.39% in fiscal 1998 compared to 4.70% in fiscal 1997. The improvements reflect economies 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. The 10% growth in selling, general and administrative expenses experienced during fiscal 1998 was due primarily to increases in personnel costs and depreciation expense, and compares favorably to the 18% growth in operating revenue for the same period. Selling, general and administrative expenses as a percentage of operating revenue improved to 4.70% in fiscal 1997 compared to 5.47% in fiscal 1996. The improvements in fiscal 1997 reflect the economies 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. Additionally, certain expenses such as employee severance, asset impairments and lease exit costs, recorded in fiscal 1996 did not recur in fiscal 1997. SPECIAL CHARGES. During fiscal 1998, the Company recorded mergers-related charges associated with transaction costs incurred in connection with the MediQual Merger ($2.3 million) and transaction costs incurred in connection with the proposed merger transaction with Bergen ($33.4 million) which was terminated subsequent to year-end (see Note 17 of "Notes to the Consolidated Financial Statements"). Additional costs related to asset impairments ($3.8 million) and integrating the operations of companies that previously merged with the Company ($9.6 million) were incurred and recorded during fiscal 1998. During fiscal 1997, the Company recorded mergers-related charges 12 13 associated with the PCI and Owen mergers ($46.2 million) and additional integration costs related to the Pyxis and Medicine Shoppe mergers ($4.7 million). During fiscal 1996, the Company recorded charges ($49.2 million) to reflect the estimated Medicine Shoppe and Pyxis mergers-related costs. See further discussion in Note 2 of "Notes to Consolidated Financial Statements." The Company classifies costs associated with a merger transaction as "mergers-related costs." It should be noted that the amounts presented may not be comparable to similarly titled amounts reported by other companies. During fiscal 1998, the Company recorded a special charge of $8.6 million related to the rationalization of its distribution operations. Approximately $6.1 million related to asset impairments and lease exit costs resulting primarily from the Company's decision to accelerate the consolidation of a number of distribution facilities and the relocation to more modern facilities for certain others. The remaining amount related to employee severance costs, including approximately $2.0 million incurred in connection with the settlement of a labor dispute with former employees of the Company's Boston distribution facility, resulting in termination of the union relationship. The following is a summary of the special charges incurred by the Company in the last three fiscal years:
Fiscal Year Ended June 30, ------------------------------------------------ 1998 1997 1996 ----------- ------------ ------------- (In thousands, except per share amounts) MERGERS-RELATED COSTS: - ---------------------- Transaction and employee-related costs: Transaction costs $ (35,696) $ (14,500) $ (21,315) PCI vested retirement benefits and incentive fees - (7,600) - Pyxis stay bonuses - - (7,600) Employee severance/termination - (4,400) (2,540) Other - (600) (300) ----------- ------------ ------------- Total transaction and employee-related costs (35,696) (27,100) (31,755) ----------- ------------ ------------- Other mergers-related costs: Asset impairments (3,800) (13,200) (400) Exit and restructuring costs - (2,250) (15,600) Duplicate facilities elimination - (1,700) - Integration and efficiency implementation (9,648) (6,679) (1,445) ----------- ------------ ------------- Total other mergers-related costs (13,448) (23,829) (17,445) ----------- ------------ ------------- Total mergers-related costs $ (49,144) $ (50,929) $ (49,200) ----------- ------------ ------------- OTHER SPECIAL CHARGES: - ---------------------- Facilities closures $ (6,112) $ - $ - Employee severance (2,522) - - ----------- ------------ ------------- Total other special charges (8,634) - - ----------- ------------ ------------- TOTAL SPECIAL CHARGES (57,778) (50,929) (49,200) Tax effect of special charges 21,931 14,372 12,280 ----------- ------------ ------------- Effect on net earnings $ (35,847) $ (36,557) $ (36,920) =========== ============ ============= Effect on diluted earnings per share $ (0.32) $ (0.34) $ (0.34) =========== ============ =============
13 14 The effects of the mergers-related costs and other special charges are included in the reported net earnings of $247.1 million in fiscal 1998, $184.6 million in fiscal 1997 and $127.2 million in fiscal 1996 and in the reported diluted earnings per common share of $2.22 in fiscal 1998, $1.69 in fiscal 1997 and $1.19 in fiscal 1996. The Company estimates that it will incur additional mergers-related costs associated with the various mergers it has completed to date totaling approximately $3.7 million in future periods (excluding the Scherer Merger-see Note 16 of "Notes to the Consolidated Financial Statements") in order to properly integrate operations and implement efficiencies with regard to, among other things, information systems, customer systems, marketing programs and administrative functions. Such amounts will be charged to expense when incurred. Asset impairments in fiscal 1997 include the write-off of a patent ($7.4 million) and the write-down of certain operating assets ($3.2 million) related to MediTROL, Inc. ("MediTROL", a subsidiary acquired by the Company in the Owen merger transaction) as a result of management's decision to merge the operations of MediTROL into Pyxis and phase-out production of the separate MediTROL product line. Exit and restructuring costs in fiscal 1996 include $15.6 million related to cancellation of a long-term contract with a financing company related to the servicing and financing of the accounts receivable from Pyxis customers at the time of the Pyxis Merger (see Note 3 of "Notes to Consolidated Financial Statements"). The Company's trend with regard to acquisitions has been to expand its role as a provider of services to the healthcare industry. This trend has resulted in both expansion of its pharmaceutical distribution business and diversification into related service areas which (a) complement the Company's core pharmaceutical distribution business; (b) provide opportunities for the Company to develop synergies with, and thus strengthen, the acquired business; and (c) generally generate higher margins as a percentage of operating revenue than pharmaceutical distribution. As the healthcare industry continues to change, the Company is constantly evaluating merger or acquisition candidates in pharmaceutical distribution, as well as related sectors of the healthcare industry that would expand its role as a service provider; however, there can be no assurance that it will be able to successfully pursue any such opportunity or consummate any such transaction, if pursued. If additional transactions are entered into or consummated, additional mergers-related costs would be incurred by the Company. INTEREST EXPENSE. The decrease in interest expense of $5 million in fiscal 1998 compared to fiscal 1997 is primarily due to extinguishment of the Company's $100 million 8% Notes on March 1, 1997. The increase in other income for fiscal 1998 compared to fiscal 1997 of $3.6 million is primarily due to higher investment income. This is in part due to better asset management. During fiscal 1998, $61.9 million of cash was generated (including $143.1 million from operations) compared to use of $69.0 million of cash during fiscal 1997. Interest expense for fiscal 1997 decreased by $2.6 million compared to the prior year. This decrease is attributable to the extinguishment of the Company's $100 million 8% Notes on March 1, 1997 and lower interest rates during fiscal 1997 compared to fiscal 1996. In addition, various outstanding debt instruments utilized by PCI prior to the merger were extinguished after the merger was consummated. Partially offsetting this decrease in fiscal 1997 is the impact of the issuance of $150 million 6% Notes due 2006, in a public offering in January 1996. As discussed below under "Liquidity and Capital Resources," the Company issued $150 million of 6.25% Notes in July 1998 and assumed additional debt as part of its acquisition of Scherer on August 7, 1998. PROVISION FOR INCOME TAXES. The Company's provision for income taxes relative to pretax earnings was 39%, 41% and 44% for fiscal years 1998, 1997 and 1996, respectively. The fluctuation in the tax rate is primarily due to the impact of recording certain non-deductible mergers-related costs during various periods. In addition, the reduction in the state effective tax rate as a result of the change in the Company's business mix impacted the tax rate for fiscal year 1997. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital increased to $1,384.5 million at June 30, 1998 from $1,097.7 million at June 30, 1997. This increase included $61.9 million of cash generated in fiscal 1998, as well as additional investments in merchandise inventories and trade receivables of $459.3 million and $154.0 million, respectively. Offsetting the increases in working capital was an increase in accounts payable of $486.4 million. Increases in merchandise inventories reflect the higher level of business volume in pharmaceutical distribution activities, especially in the fourth quarter of fiscal 1998 when distribution revenue grew 31% over the same period in the prior year. The increase in trade receivables is 14 15 consistent with the Company's revenue growth (see "Operating Revenue" above). The change in accounts payable is due to the timing of inventory purchases and related payments. On July 13, 1998, the Company issued $150 million of 6.25% Notes due 2008, the proceeds of which will be used for working capital needs due to growth in the Company's business. As part of its acquisition of Scherer on August 7, 1998, the Company has assumed approximately $212 million in long-term debt. The Company currently has the capacity to issue $250 million of additional long-term debt pursuant to a shelf debt registration statement filed with the Securities and Exchange Commission (see Note 5 of "Notes to Consolidated Financial Statements"). The Company extinguished $100 million of long-term debt during fiscal 1997. Property and equipment, at cost, increased by $71 million in fiscal 1998. The increase in property and equipment included additional investments in management information systems and customer support systems. The Company has several operating lease agreements for the construction of new facilities. See further discussion in Note 9 of "Notes to Consolidated Financial Statements." Shareholders' equity increased to $1,625.2 million at June 30, 1998 from $1,334.7 million at June 30, 1997, primarily due to net earnings of $247.1 million and the investment of $50.0 million by employees of the Company through various stock incentive plans. The Company has line-of-credit agreements with various bank sources aggregating $503 million, of which $95 million is represented by committed line-of-credit agreements and the balance is uncommitted. The Company had $23.9 million outstanding under these lines at June 30, 1998. The Company believes that it has adequate capital resources at its disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements, including those related to business combinations. See "Other" below. OTHER - ----- SUBSEQUENT BUSINESS COMBINATIONS. On May 17, 1998, the Company announced that it had entered into a definitive merger agreement with Scherer. The Scherer merger transaction was completed on August 7, 1998, and will be accounted for as a pooling-of-interests for financial reporting purposes. In the merger, the Company issued approximately 22.8 million Common Shares to Scherer stockholders and Scherer's outstanding stock options were converted into options to purchase approximately 2.4 million Common Shares. The Company has assumed approximately $212 million in long-term debt as part of its acquisition of Scherer. The Company expects to record a merger-related charge to reflect transaction and other costs incurred as a result of the Scherer merger in the first quarter of fiscal 1999. Additional merger-related costs associated with integrating the separate companies and instituting efficiencies will be charged to expense in subsequent periods when incurred. The total amount of the merger-related charges to be recognized in connection with the Scherer merger is estimated to be between $35 and $40 million, after tax (see Note 16 of "Notes to Consolidated Financial Statements"). TERMINATED MERGER. On August 24, 1997, the Company and Bergen announced that they had entered into a definitive merger agreement (as subsequently amended by the parties on March 16, 1998), pursuant to which a wholly owned subsidiary of the Company would be merged with and into Bergen (the "Bergen Merger Agreement"), which was subsequently approved by both companies' shareholders on February 20, 1998. On March 9, 1998, the FTC filed a complaint in the United States District Court for the District of Columbia seeking a preliminary injunction to halt the proposed merger. On July 31, 1998, the District Court granted the FTC's request for an injunction to halt the proposed merger. On August 7, 1998, the Company and Bergen jointly terminated the Bergen Merger Agreement. In accordance with the terms of the Bergen Merger Agreement, its termination gave rise to an obligation for the Company to reimburse Bergen for $7 million of transaction costs. Additionally, the termination of the Bergen Merger Agreement will cause the costs incurred by the Company (that would not have been deductible had the proposed merger been consummated) to become tax deductible, resulting in a tax benefit of $12.2 million. The obligation to reimburse Bergen and the additional tax benefit have been reflected in the consolidated financial statements in the fourth quarter of the fiscal year ended June 30, 1998 (see Notes 2 and 17 of "Notes to the Consolidated Financial Statements"). YEAR 2000 PROJECT. The Company utilizes computer technologies throughout its business to effectively carry out its day-to-day operations. Computer technologies include both information technology in the form of hardware and software, as well as embedded technology in the Company's facilities and equipment. Similar to most companies, the Company must determine whether its systems are capable of recognizing and processing date sensitive information 15 16 properly as the year 2000 approaches. The Company is utilizing a multi-phased concurrent approach to address this issue. The phases included in the Company's approach are the awareness, assessment, remediation, validation and implementation phases. The Company has completed the awareness phase of its project. Furthermore, the Company has nearly completed the assessment phase and is well into the remediation phase. The Company is actively correcting and replacing those systems which are not year 2000 ready in order to ensure the Company's ability to continue to meet its internal needs and those of its suppliers and customers. The Company currently intends to substantially complete the remediation, validation and implementation phases of the year 2000 project prior to June 30, 1999. This process includes the testing of critical systems to ensure that year 2000 readiness has been accomplished. The Company currently believes it will be able to modify, replace, or mitigate its affected systems in time to avoid any material detrimental impact on its operations. If the Company determines that it may be unable to remediate and properly test affected systems on a timely basis, the Company intends to develop appropriate contingency plans for any such mission-critical systems at the time such determination is made. While the Company is not presently aware of any significant exposure that its systems will not be properly remediated on a timely basis, there can be no assurances that all year 2000 remediation processes will be completed and properly tested before the year 2000, or that contingency plans will sufficiently mitigate the risk of a year 2000 readiness problem. An interruption of the Company's ability to conduct its business due to a year 2000 readiness problem could have a material adverse effect on the Company. The Company estimates that the aggregate costs of its year 2000 project will be approximately $20 million, including costs already incurred. A significant portion of these costs are not likely to be incremental costs, but rather will represent the redeployment of existing resources. This reallocation of resources is not expected to have a significant impact on the day-to-day operations of the Company. Total costs of approximately $5 million were incurred by the Company for this project during fiscal 1998, of which approximately $1.4 million represented incremental expense. The anticipated impact and costs of the project, as well as the date on which the Company expects to complete the project, are based on management's best estimates using information currently available and numerous assumptions about future events. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Based on its current estimates and information currently available, the Company does not anticipate that the costs associated with this project will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows in future periods. The Company has initiated formal communications with its significant suppliers, customers, and critical business partners to determine the extent to which the Company may be vulnerable in the event that those parties fail to properly remediate their own year 2000 issues. The Company has taken steps to monitor the progress made by those parties, and intends to test critical system interfaces, as the year 2000 approaches. The Company will develop appropriate contingency plans in the event that a significant exposure is identified relative to the dependencies on third-party systems. While the Company is not presently aware of any such significant exposure, there can be no guarantee that the systems of third-parties on which the Company relies will be converted in a timely manner, or that a failure to properly convert by another company would not have a material adverse effect on the Company. The Company is currently evaluating the year 2000 readiness of Scherer, the Company's newest subsidiary acquired as of August 7, 1998. As such, the above discussion does not reflect the impact of Scherer. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which will require adoption no later than the Company's fiscal quarter ending September 30, 1998. This new statement defines comprehensive income as "all changes in equity during a period, with the exception of stock issuances and dividends." The new pronouncement establishes standards for the reporting and display of comprehensive income and its components in the financial statements. In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information," which will require adoption no later than fiscal 1999. SFAS 131 requires companies to define and report financial and descriptive information about its operating segments. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which will require adoption no later than the Company's fiscal quarter ending September 30, 1999. This new statement requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. 16 17 In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which will require adoption no later than the beginning of the Company's fiscal year ending June 30, 1999. This new statement provides guidance on accounting for costs of computer software developed or obtained for internal use. Adoption of these statements is not expected to have a material impact on the Company's consolidated financial statements. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Reports Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1998, 1997 and 1996 Consolidated Balance Sheets at June 30, 1998 and 1997 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 17 18 INDEPENDENT AUDITORS' REPORT To the Shareholders and Directors of Cardinal Health, Inc.: We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1998. Our audits also included the consolidated financial statement schedule listed in the Index at Item 14. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits. We did not audit the financial statements of Owen Healthcare, Inc. ("Owen") and of Pyxis Corporation ("Pyxis"), both wholly owned subsidiaries of Cardinal Health, Inc., for the year ended June 30, 1996. The combined financial statement amounts of Owen and Pyxis represent combined revenue and net income of approximately 5% and 34%, respectively, of the consolidated amounts for the year ended June 30, 1996. These statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Owen and Pyxis, is based solely on the reports of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardinal Health, Inc. and subsidiaries at June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio August 12, 1998 18 19 Report of Ernst & Young LLP, Independent Auditors Board of Directors Cardinal Health, Inc. We have audited the consolidated statements of income, shareholder's equity, and cash flows of Pyxis Corporation for the year ended June 30, 1996 (not included herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Pyxis Corporation for the year ended June 30,1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ERNST & YOUNG LLP San Diego, California August 2, 1996 19 20 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of Owen Healthcare, Inc. In our opinion, the consolidated statements of income, of stockholders' equity and of cash flows of Owen Healthcare, Inc. and its subsidiaries (not presented separately herein) present fairly, in all material respects, the results of their operations and their cash flows for the year ended November 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Owen Healthcare, Inc. management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Houston, Texas January 30, 1997 20 21 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands, Except Per Share Amounts)
Fiscal Year Ended June 30, ---------------------------------------------------- 1998 1997 1996 ---------------- ----------------- ----------------- Revenue: Operating revenue $ 12,926,778 $ 10,968,042 $ 9,407,591 Bulk deliveries to customer warehouses 2,991,360 2,469,138 2,178,532 ---------------- ----------------- ----------------- Total revenue 15,918,138 13,437,180 11,586,123 Cost of products sold: Operating cost of products sold 11,885,228 10,068,436 8,598,333 Cost of products sold - bulk deliveries 2,991,360 2,469,086 2,178,077 ---------------- ----------------- ----------------- Total cost of products sold 14,876,588 12,537,522 10,776,410 Gross margin 1,041,550 899,658 809,713 Selling, general and administrative expenses 567,756 515,551 514,879 Special charges: Mergers-related costs: Transaction and employee-related costs (35,696) (27,100) (31,755) Other (13,448) (23,829) (17,445) -------------- ----------------- ----------------- Total mergers-related costs (49,144) (50,929) (49,200) Facilities closures and employee severance (8,634) - - -------------- ----------------- --------------- Operating earnings 416,016 333,178 245,634 Other income (expense): Interest expense (23,022) (27,974) (30,611) Other, net - primarily interest income 9,519 5,876 12,479 ---------------- ----------------- ----------------- Earnings before income taxes 402,513 311,080 227,502 Provision for income taxes 155,432 126,481 100,262 ---------------- ----------------- ----------------- Net earnings $ 247,081 $ 184,599 $ 127,240 ================ ================= ================= Earnings per Common Share: Basic $ 2.25 $ 1.72 $ 1.22 Diluted $ 2.22 $ 1.69 $ 1.19 Weighted average number of Common Shares outstanding: Basic 109,757 107,152 103,872 Diluted 111,447 109,118 106,808
The accompanying notes are an integral part of these statements. 21 22 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, JUNE 30, 1998 1997 ---------------- ---------------- ASSETS Current assets: Cash and equivalents $ 304,951 $ 243,061 Trade receivables, net 826,199 672,164 Current portion of net investment in sales-type leases 75,450 40,997 Merchandise inventories 1,895,525 1,436,220 Prepaid expenses and other 126,526 94,668 ---------------- ---------------- Total current assets 3,228,651 2,487,110 ---------------- ---------------- Property and equipment, at cost: Land, buildings and improvements 115,248 110,552 Machinery and equipment 349,848 305,822 Furniture and fixtures 83,339 61,046 ---------------- ---------------- Total 548,435 477,420 Accumulated depreciation and amortization (217,032) (199,949) ---------------- ---------------- Property and equipment, net 331,403 277,471 Other assets: Net investment in sales-type leases, less current portion 195,013 118,563 Goodwill and other intangibles 125,095 122,104 Other 80,915 86,502 ---------------- ---------------- Total $ 3,961,077 $ 3,091,750 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable, banks $ 23,850 $ 22,159 Current portion of long-term obligations 6,803 6,158 Accounts payable 1,622,392 1,135,951 Other accrued liabilities 191,074 225,165 ---------------- ---------------- Total current liabilities 1,844,119 1,389,433 ---------------- ---------------- Long-term obligations, less current portion 272,575 277,766 Deferred income taxes and other liabilities 219,185 89,821 Shareholders' equity: Common Shares, without par value 713,006 645,051 Retained earnings 928,196 701,896 Common Shares in treasury, at cost (9,469) (6,373) Other (6,535) (5,844) ---------------- ---------------- Total shareholders' equity 1,625,198 1,334,730 ---------------- ---------------- Total $ 3,961,077 $ 3,091,750 ================ ================
The accompanying notes are an integral part of these statements. 22 23 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON SHARES -------------------------- SHARES ISSUED AMOUNT ----------- ------------- BALANCE, JUNE 30, 1995 70,839 $ 504,943 Net earnings Employee stock plans activity, including tax benefits of $11,168 1,015 29,754 Treasury shares acquired and shares retired (240) (5,662) Change in unrealized loss on marketable securities available-for-sale, net of tax Dividends paid Foreign currency translation and other adjustments Adjustment for ESOP Shares issued in connection with stock offering 2,069 50,654 Conversion of subordinated debt, net 1,071 9,787 ----------- ------------- BALANCE, JUNE 30, 1996 74,754 589,476 Net earnings Employee stock plans activity, including tax benefits of $18,459 1,655 62,483 Treasury shares acquired and shares retired (748) (7,051) Dividends paid Foreign currency translation and other adjustments 3-for-2 stock split effected as a stock dividend and cash paid in lieu of fractional shares 33,411 Adjustment for change in fiscal year of an acquired subsidiary (see Note 1) 143 ----------- ------------- BALANCE, JUNE 30, 1997 109,072 645,051 Net earnings Employee stock plans activity, including tax benefits of $18,638 1,286 53,438 Dividends paid Foreign currency translation and other adjustments Acquisition of subsidiary (see Note 2) 565 14,517 =========== ============= BALANCE, JUNE 30, 1998 110,923 $ 713,006 =========== =============
RETAINED TREASURY SHARES ------------------------ EARNINGS SHARES AMOUNT ---------------- ---------- ------------ BALANCE, JUNE 30, 1995 $ 401,042 (1,356) $ (15,966) Net earnings 127,240 Employee stock plans activity, including tax benefits of $11,168 134 922 Treasury shares acquired and shares retired 170 3,522 Change in unrealized loss on marketable securities available-for-sale, net of tax Dividends paid (7,616) Foreign currency translation and other adjustments Adjustment for ESOP Shares issued in connection with stock offering Conversion of subordinated debt, net ---------------- ---------- ------------ BALANCE, JUNE 30, 1996 520,666 (1,052) (11,522) Net earnings 184,599 Employee stock plans activity, including tax benefits of $18,459 Treasury shares acquired and shares retired 728 5,076 Dividends paid (9,045) Foreign currency translation and other adjustments 3-for-2 stock split effected as a stock dividend and cash paid in lieu of fractional shares (30) Adjustment for change in fiscal year of an acquired subsidiary (see Note 1) 5,706 84 73 ---------------- ---------- ------------ BALANCE, JUNE 30, 1997 701,896 (240) (6,373) Net earnings 247,081 Employee stock plans activity, including tax benefits of $18,638 (39) (3,077) Dividends paid (11,507) Foreign currency translation and other adjustments Acquisition of subsidiary (see Note 2) (9,274) (19) ================ ========== ============ BALANCE, JUNE 30, 1998 $ 928,196 (279) $ (9,469) ================ ========== ============
ADJUSTMENT FOR ESOP OTHER -------------- ------------ BALANCE, JUNE 30, 1995 $ (21,296) $ (2,249) Net earnings Employee stock plans activity, including tax benefits of $11,168 (1,173) Treasury shares acquired and shares retired 307 Change in unrealized loss on marketable securities available-for-sale, net of tax 446 Dividends paid Foreign currency translation and other adjustments (726) Adjustment for ESOP 21,296 Shares issued in connection with stock offering Conversion of subordinated debt, net ---------------- ------------ BALANCE, JUNE 30, 1996 - (3,395) Net earnings Employee stock plans activity, including tax benefits of $18,459 (1,098) Treasury shares acquired and shares retired Dividends paid Foreign currency translation and other adjustments (1,351) 3-for-2 stock split effected as a stock dividend and cash paid in lieu of fractional shares Adjustment for change in fiscal year of an acquired subsidiary (see Note 1) ---------------- ------------ BALANCE, JUNE 30, 1997 - (5,844) Net earnings Employee stock plans activity, including tax benefits of $18,638 (407) Dividends paid Foreign currency translation and other adjustments (778) Acquisition of subsidiary (see Note 2) 494 ================ ============ BALANCE, JUNE 30, 1998 $ - $ (6,535) ================ ============
TOTAL SHAREHOLDERS' EQUITY ---------------- BALANCE, JUNE 30, 1995 $ 866,474 Net earnings 127,240 Employee stock plans activity, including tax benefits of $11,168 29,503 Treasury shares acquired and shares retired (1,833) Change in unrealized loss on marketable securities available-for-sale, net of tax 446 Dividends paid (7,616) Foreign currency translation and other adjustments (726) Adjustment for ESOP 21,296 Shares issued in connection with stock offering 50,654 Conversion of subordinated debt, net 9,787 ---------------- BALANCE, JUNE 30, 1996 1,095,225 Net earnings 184,599 Employee stock plans activity, including tax benefits of $18,459 61,385 Treasury shares acquired and shares retired (1,975) Dividends paid (9,045) Foreign currency translation and other adjustments (1,351) 3-for-2 stock split effected as a stock dividend and cash paid in lieu of fractional shares (30) Adjustment for change in fiscal year of an acquired subsidiary (see Note 1) 5,922 ---------------- BALANCE, JUNE 30, 1997 1,334,730 Net earnings 247,081 Employee stock plans activity, including tax benefits of $18,638 49,954 Dividends paid (11,507) Foreign currency translation and other adjustments (778) Acquisition of subsidiary (see Note 2) 5,718 ================ BALANCE, JUNE 30, 1998 $ 1,625,198 ================
The accompanying notes are an integral part of these statements. 23 24 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30, --------------------------------------------- 1998 1997 1996 -------------- -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 247,081 $ 184,599 $ 127,240 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 64,275 51,368 48,566 Provision for deferred income taxes 95,483 11,217 23,602 Provision for bad debts 14,499 8,073 12,496 Change in operating assets and liabilities, net of effects from acquisitions: Increase in trade receivables (167,447) (46,971) (64,880) Increase in merchandise inventories (459,305) (164,108) (156,224) Increase in net investment in sales-type leases (110,903) (11,803) (34,125) Increase (decrease) in accounts payable 486,184 (10,778) 161,611 Increase in accrued other 66,958 20,039 34,077 Other operating items, net (93,750) (9,358) (23,736) -------------- -------------- ------------- Net cash provided by operating activities 143,075 32,278 128,627 -------------- -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiaries, net of cash acquired (4,000) - (53,722) Proceeds from sale of property and equipment 2,547 2,986 1,833 Additions to property and equipment (110,709) (76,089) (107,843) Purchase of marketable securities available-for-sale - (3,400) (163,719) Proceeds from sale of marketable securities available-for-sale - 57,735 218,019 -------------- -------------- ------------- Net cash used in investing activities (112,162) (18,768) (105,432) -------------- -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowing activity 1,691 3,347 (4,139) Reduction of long-term obligations (7,881) (134,479) (40,888) Proceeds from long-term obligations, net of issuance costs 852 - 187,873 Proceeds from issuance of Common Shares 32,261 41,244 69,991 Tax benefit of stock options 18,638 18,459 11,168 Dividends on Common Shares and cash paid in lieu of fractional shares (11,507) (9,075) (7,616) Purchase of treasury shares (3,077) (1,975) (1,833) -------------- -------------- ------------- Net cash provided by (used in) financing activities 30,977 (82,479) 214,556 -------------- -------------- ------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 61,890 (68,969) 237,751 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 243,061 312,030 74,279 -------------- -------------- ------------- CASH AND EQUIVALENTS AT END OF YEAR $ 304,951 $ 243,061 $ 312,030 ============== ============== =============
The accompanying notes are an integral part of these statements. 24 25 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cardinal Health, Inc. and subsidiaries (the "Company") is a provider of services to the healthcare industry offering an array of value-added pharmaceutical distribution services and pharmaceutical-related products and services to a broad base of customers. The Company distributes a broad line of pharmaceuticals, surgical and hospital supplies, therapeutic plasma and other specialty pharmaceutical products, health and beauty care products, and other items typically sold by hospitals, retail drug stores, and other healthcare providers. The Company also operates a variety of related healthcare service businesses, including Pyxis Corporation ("Pyxis") (which develops, manufactures, leases, sells and services point-of-use pharmacy systems which automate the distribution and management of medications and supplies in hospitals and other healthcare facilities); Medicine Shoppe International, Inc. ("Medicine Shoppe") (a franchisor of apothecary-style retail pharmacies); PCI Services, Inc. ("PCI") (an international provider of integrated packaging services to pharmaceutical manufacturers); Owen Healthcare, Inc. ("Owen") (a provider of pharmacy management and information services to hospitals); and MediQual Systems, Inc. ("MediQual") (a developer and provider of clinical information systems). See "Basis of Presentation" below. The Company is currently operating in one business segment, primarily in the continental United States. BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated. In addition, the consolidated financial statements give retroactive effect to the mergers with Medicine Shoppe on November 13, 1995, Pyxis on May 7, 1996, PCI on October 11, 1996 and Owen on March 18, 1997 (see Note 2). Such business combinations were accounted for under the pooling-of-interests method. The Company's fiscal year end is June 30 and Owen's fiscal year end was November 30. For the fiscal year ended June 30, 1996, the consolidated financial statements combine the Company's fiscal year ended June 30, 1996 with the financial results for Owen's fiscal year ended November 30, 1995. For the fiscal year ended June 30, 1997, the consolidated financial statements combine the Company's fiscal year ended June 30, 1997 with Owen's financial results for the period of June 1, 1996 to June 30, 1997 (excluding Owen's financial results for December 1996 in order to change Owen's November 30 fiscal year end to June 30). Due to the change in Owen's fiscal year from November 30 to conform with the Company's June 30 fiscal year end, Owen's results of operations for the periods from December 1, 1995 through May 31, 1996 and the month of December 1996 will not be included in the combined results of operations but are reflected as an adjustment in the Consolidated Statements of Shareholders' Equity. On February 18, 1998, the Company completed a merger with MediQual (the "MediQual Merger"). The MediQual Merger was accounted for as a pooling-of-interests. Because the impact of the MediQual Merger was not significant on a historical basis, prior period financial statements have not been restated. MediQual's financial information for all periods beginning with March 1, 1998, has been included in the Company's consolidated financial results for fiscal 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. CASH EQUIVALENTS The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates their fair value. RECEIVABLES Trade receivables are primarily comprised of amounts owed to the Company through its pharmaceutical wholesaling activities and are presented net of an allowance for doubtful accounts of $34.2 million and $35.0 million at June 30, 1998 and 1997, respectively. 25 26 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company provides financing to various customers. Such financing arrangements range from one year to ten years, at interest rates which generally fluctuate with the prime rate. The financings may be collateralized, guaranteed by third parties or unsecured. Finance notes and accrued interest receivable are $66.6 million and $52.5 million at June 30, 1998 and 1997, respectively (the current portion was $29.4 million and $12.1 million, respectively), and are included in other assets. These amounts are reported net of an allowance for doubtful accounts of $6.4 million and $8.2 million at June 30, 1998 and 1997, respectively. MERCHANDISE INVENTORIES Substantially all merchandise inventories (81% in 1998 and 87% in 1997) are stated at lower of cost, using the last-in, first-out ("LIFO") method, or market. If the Company had used the first-in, first-out ("FIFO") method of inventory valuation, which approximates current replacement cost, inventories would have been higher than reported at June 30, 1998, by $54.6 million and at June 30, 1997, by $69.6 million. The Company continues to consolidate locations, automate selected distribution facilities and invest in management information systems which achieve efficiencies in inventory management processes. As a result of the facility and related inventory consolidations, and the operational efficiencies achieved in fiscal 1998 and 1997, the Company had partial inventory liquidations in certain LIFO pools which reduced the LIFO provision by approximately $2.3 million and $2.0 million, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization for financial reporting purposes are computed using the straight-line method over the estimated useful lives of the assets which range from three to forty years, including capital lease assets which are amortized over the terms of their respective leases. Amortization of capital lease assets is included in depreciation and amortization expense. Certain software costs related to internally developed or purchased software are capitalized and amortized using the straight-line method over the useful lives, not exceeding five years. At each balance sheet date, the Company assesses the recoverability of its long-lived property, based on a review of projected undiscounted cash flows associated with these assets. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles primarily represent intangible assets related to the excess of cost over net assets of subsidiaries acquired. Intangible assets are being amortized using the straight-line method over lives which range from ten to forty years. Accumulated amortization was $23.7 million and $20.3 million at June 30, 1998 and 1997, respectively. At each balance sheet date, a determination is made by management to ascertain whether there is an indication that the intangible assets may have been impaired based on undiscounted operating cash flows for each subsidiary. REVENUE RECOGNITION The Company records distribution revenue when merchandise is shipped to its customers and the Company has no further obligation to provide services related to such merchandise. Along with other companies in its industry, the Company has begun reporting as revenue bulk deliveries made to customers' warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. All years presented have been reclassified to include these bulk deliveries as revenue (previously only the service fees related to such bulk deliveries were reported as revenues; such service fees were not significant in any period presented). Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including consolidation within the chain drugstore industry, decisions by chains to either begin or discontinue warehousing activities, and changes in policy by manufacturers related to selling directly to chain drugstore customers. Due to the insignificant margins generated through bulk deliveries, fluctuations in their amount have no significant impact on operating earnings. 26 27 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue is recognized from sales-type leases of point-of-use pharmacy systems when the systems are delivered, the customer accepts the system, and the lease becomes noncancellable. Unearned income on sales-type leases is recognized using the interest method. Sales of point-of-use pharmacy systems are recognized upon delivery and customer acceptance. Revenue for systems installed under operating lease arrangements is recognized over the lease term as such amounts become receivable according to the provisions of the lease. The Company earns franchise and origination fees from its apothecary-style pharmacy franchisees. Franchise fees represent monthly fees based upon franchisees' sales and are recognized as revenue when they are earned. Origination fees from signing new franchise agreements are recognized as revenue when the new franchise store is opened. Master franchise origination fees are recognized as revenue when all significant conditions relating to the master franchise agreement have been satisfied by the Company. Pharmacy management revenues are recognized as the related services are rendered according to the contracts established. A fee is charged under such contracts through either a monthly management fee arrangement, a capitated fee arrangement or a portion of the hospital charges to patients. Under certain contracts, fees for management services are guaranteed by the Company not to exceed stipulated amounts or have other risk-sharing provisions. Revenues are adjusted to reflect the estimated effects of such contractual guarantees and risk-sharing provisions. Packaging revenues are recognized from services provided upon the completion of such services. System license revenues are recognized upon shipment of the system to the customer. The portion of the license fee related to system maintenance is deferred and recognized over the annual maintenance period. EARNINGS PER COMMON SHARE The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share," in the quarter ended December 31, 1997. In accordance with the provisions of the Standard, all prior periods presented have been restated to comply with SFAS No. 128. 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, and in fiscal 1996 by the dilutive effect of convertible debentures ($270,000 impact on diluted net earnings and an increase of 717,000 diluted shares). Excluding dividends paid by all entities with which the Company has merged, the Company paid cash dividends per Common Share of $0.105, $0.09, $0.08 for the fiscal years ended June 30, 1998, 1997 and 1996, respectively. STOCK SPLITS On October 29, 1996, the Company declared a three-for-two stock split which was effected as a stock dividend and distributed on December 16, 1996 to shareholders of record on December 2, 1996. All share and per share amounts included in the consolidated financial statements, except the Consolidated Statements of Shareholders' Equity, have been adjusted to retroactively reflect this stock split. On August 12, 1998, the Company declared a three-for-two stock split which will be effected as a stock dividend and distributed on October 30, 1998 to shareholders of record at the end of business on October 9, 1998. Giving effect retroactive to the stock split, the diluted earnings per Common Share for the fiscal years ended June 30, 1998, 1997 and 1996 will be $1.48, $1.13 and $0.80 per Common Share, respectively. 27 28 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. BUSINESS COMBINATIONS, MERGERS-RELATED COSTS AND OTHER SPECIAL CHARGES In the merger transaction with MediQual, which was completed on February 18, 1998, the Company issued approximately 576,000 Common Shares to MediQual shareholders and MediQual's outstanding stock options were converted into options to purchase approximately 24,000 Common Shares of the Company. The historical cost of MediQual's assets combined was approximately $7.3 million and the total liabilities assumed were approximately $1.6 million. The impact of the MediQual Merger, on a historical basis, is not significant. Accordingly, prior period historical financial statements have not been restated for the MediQual Merger. MediQual's financial results have been included in the consolidated financial results of the Company since March 1, 1998. On May 15, 1998, the Company completed a business combination with Comprehensive Reimbursement Consultants, Inc. ("CRC"), which was accounted for as a purchase. The aggregate purchase price, which was paid primarily in cash, was approximately $6 million, which included the issuance of Common Shares valued at approximately $1.3 million. The financial results of CRC are included in the consolidated financial results of the Company since the date of the acquisition. Had the purchase occurred at the beginning of fiscal 1997, operating results on a pro forma basis would not have been significantly different. During fiscal 1998, the Company recorded mergers-related charges associated with transaction costs incurred in connection with the MediQual Merger ($2.3 million) and transaction costs incurred in connection with the proposed merger transaction with Bergen Brunswig Corporation ("Bergen") ($33.4 million) which was terminated subsequent to year-end (see Note 17). In accordance with the terms of the Bergen Merger Agreement, its termination gave rise to an obligation for the Company to reimburse Bergen for $7 million of transaction costs. Additional mergers-related costs, related to asset impairments ($3.8 million) and integrating the operations of companies that previously merged with the Company ($9.6 million), were incurred and recorded during fiscal 1998. During fiscal 1998, the Company recorded a special charge of $8.6 million ($5.2 million, net of tax) related to the rationalization of its distribution operations. Approximately $6.1 million related to asset impairments and lease exit costs resulting primarily from the Company's decision to accelerate the consolidation of a number of distribution facilities and the relocation to more modern facilities for certain others. The remaining amount related to employee severance costs, including approximately $2.0 million incurred in connection with the final settlement of a labor dispute with former employees of the Company's Boston distribution facility, resulting in termination of the union relationship. On March 18, 1997, the Company completed a merger transaction with Owen (the "Owen Merger"). The Owen Merger was accounted for as a pooling-of-interests business combination and the Company issued approximately 7.7 million Common Shares to Owen shareholders and Owen's outstanding stock options were converted into options to purchase approximately 0.7 million Common Shares. During fiscal 1997, the Company recorded costs of approximately $31.1 million ($22.4 million, net of tax) related to the Owen Merger. These costs include $13.1 million for transaction and employee-related costs associated with the merger, $13.2 million for asset impairments ($10.6 million of which related to MediTROL, as discussed below), and $4.8 million related to other integration activities, including the elimination of duplicate facilities and certain exit and restructuring costs. At the time of the Owen Merger, Owen had a wholly owned subsidiary, MediTROL, that manufactured, marketed, sold and serviced point-of-use medication distribution systems similar to Pyxis. Upon consummation of the Owen Merger, management committed to merge the operations of MediTROL into Pyxis, and phase-out production of the separate MediTROL product line. As a result of this decision, a MediTROL patent ($7.4 million) and certain other operating assets ($3.2 million) were written off as impaired. On October 11, 1996, the Company completed a merger transaction with PCI (the "PCI Merger"). The PCI Merger was accounted for as a pooling-of-interests business combination and the Company issued approximately 3.1 million Common Shares to PCI shareholders and PCI's outstanding stock options were converted into options to purchase approximately 0.2 million Common Shares. During fiscal 1997, the Company recorded costs totaling approximately $15.1 million ($11.4 million, net of tax) related to the PCI Merger. These costs include $13.8 million for transaction and employee-related costs associated with the PCI Merger (including $7.6 million for retirement benefits and incentive fees to two executives of PCI, which vested and became payable upon consummation of the merger) and $1.3 million related to other integration activities, including exit costs. 28 29 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition to the mergers-related costs recorded in fiscal 1997 for the Owen and PCI Mergers (as discussed above), the Company recorded $4.7 million ($2.8 million, net of tax) related to integrating the operations of companies that previously merged with the Company. On May 7, 1996, the Company completed a merger transaction with Pyxis (the "Pyxis Merger"). The Pyxis Merger was accounted for as a pooling-of-interests business combination, and the Company issued approximately 22.6 million Common Shares to Pyxis shareholders. In addition, Pyxis' outstanding stock options were converted into options to purchase approximately 2.3 million Common Shares. During fiscal 1996, the Company recorded costs totaling approximately $42.0 million ($30.6 million, net of tax) related to the Pyxis Merger. These costs include $25.4 million for transaction and employee-related costs associated with the merger (including $7.6 million for vested stay bonuses covering substantially all Pyxis employees), $15.6 million related to certain exit and lease-termination costs (pertaining to cancellation of a long-term contract with a financing company in connection with the servicing of the accounts receivable from Pyxis customers at the time of the Pyxis Merger, see Note 3), and $1.0 million related to asset impairments and other integration activities. On November 13, 1995, the Company completed a merger transaction with Medicine Shoppe (the "Medicine Shoppe Merger"). The Medicine Shoppe Merger was accounted for as a pooling-of-interests business combination and the Company issued approximately 9.6 million Common Shares to Medicine Shoppe shareholders. In addition, Medicine Shoppe's outstanding stock options were converted into options to purchase approximately 0.2 million Common Shares. During fiscal 1996, the Company recorded costs totaling approximately $7.2 million ($6.4 million, net of tax) related to the Medicine Shoppe Merger. These costs include $6.3 million for transaction and employee-related costs associated with the Medicine Shoppe Merger and $0.9 million related to other integration activities. The effect of the various mergers-related costs and other special charges recorded in fiscal 1998 was to reduce reported net earnings by $35.8 million to $247.1 million and to reduce reported diluted earnings per Common Share by $0.32 per share to $2.22 per share. The effect of the various mergers-related costs recorded in fiscal 1997 was to reduce reported net earnings by $36.6 million to $184.6 million and to reduce reported diluted earnings per Common Share by $0.34 per share to $1.69 per share. The effect of the various mergers-related costs recorded in fiscal 1996 was to reduce reported net earnings by $36.9 million to $127.2 million and to reduce reported diluted earnings per Common Share by $0.34 per share to $1.19 per share. Certain mergers-related costs are based upon estimates, and actual amounts paid may ultimately differ from these estimates. If additional costs are incurred, such items will be expensed as incurred. During fiscal 1996, the Company completed three business combinations which were accounted for under the purchase method of accounting. These business combinations were primarily related to the Company's point-of-use pharmacy systems and pharmacy management services. The aggregate purchase price, which was paid primarily in cash, including fees and expenses, was $58.8 million. Liabilities of the operations assumed were approximately $41.7 million, consisting primarily of debt of $29.7 million. Had the purchases occurred at the beginning of fiscal 1996, operating results for fiscal 1996 on a pro forma basis would not have been significantly different. 29 30 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. LEASES Sales-Type Leases The Company's sales-type leases are for terms generally ranging up to five years. Lease receivables are generally collateralized by the underlying equipment. The components of the Company's net investment in sales-type leases are as follows (in thousands):
June 30, June 30, 1998 1997 --------------- -------------- Future minimum lease payments receivable $ 320,064 $ 190,918 Unguaranteed residual values 1,267 1,333 Unearned income (46,296) (27,817) Allowance for uncollectible minimum lease payments receivable (4,572) (4,874) --------------- -------------- Net investment in sales-type leases 270,463 159,560 Less: current portion 75,450 40,997 --------------- -------------- Net investment in sales-type leases, less current portion $ 195,013 $ 118,563 =============== ==============
Future minimum lease payments to be received pursuant to sales-type leases are as follows at June 30, 1998 (in thousands):
1999 $ 79,800 2000 75,758 2001 65,208 2002 55,729 2003 37,577 Thereafter 5,992 -------------- Total $ 320,064 ==============
Lease Related Financing Arrangements Prior to the Pyxis Merger, Pyxis had financed its working capital needs through the sale of certain lease receivables to a non-bank financing company. In March 1994, Pyxis entered into a five-year financing and servicing agreement with the financing company, whereby the financing company agreed to purchase a minimum of $500 million of Pyxis' lease receivables under certain conditions, provided that the total investment in the lease receivables at any one time did not exceed $350 million. As of June 30, 1998, $198 million of lease receivables were owned by the financing company. The aggregate lease receivables sold under this arrangement totaled approximately $382 million and $312 million at June 30, 1998 and 1997, respectively. As a result of the Pyxis Merger, the Company entered into negotiations with the financing company to amend and terminate this arrangement. In June 1997, the agreement with the financing company was amended to modify financing levels over the remaining term of the agreement and to terminate the lease portfolio servicing responsibilities of the financing company. In June 1998, the agreement with the financing company was further amended to terminate Pyxis' obligation to sell lease receivables to the financing company. The Company made provision for the estimated costs associated with the exiting of this arrangement at the time of the Pyxis Merger (see Note 2). 30 31 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. NOTES PAYABLE, BANKS The Company has entered into various unsecured, uncommitted line-of-credit arrangements which allow for borrowings up to $408 million at June 30, 1998, at various money market rates. At June 30, 1998, $23.9 million, at a weighted average interest rate of 7.2%, was outstanding under such arrangements and $22.2 million, at a weighted average interest rate of 6.26% was outstanding at June 30, 1997. In addition, the Company has revolving credit agreements, which have a maturity of less than one year, with seven banks. These credit agreements are renewable on a quarterly basis and allow the Company to borrow up to $95 million (none of which was in use at June 30, 1998). The Company is required to pay a commitment fee at the annual rate of 0.125% on the average daily unused amounts of the total credit allowed under the revolving credit agreements. The total available but unused lines of credit at June 30, 1998 was $479 million. 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
June 30, June 30, 1998 1997 --------------- -------------- 6.0% Notes due 2006 $ 150,000 $ 150,000 6.5% Notes due 2004 100,000 100,000 Other obligations; interest averaging 6.39% in 1998 and 6.38% in 1997, due in varying installments through 2010 29,378 33,924 --------------- -------------- Total 279,378 283,924 Less: current portion 6,803 6,158 --------------- -------------- Long-term obligations, less current portion $ 272,575 $ 277,766 =============== ==============
The 6% Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $1.3 million incurred in connection with the offering are being amortized on a straight-line basis over the period the 6% Notes will be outstanding. The 6.5% Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $860,000 incurred in connection with these Notes are being amortized on a straight-line basis over the period the 6.5% Notes will be outstanding. During fiscal 1996, holders of $10 million, 9.53% convertible subordinated notes due 2002, originally issued by Owen, converted the notes into the equivalent of approximately 1.1 million Common Shares. Additionally, Owen repaid $34.8 million of debt with proceeds from a common stock offering. If the previously mentioned conversion and retirement of debt had occurred at the beginning of all periods presented, the changes to diluted earnings per share would not have been material. Certain long-term obligations are collateralized by property and equipment of the Company with an aggregate book value of approximately $31.8 million at June 30, 1998. 31 32 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturities of long-term obligations for future fiscal years are as follows (in thousands):
1999 $ 6,803 2000 5,418 2001 3,478 2002 2,288 2003 1,654 Thereafter 259,737 -------------- Total $ 279,378 ==============
On July 13, 1998, the Company issued $150 million of 6.25% Notes due 2008 , the proceeds of which will be used for working capital needs due to growth in the Company's business. The 6.25% Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Subsequent to issuing the 6.25% Notes, the Company has the capacity to issue $250 million of additional long-term debt pursuant to a shelf debt registration statement filed with the Securities and Exchange Commission. In addition, as part of its merger transaction with R.P. Scherer Corporation ("Scherer") on August 7, 1998, the Company has assumed approximately $212 million in long-term debt. 6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and equivalents, trade receivables, accounts payables, notes payable-banks and other accrued liabilities at June 30, 1998 and 1997, approximate their fair value because of the short-term maturities of these items. The estimated fair value of the Company's long-term obligations was $280.2 million and $270.1 million as compared to the carrying amounts of $279.4 million and $283.9 million at June 30, 1998 and 1997, respectively. The fair value of the Company's long-term obligations is estimated based on the quoted market prices for the same or similar issues and the current interest rates offered for debt of the same remaining maturities. 7. INCOME TAXES The provision for income taxes consists of the following (in thousands):
Fiscal Year Ended June 30, ------------------------------------------------ 1998 1997 1996 --------------- -------------- --------------- Current: Federal $ 50,001 $ 101,877 $ 67,397 State 9,948 13,387 9,263 --------------- -------------- --------------- Total 59,949 115,264 76,660 Deferred 95,483 11,217 23,602 --------------- -------------- --------------- Total provision $ 155,432 $ 126,481 $ 100,262 =============== ============== ===============
32 33 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the provision based on the Federal statutory income tax rate to the Company's effective income tax rate is as follows:
Fiscal Year Ended June 30, -------------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- Provision at Federal statutory rate 35.0 % 35.0 % 35.0 % State income taxes, net of Federal benefit 4.7 4.3 4.7 Nondeductible expenses 0.9 2.4 3.9 Other (2.0) (1.0) 0.5 --------------- --------------- --------------- Effective income tax rate 38.6 % 40.7 % 44.1 % =============== =============== ===============
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities are as follows (in thousands):
June 30, June 30, 1998 1997 -------------- -------------- Deferred income tax assets: Receivable basis difference $ 10,330 $ 18,669 Accrued liabilities 23,672 35,179 Net operating loss carryforwards 42,455 30,978 Other 3,976 38,285 -------------- -------------- Total deferred income tax assets 80,433 123,111 Valuation allowance for deferred income tax assets (6,413) (2,696) -------------- -------------- Net deferred income tax assets 74,020 120,415 -------------- -------------- Deferred income tax liabilities: Inventory basis differences (90,027) (58,077) Property-related (72,399) (63,171) Revenues on lease contracts (110,986) (89,101) Other 847 (13,128) -------------- -------------- Total deferred income tax liabilities (272,565) (223,477) -------------- -------------- Net deferred income tax liabilities $ (198,545) $ (103,062) ============== ==============
The above amounts are classified in the consolidated balance sheets as follows (in thousands):
June 30, June 30, 1998 1997 -------------- -------------- Other current liabilities $ 13,831 (27,696) Deferred income taxes and other liabilities (212,376) (75,366) -------------- -------------- Net deferred income tax liabilities $ (198,545) $ (103,062) ============== ==============
The Company had Federal net operating loss carryforwards of $95.4 million and $91.0 million and state net operating loss carryforwards of $95.1 million and $56 million as of June 30, 1998 and 1997, respectively. A valuation allowance of $6.4 million and $2.7 million at June 30, 1998 and 1997, respectively, has been provided for the state net operating loss carryforwards, as utilization of such carryforwards within the applicable statutory periods is uncertain. The Company's Federal tax operating loss carryforwards and a portion of the state net operating loss carryforwards are subject to a change in ownership limitation calculation under Internal Revenue Code Section 382. 33 34 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS After application of the valuation allowance described above, the Company anticipates no limitations will apply with respect to utilization of these assets. The Federal net operating loss carryforward begins expiring in 2001 and the state net operating loss carryforward began expiring in 1994. Expiring state net operating loss carryforwards and the required valuation allowances have been adjusted annually. 8. EMPLOYEE RETIREMENT BENEFIT PLANS Substantially all of the Company's non-union employees are eligible to be enrolled in Company-sponsored contributory profit sharing and retirement savings plans which include features under Section 401(k) of the Internal Revenue Code, and provide for Company matching and profit sharing contributions. The Company's contributions to the plans are determined by the Board of Directors subject to certain minimum requirements as specified in the plans. Qualified union employees are covered by multiemployer defined benefit pension plans under the provisions of collective bargaining agreements. Benefits under these plans are generally based on the employee's years of service and average compensation at retirement. Prior to the Owen Merger, Owen established an Employee Stock Ownership Plan (the "ESOP"). Costs for the ESOP debt service were recognized for additional contributions to satisfy ESOP obligations and plan operating expenses. As of January 2, 1996, contributions to the ESOP were suspended and all participants became fully vested. The total expense for employee retirement benefit plans was as follows (in thousands):
Fiscal Year Ended June 30, ----------------------------------------------- 1998 1997 1996 -------------- --------------- -------------- Defined contribution plans $ 15,363 $ 10,765 $ 9,132 Multiemployer plans 531 947 1,216 ESOP - - 257 ------------ -- --------------- -------------- Total $ 15,894 $ 11,712 $ 10,605 ============== =============== ==============
9. COMMITMENTS AND CONTINGENT LIABILITIES The future minimum rental payments for operating leases having initial or remaining noncancellable lease terms in excess of one year at June 30, 1998 are as follows (in thousands):
1999 $ 15,011 2000 8,118 2001 6,189 2002 4,668 2003 3,773 Thereafter 11,813 -------------- Total $ 49,572 ==============
Rental expense relating to operating leases was approximately $24.1 million, $23.0 million and $23.4 million in fiscal 1998, 1997, and 1996, respectively. Sublease rental income was not material for any period presented herein. The Company has entered into operating lease agreements with several banks for the construction of various new facilities. The initial terms of the lease agreements extend through April 2003, with optional five year renewal periods. In the event of termination, the Company is required to either purchase the facility or vacate the property and make reimbursement for a portion of the uncompensated price of the property cost. The instruments provide for maximum fundings of $181.2 million, which is the total estimated cost of the construction projects. As of June 30, 1998, the 34 35 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS amount expended was $108.2 million. Currently, the Company's minimum annual lease payments under the agreements are approximately $7.0 million. As of June 30, 1998, amounts outstanding on customer notes receivable sold with full recourse to a commercial bank totaled approximately $13.4 million. The Company also has outstanding guarantees of indebtedness and financial assistance commitments which totaled approximately $4.2 million at June 30, 1998. Upon consummation of the Scherer Merger on August 7, 1998 (see Note 16), the Company guaranteed an additional $292 million, representing the outstanding long-term debt and available credit facilities of Scherer. The Company becomes involved from time-to-time in litigation incidental to its business. In November 1993, Cardinal, Whitmire, five other pharmaceutical wholesalers, and twenty-four pharmaceutical manufacturers were named as defendants in a series of purported class action antitrust lawsuits alleging violations of various antitrust laws associated with the chargeback pricing system. Trial has been set for the prescription drug litigation to begin September 14, 1998. The Company believes that the allegations set forth against Cardinal and Whitmire in these lawsuits are without merit. In January 1995, the Company was named as a defendant in a lawsuit alleging violations of various antitrust statutes and that the Company had tortiously interfered with another pharmaceutical wholesaler's contractual realtions. The trial date for this action has been set for November 2, 1998. The Company believes that allegations made against it in this litigation are without merit. Although the ultimate resolution of litigation cannot be forecast with certainty, the Company does not believe that the outcome of any pending litigation would have a material adverse effect on the Company's consolidated financial statements. 10. SHAREHOLDERS' EQUITY At June 30, 1998, the Company's authorized capital shares consisted of (a) 300,000,000 Class A common shares, without par value; (b) 5,000,000 Class B common shares, without par value; and (c) 500,000 non-voting preferred shares without par value. At June 30, 1997, the Company's authorized capital shares consisted of (a) 150,000,000 Class A common shares, without par value; (b) 5,000,000 Class B common shares, without par value; and (c) 500,000 non-voting preferred shares without par value. The Class A common shares and Class B common shares are collectively referred to as Common Shares. Holders of Class A and Class B common shares are entitled to share equally in any dividends declared by the Company's Board of Directors and to participate equally in all distributions of assets upon liquidation. Generally, the holders of Class A common shares are entitled to one vote per share and the holders of Class B common shares are entitled to one-fifth of one vote per share on proposals presented to shareholders for vote. Under certain circumstances, the holders of Class B common shares are entitled to vote as a separate class. Only Class A common shares were outstanding as of June 30, 1998 and 1997. 11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS The Company invests cash in deposits with major banks throughout the world and in high quality short-term liquid instruments. Such investments are made only in instruments issued or enhanced by high quality institutions. These investments mature within three months and the Company has not incurred any related losses. The Company's trade receivables, finance notes and accrued interest receivable, and lease receivables are exposed to a concentration of credit risk with customers in the retail and healthcare sectors. Credit risk can be affected by changes in reimbursement and other economic pressures impacting the acute care portion of the healthcare industry. However, such credit risk is limited due to supporting collateral and the diversity of the customer base, including its wide geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial conditions and maintains reserves for credit losses. Such losses historically have been within the Company's expectations. During fiscal 1998, the Company's two largest customers individually accounted for 12% of operating revenue and 62% of bulk deliveries, respectively. During fiscal 1997, the Company's two largest customers individually accounted for 13% of operating revenue and 62% of bulk deliveries, respectively. During fiscal 1996, the Company's 35 36 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS two largest customers individually accounted for 11% of operating revenue and 70% of bulk deliveries, respectively. Trade receivables due from these two customers aggregated approximately 16% and 23% of total trade receivables at June 30, 1998 and 1997, respectively. 12. STOCK OPTIONS AND RESTRICTED SHARES The Company maintains stock incentive plans (the "Plans") for the benefit of certain officers, directors and employees. Options granted generally vest over three years and are exercisable for periods up to ten years from the date of grant at a price which equals fair market value at the date of grant. The Company accounts for the Plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the Plans been determined consistent with the Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company's net income and diluted earnings per Common Share would have been reduced by $4.5 million and $0.04 per share, respectively, for fiscal 1998, $2.3 million and $0.02 per share, respectively, for fiscal 1997 and $6.4 million and $0.07 per share, respectively, for fiscal 1996. Because the SFAS 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The following summarizes all stock option transactions for the Company (excluding Whitmire, see below) under the plans from June 30, 1995 through June 30, 1998, giving retroactive effect to conversions of options in connection with merger transactions and stock splits (in thousands, except per share amounts):
Fiscal 1998 Fiscal 1997 Fiscal 1996 --------------------------- ----------------------------- ----------------------------- Weighted Weighted Weighted average average average Options exercise price Options exercise price Options exercise price ---------- ---------------- ----------- ---------------- ------------ ---------------- Outstanding, beginning of year 4,748 $31.49 6,432 $24.15 5,737 $20.98 Granted 802 79.35 840 54.88 1,382 36.82 Exercised (1,255) 24.34 (2,284) 19.87 (527) 21.10 Canceled (138) 47.67 (240) 27.27 (160) 29.93 ---------- ---------------- ----------- ---------------- ------------ ---------------- Outstanding, end of year 4,157 $42.32 4,748 $ 31.49 6,432 $24.15 ========== ================ =========== ================ ============ ================ Exercisable, end of year 2,074 $24.58 2,718 $23.15 4,076 $20.89 ---------- ---------------- ----------- ---------------- ------------ ----------------
The weighted average fair value of options granted during fiscal 1998, 1997 and 1996 was $19.92, $14.48 and $14.50, respectively. The fair values of the options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in fiscal 1998: risk-free interest rate of 5.53%, expected life of 3 years, expected volatility of 0.27% and dividend yield of 0.16%. The fair values of the options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in both fiscal 1997 and 1996: risk-free interest rate of 6.23%, expected life of 3 years, expected volatility of 0.25% and dividend yield of 0.17%. 36 37 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information relative to stock options outstanding as of June 30, 1998:
Options Outstanding Options Exercisable ----------------------------------------------------- ------------------------------ Weighted average remaining Weighted Weighted Range of Options contractual average Options average exercise prices (000s) life in years exercise price (000s) exercise price - ------------------ ----------------- ----------------- ----------------- ----------- ------------------ $ .08-$23.07 1,076 4.27 $16.51 1,034 $16.46 $23.27-$33.00 848 6.45 29.32 781 29.50 $33.51-$54.33 832 7.21 41.06 247 40.54 $54.38-$81.69 1,385 9.12 70.57 11 74.45 $88.19-$94.13 16 9.66 88.58 1 94.13 ----------------- ----------------- ----------------- ----------- ------------------ 4,157 6.94 $42.32 2,074 $24.58 ================= ================= ================= =========== ==================
As of June 30, 1998, there remained approximately 650,000 additional shares available to be issued pursuant to the Plans. In connection with the Whitmire Merger, outstanding Whitmire stock options granted to current or former Whitmire officers or employees were automatically converted into options ("Cardinal Exchange Options") to purchase an aggregate of approximately 2.6 million additional Common Shares. Under the terms of their original issuance, the exercise price for substantially all of the Cardinal Exchange Options is remitted to certain former investors of Whitmire. Cardinal Exchange Options to purchase 0.3 million Common Shares, with an average option price of $1.37 were exercised in fiscal 1996. At June 30, 1996, all Cardinal Exchange Options had been exercised. The market value of restricted shares awarded by the Company is recorded in the "Other" component of shareholders' equity in the accompanying consolidated balance sheets. The compensation awards are amortized to expense over the period in which participants perform services, generally one to seven years. As of June 30, 1998 approximately 0.2 million shares remained restricted and subject to forfeiture. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following selected quarterly financial data (in thousands, except per share amounts) for fiscal 1998 and 1997 has been restated to reflect the pooling-of-interests business combinations as discussed in Note 2. Earnings per Common Share have been restated in accordance with SFAS 128 (see Note 1).
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- -------------- ------------- ------------- Fiscal 1998 Revenue: Operating revenue $ 2,869,971 $ 3,130,505 $ 3,381,479 $ 3,544,823 Bulk deliveries to customer warehouses 681,155 750,590 720,101 839,514 ----------- ----------- ----------- ----------- Total revenue $ 3,551,126 $ 3,881,095 $ 4,101,580 $ 4,384,337 Gross margin 225,865 248,898 279,376 287,411 Selling, general and administrative expenses 135,054 135,211 142,205 155,286 Operating earnings 88,628 110,498 107,380 109,510 Net earnings $ 54,040 $ 66,179 $ 56,312 $ 70,550 Net earnings per Common Share: Basic $ .50 $ .60 $ .51 $ .64 Diluted $ .49 $ .60 $ .50 $ .63 - -----------------------------------------------------------------------------------------------------
37 38 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- -------------- ------------- ------------- Fiscal 1997 Revenue: Operating revenue $ 2,535,476 $ 2,816,406 $ 2,825,500 $ 2,790,660 Bulk deliveries to customer warehouses 571,704 623,883 624,368 649,183 ----------- ----------- ----------- ----------- Total revenue $ 3,107,180 $ 3,440,289 $ 3,449,868 $ 3,439,843 Gross margin 193,828 223,858 246,658 235,314 Selling, general and administrative expenses 124,156 127,413 131,502 132,480 Operating earnings 69,514 78,429 84,274 100,961 Net earnings $ 39,326 $ 41,326 $ 42,181 $ 61,766 Net earnings per Common Share: Basic $ .38 $ .38 $ .39 $ .57 Diluted $ .37 $ .38 $ .38 $ .56
On August 12, 1998, the Company declared a three-for-two stock split which will be effected as a stock dividend and distributed on October 30, 1998 to shareholders of record at the close of business on October 9, 1998 (see Note 1). Giving retroactive effect to the stock split, the earnings per Common Share for the selected quarterly financial data in fiscal 1998 and 1997 will be restated as follows upon distribution on October 30, 1998:
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- -------------- ------------- ------------- Net earnings per Common Share: Fiscal 1998: Basic $ 0.33 $ 0.40 $ 0.34 $ 0.43 Diluted $ 0.32 $ 0.40 $ 0.34 $ 0.42 - ----------------------------------------------------------------------------------------------------- Fiscal 1997: Basic $ 0.25 $ 0.26 $ 0.26 $ 0.38 Diluted $ 0.25 $ 0.25 $ 0.26 $ 0.37
As more fully discussed in Note 2, mergers-related costs and special charges were recorded in various quarters in fiscal 1998 and 1997. The following table summarizes the impact of such costs on net earnings and diluted earnings per share in the quarters in which they were recorded:
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- -------------- ------------- ------------- Fiscal 1998: Net earnings $ (1,332) $ (1,945) $ (23,729) $ (8,841) Diluted net earnings per Common Share $ (0.01) $ (0.01) $ (0.22) $ (0.08) - ----------------------------------------------------------------------------------------------------- Fiscal 1997: Net earnings $ (95) $ (13,053) $ (22,285) $ (1,124) Diluted net earnings per Common Share $ - $ (0.12) $ (0.20) $ (0.02)
Giving retroactive effect to the stock split declared on August 12, 1998, (see above and Note 1), the impact on diluted net earnings per Common Share of mergers-related costs and special charges recorded in various quarters in fiscal 1998 and 1997 will be restated as follows upon distribution on October 30, 1998:
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- -------------- ------------- ------------- Fiscal 1998 $ (0.01) $ (0.01) $ (0.14) $ (0.05) Fiscal 1997 $ - $ (0.08) $ (0.13) $ (0.01)
38 39 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SUPPLEMENTAL CASH FLOW INFORMATION Income tax and interest payments for the fiscal years ended June 30, 1998, 1997 and 1996 were as follows (in thousands):
Fiscal Year Ended June 30, ------------------------------------------------ 1998 1997 1996 --------------- -------------- -------------- Interest paid $ 22,857 $ 30,487 $ 25,263 Income taxes paid $ 87,295 $ 83,639 $ 67,831
See Notes 2 and 5 for additional information regarding non cash investing and financing activities. 15. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which will require adoption no later than the Company's fiscal quarter ending September 30, 1998. This new statement defines comprehensive income as "all changes in equity during a period, with the exception of stock issuances and dividends." The new pronouncement establishes standards for reporting and display of comprehensive income and its components in the financial statements. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information," which will require adoption no later than fiscal 1999. SFAS 131 requires companies to define and report financial and descriptive information about its operating segments. It also establishes standards for related disclosure about products and services, geographic areas and major customers. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which will require adoption no later than the Company's fiscal quarter ending September 30, 1999. This new statement requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which will require adoption no later than the beginning of the Company's fiscal year ending June 30, 1999. This new statement provides guidance on accounting for costs of computer software developed or obtained for internal use. Adoption of these statements is not expected to have a material impact on the Company's consolidated financial statements. 16. SUBSEQUENT BUSINESS COMBINATION On May 17, 1998, the Company announced that it had entered into a definitive merger agreement with Scherer (the "Scherer Merger"). This merger transaction was completed on August 7, 1998, and will be accounted for as a pooling-of-interests for financial reporting purposes. In the Scherer Merger, the Company issued approximately 22.8 million Common Shares to Scherer stockholders and Scherer's outstanding stock options were converted into options to purchase approximately 2.4 million Common Shares. The Company has assumed approximately $212 million in long-term debt as part of the Scherer Merger. The Company expects to record a merger-related charge to reflect transaction and other costs incurred as a result of the Scherer Merger in the first quarter of fiscal 1999. The Company is currently assessing the appropriate reporting periods to be combined and the potential 39 40 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS financial implications of conforming the accounting policies of the Company and Scherer, in connection with the restatement of the historical financial statements, as a result of the Scherer Merger. 17. TERMINATED MERGER AGREEMENT On August 24, 1997, the Company and Bergen announced that they had entered into a definitive merger agreement (as subsequently amended by the parties on March 16, 1998), pursuant to which a wholly owned subsidiary of the Company would be merged with and into Bergen (the "Bergen Merger Agreement"), which was subsequently approved by both companies' shareholders on February 20, 1998. On March 9, 1998, the FTC filed a complaint in the United States District Court for the District of Columbia seeking a preliminary injunction to halt the proposed merger. On July 31, 1998, the District Court granted the FTC's request for an injunction to halt the proposed merger. On August 7, 1998, the Company and Bergen jointly terminated the Bergen Merger Agreement. In accordance with the terms of the Bergen Merger Agreement, its termination gave rise to an obligation for the Company to reimburse Bergen for $7 million of transaction costs. Additionally, the termination of the Bergen Merger Agreement will cause the costs incurred by the Company (that would not have been deductible had the merger been consummated) to become tax deductible, resulting in a tax benefit of $12.2 million. The obligation to reimburse Bergen and the additional tax benefit are reflected in the consolidated financial statements in the fourth quarter of the fiscal year ended June 30, 1998. 40 41 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G(3) to Form 10-K, the information called for in this Item 10 relating to Directors is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the Securities and Exchange Commission (the "SEC"), pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the Company's Annual Meeting of Shareholders (the "Annual Meeting") under the caption "ELECTION OF DIRECTORS." Certain information relating to Executive Officers of the Company appears at pages 7, 8 and 9 of this Form 10-K, which is hereby incorporated by reference. ITEM 11: EXECUTIVE COMPENSATION In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 11 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company's Annual Meeting under the caption "EXECUTIVE COMPENSATION" (other than information set forth under the caption "Compensation Committee Report"). ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 12 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company's Annual Meeting under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 13 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company's Annual Meeting under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 41 42 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in Item 8 of this report:
PAGE ---- Independent Auditors' reports.................................................................... 18 Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1998, 1997 and 1996................................................................... 21 Consolidated Balance Sheets at June 30, 1998 and 1997............................................ 22 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1998, 1997 and 1996....................................................... 23 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1998, 1997 and 1996................................................................... 24 Notes to Consolidated Financial Statements....................................................... 25
(a)(2) The following Supplemental Schedule is included in this report:
PAGE ---- Schedule II - Valuation and Qualifying Accounts.................................................. 48
All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in notes thereto. (a)(3) Exhibits required by Item 601 of Regulation S-K:
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------ ------------------- 2.01 Agreement and Plan of Merger dated as of May 17, 1998, among the Registrant, GEL Acquisition Corp. and R.P. Scherer Corporation. (1) 3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended. (3) 3.02 Restated Code of Regulations of the Registrant, as amended. (5) 4.01 Specimen Certificate for the Registrant's Class A Common Shares (4) 4.02 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the Registrant's 6 1/2% Notes Due 2004 and 6% Notes Due 2006 (5) 4.03 Indenture between the Registrant and Bank One, Columbus, NA, Trustee, relating to the Registrant's 6 1/4 Notes Due 2008 (6) 4.04 Form of Warrant Certificate to Purchase Company Common Shares (7)
42 43
4.05 Indenture dated January 1, 1994 (the "Indenture") between R.P. Scherer International Corporation and Comerica Bank (the "Trustee"); First Supplemental Indenture by and among R.P. Scherer International Corporation, R.P. Scherer Corporation and Trustee dated February 28, 1995; and Second Supplemental Indenture by and among R.P. Scherer Corporation, the Registrant and Trustee dated as of August 7, 1998. Other long-term debt agreements of the Registrant are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K and the Registrant agrees to furnish copies of such agreements to the SEC upon its request. 10.01 Stock Incentive Plan of the Registrant, as amended. (8)* 10.02 Directors' Stock Option Plan of the Registrant, as amended and restated. (8)* 10.03 Equity Incentive Plan of the Registrant, as amended ((9), except for amendment to Section 9(d), which is included in this Annual Report on Form 10-K.)* 10.04 1990 Stock Option Plan of Medicine Shoppe International, Inc. (10)* 10.05 Employee Incentive Stock Option Plan of Medicine Shoppe International, Inc. (10)* 10.06 Executive Choice Plan of Medicine Shoppe International, Inc. (10)* 10.07 1997 Stock Option Plan of R.P. Scherer Corporation (18)* 10.08 1992 Stock Option Plan of R.P. Scherer Corporation, as amended and restated. (18)* 10.09 1990 Nonqualified Performance Stock Option Plans of R.P. Scherer Corporation (18)* 10.10 Employment Agreement dated October 11, 1993, among Whitmire, Melburn G. Whitmire and the Registrant, as amended. (18)* 10.11 Employment Agreement dated August 26, 1995, among Medicine Shoppe, David A. Abrahamson and the Registrant. (11)* 10.12 Employment Agreement dated February 10, 1998 between the Registrant and Robert J. Zollars. (3)* 10.13 Employment Agreement dated May 12, 1998, between the Registrant and James F. Millar. 10.14 Amended and Restated Employment Agreement dated May 17, 1998, among Scherer, George L. Fotiades and the Registrant.* 10.15 Amendment to Employment Agreement dated as of May 17, 1998 among Scherer, Aleksander Erdeljan and the Registrant; Employment Agreement between Scherer and Aleksander Erdeljan dated June 1, 1994. * 10.16 Form of Indemnification Agreement between the Registrant and individual directors. (13) 10.17 Form of Indemnification Agreement between the Registrant and individual officers. (14) 10.18 Split Dollar Agreement dated April 16, 1993, among the Registrant, Robert D. Walter, and Bank One Ohio Trust Company, NA, Trustee U/A dated April 16, 1993 FBO Robert D. Walter. (8)*
43 44
10.19 Lease for portions of the Registrant's Columbus Investment Property dated July 7, 1958, as amended. (16) 10.20 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended and Restated Effective July 1, 1997. (20)* 10.21 Cardinal Health, Inc. Performance-Based Incentive Compensation Plan. (19)* 10.22 Shareholders Agreement dated July 13, 1984, as amended. (17) 10.23 Master Agreement and related documents, dated as of July 16, 1996 among the Registrant and/or its subsidiaries, SunTrust Banks, Inc., PNC Leasing Corp. and SunTrust Bank, Atlanta. (12) 10.24 Vendor Program Agreement dated as of October 10, 1991 by and between General Electric Capital Corporation and Pyxis Corporation, as amended on December 13, 1991, January 15, 1993, March 10, 1994, June 23, 1997, and June 1, 1998.((12) and (4), except for Rider 6, which is included in this Annual Report on Form 10-K.) 10.25 Participation Agreement and related documents, dated as of June 23, 1997, among the Registrant and certain of its subsidiaries, Bank of Montreal and BMO Leasing (U.S.), Inc. (4) 10.26 Pharmaceutical Services Agreement, dated as of August 1, 1996, between Kmart Corporation and Cardinal Health. (13) 10.27 Partnership Agreement of R.P. Scherer GMBH & Co. KG. 21.01 List of subsidiaries of the Registrant. 23.01 Consent of Deloitte & Touche LLP. 23.02 Consent of Ernst & Young LLP. 23.03 Consent of PricewaterhouseCoopers LLP. 27.01 Financial Data Table 99.01 Statement Regarding Forward-Looking Information
44 45 -------------- (1) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-56655) and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Current Report on Form 8-K (No. 0-12591) filed with the Commission on March 17, 1998, and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (No. 0-12591) and incorporated herein by reference. (4) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (No. 0-12591) and incorporated herein by reference. (5) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (No. 0-12591) and incorporated herein by reference. (6) Included as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on April 21, 1997, and incorporated herein by reference. (7) Included as an exhibit to the Registrant's Amendment No. 2 to Form S-4 Registration Statement (No. 333-30889), and incorporated herein by reference. (8) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (No. 0-12591) and incorporated herein by reference. (9) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 (No. 0-12591) and incorporated herein by reference. (10) Included as an exhibit to the Registrant's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 33-63283-01) and incorporated herein by reference. (11) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (No. 0-12591) and incorporated herein by reference. (12) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (No. 0-12591) and incorporated herein by reference. (13) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 29, 1986 (No. 0-12591) and incorporated herein by reference. (14) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1987 (No. 0-12591) and incorporated herein by reference. (15) Included as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 2-84444) and incorporated herein by reference. (16) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 (No. 0-12592) and incorporated herein by reference. (17) Included as an exhibit to the Registrant's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-56655-01) and as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 (No. 0-12591) and incorporated herein by reference. (18) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 (No. 0-12591) and incorporated herein by reference. (19) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (No. 0-12591) and incorporated herein by reference. (20) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (No. 0-12591) and incorporated herein by reference. 45 46 * Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: On May 20, 1998, the Registrant filed a Current Report on Form 8-K under Item 5, which reported that it had entered into an Agreement and Plan of Merger by and among the Registrant, GEL Acquisition Corp., and R.P. Scherer Corporation. On June 29, 1998, the Registrant filed a Current Report on Form 8-K under Item 7, under which it filed Exhibit 12, Computation of Ratio of Earnings to Fixed Charges. 46 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARDINAL HEALTH, INC. September 1, 1998 By: /s/ Robert D. Walter --------------------------- Robert D. Walter, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
NAME TITLE DATE - ------------------------------------- ------------------------------------------------- ---------------------- /s/ Robert D. Walter - ------------------------------------- Chairman, Chief Executive Officer and September 1, 1998 Robert D. Walter Director (principal executive officer) /s/ David Bearman - ------------------------------------- Executive Vice President and Chief Financial September 1, 1998 David Bearman Officer (principal financial officer) /s/ Richard J. Miller - ------------------------------------- Vice President, Controller and Principal September 1, 1998 Richard J. Miller Accounting Officer /s/ John C. Kane - ------------------------------------- President, Chief Operating Officer September 1, 1998 John C. Kane and Director /s/ Aleksander Erdeljan - ------------------------------------- Director September 1, 1998 Aleksander Erdeljan /s/ John F. Finn - ------------------------------------- Director September 1, 1998 John F. Finn /s/ Robert L. Gerbig - ------------------------------------- Director September 1, 1998 Robert L. Gerbig /s/ John F. Havens - ------------------------------------- Director September 1, 1998 John F. Havens /s/ Regina E. Herzlinger - ------------------------------------- Director September 1, 1998 Regina E. Herzlinger /s/ J. Michael Losh - ------------------------------------- Director September 1, 1998 J. Michael Losh /s/ George R. Manser - ------------------------------------- Director September 1, 1998 George R. Manser /s/ John B. McCoy - ------------------------------------- Director September 1, 1998 John B. McCoy /s/ Jerry E. Robertson - ------------------------------------- Director September 1, 1998 Jerry E. Robertson /s/ L. Jack Van Fossen - ------------------------------------- Director September 1, 1998 L. Jack Van Fossen /s/ Melburn G. Whitmire - ------------------------------------- Director September 1, 1998 Melburn G. Whitmire
47 48 CARDINAL HEALTH, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS (2) OF PERIOD - ------------------------------------------ ---------------- ---------------- ---------------- ---------------- ---------------- Fiscal Year 1998: Accounts receivable $ 34,952 $ 14,395 $ 3,587 $ (18,738) $ 34,196 Finance notes receivable 8,179 104 111 (1,965) 6,429 Net investment in sales-type leases 4,874 -- -- (302) 4,572 ---------------- ---------------- ---------------- ---------------- ---------------- $ 48,005 $ 14,499 $ 3,698 $ (21,005) $ 45,197 ================ ================ ================ ================ ================ Fiscal Year 1997: Accounts receivable $ 36,803 $ 8,073 $ 410 $ (10,334) $ 34,952 Finance notes receivable 9,081 -- -- (902) 8,179 Net investment in sales-type leases 5,026 -- -- (152) 4,874 ---------------- ---------------- ---------------- ---------------- ---------------- $ 50,910 $ 8,073 $ 410 $ (11,388) $ 48,005 ================ ================ ================ ================ ================ Fiscal Year 1996: Accounts receivable $ 34,606 $ 9,720 $ 1,452 $ (8,975) $ 36,803 Finance notes receivable 9,274 650 -- (843) 9,081 Net investment in sales-type leases 2,900 2,126 -- -- 5,026 ---------------- ---------------- ---------------- ---------------- ---------------- $ 46,780 $ 12,496 $ 1,452 $ (9,818) $ 50,910 ================ ================ ================ ================ ================
(1) During fiscal 1998, 1997 and 1996 recoveries of amounts provided for or written off in prior years were $3,444,000, $410,000 and $332,000, respectively. Increases in the reserves as a result of acquisitions accounted for as purchases were $254,000 and $1,120,000 in fiscal 1998 and 1996. (2) Write-off of uncollectible accounts. 48 EX-4.05 2 EXHIBIT 4.05 1 Exhibit 4.05 =================================================================== R.P. SCHERER INTERNATIONAL CORPORATION, ISSUER AND COMERICA BANK TRUSTEE ---------------------- INDENTURE DATED AS OF JANUARY 1, 1994 ---------------------- DEBT SECURITIES =================================================================== 2 TABLE OF CONTENTS Page ---- RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 NOW THEREFORE, THIS INDENTURE WITNESSETH: . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . 1 SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . 1 SECTION 102. Compliance Certificates and Opinions. . . . . . . . . 11 SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . 12 SECTION 104. Acts of Holders . . . . . . . . . . . . . . . . . . . 13 SECTION 105. Notices, Etc. to Trustee or Company . . . . . . . . . 15 SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . 15 SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . 16 SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . 17 SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . 17 SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . 17 SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . 17 SECTION 113. Non-Business Day . . . . . . . . . . . . . . . . . . . 17 SECTION 114. Immunity of Incorporators, Stockholders, Officers and Directors . . . . . . . . . . . . . . . . 17 SECTION 115. Certain Matters Relating to Currencies . . . . . . . . 18 SECTION 116. Language of Notices, Etc . . . . . . . . . . . . . . . 18 ARTICLE TWO SECURITY FORMS . . . . . . . . . . . . . 18 SECTION 201. Forms of Securities . . . . . . . . . . . . . . . . . 18 SECTION 202. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . 20 SECTION 203. Securities in Global Form . . . . . . . . . . . . . . 20 ARTICLE THREE THE SECURITIES . . . . . . . . . . . . . 20 SECTION 301. Title: Payment and Terms . . . . . . . . . . . . . . . 20 SECTION 302. Denominations and Currencies . . . . . . . . . . . . . 24 SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 304. Temporary Securities and Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 30 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities and Coupons . . . . . . . . . . . . . . . . 34 SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . 35 -i- 3 Page ---- SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . 37 SECTION 309. Cancellation . . . . . .. . . . . . . . . . . . . . . . 38 SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . 39 SECTION 311. Currency and Manner of Payments in Respect of Securities . .. . . . . . . . . . . . . . . 39 SECTION 312. Appointment and Resignation of Successor Currency Determination Agent . . . . . . . . . . . . . . 43 ARTICLE FOUR SATISFACTION AND DISCHARGE . . . . . . . . . 44 SECTION 401. Satisfaction and Discharge of Securities of any Series . . . . . . . . . . . . . . . . . . . . 44 SECTION 402. Application of Trust Money . . . . . . . . . . . . . . 47 SECTION 403. Satisfaction and Discharge of Indenture . . . . . . . 48 SECTION 404. Reinstatement . . . . . . . . . . . . . . . . . . . . 48 ARTICLE FIVE REMEDIES . . . . . . . . . . . . . . . 49 SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . 49 SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . 53 SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . 54 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons . . . . . . . . . 55 SECTION 506. Application of Money Collected . . . . . . . . . . . . 55 SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . 56 SECTION 508. Unconditional Right of Holders to Receive Principal (and Premium, if any) and Interest, if any . . . . . . . . . . . . . . . . . . . 57 SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . 57 SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . 57 SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . 57 SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . 58 SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . 58 -ii- 4 Page ---- SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . 58 SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . 59 SECTION 516. Judgment Currency . . . . . . . . . . . . . . . . . . 59 ARTICLE SIX THE TRUSTEE . . . . . . . . . . . . . . 60 SECTION 601. Certain Duties and Responsibilities . . . . . . . . . 60 SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . 61 SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . 62 SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . . 63 SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . 63 SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . 63 SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . 64 SECTION 608. Disqualification; Conflicting Interests . . . . . . . 64 SECTION 609. Corporate Trustee Required; Different Trustees for Different Series; Eligibility . . . . . . . . . . . . . . . . . . . . . 65 SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . 66 SECTION 611. Acceptance of Appointment by Successor . . . . . . . . 67 SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . 68 SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . 69 SECTION 614. Authenticating Agents . . . . . . . . . . . . . . . . 73 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY. . . . . . 76 SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . 76 SECTION 702. Preservation of Information; Communications to Holders . . . . . . . . . . . . . . . 76 SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . 78 SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . 80 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER . . . . . . 80 SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . 80 SECTION 802. Successor Corporation Substituted . . . . . . . . . . 81 ARTICLE NINE SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . 81 SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 902. Supplemental Indentures With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . 83 -iii- 5 Page ---- SECTION 903. Execution of Supplemental Indentures . . . . . . . . . 85 SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . 85 SECTION 905. Conformity With Trust Indenture Act . . . . . . . . . 85 SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE TEN COVENANTS . . . . . . . . . . . . . . . 85 SECTION 1001. Payment of Principal (and Premium, if any) and Interest, if any . . . . . . . . . . . . . . 85 SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . 86 SECTION 1003. Money, for Securities Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . 88 SECTION 1004. Statements as to Compliance . . . . . . . . . . . . . 89 SECTION 1005. Corporate Existence . . . . . . . . . . . . . . . . . 90 SECTION 1006. Waiver of Certain Covenants . . . . . . . . . . . . . 90 SECTION 1007. Defeasance of Certain Obligations . . . . . . . . . . 90 SECTION 1008. Payment of Additional Amounts . . . . . . . . . . . . 92 SECTION 1009. Limitation on Liens . . . . . . . . . . . . . . . . . 95 SECTION 1010. Limitation on Sale and Lease-Back . . . . . . . . . . 96 ARTICLE ELEVEN REDEMPTION OF SECURITIES . . . . . . . . . . . 97 SECTION 1101. Applicability of This Article . . . . . . . . . . . . 97 SECTION 1102. Election to Redeem; Notice to Trustee . . . . . . . . 97 SECTION 1103. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . 98 SECTION 1104. Notice of Redemption . . . . . . . . . . . . . . . . . 98 SECTION 1105. Deposit of Redemption Price . . . . . . . . . . . . . 99 SECTION 1106. Securities Payable on Redemption Date . . . . . . . . 99 SECTION 1107. Securities Redeemed in Part . . . . . . . . . . . . . 101 ARTICLE TWELVE SINKING FUNDS . . . . . . . . . . . . . . 101 SECTION 1201. Applicability of This Article . . . . . . . . . . . . 101 SECTION 1202. Satisfaction of Sinking Fund Payments With Securities . . . . . . . . . . . . . . . . . . . 101 SECTION 1203. Redemption of Securities for Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . 102 ARTICLE THIRTEEN MEETINGS OF HOLDERS OF SECURITIES . . . . . . . . 102 SECTION 1301. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 1302. Call, Notice and Place of Meetings . . . . . . . . . . 102 SECTION 1303. Persons Entitled to Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . 103 SECTION 1304. Quorum; Action . . . . . . . . . . . . . . . . . . . . 103 -iv- 6 Page ---- SECTION 1305. Determination of Voting Rights; Conduct and Adjournment of Meetings . . . . . . . . . . 104 SECTION 1306. Counting Votes and Recording Action of Meetings . . . . . . . . . . . . . . . . . . . . . . . 105 -v- 7 This is an INDENTURE dated as of January 1, 1994, between R.P. Scherer International Corporation, a corporation duly organized and existing under the laws of the State of Delaware and having its principal office at 2075 W. Big Beaver Road, P.O. Box 7060, Troy, Michigan 48007-7060 (hereinafter called the "Company"), and Comerica Bank, a state bank organized and existing under the laws of the State of Michigan and having its principal Corporate Trust Office at 411 West Lafayette, MC 3461, Detroit, Michigan 48226, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company deems it necessary to issue from time to time for its lawful purposes securities (hereinafter called the "Securities") evidencing its unsecured indebtedness and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, unlimited as to principal amount, to have such titles, to bear such rates of interest to mature at such time or times and to have such other provisions as shall be fixed as hereinafter provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company proposes to do all things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company as hereinafter provided. NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture and all Securities issued hereunder, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 8 2 (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date or time of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Three and Article Six, are defined in those Articles. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any individual authorized to authenticate and deliver Securities in the name of the Trustee for the Securities of any series pursuant to Section 614. "Authorized Newspaper" means a newspaper customarily published at least once a day for at least five days in each calendar week and of general circulation in New York City and in London and, so long as the Securities are listed on the Stock Exchange and the Stock Exchange shall so require, in Luxembourg or, if it shall be impracticable in the opinion of the Trustee for the Securities of the appropriate series to make such publication, in another capital city in Western Europe. Such publication (which may be in different newspapers) may be made in the Eastern edition of The Wall Street Journal, in the London edition of the Financial Times and in the Luxemburger Wort. "bankruptcy law" means, any United States Federal or State bankruptcy, insolvency, reorganization or other similar law. 9 3 "Bearer Security" means any Security established pursuant to Section 201 which is payable to bearer. "Board of Directors" means the board of directors of the Company or any duly authorized committee of that board or any director or directors and/or officer or officers of the Company to whom that board or committee shall have duly delegated its authority. "Board Resolution" means (1) a copy of a resolution certified by the Secretary or a Deputy or Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, or (2) a certificate signed by the director or directors and/or officer or officers to whom the board of directors of the Company shall have duly delegated its authority, and delivered to the Trustee for the Securities of any series. "Business Day", when used with respect to any particular Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law to close, and shall otherwise mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions, at the place where any specified act pursuant to this Indenture is to occur, are authorized or obligated by law to close. "CEDEL, SA." means Centrale de Livraison de Valeurs Mobilieres, S.A. "Certificate of a Firm of Independent Public Accountants" means a certificate signed by any firm of independent public accountants of recognized standing selected by the Company. The term "independent" when used with respect to any specified firm of public accountants means such a firm which ( 1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor upon the Securities of any series or in any affiliate of the Company or of such other obligor, and (3) is not connected with the Company or such other obligor or any affiliate of the Company or of such other obligor, as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions, but such firm may be the regular auditors employed by the Company. Whenever it is herein provided that any Certificate of a Firm of Independent Public Accountants shall be furnished to the Trustee for Securities of any series, such Certificate shall state that the signer has read this definition and that the signer is independent within the meaning hereof. "Code" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. 10 4 "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by (1) the Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or a Deputy or Assistant Secretary of the Company or (2) by any two Persons designated in a Company Order previously delivered to the Trustee for Securities of any series by any two of the foregoing officers and delivered to the Trustee for Securities of any series. "Component Currency" has the meaning specified in Section 311(h). "Consolidated Net Tangible Assets" means the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom (a) all current liabilities and (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent consolidated balance sheet of the Company and its consolidated Subsidiaries and computed in accordance with generally accepted accounting principles. "Conversion Date" has the meaning specified in Section 311(d). "Conversion Event" means the unavailability of any Foreign Currency or currency unit, due to the imposition of exchange controls or other circumstances beyond the control of the Company. "Corporate Trust Office" means the office of the Trustee for Securities of any series at which at any particular time its corporate trust business shall be principally administered, which office of Comerica Bank, at the date of the execution of this Indenture, is located at 411 West Lafayette, MC 3461, Detroit, Michigan 48226. "corporation" includes corporations, associations, companies and business trusts. 11 5 "coupon" means any interest coupon appertaining to a Bearer Security. "Currency Determination Agent", with respect to Securities of any series, means a New York Clearing House bank designated pursuant to Section 301 or Section 312. "Defaulted Interest" has the meaning specified in Section 307. "Depositary" means, with respect to the Securities of any series issuable or issued in the form of a global Security, the Person designated as Depositary by the Company pursuant to Section 301 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series. "Dollar Equivalent of the Currency Unit" has the meaning specified in Section 311(g). "Dollar Equivalent of the Foreign Currency" has the meaning specified in Section 311(f). "Dollars" and the sign "$" mean the currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "Election Date" has the meaning specified in Section 311(h). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, or its successor, as operator of the Euroclear system. "Event of Default" has the meaning specified in Section 501. "Exchange Date" has the meaning specified in Section 304. "Exchange Rate Officers' Certificate" means a certificate or facsimile thereof setting forth (i) the applicable Market Exchange Rate and (ii) the Dollar, Foreign Currency or currency unit amounts of principal (and premium, if any) and interest, if any (on an aggregate basis and on the basis of a Security having the lowest denomination principal amount 12 6 determined in accordance with Section 302 in the relevant currency or currency unit), payable with respect to a Security of any series on the basis of such Market Exchange Rate, signed by the Treasurer, the Controller, any Vice President, any Assistant Treasurer or any Assistant Controller of the Company. "Floating Rate Security" means a Security which provides for the payment of interest at a variable rate determined periodically by reference to an interest rate index or any other index specified pursuant to Section 301. "Foreign Currency" means a currency issued and actively maintained as a country's or countries' recognized unit of domestic exchange by the government of any country other than the United States. "Global Exchange Agent" has the meaning specified in Section 304. "Government Obligations" means securities which are (i) direct obligations of the government which issued the currency in which the Securities of a particular series are payable or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the government which issued the currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed by such government, which, in either case, are full faith and credit obligations of such government payable in such currency and are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Holder", when used with respect to any Security, means in the case of a Registered Security the Person in whose name a Security is registered in the Security Register, and in the case of a Bearer Security the bearer thereof and, when used with respect to any coupon, means any bearer thereof. "Indenture" means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of a particular series of Securities established as contemplated by Section 301. 13 7 "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Lien" means any mortgage, lien, pledge, security interest, encumbrance or charge of any kind or any conditional sale or title retention agreement, in each case securing indebtedness for borrowed money. "Market Exchange Rate" means (i) for any conversion involving a currency unit on the one hand and Dollars or any Foreign Currency on the other, the exchange rate between the relevant currency unit and Dollars or such Foreign Currency calculated by the method specified pursuant to Section 301 for the Securities of the relevant series, (ii) for any conversion of Dollars into any Foreign Currency, the noon (New York City time) buying rate for such Foreign Currency for cable transfers quoted in New York City as certified for customs purposes by the Federal Reserve Bank of New York and (iii) for any conversion of one Foreign Currency into Dollars or another Foreign Currency, the spot rate at noon local time in the relevant market at which, in accordance with normal banking procedures, the Dollars or Foreign Currency into which conversion is being made could be purchased with the Foreign Currency from which conversion is being made from major banks located in either New York City, London or any other principal market for Dollars or such purchased Foreign Currency, in each case determined by the Currency Determination Agent. In the event of the unavailability of any of the exchange rates provided for in the foregoing clauses (i), (ii) and (iii) the Currency Determination Agent shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more major banks in New York City, London or other principal market for such currency or currency unit in question, or such other quotations as the Currency Determination Agent shall deem appropriate. Unless otherwise specified by the Currency Determination Agent, if there is more than one market for dealing in any currency or currency unit by reason of foreign exchange regulations or otherwise, the market to be used in respect of such currency or currency unit shall be that upon which a nonresident issuer of securities designated in such currency or currency unit would purchase such currency or currency unit in order to make payments in respect of such securities. For purposes of this definition, a "nonresident issuer" shall mean an issuer that is not a resident of the country or countries that issue such currency or whose currencies are included in such currency unit. "Maturity", when used with respect to any Security, means the date on which the principal of that Security becomes 14 8 due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, request for redemption or otherwise. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President (any reference to a Vice President of the Company herein shall be deemed to include any Vice President of the Company whether or not designated by a number or a word or words added before or after the title "Vice President"), and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant or Deputy Secretary of the Company and delivered to the Trustee for the Securities of any series. "Opinion of Counsel" means, for purposes of Sections 401 (a) and 1007, a written opinion of independent legal counsel of recognized standing and, for all other purposes hereof, means a written opinion of counsel, who may be an employee of or counsel to the Company or may be other counsel satisfactory to the Trustee for the Securities of any series. "Original Issue Discount Security" means any Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore cancelled by the Trustee for such Securities or delivered to such Trustee for cancellation; (2) Securities or portions thereof for whose payment or redemption money in the necessary amount and in the required currency or currency unit has been theretofore deposited with the Trustee for such Securities or in a trust fund meeting the requirements of Section 1007 hereof or any Paying Agent (other than the Company or any other obligor upon the Securities) in trust or set aside and segregated in trust by the Company or any other obligor upon the Securities (if the Company or any other obligor upon the Securities shall act as its own Paying Agent) for the Holders of such Securities; provided, however, that, if such Securities or portions thereof are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture, or provision therefor satisfactory to such Trustee has been made; and (3) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to 15 9 this Indenture, other than any such Securities in respect of which there shall have been presented proof satisfactory to the Trustee for such Securities that any such Securities are held by bona fide holders in due course; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee for such Securities shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which such Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of such Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor and (b) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration pursuant to Section 502. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest, if any, on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any particular series, means the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of that series are payable, as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by that particular Security, and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains, as the case may be. 16 10 "Redemption Date", when used with respect to any Security to be redeemed in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed, means an amount, in the currency or currency unit in which such Security is denominated or which is otherwise provided for pursuant hereto, equal to the principal amount thereof (and premium, if any, thereon) together with accrued interest, if any, to the Redemption Date. "Registered Security" means any Security established pursuant to Section 201 which is registered in the Security Register. "Regular Record Date" for the interest payable on any Interest Payment Date on the Registered Securities of any series, means the date, if any, specified for that purpose as contemplated by Section 301. "Responsible Officer", when used with respect to the Trustee for any series of Securities means the chairman or vice chairman of the board of directors, the chairman or vice chairman of the executive committee of the board of directors, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of such Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Securities" means securities evidencing unsecured indebtedness of the Company authenticated and delivered under this Indenture. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. A "series" of Securities means all Securities denoted as part of the same series authorized by or pursuant to a particular Board Resolution. "Special Record Date" for the payment of any Defaulted Interest on the Registered Securities of any series means a date fixed by the Trustee for such series pursuant to Section 307. "Specified Amount" has the meaning specified in Section 311(h). 17 11 "Subsidiary" means a corporation or other entity 50% or more of the outstanding voting stock or other voting interest of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such instalment of interest as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable. "Stock Exchange", unless specified otherwise with respect to any particular series of Securities, means the Luxembourg Stock Exchange. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument and, subject to the provisions of Article Six hereof, shall also include its successors and assigns as Trustee hereunder. If there shall be at one time more than one Trustee hereunder, "Trustee" shall mean each such Trustee and shall apply to each such Trustee only with respect to those series of Securities with respect to which it is serving as Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, as in force at the date as of which this instrument was executed, except as provided in Section 905. "United States" means the United States of America (including the States and the District of Columbia), and its "possessions", which include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. "United States Alien" has the meaning specified in Section 1008. "Valuation Date" has the meaning specified in Section 311(c). "Yield to Maturity", when used with respect to any Original Issue Discount Security, means the yield to maturity, if any, set forth on the face thereof. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee for any series of Securities to take any action under any provision 18 12 of this Indenture, the Company shall furnish to such Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate (other than certificates provided pursuant to Section 1004) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based are erroneous. 19 13 Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given by Holders of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Thirteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee for the appropriate series of Securities and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee for the appropriate series of Securities, the Company and any agent of such Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1306. The Company may set a record date for purposes of determining the identity of Holders of Registered Securities entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall be the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation. If a record date is fixed, those persons who were Holders of Registered 20 14 Securities at such record date (or their duly designated proxies), and only those persons, shall be entitled with respect to such Securities to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or association or a member of a partnership, or an official of a public or governmental body, on behalf of such corporation, association, partnership or public or governmental body or by a fiduciary, such certificate or affidavit shall also constitute sufficient proof of this authority. (c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee for the appropriate series of Securities deems sufficient. (d) The principal amount and serial numbers of Registered Securities held by any Person, and the date of holding the same, shall be proved by the Security Register. (e) The principal amount and serial numbers of Bearer Securities held by any Person, and the date of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee for such Securities to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate of the Person holding such Bearer Securities, if such certificate is deemed by such Trustee to be satisfactory. The Trustee for such Securities and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate bearing a later date issued in respect of the same Bearer Security is produced, (2) such Bearer Security is produced to such Trustee by some other Person, (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The principal amount and serial numbers of Bearer Securities held by any Person, and the date of holding the same, may also be proved in any other manner which the Company and the Trustee for such Securities deem sufficient. (f) In determining whether the Holders of the requisite principal amount of Outstanding Securities have given 21 15 any request, demand, authorization, direction, notice, consent or waiver under this Indenture, the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 at the time the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee for such Securities. (g) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee for such Securities, the Security Registrar, any Paying Agent, the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices, Etc. to Trustee or Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other documents provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee for a series of Securities by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with such Trustee at its Corporate Trust Office, Attention: Corporate Trust -- Trustee Administration, or (2) the Company by such Trustee or by any Holder shall be sufficient for every purpose hereunder (except as provided in paragraph (3) of Section 501) if in writing and mailed, first class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to such Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, (1) such notice shall be sufficiently given (unless otherwise herein expressly provided) to Holders of Registered Securities if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and (2) such notice shall be sufficiently given (unless otherwise herein expressly provided) to Holders of Bearer Securities who have filed their names and addresses with the Trustee for such purpose within the previous two years if in 22 16 writing and mailed, first class postage prepaid, to each such Holder at his address as so filed not later than the latest date and not earlier than the earliest date prescribed for the giving of such notice, or to all other Holders of Bearer Securities if published in an Authorized Newspaper on a Business Day at least twice, the first such publication to be not earlier than the earliest date, and the second such publication to be not later than the latest date, prescribed herein for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice mailed in the manner prescribed by this Indenture shall be deemed to have been given whether or not received by any particular Holder. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice to Holders of Registered Securities by mail, then such notification as shall be made with the approval of the Trustee for such Securities shall constitute a sufficient notification for every purpose hereunder. In case by reason of the suspension of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be made with the approval of the Trustee for such Securities shall constitute sufficient notice to such Holders for every purpose hereunder. Neither the failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice to Holders of Registered Securities given as provided herein. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee for such Securities, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with the duties imposed by any of Sections 310 through 317, inclusive, of the Trust Indenture Act through the operation of Section 318(c) thereof, such imposed duties shall control. SECTION 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents 23 17 are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. Separability Clause. In any case any provision in this Indenture or in the Securities or coupons shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the Securities or in any coupons appertaining thereto, expressed or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Security Registrar and their successors hereunder and the Holders of Securities or coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. This Indenture shall be governed by and construed in accordance with the laws of the State of Michigan. SECTION 113. Non-Business Day. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of a Security of any particular series shall not be a Business Day at any Place of Payment with respect to Securities of that series, then (notwithstanding any other provision of this Indenture or of the Securities or coupons) payment of principal of (and premium, if any) and interest, if any, with respect to such Security need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. SECTION 114. Immunity of Incorporators, Stockholders, Officers and Directors. No recourse shall be had for the payment of the principal of (and premium, if any), or the interest, if any, on any Security or coupon of any series or for any claim based thereon, or upon any obligation, covenant or agreement of this Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise; it being expressly agreed and understood that this Indenture and all the Securities and coupons of each series are solely corporate obligations, and that no personal liability whatever shall attach to or is incurred by, 24 18 any incorporator, stockholder, officer or director, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, because of the incurring of the indebtedness hereby authorized or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or coupons of any series or to be implied herefrom or therefrom; and that all such personal liability is hereby expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture and the issuance of the Securities and coupons of each series. SECTION 115. Certain Matters Relating to Currencies. Subject to Section 311, each reference to any currency or currency unit in any Security, or in the Board Resolution or supplemental indenture relating thereto, shall mean only the referenced currency or currency unit and no other currency or currency unit. The Trustee shall segregate moneys, funds and accounts held by the Trustee in one currency or currency unit from any moneys, funds or accounts hold in any other currencies or currency units, notwithstanding any provision herein which would otherwise permit the Trustee to commingle such amounts. Whenever any action or Act is to be taken hereunder by the Holders of Securities denominated in different currencies or currency units, then for purposes of determining the principal amount of Securities held by such Holders, the aggregate principal amount of the Securities denominated in a foreign currency or currency unit shall be deemed to be that amount of Dollars that could be obtained for such principal amount on the basis of a spot rate of exchange specified to the Trustee for such series in an Officers' Certificate for such foreign Currency or currency unit into Dollars as of the date the taking of such action or Act by the Holders of the requisite percentage in principal amount of the Securities is evidenced to such Trustee. SECTION 116. Language of Notices, Etc. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, and any published notice may also be in an official language of the country or province of publication. ARTICLE TWO SECURITY FORMS SECTION 201. Forms of Securities. The Registered Securities, if any, of each series and the Bearer Securities, if any, of each series and related coupons shall be in such form or forms (including global form) as shall be established by or pursuant to a Board Resolution, in each case with such 25 19 appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law, with any rule or regulation made pursuant thereto, with any rules of any securities exchange or to conform to usage, as may, consistently herewith, be determined by the officers executing such Securities or coupons, as evidenced by their execution of such Securities or coupons. If temporary Securities of any series are issued in global form as permitted by Section 304, the form thereof shall be established as provided in the preceding sentence. Unless otherwise specified as contemplated by Section 301, Bearer Securities shall have interest coupons attached. Prior to the delivery of a Security of any series in any such form to the Trustee for the Securities of such series for authentication, the Company shall deliver to such Trustee the following: (1) a copy of the Board Resolution the Company, by or pursuant to which such form of Security to be endorsed thereon have been approved; (2) an Officers' Certificate of the Company dated the date such Certificate is delivered to such Trustee stating that all conditions precedent provided for in this Indenture relating to the authentication and delivery of Securities in such form have been complied with; and (3) an Opinion of Counsel stating that each of the Securities, together with any coupons appertaining thereto, in such form, when (a) completed by appropriate insertions and executed and delivered by the Company to such Trustee for authentication in accordance with this Indenture, (b) authenticated and delivered by such Trustee in accordance with this Indenture within the authorization as to aggregate principal amount established from time to time by the Board of Directors of the Company, and (c) sold in the manner specified in such Opinion of Counsel, will be the legal, valid and binding obligations of the Company, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws relating to or affecting creditors' rights generally, to general equitable principles, to an implied covenant of good faith and fair dealing, to such other qualifications as such counsel shall conclude do not materially affect the rights of Holders of such Securities. The definitive Securities and coupons, if any, shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved 26 20 borders or may be produced in any other manner, all as determined by the officers executing such Securities or coupons, as evidenced by their execution thereof. SECTION 202. Form of Trustee's Certificate of Authentication. The Certificate of Authentication on all Securities shall be in substantially the following form: "this is one of the Securities of the series designated in, and issued under, the Indenture described herein. Comerica Bank, as Trustee By -------------------------- Authorized Signatory" SECTION 203. Securities in Global Form. If any Security of a series is issuable in global form, such Security may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee and in such manner as shall be specified in such Security. Any instructions by the Company with respect to a Security in global form, after its initial issuance, shall be in writing but need not comply with Section 102. Global Securities may be issued in either registered or bearer form and in either temporary or permanent form. Permanent global Securities will be issued in definitive form. ARTICLE THREE THE SECURITIES SECTION 301. Title: Payment and Terms. The aggregate principal amount of Securities which may be authenticated and delivered and Outstanding under this Indenture is unlimited. The Securities may be issued up to the aggregate principal amount of Securities from time to time authorized by or pursuant to a Board Resolution of the Company. The Securities may be issued in one or more series, each of which shall be issued pursuant to Board Resolutions of the Company. With respect to any particular series of Securities to be endorsed thereon, the Board Resolutions of the Company relating thereto shall specify: 27 21 (1) the title of the Securities of that series (which shall distinguish the Securities of that series from all other series of Securities); (2) any limit upon the aggregate principal amount of the Securities of that series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of that series pursuant to Section 304, 305, 306, 906 or 1107); (3) whether Securities of that series are to be issuable as Registered Securities, Bearer Securities or both; (4) the date or dates (or manner of determining the same) on which the principal of the Securities of that series is payable (which, if so provided in such Board Resolution, may be determined by the Company from time to time and set forth in the Securities of the series issued from time to time); (5) the rate or rates (or the manner of calculation thereof) at which the Securities of that series shall bear interest (if any), the date or dates from which such interest shall accrue (which, in either case or both, if so provided in such Board Resolution, may be determined by the Company from time to time and set forth in the Securities of the series issued from time to time), the Interest Payment Dates on which such interest shall be payable (or manner of determining the same) and the Regular Record Date for the interest payable on any Registered Securities on any Interest Payment Date and the extent to which, or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 307; (6) the place or places where, subject to the provisions of Section 1002, the principal of (and premium, if any) and interest, if any, on Securities of that series shall be payable, any Registered Securities of that series may be surrendered for registration of transfer, any Securities of that series may be surrendered for exchange, and notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served; (7) the period or periods within which, the price or prices at which, the currency or currency unit in which, and the terms and conditions upon which, Securities of that series may be redeemed, in whole or in part, at the option of the Company; 28 22 (8) the obligation, if any, of the Company to redeem or purchase Securities of that series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the currency or currency unit in which, and the terms and conditions upon which, Securities of that series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if the currency in which the Securities of that series shall be issuable is Dollars, the denominations in which any Registered Securities of that series shall be issuable, if other than denominations of $ 1,000 and any integral multiple thereof, and the denominations in which any Bearer Securities of that series shall be issuable, if other than the denomination of $ 5,000; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of that series which shall be payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502; (11) any Events of Default in addition to the Events of Default described in Section 501 and any covenants of the Company with respect to the Securities of that series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (12) if a Person other than Comerica Bank is to act as Trustee for the Securities of that series, the name and location of the Corporate Trust Office of such Trustee; (13) if other than Dollars, the currency or currency unit in which payment of the principal of (and premium, if any) or interest, if any, on the Securities of that series shall be made or in which the Securities of that series shall be denominated and the particular provisions applicable thereto in accordance with, in addition to or in lieu of the provisions of Section 311; (14) if the principal of (and premium, if any) and interest, if any, on the Securities of that series are to be payable, at the election of the Company or a Holder thereof, in a currency or currency unit other than that in which such Securities are denominated or stated to be payable, in accordance with provisions in addition to or in lieu of, or in accordance with the provisions of, Section 311, the period or periods within which (including the Election Date), and the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the currency or currency unit in which such Securities are denominated or stated to be 29 23 payable and the currency or currency unit in which such Securities are to be so payable; (15) the designation of the original Currency Determination Agent, if any; (16) the index, if any, used to determine the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of that series; (17) if the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of that series may be determined, at the election of the Company or a Holder thereof, with reference to an index based on a currency or currency unit other than that in which such Securities are denominated or stated to be payable or any other index, the manner in which such amounts shall be determined; (18) if the Securities of that series do not bear interest, the applicable dates for purposes of Section 701; (19) if other than as set forth in Section 401, provisions for the satisfaction and discharge of this Indenture with respect to the Securities of that series; (20) the application, if any, of Section 1007 to the Securities of that series; (21) the date as of which any Bearer Securities of that series and any global Security representing Outstanding Securities of that series shall be dated if other than the date of original issuance of the first Security of that series to be issued; (22) the application, if any, of Section 1008; (23) whether the Securities of the series shall be issued in whole or in part in the form of a global Security or Securities and, in such case, the Depositary and Global Exchange Agent, if any, for such global Security or Securities, whether such global form shall be permanent or temporary and, if applicable, the Exchange Date; (24) if Securities of the series are to be issuable initially in the form of a temporary global Security, the circumstances under which the temporary global Security can be exchanged for definitive Securities and whether the definitive Securities will be Registered Securities and/or Bearer Securities and will be in global form and whether interest in respect of any portion of such global Security payable in respect of an Interest Payment Date prior to the Exchange Date shall be paid to any clearing organization with respect to a portion of such global Security held for 30 24 its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date if other than as provided in this Article Three; and (25) any other terms of that series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any particular series and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except as to denomination, rate of interest, Stated Maturity and the date from which interest, if any, shall accrue, and except as may otherwise be provided in or pursuant to such Board Resolution relating thereto. The terms of such Securities, as set forth above, may be determined by the Company from time to time if so provided in or established pursuant to the authority granted in a Board Resolution. All Securities of any one series need not be issued at the same time, and unless otherwise provided, a series may be reopened for issuance of additional Securities of such series. SECTION 302. Denominations and Currencies. Unless otherwise provided with respect to any series of Securities as contemplated by Section 301, any Registered Securities of a series shall be issuable in denominations of $1,000 and any integral multiple thereof, and any Bearer Securities of a series shall be issuable in the denomination of $5,000, and Registered and Bearer Securities shall be payable in Dollars. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities and any related coupons shall be executed on behalf of the Company by its Chairman of the Board, or its President or one of its Vice Presidents. The Securities shall be so executed under the corporate seal of the Company reproduced thereon and attested to by its Secretary or any one of its Assistant or Deputy Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities and coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series together with any coupons appertaining thereto, executed by the Company to the Trustee for the Securities of such series for authentication, together with a Company Order for the authentication and delivery of such 31 25 Securities, and such Trustee, in accordance with the Company Order, shall authenticate and deliver such Securities; provided, however, that in connection with its sale, during the "restricted period" (as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations), no Bearer Security shall be mailed or otherwise delivered to any location in the United States; and provided, further, that such Bearer Security (other than a temporary global Security in bearer form) may be delivered outside the United States in connection with its original issuance only if the Person entitled to receive such Bearer Security shall have furnished to Euroclear or CEDEL, S.A. a certificate substantially in the form set forth in Exhibit A to this Indenture. If any Security shall be represented by a permanent global Security, then, for purposes of this Section and Section 304, the notation of a beneficial owner's interest therein upon original issuance of such Security or upon exchange of a portion of a temporary global Security shall be deemed to be delivery in connection with the original issuance of such beneficial owner's interest in such permanent global Security. Except as permitted by Section 306 or 307, the Trustee for the Securities of a series shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured other than matured coupons in default have been detached and cancelled. If all the Securities of any one series are not to be issued at one time and if a Board Resolution relating to such Securities shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities, including, without limitation, procedures with respect to interest rate, Stated Maturity, date of issuance and date from which interest, if any, shall accrue. Notwithstanding any contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution, Officers' Certificate and Opinion of Counsel otherwise required pursuant to Sections 102 and 201 at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Registered Security shall be dated the date of its authentication, and, unless otherwise specified as contemplated by Section 301, each Bearer Security shall be dated as of the date of original issuance of the first Security of such series to be issued. No Security or coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein manually executed by the Trustee for such Security or in the name of such Trustee pursuant to Section 614, and such certificate upon any Security shall be conclusive 32 26 evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Each Depositary designated pursuant to Section 301 for a global Security in registered form must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and any other applicable statute or regulation. SECTION 304. Temporary Securities and Exchange of Securities. Pending the preparation of definitive Securities of any particular series, the Company may execute, and upon Company Order the Trustee for the Securities of such series shall authenticate and deliver, in the manner specified in Section 303, temporary Securities which are printed, lithographed, typewritten, photocopied or otherwise produced, in any denomination, with like terms and conditions as the definitive Securities of the series in lieu of which they are issued in registered form or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. Any such temporary Securities may be in global form, representing such of the Outstanding Securities of such series as shall be specified therein. Except in the case of temporary Securities in global form (which shall be exchanged only in accordance with the provisions of the following paragraphs), if temporary Securities of any particular series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of such definitive Securities, the temporary Securities of such series shall be exchangeable for such definitive Securities and of a like Stated Maturity and with like terms and provisions upon surrender of the temporary Securities of such series, together with all unmatured and matured coupons in default, if any, at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any particular series, the Company shall execute and (in accordance with a Company Order delivered at or prior to the authentication of the first definitive Security of such series) the Trustee for the Securities of such series shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series and of a like Stated Maturity and with like terms and provisions; provided, however, unless otherwise specified pursuant to Section 301, no definitive Bearer Security shall be delivered in exchange for a temporary Registered Security, and provided, further, that a definitive Bearer Security (including a permanent global Bearer Security) shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in Section 303. Until exchanged as hereinabove provided, the 33 27 temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and with like terms and conditions, except as to payment of interest, if any, authenticated and delivered hereunder. Any temporary global Security and any permanent global Security shall, unless otherwise provided therein, be delivered to a Depositary designated pursuant to Section 301. Without unnecessary delay but in any event not later than the date specified in or determined pursuant to the terms of any such temporary global Security which (subject to any applicable laws and regulations) shall be 40 days after the closing of the sale of the Securities or within a reasonable period of time thereafter (the "Exchange Date"), the Securities represented by any temporary global Security of a series of Securities issuable in bearer form may be exchanged for definitive Securities (subject to the second succeeding paragraph), including one or more permanent global Securities in definitive form, without interest coupons. On or after the Exchange Date such temporary global Security shall be surrendered by the Depositary to the Trustee for such Security, as the Company's agent for such purpose, or the agent appointed by the Company pursuant to Section 301 to effect the exchange of the temporary global Security for definitive Securities (including any director or officer of the Global Exchange Agent authorized by the Trustee as an Authenticating Agent pursuant to Section 614) (the "Global Exchange Agent"), and following such surrender, such Trustee or the Global Exchange Agent shall ( 1) endorse the temporary global Security to reflect the reduction of its principal amount by an equal aggregate principal amount of such Security, (2) endorse any applicable permanent global Security to reflect the initial amount, or an increase in the amount of Securities represented thereby, (3) manually authenticate such definitive Securities (including any permanent global Security), (4) subject to Section 303, either deliver such definitive Securities to the Holder thereof or, if such definitive Security is a permanent global Security, deliver such permanent global Security to the Depositary to be held outside the United States for the accounts of Euroclear and CEDEL, S.A., for credit to the respective accounts at Euroclear and CEDEL, S.A., designated by or on behalf of the beneficial owners of such Securities (or to such other accounts as they may direct) and (5) redeliver such temporary global Security to the Depositary, unless such temporary global Security shall have been cancelled in accordance with Section 309 hereof; provided, however, that unless otherwise specified in such temporary global Security, upon such presentation by the Depositary, such temporary global Security shall be accompanied by a certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the portion of such temporary global Security held for its account then to be exchanged for definitive Securities (including any permanent global Security) and a certificate dated the Exchange Date or a 34 28 subsequent date and signed by CEDEL, S.A., as to the portion of such temporary global Security held for its account then to be exchanged for definitive Securities (including any permanent global Security), each substantially in the form set forth in Exhibit B to this Indenture. Each certificate substantially in the form of Exhibit B hereto of Euroclear or CEDEL, S.A., as the case may be, shall be based on certificates of the account holders listed in the records of Euroclear or CEDEL, S.A., as the case may be, as being entitled to all or any portion of the applicable temporary global Security. An account holder of Euroclear or CEDEL, S.A., as the case may be, desiring to effect the exchange of an interest in a temporary global Security for an interest in definitive Securities (including any permanent global Security) shall instruct Euroclear or CEDEL, S.A., as the case may be, to request such exchange on its behalf and shall deliver to Euroclear or CEDEL, S.A., as the case may be, a certificate substantially in the form of Exhibit A hereto and dated no earlier than 15 days prior to the Exchange Date. Until so exchanged, temporary global Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities (including any permanent global Security) of the same series authenticated and delivered hereunder, except as provided in the fourth succeeding paragraph. The delivery to the Trustee for the Securities of the appropriate series or the Global Exchange Agent by Euroclear or CEDEL, S.A. of any certificate substantially in the form of Exhibit B hereto may be relied upon by the Company and such Trustee or the Global Exchange Agent as conclusive evidence that a corresponding certificate or certificates has or have been delivered to Euroclear or to CEDEL, S.A., as the case may be, pursuant to the terms of this Indenture. On or prior to the Exchange Date, the Company shall deliver to the Trustee for the Securities of the appropriate series or the Global Exchange Agent definitive Securities in aggregate principal amount equal to the principal amount of such temporary global Security, executed by the Company. At any time on or after the Exchange Date, upon 30 days' notice to the Trustee for the Securities of the appropriate series or the Global Exchange Agent by Euroclear or CEDEL, S.A., as the case may be, acting at the request of or on behalf of the beneficial owner, a Security represented by a temporary global Security or a permanent global Security, as the case may be, may be exchanged, in whole or from time to time in part, for definitive Securities without charge and such Trustee or the Global Exchange Agent shall authenticate and deliver, in exchange for each portion of such temporary global Security or such permanent global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and with like terms and provisions as the portion of such temporary global Security or such permanent global Security to be exchanged, which, unless the Securities of the series are not issuable both as Bearer Securities and as Registered Securities, as contemplated by 35 29 Section 301, shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof; provided, however, that definitive Bearer Securities shall be delivered in exchange for a portion of the temporary global Security only in compliance with the requirements of the second preceding paragraph. On or prior to the thirtieth day following receipt by the Trustee for the Securities of the appropriate series or the Global Exchange Agent of such notice with respect to a Security, or, if such day is not a Business Day, the next succeeding Business Day, the temporary global Security or the permanent global Security, as the case may be, shall be surrendered by the Depositary to such Trustee, as the Company's agent for such purpose, or the Global Exchange Agent to be exchanged in whole, or from time to time in part, for definitive Securities or other definitive Securities, as the case may be, without charge following such surrender, upon the request of Euroclear or CEDEL, S.A., as the case may be, and such Trustee or the Global Exchange Agent shall ( 1) endorse the applicable temporary global Security or the permanent global Security to reflect the reduction of its principal amount by the aggregate principal amount of such Security, (2) in accordance with procedures acceptable to the Trustee cause the terms of such Security and coupons, if any, to be entered on a definitive Security, (3) manually authenticate such definitive Security and (4) if a Bearer Security is to be delivered, deliver such definitive Security outside the United States to Euroclear or CEDEL, S.A., as the case may be, for or on behalf of the beneficial owner thereof, in exchange for a portion of such permanent global Security. Unless otherwise specified in such temporary global Security or permanent global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary global Security or permanent global Security, except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like in the event that such Person does not take delivery of such definitive Securities in person at the offices of Euroclear or CEDEL, S.A. Definitive Securities in bearer form to be delivered in exchange for any portion of a temporary global Security shall be delivered only outside the United States. Until exchanged in full as hereinabove provided, any temporary global Security or definitive permanent global Security shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and with like terms and conditions, except as to payment of interest, if any, authenticated and delivered hereunder. Unless otherwise specified as contemplated by Section 301, interest payable on a temporary global Bearer Security on an Interest Payment Date for Securities of such series shall be payable to Euroclear and CEDEL, S.A. on such Interest Payment Date upon delivery by Euroclear and CEDEL, S.A. to the Trustee for the Securities of the appropriate series or the Global Exchange Agent in the case 36 30 of payment of interest on a temporary global Security with respect to an Interest Payment Date occurring prior to the applicable Exchange Date of a certificate or certificates substantially in the form set forth in Exhibit C to this Indenture, for credit without further interest on or after such Interest Payment Date to the respective accounts of the Persons who are the beneficial owners of such global Security on such Interest Payment Date and who have, in the case of payment of interest on a temporary global Security with respect to an Interest Payment Date occurring prior to the applicable Exchange Date, each delivered to Euroclear or CEDEL, S.A., as the case may be, a certificate substantially in the form set forth in Exhibit D to this Indenture. Any definitive Bearer Security authenticated and delivered by the Trustee for the Securities of the appropriate series or the Global Exchange Agent in exchange for a portion of a temporary global Security shall not bear a coupon for any interest which shall theretofore have been duly paid by such Trustee to Euroclear or CEDEL, S.A. or by the Company to such Trustee in accordance with the provisions of this Section 304. With respect to Exhibits A, B, C and D to this Indenture, the Company may, in its discretion and if required or desirable under applicable law, substitute one or more other forms of such exhibits for such exhibits, eliminate the requirement that any or all certificates be provided, or change the time that any certificate may be required, provided that such substitute form or forms or notice of elimination or change of such certification requirement have theretofore been delivered to the Trustee with a Company Request and such form or forms, elimination or change is reasonably acceptable to the Trustee. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee for the Securities of each series a security register (the security register maintained in such office being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Trustee for the Securities of each series is hereby initially appointed "Security Registrar" for the purpose of registering Registered Securities and transfers of Registered Securities of such series as herein provided. Upon surrender for registration of transfer of any Registered Security of any particular series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee for the Securities of each series shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of any authorized denominations, and of a like Stated 37 31 Maturity and of a like series and aggregate principal amount and with like terms and conditions. Except as set forth below, at the option of the Holder, Registered Securities of any particular series may be exchanged for other Registered Securities of any authorized denominations, and of a like Stated Maturity and of a like series and aggregate principal amount and with like terms and conditions, upon surrender of the Registered Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee for such Securities shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Except as otherwise specified pursuant to Section 301, Registered Securities may not be exchanged for Bearer Securities. Notwithstanding any other provision of this Section or Section 304, unless and until it is exchanged in whole or in part for Registered Securities in definitive form, a global Security representing all or a portion of the Registered Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. At the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and with like terms and provisions upon surrender of the Bearer Securities to be exchanged at any office or agency of the Company in a Place of Payment for that series, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company (or to the Trustee for the Security in case of matured coupons in default) in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and such Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment, provided, however, that except as otherwise provided in Section 1002, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency of the Company in a Place of Payment for that series located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any 38 32 such office or agency in exchange for a Registered Security of the same series and with like terms and conditions after the close of business at such office or agency on or after (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date for payment, as the case may be (or, if such coupon is so surrendered with such Bearer Security, such coupon shall be returned to the person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due upon presentment of such coupon in accordance with the provisions of this Indenture. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee for such Securities shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. If at any time the Depositary for Securities of a series in registered form notifies the Company that it is unwilling or unable to continue as Depositary for the Securities of such series or if at any time the Depositary for the Securities for such series shall no longer be eligible under Section 303, the Company shall appoint a successor Depositary with respect to the Securities for such series. If a successor Depositary for the Securities of such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company's election pursuant to Section 301 shall no longer be effective with respect to the Securities for such series and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver Securities of such series in definitive form, in an aggregate principal amount equal to the principal amount of the global Security or Securities representing such series in exchange for such global Security or Securities. The Company may at any time and in its sole discretion determine that the Registered Securities of any series issued in the form of one or more global Securities shall no longer be represented by such global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Registered Securities of such series, will authenticate and deliver Registered Securities of such series in definitive form, and in an aggregate principal amount equal to the principal 39 33 amount of the global Security or Securities representing such series in exchange for such global Security or Securities. If specified by the Company pursuant to Section 301 with respect to a series of Securities in registered form, the Depositary for such series of Securities may surrender a global Security for such series of Securities in exchange in whole or in part for Securities of such series of like tenor and terms and in definitive form on such terms as are acceptable to the Company and such Depositary. Thereupon the Company shall execute, and the Trustee shall authenticate and deliver, without service charge, (i) to each Person specified by such Depositary a new Security or Securities of the same series, of like tenor and terms, and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest in the global Security, and (ii) to such Depositary a new global Security of like tenor and terms and in a denomination equal to the difference, if any, between the principal amount of the surrendered global Security and the aggregate principal amount of Securities delivered to Holders thereof. Upon the exchange of a global Security for Securities in definitive form, such global Security shall be cancelled by the Trustee. Registered Securities issued in exchange for a global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee in writing. The Trustee shall deliver such Registered Security to the persons in whose names such Securities are so requested. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Trustee for such Security) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar for such series duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. 40 34 The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1104 and ending at the close of business on (A) if Securities of the series are issuable only as Registered Securities, the day of the mailing of the relevant notice of redemption and (B) if Securities of the series are issuable as Bearer Securities, the day of the first publication of the relevant notice of redemption or, if Securities of the series are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption as a whole or in part, except the unredeemed portion of any Security being redeemed in part, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series and like tenor; provided, however, that such Registered Security shall be simultaneously surrendered for redemption. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities and Coupons. If (i) any mutilated Security or a Security with a mutilated coupon appertaining thereto is surrendered to the Trustee for such Security or the Company and the Trustee for a Security receive evidence to their satisfaction of the destruction, loss or theft of any Security or coupon and (ii) there is delivered to the Company and such Trustee such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or such Trustee that such Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its request such Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security or in exchange for such mutilated Security, or in exchange for the Security to which a mutilated, destroyed, lost or stolen coupon appertains (with all appurtenant coupons not mutilated, destroyed, lost or stolen) a new Security of the same series and in a like principal amount and of a like Stated Maturity and with like terms and conditions and bearing a number not contemporaneously outstanding with coupons corresponding to the coupons, if any, appertaining to such mutilated, destroyed, lost or stolen Security or to the Security to which such mutilated, destroyed, lost or stolen coupon appertains. In case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in their discretion may, instead of issuing a new Security, pay such Security or coupon (without surrender thereof except in the case of a mutilated Security or coupon) if the applicant for such payment shall furnish to the Company and the Trustee for such Security such security or indemnity as may be required by them to save each of them harmless, and in case of destruction, loss or theft, evidence satisfactory to the Company 41 35 and such Trustee and any agent of either of them of the destruction, loss or theft of such Security and the ownership thereof; provided, however, that the principal of (and premium, if any) and interest if any, on Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including all fees and expenses of the Trustee for such Security) connected therewith. Every new Security of any series, with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security or in exchange for any mutilated Security, or in exchange for a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series and their coupons, if any. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall, if so provided in such Security, be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest payment provided, however, that interest if any, that is payable at maturity will be payable to the person to whom principal shall be payable. Unless otherwise provided with respect to the Securities of any series, payment of interest may be made at the option of the Company (i) in the case of Registered Securities, by check mailed or delivered to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer to an account maintained by the payee with a bank located inside the United States according to the written instructions of the payee signed by two authorized officers of the payee, if any, or (ii) in the case of Bearer 42 36 Securities, except as otherwise provided in Section 1002, upon presentation and surrender of the appropriate coupon appertaining thereto at an office or agency of the Company in a Place of Payment located outside the United States or by transfer to an account maintained by the payee with a bank located outside the United States. Unless otherwise provided or contemplated by Section 301, every permanent global Security will provide that interest, if any, payable on any Interest Payment Date will be paid to each of Euroclear and CEDEL, S.A. with respect to that portion of such permanent global Security held for its account by the Depositary. Each of Euroclear and CEDEL, S.A. will in such circumstances credit the interest received by it in respect of such permanent global Security to the accounts of the beneficial owners thereof. Any interest on any Registered Security of any particular series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of that series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest which shall be fixed in the following manner. The Company shall notify the Trustee for the Registered Securities of such series in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of that series and the date of the proposed payment, and at the same time the Company shall deposit with such Trustee an amount of money in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e)), equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to such Trustee for such deposit prior to the date of the proposed payment such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon such Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall not be more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by such Trustee of the notice of the proposed payment. Such Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the 43 37 Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of that series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. Such Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper published in the English language, customarily on each Business Day and of general circulation in New York, New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted interest shall be paid to the Persons in whose names the Registered Securities of that series (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause(2). (2) The Company may make payment of any Defaulted Interest on Registered Securities of any particular series in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Registered Securities may be listed, and upon such notice as may be required by such exchange, if, after notice is given by the Company to the Trustee for the Securities of such series of the proposed manner of payment pursuant to this clause, such manner of payment shall be deemed practicable by such Trustee. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee for such Security and any agent of the Company or such Trustee may treat the Person in whose name any such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest, if any, on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, such Trustee nor any agent of the Company or such Trustee shall be affected by notice to the contrary. Title to any Bearer Security and any coupons appertaining thereto shall pass by delivery. The Company, the Trustee for such Security and any agent of the Company or such Trustee may treat the bearer of any Bearer Security and the bearer of any coupon as the absolute owner of such Bearer 44 38 Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon be overdue, and neither the Company, such Trustee nor any agent of the Company or such Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 309. Cancellation. All Securities and coupons surrendered for payment, redemption, registration of transfer or exchange, or delivered in satisfaction of any sinking fund payment, shall, if surrendered to any Person other than the Trustee for such Securities, be delivered to such Trustee and, in the case of Registered Securities and matured coupons, shall be promptly cancelled by it. All Bearer Securities and unmatured coupons so delivered to the Trustee for such Securities shall be cancelled by such Trustee. The Company may at any time deliver to the Trustee for Securities of a series for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by such Trustee. Notwithstanding any other provision of this Indenture to the contrary, in the case of a series, all the Securities of which are not to be originally issued at one time, a Security of such series shall not be deemed to have been Outstanding at any time hereunder if and to the extent that subsequent to the authentication and delivery thereof, such Security is delivered to the Trustee for such Security for cancellation by the Company or any agent thereof upon the failure of the original purchaser thereof to make payment therefor against delivery thereof, and any Security so delivered to such Trustee shall be promptly cancelled by it. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities and coupons held by the Trustee for such Securities shall be disposed of by such Trustee in accordance with its standard procedures and a certificate of disposition evidencing such disposition of Securities and coupons shall be provided to the Company by such Trustee. In the case of any temporary global Security, which shall be disposed of if the entire aggregate principal amount of the Securities represented thereby has been exchanged, the certificate of disposition shall state that all certificates required pursuant to Section 304 hereof, substantially in the form of Exhibit B hereto (or in the form of any substitute exhibit as provided in the last paragraph of Section 304), to be given by Euroclear or CEDEL, S.A., have been duly presented to the Trustee for such Securities by Euroclear or CEDEL, S.A., as the case may be. Permanent global 45 39 Securities shall not be disposed of until exchanged in full for definitive Securities or until payment thereon is made in full. SECTION 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any particular series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months and, in the case of an incomplete month, the number of days elapsed, the amount of interest payable on the Securities of any series for any period to be equal to the product of (i) the principal amount of the Securities of such series Outstanding during such period, (ii) the stated rate of interest per annum (expressed as a decimal fraction) payable on the Securities of such series and (iii) a fraction, the numerator of which is the total number of full months elapsed in such period multiplied by 30, plus the number of days in any incomplete month during which such Securities were Outstanding, and the denominator of which is 360. SECTION 311. Currency and Manner of Payments in Respect of Securities. (a) With respect to Registered Securities of any series not permitting the election provided for in paragraph (b) below or the Holders of which have not made the election provided for in paragraph (b) below, and with respect to Bearer Securities of any series, except as provided in paragraph (d) below, payment of the principal of (and premium, if any) and interest if any, on any Registered or Bearer Security of such series will be made in the currency or currency unit in which such Registered Security or Bearer Security, as the case may be, is payable. (b) It may be provided pursuant to Section 301 with respect to Registered Securities of any series that Holders shall have the option, subject to paragraphs (d) and (e) below, to receive payments of principal of (and premium, if any) or interest if any, on such Registered Securities in any of the currencies or currency units which may be designated for such election by delivering to the Trustee for such series of Registered Securities a written election with signature guarantees and in form and substance satisfactory to such Trustee, not later than the close of business on the Election Date immediately preceding the applicable payment date. If a Holder so elects to receive such payments in any such currency or currency unit, such election will remain in effect for such Holder until changed by such Holder by written notice to the Trustee for such series of Registered Securities (but any such change must be made not later than the close of business on the Election Date immediately preceding the next payment date to be effective for the payment to be made on such payment date and no such change of election may be made with respect to payments to be made on any Registered Security of such series with respect to which an Event of Default has occurred or notice of redemption has been given by the Company pursuant to Article Eleven). In the event any Holder makes any such election pursuant to the 46 40 preceding sentence, such election will not be effective on any transferee of such Holder and such transferee shall be paid in the currency or currency unit indicated pursuant to paragraph (a) above unless such transferee makes an election pursuant to the preceding sentence; provided, however, that such election, if in effect while funds are on deposit with respect to the Securities of such series as described in Section 401(a)(1)(B) or Section 1007, will be effective on any transferee of such Holder unless otherwise specified pursuant to Section 301 for the Securities of such series. Any Holder of any such Registered Security who shall not have delivered any such election to the Trustee of such series of Registered Securities not later than the close of business on the applicable Election Date will be paid the amount due on the applicable payment date in the relevant currency or currency unit as provided in paragraph (a) of this Section 311. In no case may a Holder of Securities of any series elect to receive payments in any currency or currency unit as described in this Section 311(b) following a deposit of funds with respect to the Securities of such series as described in Section 401(a)(1)(B) or Section 1007. The Trustee for each such series of Registered Securities shall notify the Currency Determination Agent as soon as practicable after the Election Date of the aggregate principal amount of Registered Securities for which Holders have made such written election. (c) If the election referred to in paragraph (b) above has been provided for pursuant to Section 301, then not later than the fourth Business Day after the Regular Record Date for each payment date for Registered Securities of any series, the Currency Determination Agent will deliver to the Company a written notice specifying, in the currency or currency unit in which Registered Securities of such series are payable, the respective aggregate amounts of principal of (and premium, if any) and interest, if any, on the Registered Securities to be made on such payment date, specifying the amounts in such currency or currency unit so payable in respect of the Registered Securities of such series as to which the Holders thereof shall have elected to be paid in a currency or currency unit other than that in which such series is denominated as provided in paragraph (b) above. If the election referred to in paragraph (b) above has been provided for pursuant to Section 301 and if at least one Holder has made such election, then, on the second Business Day preceding such payment date the Company will deliver to the Trustee for such series of Registered Securities an Exchange Rate Officers' Certificate in respect of the Dollar, Foreign Currency, ECU or currency unit payments to be made on such payment date. The Dollar, Foreign Currency, ECU or currency unit amount receivable by Holders of Registered Securities who have elected payment in a currency or currency unit as provided in paragraph (b) above shall, unless otherwise provided pursuant to Section 301, be determined by the Company on the basis of the applicable Market Exchange Rate in effect on the third Business Day (the "Valuation Date") immediately preceding each payment date. 47 41 (d) If a Conversion Event occurs with respect to a Foreign Currency, the ECU or any other currency unit in which any of the Securities are denominated or payable other than pursuant to an election provided for pursuant to paragraph (b) above, then with respect to each date for the payment of principal of (and premium, if any) and interest, if any, on the applicable Securities denominated or payable in such Foreign Currency, the ECU or such other currency unit occurring after the last date on which such Foreign Currency, the ECU or such other currency unit was available (the "Conversion Date"), the Dollar shall be the currency of payment for use on each such payment date. The Dollar amount to be paid by the Company to the Trustee of each such series of Securities and by such Trustee or any Paying Agent to the Holders of such Securities with respect to such payment date shall be the Dollar Equivalent of the Foreign Currency or, in the case of a currency unit the Dollar Equivalent of the Currency Unit, in each case as determined by the Currency Determination Agent in the manner provided in paragraph (f) or (g) below. (e) If the Holder of a Registered Security denominated in any currency or currency unit shall have elected to be paid in another currency or currency unit as provided in paragraph (b) above, and a Conversion Event occurs with respect to such elected currency or currency unit, such Holder shall receive payment in the currency or currency unit in which payment would have been made in the absence of such election. If a Conversion Event occurs with respect to the currency or currency unit in which payment would have been made in the absence of such election, such Holder shall receive payment in Dollars as provided in paragraph (d) of this Section 311. (f) The "Dollar Equivalent of the Foreign Currency" shall be determined by the Currency Determination Agent and shall be obtained for each subsequent payment after the Conversion Date by converting the specified Foreign Currency into Dollars at the Market Exchange Rate on the Conversion Date. (g) The "Dollar Equivalent of the Currency Unit" shall be determined by the Currency Determination Agent and subject to the provisions of paragraph (h) below shall be the sum of each amount obtained by converting the Specified Amount of each Component Currency into Dollars at the Market Exchange Rate for such Component Currency on the Valuation Date with respect to each payment. (h) For purposes of this Section 311 the following terms shall have the following meanings: A "Component Currency" shall mean any currency which, on the Conversion Date, was a component of the relevant currency unit, including, but not limited to, the ECU. A "Specified Amount" of a Component Currency shall mean the number of units of such Component Currency or fractions 48 42 thereof which were represented in the relevant currency unit, including, but not limited to, the ECU, on the Conversion Date. If after the Conversion Date the official unit of any Component Currency is altered by way of combination or subdivision, the Specified Amount of such Component Currency shall be divided or multiplied in the same proportion. If after the Conversion Date two or more Component Currencies are consolidated into a single currency, the respective Specified Amounts of such Component Currencies shall be replaced by an amount in such single currency equal to the sum of the respective Specified Amounts of such consolidated Component Currencies expressed in such single currency, and such amount shall thereafter be a Specified Amount and such single currency shall thereafter be a Component Currency. If after the Conversion Date any Component Currency shall be divided into two or more currencies, the Specified Amount of such Component Currency shall be replaced by amounts of such two or more currencies, each of whose Dollar Equivalent at the Market Exchange Rate on the date of such replacement shall be equal to the Dollar Equivalent of the Specified Amount of such former Component Currency at the Market Exchange Rate on such date divided by the number of currencies into which such Component Currency was divided, and such amounts shall thereafter be Specified Amounts and such currencies shall thereafter be Component Currencies. If, after the Conversion Date of the relevant currency unit, including, but not limited to, the ECU, a Conversion Event (other than any event referred to above in this definition of "Specified Amount") occurs with respect to any Component Currency of such currency unit and is continuing on the applicable Valuation Date, the Specified Amount of such Component Currency shall, for purposes of calculating the Dollar Equivalent of the Currency Unit be converted into Dollars at the Market Exchange Rate in effect on the Conversion Date of such Component Currency. "Election Date" shall mean any date for any series of Registered Securities as specified pursuant to Section 301(17) by which the written election referred to in Section 311 (b) may be made, such date to be not later than the Regular Record Date for the earliest payment for which such election may be effective. All decisions and determinations of the Currency Determination Agent regarding the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the Currency Unit, the Market Exchange Rate and changes in the Specified Amounts as specified above shall be in its sole discretion and shall, in the absence of manifest error, be conclusive for all purposes and irrevocably binding upon the Company, the Trustee for the appropriate series of Securities and all Holders of such Securities denominated or payable in the relevant currency or currency units. The Currency Determination Agent shall promptly give written notice to the Company and the Trustee for the appropriate series of Securities of any such decision or determination. 49 43 In the event of a Conversion Event with respect to a Foreign Currency, the Company, after learning thereof, will immediately give written notice thereof to the Trustee of the appropriate series of Registered Securities and Currency Determination Agent (and such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the Holders) specifying the Conversion Date. In the event of a Conversion Event with respect to the ECU or any other currency unit in which Registered Securities are denominated or payable, the Company, after learning thereof, will immediately give written notice thereof to the Trustee of the appropriate series of Registered Securities and Currency Determination Agent (and such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the Holders) specifying the Conversion Date and the Specified Amount of each Component Currency on the Conversion Date. In the event of any subsequent change in any Component Currency as set forth in the definition of Specified Amount above, the Company, after learning thereof, will similarly give written notice to the Trustee of the appropriate series of Registered Securities and Currency Determination Agent. The Trustee of the appropriate series of Registered Securities shall be fully justified and protected in relying and acting upon information received by it from the Company and the Currency Determination Agent and shall not otherwise have any duty or obligation to determine such information independently. SECTION 312. Appointment and Resignation of Successor Currency Determination Agent. (a) If and so long as the Securities of any series (i) are denominated in a currency unit or a currency other than Dollars or (ii) may be payable in a currency unit or a currency other than Dollars, or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, a Currency Determination Agent. The Company will cause the Currency Determination Agent to make the necessary foreign exchange determinations at the time and in the manner specified pursuant to Section 301 for the purpose of determining the applicable rate of exchange and for the purpose of converting the issued currency or currency unit into the applicable payment currency or currency unit for the payment of principal (and premium, if any) and interest if any, pursuant to Section 311. (b) No resignation of the Currency Determination Agent and no appointment of a successor Currency Determination Agent pursuant to this Section shall become effective until the acceptance of appointment by the successor Currency Determination Agent as evidenced by a written instrument delivered to the Company and the Trustee of the appropriate series of Securities accepting such appointment executed by the successor Currency Determination Agent. 50 44 (c) If the Currency Determination Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Currency Determination Agent for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Currency Determination Agent or Currency Determination Agents with respect to the Securities of that or those series (it being understood that any such successor Currency Determination Agent may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall only be one Currency Determination Agent with respect to the Securities of any particular series). ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Securities of any Series. (a) The Company shall be deemed to have satisfied and discharged the entire indebtedness on all the Securities of any particular series and, so long as no Event of Default shall be continuing, the Trustee for the Securities of such series, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of such indebtedness, when: (1) either (A) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 305, (ii) any Securities and coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender is not required as provided in Section 1107 and (iv) Securities and coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in the last paragraph of Section 1003) have been delivered to such Trustee for cancellation; or (B) except as otherwise specified pursuant to Section 301 for the Securities of such series, with respect to all Outstanding Securities of such series described in (A) above (and, in the case of (i) or (ii) below, any coupons appertaining thereto) not theretofore so delivered 51 45 to the Trustee for the Securities of such series for cancellation: (i) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust an amount in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e), in which case the deposit to be made with respect to Securities for which an election has occurred pursuant to Section 311(b), or a Conversion Event has occurred as provided in Sections 311(d) and 311(e), shall be made in the currency or currency unit in which such Securities are payable as a result of such election or Conversion Event), sufficient to pay and discharge the entire indebtedness on all such Outstanding Securities of such series and any related coupons for principal (and premium, if any) and interest if any, to the Stated Maturity or any Redemption Date as contemplated by Section 402, as the case may be; or (ii) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, as obligations in trust such amount of Government Obligations as will, as evidenced by a Certificate of a Firm of Independent Public Accountants delivered to such Trustee, together with the predetermined and certain income to accrue thereon (without consideration of any reinvestment thereof), be sufficient to pay and discharge when due the entire indebtedness on all such Outstanding Securities of such series and any related coupons for unpaid principal (and premium, if any) and interest if any, to the Stated Maturity or any Redemption Date as contemplated by Section 402, as the case may be; or (iii) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, in trust an amount equal to the amount referred to in clause (i) or (ii) in any combination of currency or currency unit or Government Obligations; (2) the Company has paid or caused to be paid all other sums payable with respect to the Securities of such series and any related coupons; 52 46 (3) the Company has delivered to such Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on all Securities of such series and any related coupons have been complied with; (4) if the Securities of such series and any related coupons are not to become due and payable at their Stated Maturity within one year of the date of such deposit or may not be called for redemption within one year of the date of such deposit under arrangements satisfactory to such Trustee as of the date of such deposit, then the Company shall have given, not later than the date of such deposit, notice of such deposit to the Holders of such Securities; and (5) if the conditions set forth in Section 401 (a)(1)(A) have not been satisfied, and unless otherwise specified pursuant to Section 301 for the Securities of such series, the Company has delivered to the Trustee an Opinion of Counsel to the effect that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (B) since the date of this Indenture there has been a change in applicable United States federal income tax law, in either case to the effect that, and based upon which such Opinion of Counsel shall confirm that, the beneficial owners of Securities of such series will not recognize income, gain or loss for United States federal income tax purposes as a result of such deposit, satisfaction and discharge and will be subject to United States federal income tax on the same amount and in the same manner and at the same time as would have been the case if such deposit, satisfaction and discharge had not occurred. (b) Upon the satisfaction of the conditions set forth in this Section 401 with respect to all the Securities of any series, the terms and conditions of the Securities of such series including the terms and conditions with respect thereto set forth in this Indenture, shall no longer be binding upon, or applicable to, the Company and the Holders of the Securities of such series and any related coupons shall look for payment only to the funds or obligations deposited with the Trustee pursuant to Section 401 (a)(1)(B) or in a trust fund established pursuant to Section 401 (a)(1)(B) ; provided, however, that in no event shall the Company be discharged from (i) any payment obligations in respect of Securities of such series and any related coupons which are deemed not to be Outstanding under clause (3) of the definition thereof if such obligations continue to be valid obligations of the Company under applicable law, (ii) from any obligations under Sections 402(b), 607, 610 and 1008 and (iii) from any obligations under Sections 304, 305 and 306 (except that Securities of such series issued upon registration of transfer or exchange or in lieu of mutilated, destroyed, lost or stolen Securities and any related coupons shall not be obligations of the Company) and 53 47 Sections 311, 516, 701 and 1002; and provided, further, that in the event a petition seeking relief under any applicable bankruptcy law is filed and not discharged with respect to the Company within 91 days after the deposit, the entire indebtedness on all Securities of such series and any related coupons shall not be discharged, and in such event the Trustee shall return such deposited funds or obligations as it is then holding to the Company upon Company Request. Notwithstanding the satisfaction of the conditions set forth in this Section 401 with respect to all the Securities of any series not denominated in Dollars, upon the happening of any Conversion Event the Company shall be obligated to make the payments in Dollars required by Section 311 (d) to the extent that the Currency Determination Agent is unable to convert any Foreign Currency or currency unit in its possession pursuant to Section 401(a)(1)(B) into the Dollar Equivalent of the Foreign Currency or the Dollar Equivalent of the Currency Unit as the case may be. If, after the deposit referred to in Section 401 has been made, a Conversion Event occurs as contemplated in Section 311(d) or 311(e), then the indebtedness represented by such Security shall be fully discharged if the deposit made with respect to such Security shall be converted into the currency or currency unit in which such Security is payable at the Dollar Equivalent of the Foreign Currency or the Dollar Equivalent of the Currency Unit. The Trustee for such series of Securities shall return to the Company any non-converted funds or securities in its possession after such payments have been made. SECTION 402. Application of Trust Money. (a) All money and obligations deposited in a trust fund or with the Trustee for any series of Securities pursuant to Section 401 or Section 1007 shall be held irrevocably in trust and shall be made under the terms of an escrow trust agreement in form satisfactory to such Trustee. Such money and obligations shall be applied by such Trustee, in accordance with the provisions of the Securities, any coupons, this Indenture and such escrow trust agreement, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as such Trustee may determine, to the Persons entitled thereto, of the principal of (and premium, if any) and interest if any, on the Securities for the payment of which such money and obligations have been deposited with such Trustee. If Securities of any series are to be redeemed prior to their Stated Maturity, whether pursuant to any optional redemption provisions or in accordance with any mandatory sinking fund requirement, the Company shall make such arrangements as are satisfactory to the Trustee for any series of Securities for the giving of notice of redemption by such Trustee in the name, and at the expense, of the Company. (b) The Company shall pay and shall indemnify the Trustee for any series of Securities against any tax, fee or other charge imposed on or assessed against Government Obligations deposited pursuant to Section 401 or Section 1008 or 54 48 the interest and principal received in respect of such Government Obligations other than any such tax, fee or other charge which by law is payable by or on behalf of Holders. The obligation of the Company under this Section 402(b) shall be deemed to be an obligation of the Company under Section 607(2). (c) Anything in this Article Four to the contrary notwithstanding, the Trustee for any series of Securities shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations held by it as provided in Section 401 or Section 1007 which, as expressed in a Certificate of a Firm of Independent Public Accountants delivered to such Trustee, are in excess of the amount thereof which would then have been required to be deposited for the purpose for which such money or Government Obligations were deposited or received provided such delivery can be made without liquidating any Government Obligations. SECTION 403. Satisfaction and Discharge of Indenture. Upon compliance by the Company with the provisions of Section 401 as to the satisfaction and discharge of each series of Securities issued hereunder, and if the Company has paid or caused to be paid all other sums payable under this Indenture (including without limitation amounts owed to the Trustee under Section 607), this Indenture shall cease to be of any further effect (except as otherwise provided herein). Upon Company Request and receipt of an Opinion of Counsel and an Officers' Certificate complying with the provisions of Section 102, the Trustees for all series of Securities (at the expense of the Company) shall execute proper instruments acknowledging satisfaction and discharge of this Indenture. Notwithstanding the satisfaction and discharge of this Indenture, any obligations of the Company under Sections 304, 305, 306, 311, 402(b), 516, 607, 610, 701, 1002 and 1008 and the obligations of the Trustee for any series of Securities under Section 402 shall survive. SECTION 404. Reinstatement. If the Trustee for any series of Securities is unable to apply any of the amounts (for purposes of this Section 404, "Amounts") or Government Obligations, as the case may be, described in Section 401(a)(1) (B) (i) or (ii), respectively, in accordance with the provisions of Section 401 by reason of any legal proceeding or any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities of such series and the coupons, if any, appertaining thereto shall be revived and reinstated as though no deposit had occurred pursuant to Section 401 until such time as the Trustee for such series is permitted to apply all such Amounts or Governmental Obligations, as the case may be, in accordance with the provisions of Section 401; provided, however, that if, due to the reinstatement of its rights or obligations hereunder, the Company 55 49 has made any payment of principal of (or premium, if any) or interest, if any, on such Securities or coupons, the Company shall be subrogated to the rights of the Holders of such Securities or coupons to receive payment from such Amounts or Government Obligations, as the case may be, held by the Trustee for such series. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default" wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law, pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in the supplemental indenture creating such series of Securities or in the form of Security for such series: (1) default in the payment of any interest upon any Security of such series or a related coupon, if any, when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security of such series when it becomes due and payable, whether at Maturity or otherwise; or (3) default in the deposit of any sinking fund payment or analogous obligation when and as due by the terms of a Security of such series; or (4) default in the performance, or breach, of any covenant or warranty of the Company contained in this Indenture in respect of the Securities of such series (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of Securities of a series other than such series), all of such covenants and warranties in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company to the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of 56 50 such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder, or (5) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed (other than the Securities) by the Company or any Subsidiary of the Company or under any mortgage, indenture or instrument (other than this Indenture or the Securities) under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay any portion of the principal of such indebtedness in an amount exceeding $20,000,000 (or, in the case of indebtedness denominated in a currency other than U.S. dollars, an amount exceeding $20,000,000 based on the exchange rate in effect at the end of the Company's most recently completed fiscal quarter) when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in such indebtedness in an aggregate amount exceeding $20,000,000 (or, in the case of indebtedness denominated in a currency other than U.S. dollars, an amount exceeding $20,000,000 based on the exchange rate in effect at the end of the Company's most recently completed fiscal quarter) becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after the date on which payment is due or the date of such acceleration; or (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable bankruptcy law or (B) a decree or order adjudging the Company a bankrupt or insolvent or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable bankruptcy law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company of a voluntary case or proceeding under any applicable bankruptcy law, or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable 57 51 bankruptcy law, or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable bankruptcy law, or the consent by the Company to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of substantially all of the property of the Company or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (8) any other Event of Default provided with respect to Securities of that series. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default described in paragraph (1), (2), (3), (4) or (8) (if the Event of Default under paragraph (4) or (8) is with respect to less than all series of Securities then Outstanding) of Section 501 occurs and is continuing with respect to any series of Securities, then and in each and every such case, unless the principal of all the Securities of such series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding hereunder (each such series acting as a separate class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of such series to be due and payable immediately, and upon any such 58 52 declaration of acceleration the same, together with any accrued interest and all other amounts owing thereunder and hereunder, shall become and shall be immediately due and payable, anything in this Indenture or in the Securities of such series contained to the contrary notwithstanding, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If an Event of Default described in paragraph (4) or (8) (if the Event of Default under paragraph (4) or (8) is with respect to all series of Securities then Outstanding), or (5) of Section 501 occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding to be due and payable immediately, and upon any such declaration the same, together with any accrued interest and all other amounts owing thereunder and hereunder, shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If an Event of Default described in paragraph (6) or (7) of Section 501 occurs and is continuing, then and in each and every such case, unless the principal of all the Securities of such series then Outstanding shall have already become due and payable, the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities of such series, together with any accrued interest and all other amounts owing thereunder and hereunder, shall immediately become due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee for the Securities of any series as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and such Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with such Trustee a sum sufficient to pay (A) in the currency or currency unit in which that series of Securities is payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d), and 311(e)), all overdue interest on all Securities of that series and any related coupons, (B) in the currency or currency unit in which that series of Securities is payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311 (d), and 311 (e)), the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon from the date such principal became due at a rate per annum equal to the rate borne by the Securities of such series (or, in the case of Original Issue Discount Securities, the Securities' Yield to Maturity), to the extent that the payment of such interest shall be legally enforceable, (C) in the currency or currency unit in which that series of Securities is payable (except as 59 53 otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d), and 311(e)), to the extent that payment of such interest is lawful, interest upon overdue interest at a rate per annum equal to the rate borne by the Securities of such series (or, in the case of Original Issue Discount Securities, the Securities' Yield to Maturity), and (D) in Dollars all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel; and (2) all Events of Default with respect to the Securities of such series, other than the non-payment of the principal of Securities of that series which have become due solely by such acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any interest upon any Security of any series and any related coupons when such interest becomes due and payable and such default continues for a period of 30 days; or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at its Maturity; and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee for the Securities of such series, pay to the Trustee, for the benefit of the Holders of such Securities and coupons, the whole amount then due and payable on such Securities and coupons for principal (and premium, if any) and interest, if any, with interest upon the overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest at a rate per annum equal to the rate borne by such Securities (or, in the case of Original Issue Discount Securities, the Securities' Yield to Maturity); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel. 60 54 If the Company fails to pay such amounts forthwith upon such demand, such Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceedings to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities of any particular series occurs and is continuing, the Trustee for the Securities of such series may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of that series by such appropriate judicial proceedings as such Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or any other obligor upon the Securities of any series or the property of the Company or of such other obligor or their creditors, the Trustee for the Securities of such series (irrespective of whether the principal (or lesser amount in the case of an Original Issue Discount Security) of any Security of such series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether such Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise (i) to file and prove a claim for the whole amount of principal (or lesser amount in the case of an Original Issue Discount Security) (and premium, if any) and interest, if any, owing and unpaid in respect of the Securities of such series and any related coupons and to file such other papers or documents as may be necessary or advisable in order to have the claims of such Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel and all other amounts due to such Trustee under Section 607) and of the Holders of the Securities of such series and any related coupons allowed in such judicial proceeding; (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and 61 55 (iii) unless prohibited by law or applicable regulations, to vote on behalf of the Holders of the Securities of such series in any election of a trustee in bankruptcy or other persons performing similar functions; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities and coupons to make such payments to such Trustee, and in the event that such Trustee shall consent to the making of such payments directly to the Holders of Securities and coupons, to pay to such Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel, and any other amounts due such Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee for the Securities of any series to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities of such series or the rights of any Holder thereof, or to authorize the Trustee for the Securities or coupons of any series to vote in respect of the claim of any Holder in any such proceeding, except as aforesaid, for the election of a trustee in bankruptcy or other person performing similar functions. SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons. All rights of action and claims under this Indenture or the Securities or coupons of any series may be prosecuted and enforced by the Trustee for the Securities of any series without the possession of any of the Securities or coupons of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by such Trustee shall be brought in its own name as trustee of an express trust and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of such Trustee, its agents and counsel and all other amounts due to such Trustee under Section 607, be for the ratable benefit of the Holders of the Securities and coupons of such series in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee for the Securities of any series pursuant to this Article with respect to the Securities or coupons of such series shall be applied in the following order, at the date or dates fixed by such Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, if any, upon presentation of the Securities or coupons of such series, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: 62 56 First: To the payment of all amounts due such Trustee under Section 607; Second: To the payment of the amounts then due and unpaid upon the Securities and coupons of such series for principal of (and premium, if any) and interest, if any, on such Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities and coupons for principal (and premium, if any) and interest, if any, respectively; and Third: The balance, if any, to the Person or Persons entitled thereto. SECTION 507. Limitation on Suits. No Holder of any Security of any particular series or any related coupons shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) an Event of Default with respect to that series shall have occurred and be continuing and such Holder shall have previously given written notice to the Trustee for the Securities of such series of such default and the continuance thereof; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee for the Securities of such series to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to such Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) such Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to such Trustee during such 60 day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more Holders of Securities of that series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of that series, or to enforce any right under this Indenture, except in the manner herein provided and 63 57 for the equal and ratable benefit of all the Holders of Securities of that series. SECTION 508. Unconditional Right of Holders to Receive Principal (and Premium, if any) and Interest, if any. Notwithstanding any other provision in this Indenture, the Holder of any Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest, if any, on such Security on the respective Stated Maturities expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee for the Securities of any series or any Holder of a Security or coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such Trustee or to such Holder, then and in every such case the Company, such Trustee and the Holders of Securities or coupons shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of such Trustee and such Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee for the Securities of any series or to the Holders of Securities or coupons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee for the Securities of any series or of any Holder of any Security of such series to exercise any right or remedy accruing upon any Event of Default with respect to the Securities of such series shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to such Trustee for the Securities or coupons of any series or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by such Trustee or by the Holders, as the case may be. 64 58 SECTION 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any particular series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee for the Securities of such series with respect to the Securities of that series or exercising any trust or power conferred on such Trustee with respect to such Securities, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture and could not involve the Trustee in personal liability; (2) subject to the provisions of Section 601, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would be unjustly prejudicial to the Holders of Securities of such series not joining in any such direction; and (3) such Trustee may take any other action deemed proper by such Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any particular series and any related coupons may on behalf of the Holders of all the Securities of that series waive any past default hereunder with respect to that series and its consequences, except a default not theretofore cured: (1) in the payment of the principal of (or premium, if any) or interest, if any, on any Security of that series; or (2) with respect to a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of that series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security or coupon by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for the Securities or coupons of any series for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to 65 59 pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall (subject to applicable laws) not apply to any suit instituted by the Trustee for the Securities of any series, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any particular series or to any suit instituted by any Holder of any Security or coupon for the enforcement of the payment of the principal of (or premium, if any) or interest if any, on any Security of such series or the payment of any coupon on or after the respective Stated Maturities expressed in such Security or coupon (or, in the case of redemption, on or after the Redemption Date). SECTION 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee for any series of Securities, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 516. Judgment Currency. If, for the purpose of obtaining a judgment in any court with respect to any obligation of the Company hereunder or under any Security or any related coupon it shall become necessary to convert into any other currency or currency unit any amount in the currency or currency unit due hereunder or under such Security or coupon then such conversion shall be made by the Currency Determination Agent at the Market Exchange Rate as in effect on the date of entry of the judgment (the "Judgment Date"). If pursuant to any such judgment conversion shall be made on a date (the "Substitute Date") other than the Judgment Date and there shall occur a change between the Market Exchange Rate as in effect on the Judgment Date and the Market Exchange Rate as in effect on the Substitute Date, the Company agrees to pay such additional amounts (if any) as may be necessary to ensure that the amount paid is equal to the amount in such other currency or currency unit which, when converted at the Market Exchange Rate as in effect on the Judgment Date, is the amount due hereunder or under such Security or coupon. Any amount due from the Company under this Section 516 shall be due as a separate debt and is not to be affected by or merged into any judgment being obtained for any other sums due hereunder or in respect of any Security or coupon. In no event, however, shall the Company be required to pay more in the currency or currency unit due hereunder or under such 66 60 Security or coupon at the Market Exchange Rate as in effect on the Judgment Date than the amount of currency or currency unit stated to be due hereunder or under such Security or coupon so that in any event the Company's obligations hereunder or under such Security or coupon will be effectively maintained as obligations in such currency or currency unit and the Company shall be entitled to withhold (or be reimbursed for, as the case may be) any excess of the amount actually realized upon any such conversion on the Substitute Date over the amount due and payable on the Judgment Date. ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default with respect to the Securities of any series for which the Trustee is serving as such, (1) such Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against such Trustee; and (2) in the absence of bad faith on its part, such Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to such Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to such Trustee, such Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default with respect to a series of Securities has occurred and is continuing, the Trustee for the Securities of such series shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee for Securities of any series from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; 67 61 (2) such Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) such Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Outstanding Securities of any particular series, determined as provided in Section 512, relating to the time, method and place of conducting any proceeding for any remedy available to such Trustee, or exercising any trust or power conferred upon such Trustee, under this Indenture with respect to the Securities of that series; and (4) no provision of this Indenture shall require the Trustee for any series of Securities to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee for any series of Securities shall be subject to the provisions of this Section. SECTION 602. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to Securities of any particular series, the Trustee for the Securities of such series shall give to Holders of Securities of that series, in the manner set forth in Section 106, notice of such default if known to such Trustee as provided in Section 603(h), unless such default shall have been cured or waived; provided, however, that except in the case of a default in the payment of the principal of (or premium, if any) or interest if any, on any Security of that series, or in the deposit of any sinking fund payment with respect to Securities of that series, such Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of such Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Securities of that series and related coupons; and, provided, further, that in the case of any default of the character specified in Section 501(4) with respect to Securities of that series no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of 68 62 time or both would become, an Event of Default with respect to Securities of that series. SECTION 603. Certain Rights of Trustee. Except as otherwise provided in Section 601: (a) the Trustee for any series of Security may rely and shall protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, discretion, consent, order, bond, debenture, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture such Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) such Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) such Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series pursuant to this Indenture for which it is acting as Trustee, unless such Holders shall have offered to such Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) such Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument opinion, report, notice, request, direction, consent order, bond, debenture, coupon or other paper or document, but such Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters at it may see fit, and, if such Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) such Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly 69 63 or by or through agents or attorneys and such Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be charged with knowledge of any Event of Default with respect to the Securities of any series for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee assigned to the Corporate Trust Department of the Trustee (or any successor division or department of the Trustee) shall have actual knowledge of the Event of Default or (2) written notice of such Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and (i) such Trustee shall have no duties or responsibilities with respect to and shall have no liability for the actions taken or the failures to act of any other Trustees appointed hereunder. SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein (except the description of the Trustee) and in the Securities (except the Trustee's certificates of authentication thereof), and in any coupons shall be taken as the statements of the Company, and the Trustee for any series of Securities assumes no responsibility for their correctness. The Trustee for any series of Securities makes no representations as to the validity or sufficiency of this Indenture or of the Securities of any series or coupons. The Trustee for any series of Securities shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. The Trustee shall have no duty or responsibility to examine or review and shall have no liability for the contents of any document submitted to, or delivered to, any Holder of Securities, in the nature of a preliminary or final placement memorandum, official statement, offering circular, private placement memorandum, or any similar disclosure document. SECTION 605. May Hold Securities. The Trustee for any series of Securities, any Paying Agent, Security Registrar or any other agent of the Company or of such Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and coupons and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not such Trustee, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. Money held by the Trustee for any series of Securities in trust hereunder need not be segregated from other funds except as provided in Section 115 and except to the extent required by law. The Trustee for any series of Securities shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. 70 64 SECTION 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee for any series of Securities from time to time reasonable compensation for services rendered hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee for any series of Securities upon its request for all reasonable expenses, disbursements and advances incurred or made by such Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; (3) when the Trustee incurs expenses or renders services after the occurrence of a bankruptcy with respect to the Company, the expenses and the compensation for the services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law; and (4) to indemnify such Trustee and its agents, including any Authenticating Agent, for, and to hold them harmless against, any loss, liability or expense incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of this trust including the fees, costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder. As security for the performance of the obligations of the Company under this Section the Trustee for any series of Securities shall have a lien prior to the Securities upon all property and funds held or collected by such Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest if any, on particular Securities. SECTION 608. Disqualification; Conflicting Interests. The Trustee for the Securities shall be subject to the provisions of Section 310(b) of the Trust Indenture Act during the period of time required thereby. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the penultimate paragraph of Section 310(b) of the Trust Indenture Act. In determining whether the Trustee has a conflicting interest as defined in Section 310(b) of the Trust Indenture Act with respect to the Securities of any series, there 71 65 shall be excluded Securities of any particular series of Securities other than that series. The Trustee shall not be deemed to have a conflict of interest under Section 310(b) of the Trust Indenture Act with respect to any other indenture entered into with the Company; provided that the Securities issued by the Company under this Indenture are wholly unsecured. SECTION 609. Corporate Trustee Required; Different Trustees for Different Series; Eligibility. There shall at all times be a Trustee hereunder which shall be (i) a corporation organized and doing business under the laws of the United States of America, any state thereof, or the District of Columbia, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by Federal or State authority, or (ii) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation, or other order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as Trustee for the Securities. A different Trustee may be appointed by the Company for any series of Securities prior to the issuance of such Securities. If the initial Trustee for any series of Securities is to be other than Comerica Bank, the Company and such Trustee shall, prior to the issuance of such Securities, execute and deliver an indenture supplemental hereto, which shall provide for the appointment of such Trustee as Trustee for the Securities of such series and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or 72 66 trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereunder specified in this Article. SECTION 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee for the Securities of any series and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. (b) The Trustee for the Securities of any series may resign at any time with respect to the Securities of such series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee for the Securities of such series within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee for the Securities of any series may be removed at any time with respect to the Securities of such series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to such Trustee and to the Company. (d) If at any time: (1) the Trustee for the Securities of any series shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 608 hereof after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security of such series for at least six months, unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the Trust Indenture Act, or (2) such Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) such Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of such Trustee or of its property shall be appointed or any public officer shall take charge or control of such Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove such Trustee or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others 73 67 similarly situated, petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor Trustee. (e) If the Trustee for the Securities of any series shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for the Securities of any series for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of such series and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of such series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forth with upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee for the Securities of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee for the Securities of such series shall have been so appointed by the Company or the Holders and shall have accepted appointment in the manner required by Section 611, and if such Trustee is still incapable of acting, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, subject to Section 514, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner and to the extent provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of that series and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. (a) Every successor Trustee appointed hereunder with respect to the Securities of any series shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee without any further act deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. 74 68 (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in Subsections (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee for the Securities of any series shall be qualified and eligible under this Article. SECTION 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee for the Securities of any series may be merged or converted or with which it may be consolidated, or any corporation resulting 75 69 from any merger, conversion or consolidation to which such Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of such Trustee, shall be the successor of such Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee or the Authenticating Agent for such series then in office, any successor by merger, conversion or consolidation to such authenticating Trustee, or any successor Authenticating Agent, as the case may be, may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee or successor Authenticating Agent had itself authenticated such Securities. SECTION 613. Preferential Collection of Claims Against Company. (a) Subject to Subsection (b) of this Section, if the Trustee for the Securities of any series shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, such Trustee shall set apart and hold in a special account for the benefit of such Trustee individually, the Holders of the Securities of any such series and any coupons appertaining thereto and the holders of other indenture securities (as defined in Subsection (c) of this Section): (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which such Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (2) all property received by such Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of such Trustee: 76 70 (A) to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by such Trustee to a third person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to any applicable bankruptcy law; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three months' period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three months' period and such property was received as security therefor simultaneously with the creation thereof, and if such Trustee shall sustain the burden of proving that at the time such property was so received such Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within three months; or (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purpose of paragraphs (B), (C) and (D), property substituted after the beginning of such three months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of such Trustee as such creditor, such claim shall have the same status as such preexisting claim. If such Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between such Trustee, the Holders of the Securities of such series and the holders of other indenture securities in such manner that such Trustee, such Holders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to any applicable bankruptcy law, the same percentage of their respective claims figured before crediting to the claim of such Trustee anything on account of the receipt by it from the Company of the funds and 77 71 property in such special account and before crediting to the respective claims of such Trustee and the Holders of the Securities of such series and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to any applicable bankruptcy law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to any applicable bankruptcy law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between such Trustee and the Holders of the Securities of such series and other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to such Trustee and the Holders of the Securities of such series and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee which has resigned or been removed with respect to the Securities of any series after the beginning of such three months' period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has so resigned or been removed prior to the beginning of such three months' period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist: (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account if such Trustee had continued as Trustee for the Securities of such series, occurred after the beginning of such three months' period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. 78 72 (b) There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from (1) the ownership or acquisition of securities issued under any indenture or any security or securities having a maturity of one year or more at the time of acquisition by such Trustee; (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders of the Securities of the applicable series at the time and in the manner provided in this Indenture; (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, escrow agent, paying agent, fiscal agent or depositary, or other similar capacity; (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section; (5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section. (c) For the purposes of this Section only: (1) The term "default" means any failure to make payment in full of the principal of (or premium, if any) or interest, if any, on any of the Securities of the applicable series or upon the other indenture securities when and as such principal, premium or interest becomes due and payable. (2) The term "other indenture securities" means securities upon which the Company is an obliger outstanding under any other indenture or under this Indenture with respect to the Securities of any other series (i) under which such Trustee is also trustee, (ii) which contains 79 73 provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account. (3) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (4) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by such Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (5) The term "Company" means any obliger upon the Securities. SECTION 614. Authenticating Agents. From time to time the Trustee for the Securities of any series may, subject to its sole discretion, appoint one or more Authenticating Agents with respect to the Securities of such series, which may include any director or officer of the Company or any Affiliate with power to act in the name of the Trustee and subject to its discretion in the authentication and delivery of Securities of such series in connection with transfers and exchanges under Sections 304, 305, 306 and 1107 as fully to all intents and purposes as though such Authenticating Agent had been expressly authorized by those Sections of this Indenture to authenticate and deliver Securities of such series. For all purposes of this Indenture the authentication and delivery of such Securities of such series by an Authentication Agent for such Securities pursuant to this Section shall be deemed to be authentication and delivery of such Securities "by the Trustee" for the Securities of such series. Any such Authenticating Agent shall at all times be a director or officer of a corporation organized and doing business under the laws of the United States or of any State thereof, or the District of Columbia, authorized under such laws to exercise corporate trust powers, and, if other than an Affiliate of the Trustee, having a combined capital and surplus of at least $25,000,000, and subject to supervision or examination by Federal, State, or District of Columbia authority. If such corporation publishes reports of condition at least annually 80 74 pursuant to law or the requirements of such supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent for any series of Securities shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any Authenticating Agent for any series of Securities may resign at any time by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the appointment of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company in the manner set forth in Section 105. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent for any series of Securities shall cease to be eligible under this Section, the Trustee for such series may appoint a successor Authenticating Agent, shall give written notice of such appointment to the Company and shall give written notice of such appointment to all Holders of Securities of such series in the manner set forth in Section 106. Any successor Authenticating Agent, upon acceptance of his appointment hereunder, shall become vested with all the rights, powers and duties of his predecessor hereunder, with like effect as if originally named as an Authenticating Agent No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee for the Securities of each series agrees to pay to any corporation any director or officer of which has been appointed as Authenticating Agent for such series from time to time reasonable compensation for such services, and such Trustee shall be entitled to be reimbursed for such payments, subject to Section 607. 81 75 If an appointment with respect to one or more series of Securities is made pursuant to this Section, the Securities or such series may have endorsed thereon, in addition to the Trustee's certification of authentication, an alternate certificate of authentication in the following form: "This is one of the Securities of the series designated therein described in the within-mentioned Indenture. Comerica Bank, as Trustee By -------------------------- As Authenticating Agent" 82 76 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. With respect to each particular series of Securities, the Company will furnish or cause to be furnished to the Trustee for the Securities of such series, (a) semiannually, not more than 15 days after each Regular Record Date relating to that series (or, if there is no Regular Record Date relating to that series, on June 30 and December 31), a list, in such form as such Trustee may reasonably require, containing all the information in the possession or control of the Company or any of its Paying Agents other than such Trustee as to the names and addresses of the Holders of that series as of such dates, (b) on semi-annual dates in each year to be determined pursuant to Section 301 if the Securities of such series do not bear interest, a list of similar form and content, and (c) at such other times as such Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by such Trustee in its capacity as Security Registrar for the Securities of such series, if so acting. SECTION 702. Preservation of Information; Communications to Holders. (a) The Trustee for each series of Securities shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of the Securities of such series contained in the most recent lists furnished to such Trustee as provided in Section 701 and the names and addresses of Holders of the Securities of such series received by such Trustee in its capacity as Security Registrar for such series, if so acting. The Trustee for each series of Securities may destroy any list relating to such series of Securities furnished to it as provided in Section 701 upon receipt of a new list relating to such series so furnished. (b) If three or more Holders of Securities of any particular series (hereinafter referred to as "applicants") apply in writing to the Trustee for the Securities of any such series, and furnish to such Trustee reasonable proof that each such applicant has owned a Security of that series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of that series with respect to their rights under this Indenture or under the Securities of that series and is accompanied by a copy of the form of proxy or other 83 77 communication which such applicants propose to transmit, then such Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by such Trustee in accordance with Section 702(a), or (ii) inform such applicants as to the approximate number of Holders of Securities of that series whose names and addresses appear in the information preserved at the time by such Trustee in accordance with Section 702(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If any such Trustee shall elect not to afford such applicants access to that information, such Trustee shall, upon the written request of such applicants, mail to each Holder of Securities of that series whose name and address appears in the information preserved at the time by such Trustee in accordance with Section 702(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to such Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, such Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of such Trustee, such mailing would be contrary to the best interests of the Holders of Securities of that series or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, such Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise such Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of Securities of each series or coupons, by receiving and holding the same, agrees with the Company and the Trustee for the Securities of such series that neither the Company nor such Trustee, nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of the Securities of such series in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of 84 78 mailing any material pursuant to a request made under Section 702(b). SECTION 703. Reports by Trustee. (a) Within 60 days after May 31 of each year commencing with the year following the first issuance of Securities, the Trustee for the Securities of each series shall, to the extent required by the Trust Indenture Act, transmit by mail to all Holders of the Securities of such series, as provided in subsection (c) of this Section a brief report dated as of such date with respect to any of the following events which may have occurred within the prior 12 months (but if no such event has occurred within such period no report need be transmitted): (1) any change to its eligibility under Section 609 and its qualifications under Section 608, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect; (2) the creation of any material change to a relationship specified in Section 310(b)(1) through Section 310(b)(10) of the Trust Indenture Act; (3) the character and amount of any advances (and if such Trustee elects so to state, the circumstances surrounding the making thereof) made by such Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of such series, on any property or funds held or collected by it as Trustee, except that such Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities of such series Outstanding on the date of such report; (4) the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor upon the Securities of such series) to such Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 613 (b) (2), (3), (4) or (6); (5) the property and funds, if any, physically in the possession of such Trustee as such on the date of such report; (6) any additional issue of Securities of such series which such Trustee has not previously reported; and 85 79 (7) any action taken by such Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities of such series, except action in respect of a default, notice of which has been or is to be withheld by such Trustee in accordance with Section 602. (b) The Trustee for each series of Securities shall transmit by mail to all Holders of Securities of such series, as provided in subsection (c) of this Section, a brief report with respect to the character and amount of any advances (and if such Trustee elects so to state, the circumstances surrounding the making thereof) made by such Trustee (as such) since the date of the last report transmitted pursuant to subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of such series, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subsection, except that such Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities of such series Outstanding at such time, such report to be transmitted within 90 days after such time. (c) Reports pursuant to this Section shall be transmitted by mail: (1) to all Holders of Registered Securities, as the names and addresses of such Holders appear in the Security Register; (2) to such Holders of Bearer Securities as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for such series of Bearer Securities for that purpose; and (3) except in the case of reports pursuant to Subsection (b) of this Section, to each Holder of a Security whose name and address is preserved at the time by such Trustee, as provided in Section 702(a). (d) A copy of each such report shall, at the time of such transmission to Holders of Securities of any series, be filed by the Trustee for the Securities of such series with each securities exchange upon which the Securities of such series are listed with the Commission and with the Company. The Company will notify such Trustee when such series of Securities is listed on any securities exchange. 86 80 SECTION 704. Reports by Company. The Company will: (1) file with the Trustee for the Securities of such series, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15 (d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it will file with such Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee for the Securities of such series and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents, and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders of Securities of each series, as provided in Section 703 (c), within 30 days after the filing thereof with the Trustee for the Securities of such series, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person, and the Company may not, directly or indirectly, sell, convey, transfer or lease all or substantially all of its properties and assets to any Person unless: (1) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance or transfer, or which leases, all or substantially all of the properties and assets of the 87 81 Company shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee for each series of Securities, in form reasonably satisfactory to each such Trustee, in the case of the Company, the due and punctual payment of the principal of (and premium, if any) and interest, if any (including all additional amounts, if any, payable pursuant to Sections 516 or 1008) on, and any sinking fund payment in respect of, all the Securities and any related coupons and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default with respect to any series of Securities, and no event which, after notice or lapse of time, or both, would become an Event of Default with respect to any series of Securities, shall have happened and be continuing, and (3) the Company has delivered to the Trustee for each series of Securities an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; SECTION 802. Successor Corporation Substituted. Upon any consolidation or merger, or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor corporation formed by such consolidation or merger or the successor Person to which such conveyance or transfer or with which such lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein and thereafter, except in the case of a lease, the predecessor corporation shall be relieved of all obligations and covenants under this Indenture, the Securities and any related coupons. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders of Securities or coupons, the Company, when authorized by a Board Resolution and the Trustee for the Securities of any or all series, at any time and from time to time, may enter into one or more indentures 88 82 supplemental hereto, in form satisfactory to such Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to add to the covenants of the Company, for the benefit of the Holders of all or any particular series of Securities and any related coupons (and, if such covenants are to be for the benefit of fewer than all series of Securities, stating that such covenants are being included solely for the benefit of such series), to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or otherwise secure any series of the Securities or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default with respect to any or all series of Securities (and, if any such Event of Default applies to fewer than all series of Securities, stating each series to which such Event of Default applies); or (4) to add to or to change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of or any premium or interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for Bearer Securities of other authorized denominations, to provide (subject to applicable laws) for the issuance of uncertificated Securities of any series in addition to or in place of any certificated Securities and to make all appropriate changes for such purposes; provided, however, that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (5) to change or eliminate any of the provisions of this Indenture; provided, however, that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to evidence and provide for the acceptance of appointment hereunder of a Trustee other than Comerica Bank as Trustee for a series of Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of 89 83 the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 609; or (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611(b); or (8) to add to the conditions, limitations and restrictions on the authorized amount, form, terms or purposes of issue, authentication and delivery of Securities, as herein set forth, other conditions, limitations and restrictions thereafter to be observed; or (9) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Section 401; provided, however, that any such action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series of Securities in any material respect; or (10) to add to or change or eliminate any provisions of this Indenture as shall be necessary or desirable in accordance with any amendments to the Trust Indenture Act; or (11) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, to convey, transfer, assign, mortgage or pledge any property to or with the Trustee for the Securities of any series or to surrender any right or power herein conferred upon the Company, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Securities of any particular series in any material respect. SECTION 902. Supplemental Indentures With Consent of Holders. The Company, when authorized by a Board Resolution, and the Trustee for the Securities of any or all series may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of such Securities and any related coupons under this Indenture, but only with the consent of the Holders of more than 50% in aggregate principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby, in each case by Act of said Holders of Securities of each such series delivered to 90 84 the Company and the Trustee for Securities of each such series; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon, if any, or any premium payable upon the redemption thereof, or change any obligation of the Company to pay additional amounts pursuant to Section 1008 (except as contemplated by Section 801(1) and permitted by Section 901(1)) or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change the Place of Payment, or the currency or currency unit in which any Security or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); or (2) reduce the percentage in principal amount of the Outstanding Securities of any particular series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify any of the provisions of this Section or Section 513 or 1007, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder of a Security or coupon with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1006, or the deletion of this proviso, in accordance with the requirements of Sections 609, 611(b), 901(6) and 901(7). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 91 85 SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee for any series of Securities shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee for any series of Securities may, but shall not (except to the extent required in the case of a supplemental indenture entered into under Section 901(6) or (7)) be obligated to, enter into any such supplemental indenture which affects such Trustee's own rights, liabilities, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder and of any coupons appertaining thereto shall be bound thereby. SECTION 905. Conformity With Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. Securities of any particular series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee for the Securities of such series, bear a notation in form approved by such Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series and any related coupons so modified as to conform, in the opinion of the Trustee for the Securities of such series and the Board of Directors of the Company, to any such supplemental indenture may be prepared and executed by the Company and such Securities may be authenticated and delivered by such Trustee in exchange for Outstanding Securities of such series and any related coupons. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal (and Premium, if any) and Interest, if any. The Company agrees, for the benefit of each particular series of Securities, that it will duly and punctually pay in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such 92 86 series and except as provided in Sections 311 (b), 311 (d) and 311 (e)) the principal of (and premium, if any) and interest, if any, on that series of Securities in accordance with the terms of the Securities of such series, any coupons appertaining thereto and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made for the benefit of, the Securities of such series and any appurtenant coupons. Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, any interest due on Bearer Securities on or before Maturity shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. The interest, if any, due in respect of any temporary or permanent global Security, together with any additional amounts payable in respect thereof, as provided in the terms and conditions of such Security, shall be payable only upon presentation of such Security to the Trustee thereof for notation thereon of the payment of such interest. SECTION 1002. Maintenance of Office or Agency. If Securities of a series are issuable only as Registered Securities, the Company will maintain in each Place of Payment for that series an office or agency where Securities of that series may be presented or surrendered for payment, and an office or agency where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company with respect to the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain (A) an office or agency in a Place of Payment for that series in the United States where any Registered Securities of that series may be presented or surrendered for payment, where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange for Registered Securities, where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served and where Bearer Securities of that series and related coupons may be presented or surrendered for payment in the circumstances described in the following paragraph (and not otherwise), (B) subject to any laws or regulations applicable thereto, in a Place of Payment for that series which is located outside the United States, an office or agency where Securities of that series and related coupons may be presented and surrendered for payment; provided, however, that if the Securities of that series are listed on the Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent for the Securities of that series in Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of that series are listed on such exchange, and (C) subject to any laws or regulations applicable thereto, in a Place of Payment for that series located outside the United States, at an office or agency where any Registered Securities of that series may be surrendered for 93 87 registration of transfer, where Securities of that series may be surrendered for exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee for the Securities of that series of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency in respect of any series of Securities or shall fail to furnish the Trustee for the Securities of that series with the address thereof, such presentations (to the extent permitted by law) and surrenders of Securities of that series may be made and notices and demands may be made or served at the Corporate Trust Office of such Trustee, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment at the offices specified in the Security, and the Company hereby appoints the same as its agent to receive such respective presentations, surrenders, notices and demands. No payment of principal (and premium, if any) or interest, if any, on Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States. Payments will not be made in respect of Bearer Securities or coupons appertaining thereto pursuant to presentation to the Company or their respective designated Paying Agents within the United States. Notwithstanding the foregoing, payment of principal of (and premium, if any) and interest, if any, on any Bearer Security denominated and payable in Dollars will be made at the office of the Company's Paying Agent in the United States, if, and only if, payment in Dollars of the full amount of such principal, premium or interest, as the case may be, at all offices or agencies outside the United States maintained for that purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may also from time to time designate one or more other offices or agencies (in or outside the Place of Payment) where the Securities of one or more series may be presented or surrendered for any or all of the purposes specified above in this Section and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for such purpose. The Company will give prompt written notice to the Trustee for the Securities of each series so affected of any such designation or rescission and of any change in the location of any such office or agency. If and so long as the Securities of any series (i) are denominated in a currency other than Dollars or (ii) may be payable in a currency other than Dollars, or so long as it is 94 88 required under any other provision of the Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, a Currency Determination Agent. SECTION 1003. Money, for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any particular series of Securities and any related coupons, it will, on or before each due date of the principal of (and premium, if any) or interest, if any, on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e)) sufficient to pay the principal (and premium, if any) and interest, if any, so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee for the Securities of such series of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any particular series of Securities and any related coupons, the Company will, on or prior to each due date of the principal of (and premium, if any) or interest, if any, on any such Securities, deposit with a Paying Agent for the Securities of such series a sum (in the currency or currency unit described in the preceding paragraph) sufficient to pay the principal (and premium, if any) and interest, if any, so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless such Paying Agent is the Trustee for the Securities of such series) the Company will promptly notify such Trustee of its action or failure so to act. The Company will cause each Paying Agent for any particular series of Securities other than the Trustee for the Securities of such series to execute and deliver to such Trustee an instrument in which such Paying Agent shall agree with such Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest, if any, on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give such Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal of (or premium, if any) and interest, if any, on Securities of that series; and (3) at any time during the continuation of any such default, upon the written request of such Trustee, forthwith 95 89 pay to such Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee for the Securities of any series all sums held in trust by the Company or such Paying Agent, such sums to be held by such Trustee upon the same trusts as those upon which sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to such Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee for the Securities of any series or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) and interest, if any, on any Securities of any particular series and remaining unclaimed for two years after such principal (and premium, if any) and interest, if any, has become due and payable shall, unless otherwise required by mandatory provisions of applicable escheat, or abandoned or unclaimed property law, be paid to the Company on Company Request or (if then held by the Company) shall be discharged from such trusts; and the Holder of such Security shall, thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of such Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that such Trustee or such Paying Agent, before being required to make any such repayment may give written notice to the Holder of such Security in the manner set forth in Section 106, or may, in its discretion, in the name and at the expense of the Company, cause to be published at least once in a newspaper published in the English language, customarily on each Business Day and of general circulation in New York, New York notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will, unless otherwise required by mandatory provisions of applicable escheat, or abandoned or unclaimed property law, be repaid to the Company. SECTION 1004. Statements as to Compliance. The Company will deliver to the Trustee for each series of Securities, within 120 days after the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company stating that: (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision; and 96 90 (2) to the best of his knowledge, based on such review, the Company is (or is not) in compliance with all conditions and covenants under this Indenture, and if the signer has obtained knowledge of any default by the Company in the performance, observance or fulfillment of any such condition or covenant, specifying each such default and the nature thereof. For purposes of this Section, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. SECTION 1005. Corporate Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1006. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 1005 and any other covenant not set forth herein and specified pursuant to Section 301 to be applicable to the Securities of any series, if before or after the time for such compliance the Holders of more than 50% in principal amount of the Outstanding Securities of each series of Securities affected by the omission (which, in the case of a covenant not set forth herein and specified pursuant to Section 301 to be applicable to the Securities of any series, shall include only those series to which such covenant is so specified to be applicable) shall, in each case by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee for the Securities of each series with respect to any such covenant or condition shall remain in full force and effect. SECTION 1007. Defeasance of Certain Obligations. If specified pursuant to Section 301 to be applicable to the Securities of any series, the Company may omit to comply with any term, provision or condition set forth in Section 801 and any other covenant not set forth herein and specified pursuant to Section 301 to be applicable to the Securities of such series and subject to this Section 1007, and any such omission with respect to such Sections shall not be an Event of Default, in each case with respect to the Securities of such series; provided, however, that the following conditions have been satisfied: 97 91 (1) with respect to all Outstanding Securities of such series and any coupons appertaining thereto not theretofore delivered to the Trustee for cancellation: (i) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust an amount in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e), in which case the deposit to be made with respect to Securities for which an election has occurred pursuant to Section 311(b), or a Conversion Event has occurred as provided in Sections 311(d) and 311(e), shall be made in the currency or currency unit in which such Securities are payable as a result of such election or Conversion Event), sufficient to pay and discharge the entire indebtedness on all such Outstanding Securities of such series and any related coupons for principal (and premium, if any) and interest, if any, to the Stated Maturity or any Redemption Date as contemplated by Section 402, as the case may be; or (ii) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, as obligations in trust such amount of Government Obligations as will, as evidenced by a Certificate of a Firm of Independent Public Accountants delivered to such Trustee, together with the predetermined and certain income to accrue thereon (without consideration of any reinvestment thereof), be sufficient to pay and discharge when due the entire indebtedness on all such Outstanding Securities of such series and any related coupons for unpaid principal (and premium, if any) and interest, if any, to the Stated Maturity or any Redemption Date as contemplated by Section 402, as the case may be; or (iii) the Company has deposited or caused to be deposited with such Trustee, or in a trust fund established pursuant to a trust agreement in form and substance satisfactory to the Trustee, in trust an amount equal to the amount referred to in clause (i) or (ii) in any combination of currency or currency unit or Government Obligations; (2) no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Securities of that series shall have occurred and be continuing on the date of such 98 92 deposit and no Event of Default under Section 501(6) or Section 501(7) or event which with the giving of notice or lapse of time, or both, would become an Event of Default under Section 501(6) or Section 501(7) shall have occurred and be continuing on the 91st day after such date; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated in the Section have been complied with. All the obligations of the Company under this Indenture with respect to the Securities of such series, other than with respect to Section 801, and any other covenant not set forth herein and specified pursuant to Section 301 to be applicable to the Securities of such series and subject to this Section 1007, shall remain in full force and effect. Anything in this Section 1007 to the contrary notwithstanding, the Trustee for any series of Securities shall deliver or pay to the Company, from time to time upon Company Request, any money or Government Obligations held by it as provided in this Section 1007 which, as expressed in a Certificate of a Firm of Independent Public Accountants delivered to such Trustee, are in excess of the amount thereof which would then have been required to be deposited for the purpose for which such money or Government Obligations were deposited or received, provided such delivery can be made without liquidating any Government Obligations. SECTION 1008. Payment of Additional Amounts. If specified pursuant to Section 301, the provisions of this Section 1008 shall be applicable to Securities of any series. The Company will, subject to the exceptions and limitations set forth below, pay to the Holder of any Security or coupon who is a United States Alien such additional amounts as may be necessary so that every net payment on such Security or coupon, after deduction or withholding by the Company or any of its Paying Agents for or on account of any present or future tax, assessment or other governmental charge imposed upon or as a result of such payment by the United States (or any political subdivision or taxing authority thereof or therein), will not be less than the amount provided in such Security or in such coupon to be then due and payable. However, the Company will not be required to make any payment of additional amounts for or on account: (a) any tax, assessment or other governmental charge that would not have been so imposed but for (i) the existence of any present or former connection between such Holder (or between a fiduciary, settlor or beneficiary of, or a person holding a power over, such Holder, if such Holder is an estate or trust, or a member or shareholder of such Holder, if such Holder is a partnership or corporation) and the United States, including, 99 93 without limitation, such Holder (or such fiduciary, settlor, beneficiary, person holding a power, member or shareholder) being or having been a citizen, resident or treated as a resident thereof or being or having been engaged in trade or business or present therein or having or having had a permanent establishment therein, or (ii) such Holder's present or former status as a personal holding company, foreign personal holding company, controlled foreign corporation or passive foreign investment company with respect to the United States or as a corporation that accumulates earnings to avoid United States federal income tax; (b) any tax, assessment or other governmental charge which would not have been so imposed but for the presentation by the Holder of such Security or coupon for payment on a date more than 10 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (c) any estate, inheritance, gift, sales, transfer, personal property tax or any similar tax, assessment or other governmental charge; (d) any tax, assessment or other governmental charge required to be withheld by any Paying Agent from any payment in respect of any Security or coupon, if such payment can be made without such withholding by at least one other Paying Agent; (e) any tax, assessment or other governmental charge which is payable otherwise than by withholding from payments in respect of such Security or coupon; (f) any tax, assessment or other governmental charge imposed on a Holder of a Security or coupon that actually or constructively owns 10 percent or more of the total combined voting power of all classes of stock of the Company entitled to vote within the meaning of Section 871(h)(3) of the Code or that is a controlled foreign corporation related to the Company through stock ownership; (g) any tax, assessment or other governmental charge imposed as a result of the failure to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connection with the United States of the Holder or beneficial owner of a Security or coupon, if such compliance is required by statute or by regulation of the United States as a precondition to relief or exemption from such tax, assessment or other governmental charge; (h) any tax, assessment or other governmental charge imposed with respect to payments on any Registered Security by reason of the failure of the Holder to fulfill the statement requirement of Sections 871(h) or 881(c) of the Code; or 100 94 (i) any combination of items (a), (b), (c), (d), (e), (f), (g) and (h); nor will additional amounts be paid with respect to any payment on any such Security or coupon to a Holder who is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent such payment would be required by the laws of the United States (or any political subdivision thereof) to be included in the income for federal income tax purposes of a beneficiary or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to payment of the additional amounts had such beneficiary, settlor, member or beneficial owner been the Holder of such Security or coupon. The term "United States Alien" means any corporation, partnership, individual or fiduciary that is, for United States federal income tax purposes, a foreign corporation, a nonresident alien individual, a nonresident fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States federal income tax purposes, a foreign corporation, a nonresident alien individual or a nonresident fiduciary of a foreign estate or trust. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of (and premium, if any) and interest, if any, on any Security or payment with respect to any coupon of any series, such mention shall be deemed to include mention of the payment of additional amounts provided for in the terms of such Securities and this Section to the extent that, in such context, additional amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section and express mention of the payment of additional amounts (if applicable) in any provisions hereof shall not be construed as excluding additional amounts in those provisions hereof where such express mention is not made. If the Securities of a series provide for the payment of additional amounts as contemplated by Section 301(24), at least 10 days prior to the first Interest Payment Date with respect to that series of Securities (or if the Securities of that series will not bear interest prior to maturity, the first day on which a payment of principal and any premium is made), and at least 10 days prior to each date of payment of principal (and premium, if any) and interest, if any, if there has been any change with respect to the matters set forth in the below- mentioned Officers' Certificate, the Company will furnish the Trustee for that series of Securities and the Company's principal Paying Agent or Paying Agents, if other than such Trustee, with an Officers' Certificate instructing such Trustee and such Paying Agent or Paying Agents whether such payment of principal of (and premium, if any) and interest, if any, on the Securities of that series shall be made to Holders of Securities of that series or any related coupons who are United States 101 95 Aliens without withholding for or on account of any tax, assessment or other governmental charge referred to above or described in the Securities of that series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities or coupons and the Company will pay to the Trustee for such series of Securities or such Paying Agent such additional amounts as may be required pursuant to the terms applicable to such series. The Company covenants to indemnify the Trustee for such series of Securities and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without gross negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section 1008. SECTION 1009. Limitation on Liens. The Company will not, and will not permit any Subsidiary, directly or indirectly, to create, incur, assume or permit to exist any Lien on or with respect to any property or assets of the Company or any Subsidiary or any interest therein or any income or profits therefrom, unless the Securities are secured equally and ratably with (or prior to) any and all other indebtedness secured by such Lien, except for (i) any Lien securing indebtedness incurred to finance the purchase price or cost of construction of property (or additions, substantial repairs, alterations or substantial improvements thereto), provided that such Lien and the indebtedness secured thereby are incurred within twelve months of the later of acquisition or completion of construction (or addition, repair, alteration or improvement) and full operation thereof, and provided, further, that such Lien does not relate to any property acquired or constructed by the Company or a Subsidiary pursuant to clause (iii) (B) of Section 1010 hereof; (ii) any Lien arising in the ordinary course of business, other than in connection with indebtedness for borrowed money; (iii) any Lien on property or assets acquired by the Company or any Subsidiary after the date of issuance of the Securities, provided that such Lien existed on the date such property or assets were acquired, and provided, further that, except as provided in clause (i) above, such Lien was incurred prior to, and not in anticipation of, such acquisition; (iv) any Lien on the property or assets of, or on the shares of stock of, any corporation or entity existing at the time such corporation or entity first becomes a Subsidiary, provided that such Lien was incurred prior to, and not in anticipation of, such corporation or entity becoming a Subsidiary; (v) any Lien existing on the date of the Indenture; (vi) any Lien arising out of judgments or awards against the Company or any Subsidiary with respect to which the Company or such Subsidiary shall in good faith be prosecuting an appeal or proceedings for review, or Liens which are discharged within 60 days of entry of judgment or Liens (including, without limitation, appellate bonds) incurred by the Company or a Subsidiary for the purpose of obtaining a 102 96 stay or discharge in the course of any ongoing legal proceeding to which the Company or such Subsidiary is a party; (vii) any Lien for taxes not yet due and payable by the Company or any Subsidiary or which the Company or such Subsidiary is contesting in good faith; (viii) any Lien in favor of the Company or a Subsidiary; (ix) any Lien (other than a Lien permitted under any of clauses (i) through (viii) of this paragraph) securing indebtedness of the Company or any Subsidiary, provided that the total outstanding indebtedness (including the fair value of all Sale and Lease-Back Transactions permitted under clause (i) of Section 1010 hereof but excluding any obligations associated with such Sale and Lease-Back Transactions) that may be secured under this clause (viii) may not exceed 15% of the Consolidated Net Tangible Assets of the Company and its Subsidiaries at the end of the most recent fiscal quarter; (x) any Lien extending, renewing or replacing any Lien permitted by clauses (i) through (ix) above; and (xi) any Lien securing indebtedness the proceeds of which are deposited, promptly upon receipt, with the Trustee solely for the purpose of effecting a legal defeasance or covenant defeasance as set forth under Section 1007 hereof. In the case of Liens permitted under clauses (i), (iii) and (iv), such Liens may not relate to any property or assets of the Company or a Subsidiary other than the property so acquired, constructed, added, repaired, altered or improved, as the case may be. In the case of Liens permitted under clause (x), such Liens (A) may not relate to any property or assets of the Company or a Subsidiary other than the property or assets to which the Lien being extended, renewed or replaced relates to, and (B) may not secure indebtedness in excess of that secured by the Lien being extended, renewed or replaced. In addition, if any Lien permitted under clause (ix) is extended, renewed or replaced pursuant to clause (x), then the aggregate amount of indebtedness secured by all such extended, renewed or replaced Liens (originally permitted under clause (ix)) shall be included thereafter in all calculations of Liens permitted under clause (ix). SECTION 1010. Limitation on Sale and Lease-Back. The Company covenants and agrees that it will not, nor will it permit any Subsidiary, directly or indirectly, to enter into, assume, guarantee, or otherwise become liable with respect to any Sale and Lease-Back Transaction (as defined below); provided, however, that the Company or any Subsidiary may enter into (i) a Sale and Lease-Back Transaction that, had such Sale and Lease-Back Transaction been structured as a mortgage rather than as a Sale and Lease-Back Transaction, the Company or such Subsidiary would have been permitted to enter into such transaction without equally and ratably securing (or granting priority to) the Securities of all series pursuant to Section 1009 hereof, (ii) a Sale and Lease-Back Transaction between or among the Company and any of its Subsidiaries or between or among Subsidiaries and (iii) a Sale and Lease-Back Transaction, provided that, the 103 97 proceeds of the sale of the property or assets to be leased are at least equal to the fair value (the fair value of such proceeds, if other than cash, to be determined by the chief financial officer of the Company) and an amount equal to such net proceeds is applied within 180 days of the effective date of such Sale and Lease-Back Transaction to (A) the retirement (other than any mandatory retirement and other than any prohibited retirement of securities) of indebtedness for borrowed money (including the Securities) incurred or assumed by the Company or any Subsidiary (other than indebtedness for borrowed money owed to the Company or any Subsidiary) which by its terms matures on, or is extendable or renewable at the option of the obligor to, a date more than 12 months after the date of the creation of such indebtedness and, in the case of such indebtedness of the Company, which ranks on a parity with, or senior in right of payment to, the Securities or (B) the purchase or construction of other property, provided, that, upon the completion of such purchase or construction, such property is owned by the Company or a Subsidiary free and clear of all Liens. For the purposes of this Indenture, a Sale and Lease- Back Transaction means any arrangement with any Person providing for the leasing to the Company or a Subsidiary for a period of more than three years of any property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to which funds have been or are to be advanced by such Person on the security of the leased property. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of This Article. Redemption of Securities of any series (whether by operation of a sinking fund or otherwise) as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however,that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. SECTION 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities of any series shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any particular series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee for the Securities of such series) notify such Trustee by Company Request of such Redemption Date and of the principal amount of Securities of that series to be redeemed and shall deliver to such Trustee such documentation and records as shall enable such Trustee to select the Securities to be redeemed pursuant to Section 1103. In the case of any redemption of 104 98 Securities of any series prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee for Securities of such series with an Officers' Certificate evidencing compliance with such restriction. SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the Company may select the series to be redeemed, and if less than all of the Securities of any series are to be redeemed, the particular Securities of that series to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee for the Securities of such series, from the Outstanding Securities of that series not previously called for redemption, by such method as such Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series, or any integral multiple thereof) of the principal amount of Securities of that series of a denomination larger than the minimum authorized denomination for Securities of that series pursuant to Section 302 in the currency or currency unit in which the Securities of such series are denominated. The Trustee for the Securities of any series to be redeemed shall promptly notify the Company in writing of the Securities of such series selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1104. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 106 not later than the thirtieth day and not earlier than the sixtieth day prior to the Redemption Date, to each Holder of Securities to be redeemed. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Securities of a particular series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed, 105 99 (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date, (5) the place or places where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date are to be surrendered for payment of the Redemption Price, (6) that the redemption is for a sinking fund, if such is the case, (7) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all coupons maturing subsequent to the date fixed for redemption or the amount of any such missing coupon or coupons will be deducted from the Redemption Price or security or indemnity satisfactory to the Company, the Trustee for such series and any Paying Agent is furnished, and (8) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on this Redemption Date pursuant to Section 305 or otherwise, the last date, as determined by the Company, on which such exchanges may be made. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee for such Securities in the name and at the expense of the Company. SECTION 1105. Deposit of Redemption Price. Prior to the opening of business on any Redemption Date, the Company shall deposit with the Trustee for the Securities to be redeemed or with a Paying Agent for such Securities (or, if the Company is acting as its own Paying Agent for such Securities, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currency unit in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e)) sufficient to pay the principal amount of (and premium, if any, thereon), and (except if the Redemption Date shall be an Interest Payment Date) any accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, 106 100 become due and payable at the Redemption Price therein specified in the currency or currency unit in which the Securities of such series are payable (except as otherwise provided pursuant to Section 301 for the Securities of such series and except as provided in Sections 311(b), 311(d) and 311(e)) and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of such Security for redemption in accordance with said notice together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security or specified portions thereof shall be paid by the Company at the Redemption Price; provided, however, that installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of coupons for such interest, and provided, further, that unless otherwise specified as contemplated by Section 301, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for redemption shall not be accompanied by all coupons appertaining thereto maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons or the surrender of such missing coupon or coupons may be waived by the Company if there is furnished to the Company, the Trustee for such Security and any Paying Agent such security or indemnity as they may require to save the Company, such Trustee and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to such Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Redemption Date at a rate per annum equal to the rate borne by the Security (or, in the case of Original Issue Discount Securities, the Security's Yield to Maturity). 107 101 SECTION 1107. Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part shall be surrendered at the Place of Payment (with, if the Company or the Trustee for such Security so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Security Registrar for such Security duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute and such Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities, of any authorized denomination as requested by such Holder, of the same series and having the same terms and provisions and in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Registered Security so surrendered. ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of This Article. Redemption of Securities through operation of a sinking fund as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. The minimum amount of any sinking fund payment provided for by the terms of Securities of any particular series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any particular series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any particular series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any particular series as provided for by the terms of Securities of that series. SECTION 1202. Satisfaction of Sinking Fund Payments With Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption), together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto, and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such 108 102 Securities as provided for by the terms of such series; provided, however, that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee for such Securities at the principal amount thereof and the amount of such sinking fund payment shall be reduced accordingly. SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any particular series of Securities, the Company will deliver to the Trustee for the Securities of such series an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the currency or currency unit in which the Securities of that series are payable (except as otherwise specified pursuant to Section 301 for the Securities of that series and except as provided in Sections 311(b), 311(d) and 311(c)) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202 and shall state the basis for such credit and that such Securities have not previously been so credited and will also deliver to such Trustee any Securities to be so delivered. Such Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1301. Purposes for Which Meetings May Be Called. If Securities of a series are issuable as Bearer Securities, a meeting of Holders of Securities of such series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. SECTION 1302. Call, Notice and Place of Meetings. (a) The Trustee for any series of Securities that includes Bearer Securities, may at any time call a meeting of the Holders of Securities of such series for any purpose specified in Section 1301, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or in London, as such Trustee shall determine. Notice of every meeting of Holders of Securities of such series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in 109 103 Section 106, not less than 20 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities of any such series, shall have requested the Trustee for any such series to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1301, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and such Trustee shall not have made the first publication of the notice of such meeting within 30 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, or in London, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section. SECTION 1303. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee for such series and its counsel and any representatives of the Company and its counsel. SECTION 1304. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Subject to Section 1305(d), notice of the reconvening of any adjourned meeting shall be given as provided in Section 1302(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly that Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series shall constitute a quorum. 110 104 Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage which is less than a majority in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series. Except as limited by the proviso to Section 902, any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. SECTION 1305. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any other provision of this Indenture, the Trustee for any series of Securities that includes Bearer Securities may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of such series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (b) The Trustee for any series of Securities that includes Bearer Securities shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1302(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting 111 105 shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities of such series held or represented by him as determined in accordance with Section 115; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1302 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. SECTION 1306. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and then shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1302 and, if applicable, Section 1304. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee for such series of Securities to be preserved by such Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. * * * 112 106 This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. R.P. SCHERER INTERNATIONAL CORPORATION [SEAL] By /s/ John P. Cashman [Chairman of the Board] Attest: /s/ Nicole S. Williams [Secretary] COMERICA BANK [SEAL] By /s/ M. Karam [Vice President] Attest: /s/ N. Packard Title: Trust Officer 113 107 STATE OF MICHIGAN COUNTY OF OAKLAND ss: On the 17th day of January, 1994, before me personally came John P. Cashman and Nicole S. Williams, to me known, who, being by me duly sworn, did depose and say that they reside in Province of Ontario, Canada, and Oakland County, Michigan, respectively, that they are the Chairman of the Board and the Secretary, respectively, of R.P. SCHERER INTERNATIONAL CORPORATION, one of the corporations described in and which executed the above instrument; that they know the corporate seal of said corporation; that one of the seals affixed to the said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation and that they signed their names thereto by like authority. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ JoAnn Ray Schmidt Notary Public [SEAL] 114 108 STATE OF MICHIGAN COUNTY OF WAYNE ss: On the 27th day of January, 1994, before me personally came Marilyn A. Karam, to me known, who, being by me duly sworn, did depose and say that she resides in Wayne County, Michigan, and that she is a [Vice President] of Comerica Bank one of the corporations described in and which executed the above instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [SEAL] /s/ James Kowalski Notary Public 115 EXHIBIT A [FORM OF CERTIFICATE TO BE DELIVERED TO EUROCLEAR OR CEDEL, S.A. BY OR ON BEHALF OF A BENEFICIAL OWNER OF SECURITIES, IN ORDER TO RECEIVE A DEFINITIVE BEARER SECURITY IN EXCHANGE FOR AN INTEREST IN A TEMPORARY GLOBAL SECURITY OR TO EXCHANGE AN INTEREST IN A TEMPORARY GLOBAL SECURITY FOR AN INTEREST IN A PERMANENT GLOBAL SECURITY IN DEFINITIVE FORM] R. P. SCHERER INTERNATIONAL CORPORATION [INSERT TITLE OR DESCRIPTION OF SECURITIES] Reference is hereby made to the Indenture dated as of _________ __, 199- (the "Indenture") between R.P. Scherer International Corporation (the "Issuer") and Comerica Bank as Trustee. Unless otherwise herein defined, terms used herein have the same meaning as in the Indenture. This is to certify that as of the date hereof and except as set forth below principal amount of the above captioned Securities held by you for our account (i) is owned by person(s) that are not United States person(s) (as defined below), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (as defined in Section 1.16512(c)(1)(v) of the United States Treasury regulations) ("financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j))(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for the purpose of resale during the restricted period (as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations), and in addition if the owner of the Securities is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)) this is to further certify that such financial institution has not acquired the Securities for the purpose of resale directly or indirectly to a United States person or to a person within the United States or its possessions. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the beneficial interest in the temporary global Security held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence 116 A-3 of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to principal amount of Securities held by you for our account as to which we are not able to provide a certificate in this form. We understand that exchange of such portion of the temporary global Security for definitive Bearer Securities or interests in a permanent global Security cannot be made until we are able to provide a certificate in this form. We understand that this certificate is required in connection with certain tax laws and regulations of the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. "United States person" means any citizen or resident of the United States, any corporation, partnership or other entity created or organized in or under the laws of the United States and any estate or trust the income of which is subject to United States federal income taxation regardless of its source. "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. By: ---------------------------------------------- As, or as agent for, the beneficial owner(s) of the portion of the temporary global Security to which this certificate relates. 117 EXHIBIT B [FORM OF CERTIFICATE TO BE GIVEN TO THE APPROPRIATE TRUSTEE BY EUROCLEAR OR CEDEL, S.A. REGARDING THE EXCHANGE OF A TEMPORARY GLOBAL SECURITY FOR DEFINITIVE SECURITIES OR FOR A PORTION OF A PERMANENT GLOBAL SECURITY IN DEFINITIVE FORM] R.P. SCHERER INTERNATIONAL CORPORATION [INSERT TITLE OR DESCRIPTION OF SECURITIES] Reference is hereby made to the Indenture dated as of __________ __, 199- (the "Indenture") between R.P. Scherer International Corporation (the "Issuer") and Comerica Bank as Trustee. Unless otherwise herein defined, terms used herein shall have the same meaning as in the Indenture. The undersigned certifies that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organizations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially to the effect set forth in the Indenture as of the date hereof, principal amount of the above-captioned Securities (i) is owned by person(s) that are not United States person(s) (as defined below), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (as defined in Section 1.165-12(c)(1)(v) of the United States Treasury regulations) ("financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for the purpose of resale during the restricted period (as defined in Section 1.163- 5(c)(2)(i)(D)(7) of the United States Treasury regulations), and in addition United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for the purpose of resale directly or indirectly to a United States person or to a person within the United States or its possessions. We further certify (i) that we are not making available for exchange or collection of any interest any portion of the temporary Global Security excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organizations to the effect 118 B-3 that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange or collection of any interest are no longer true and cannot be relied upon as of the date hereof. We understand that this certificate is required in connection with certain tax laws and regulations of the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. "United States person" means any citizen or resident of the United States, any corporation, partnership or other entity created or organized in or under the laws of the United States and any estate or trust the income of which is subject to United States federal income taxation regardless of its source. "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. Dated: By: -------------------------------------- [Centre de Livraisons de Valeurs Mobilieres, S.A.] [Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System] 119 EXHIBIT C [FORM OF CERTIFICATE TO BE GIVEN TO THE APPROPRIATE TRUSTEE BY EUROCLEAR OR CEDEL, S.A. REGARDING PAYMENTS ON A TEMPORARY GLOBAL SECURITY PRIOR TO AN EXCHANGE DATE] R.P. SCHERER INTERNATIONAL CORPORATION [INSERT TITLE OR DESCRIPTION OF SECURITIES] Reference is hereby made to the Indenture dated as of -------- --, 199- (the "Indenture") between R.P. Scherer International Corporation (the "Issuer") and Comerica Bank as Trustee. Unless otherwise herein defined, terms used herein shall have the same meaning as in the Indenture. The undersigned certifies that based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organizations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially to the effect set forth in the Indenture as of the date hereof, principal amount of the above-captioned Securities (i) is owned by person(s) that are not United States person(s) (as defined below), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (as defined in Section 1.165-12(c)(1)(v) of the United States Treasury regulations) ("financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for the purpose of resale during the restricted period (as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury regulations), and in addition United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for the purpose of resale directly or indirectly to a United States person or to a person within the United States or its possessions. We further certify (i) that we are not making available for exchange or collection of any interest any portion of the temporary Global Security excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with 120 respect to any portion of the part submitted herewith for exchange or collection of any interest are no longer true and cannot be relied upon as of the date hereof. We understand that this certificate is required in connection with certain tax laws and regulations of the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. "United States person" means any citizen or resident of the United States, any corporation, partnership or other entity created or organized in or under the laws of the United States and any estate or trust the income of which is subject to the United States federal income taxation regardless of its source. "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. Dated: By: -------------------------------------- [Centrale de Livraisons de Valeurs Mobilieres, S.A. ] [Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System] 121 EXHIBIT D [FORM OF CERTIFICATE TO BE DELIVERED TO EUROCLEAR OR CEDEL, S.A. BY OR ON BEHALF OF A BENEFICIAL OWNER OF SECURITIES, IN ORDER TO RECEIVE PAYMENT ON A TEMPORARY GLOBAL SECURITY PRIOR TO AN EXCHANGE DATE] R.P. SCHERER INTERNATIONAL CORPORATION [INSERT DATE OR DESCRIPTION OF SECURITIES] Reference is hereby made to the Indenture dated as of _________ __, 199- (the "Indenture") between R.P. Scherer International Corporation (the "Issuer") and Comerica Bank as Trustee. Unless otherwise herein defined, terms used herein have the same meaning as in the Indenture. This is to certify that as of the date hereof and except as set forth below, - principal amount of the above-captioned Securities (i) is owned by person(s) that are not United States person(s) (as defined below), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (as defined in Section 1.165-12(c) (1)(v) of the United States Treasury regulations) ("financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder), or (iii) is owned by financial institution(s) for the purpose of resale during the restricted period (as defined in Section 1.163- 5(c)(2)(i)(D)(7) of the United States Treasury regulations), and in addition if the owner of the Securities is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)) this is to further certify that such financial institution has not acquired the beneficial interest in the Securities for the purpose of resale directly or indirectly to a United States person or to a person within the United States or its possessions. We undertake to advise you promptly by tested telex if the foregoing statement as to beneficial ownership is not correct on the [insert relevant payment date], and in the absence of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to principal amount of Securities held by you for our account as to 122 which we are not able to provide a certificate in this form. We understand that payments, if any, due prior to the Exchange Date with respect to such portion of the temporary global Security cannot be made until we are able to provide a certificate in this form. We understand that this certificate is required in connection with certain tax laws and regulations of the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. "United States person" means any citizen or resident of the United States, any corporation, partnership or other entity created or organized in or under the laws of the United States and any estate or trust the income of which is subject to United States federal income taxation regardless of its source. "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. Dated: By: ---------------------------------------- As, or as agent for, the beneficial owner(s) of the portion of the temporary global Security to which this certificate relates. 123 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture"), dated as of February 28, 1995, by and among R. P. Scherer International Corporation, a corporation duly organized and existing under the laws of the State of Delaware and having its principal office at 2075 W. Big Beaver Road, P.O. Box 7060, Troy, Michigan 48007-7060 (the "Company"); R. P. Scherer Corporation, a corporation duly organized and existing under the law of the State of Delaware, the parent corporation of the Company and having its principal office at 2075 W. Big Beaver Road, P.O. Box 7060, Troy, Michigan 48007-7060 (the "Parent Corporation"); and Comerica Bank, a state bank organized and existing under the laws of the State of Michigan and having its principal Corporate Trust Office at 411 W. Lafayette, M.C. 3461, Detroit, Michigan 48226, as Trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture dated as of January 1, 1994 (the "Original Indenture"), to provide for the issuance from time to time of securities evidencing the Company's unsecured indebtedness (the "Debt Securities"); WHEREAS, pursuant to Resolutions of the Pricing Committee of the Board of Directors of the Company held January 12, 1994 and January 20, 1994, the Company issued $100,000,000 principal amount of Debt Securities under the Original Indenture in the form of 6 3/4% Senior Notes due 2004 (the "Senior Notes"); WHEREAS, the Company has merged with and into the Parent Corporation pursuant to Section 253 of the General Corporation Law of Delaware (the "Merger"); WHEREAS, Section 901 of the Original Indenture authorizes the execution of the First Supplement Indenture, without the consent of any Holders of Debt Securities or coupons, to evidence the succession of the Parent Corporation to the Company, and the assumption by the Parent Corporation of the covenants of the Company in the Original Indenture and in the Debt Securities issued thereunder; and WHEREAS, the execution and delivery of this First Supplemental Indenture has been in all respects authorized, and all acts, conditions and requirements necessary to constitute this First Supplement Indenture, when duly executed and delivered, a valid, legal and binding instrument in accordance with the terms and for the purposes herein expressed, have been satisfied and completed. NOW, THEREFORE, the Company, the Parent Corporation and the Trustee hereby agree as following: 1. The Parent Corporation hereby expressly assumes the due and punctual payment of the principal of (and premium, if any) and interest, if any (including all additional amounts, if any payable pursuant to Sections 516 or 1008 of the Original Indenture) on, and any sinking fund payment in respect of, all the Senior Notes and of any Debt Securities to be issued hereafter pursuant to the Original Indenture, and any related coupons, and the performance of every covenant of the Original Indenture on the part of the Company to be performed or observed. 2. The Trustee hereby acknowledges receipt of an Officers' Certificate and Opinion of Counsel, copies of which are attached hereto, each stating that the Merger and this First Supplement Indenture comply with all the terms and conditions of Article VIII of the Original Indenture and that the Merger complies with all conditions precedent of the Original Indenture relating to a merger of the Company into another Person. 3. All terms used herein not specifically defined in this First Supplement Indenture which are defined in the Original Indenture shall have the meanings ascribed to them in the Original Indenture. 4. From and after the execution and delivery of this First Supplement Indenture, the Original Indenture shall been deemed to be amended as herein provided. Except as modified and amended by this First Supplemental Indenture, the Original Indenture shall continue in full force and effect, and none of the obligations or covenants existing or to exist thereunder shall be released, diminished or impaired, except as set forth herein. 5. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 124 2 IN WITNESS WHEREOF, the undersigned have caused this First Supplemental Indenture to be executed in their respective corporate names by their duly authorized officers, all as of the date first written above. R. P. SCHERER INTERNATIONAL CORPORATION By: /s/ Nicole S. Williams ---------------------- Its: Secretary --------- R. P. SCHERER CORPORATION By: /s/ Nicole S. Williams ---------------------- Its: Secretary --------- COMERICA BANK, as Trustee By: /s/ James Kowalski ------------------ Its: Authorized Signatory Trust Administrator 125 SECOND SUPPLEMENTAL INDENTURE SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture"), dated as of August 7, 1998 by and among R.P. Scherer Corporation (the "Company"), Cardinal Health, Inc. (the "Guarantor"), and NBD Bank, as trustee (the "Trustee") under that certain Indenture dated as of January 1, 1994, between the Company and Comerica Bank, as trustee, as previously supplemented by that certain First Supplemental Indenture dated as of February 28, 1995, between the Company and Comerica Bank, and by that certain Instrument of Resignation, Appointment and Acceptance, dated as of May 24, 1997, among the Company, Comerica Bank and the Trustee (the "Instrument of Resignation", and, as so supplemented, the "Indenture"). W I T N E S S E T H WHEREAS, pursuant to the Indenture, the Company issued its 6-3/4% Notes Due 2004 (the "Notes"); WHEREAS, pursuant to the Instrument of Resignation, NBD Bank replaced Comerica Bank as trustee under the Indenture; WHEREAS, the Company intends, pursuant to an Agreement and Plan of Merger, dated as of May 17, 1998, among the Guarantor, GEL Acquisition Corp., a wholly owned subsidiary of the Guarantor ("Merger Sub") and the Company, for Merger Sub to merge with and into the Company, with the Company as the continuing corporation becoming a wholly-owned subsidiary of the Guarantor (the "Surviving Company"); WHEREAS, Section 801 of the Indenture provides that, under certain circumstances involving a merger of the Company, the Surviving Company is required to execute and deliver to the Trustee a supplemental indenture pursuant to which the Surviving Company shall assume all of the Company's obligations under the Notes and the Indenture; and WHEREAS, the Guarantor desires to unconditionally and irrevocably guarantee the full and punctual payment of principal of and interest on the Notes when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) with respect to the Notes, and the full and punctual performance within applicable grace periods of all other obligations of the Company under the Notes and under the Indenture with respect to the Notes; and WHEREAS, pursuant to Section 901 of the Indenture, the Trustee is authorized to execute and deliver this Second Supplemental Indenture. 126 2 NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Surviving Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO ASSUME OBLIGATIONS. The Surviving Company hereby assumes all of the Company's responsibilities, liabilities and any other obligations under the Notes and the Indenture including, but not limited to, the obligation to (i) duly and punctually pay the principal of (and premium, if any) and interest, if any (including all additional amounts, if any, payable pursuant to Sections 516 and 1008 of the Indenture) on, and any sinking fund payment in respect of, all the Notes and any related coupons and (ii) perform every covenant in the Indenture on the part of the Company to be performed or observed, as and to the extent such responsibilities, liabilities or obligations exist on the date hereof, and to be bound by all other applicable provisions of the Indenture. 3. AGREEMENT AS TO RIGHTS OF SURVIVING COMPANY. The Trustee hereby agrees that, in accordance with Section 802 of the Indenture, the Surviving Company shall succeed to, and may exercise every right and power of, the Company under the Indenture with the same effect as if the Surviving Company had been named as the Company herein. 4. THE GUARANTEE. (a) The Guarantor irrevocably and unconditionally guarantees (the "Guarantee") to each Holder of Notes and to the Trustee and its successors and assigns, (i) the full and punctual payment of principal of an interest on the Notes when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) with respect to the Notes and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Notes and under the Indenture with respect to the Notes. (b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection. (c) The obligation of the Guarantor to make any payment under the Guarantee may be satisfied by causing the Company to make such payment. (d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by 127 3 the Trustee or any Holder of the Notes in enforcing any of their respective rights under the Guarantee. 5. MICHIGAN LAW TO GOVERN. The laws of the State of Michigan applicable to contracts entered into and to be performed wholly within such state shall govern and be used to construe this Second Supplemental Indenture. 6. COUNTERPARTS. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the date first above written. R.P. SCHERER CORPORATION CARDINAL HEALTH, INC. By: /s/ ALEKSANDER ERDELJAN By: /s/ DAVID BEARMAN ---------------------------- ----------------------------- Name: Aleksander Erdeljan Name: David Bearman Title: Chairman and CEO Title: Executive Vice President NBD BANK (as Trustee) By: /s/ ERNEST J. PECK ---------------------------- Name: Ernest J. Peck Title: Vice President EX-10.03 3 EXHIBIT 10.03 1 Exhibit 10.03 Cardinal Health, Inc. Equity Incentive Plan Amendment to Section 9(d) (d) Number of Shares. Each individual first elected or appointed to serve as a director of the Company at or after adjournment of the Company's annual meeting of shareholders (an "Annual Meeting") in 1997 who is an Outside Director shall, upon such election or appointment, automatically be granted options for that number of Shares having a fair market value of $150,000 (each an "Initial Grant"). In addition, commencing immediately after the adjournment of the Annual Meeting in 1997 and continuing on an annual basis, immediately following the adjournment of each succeeding Annual Meeting thereafter during the term of this Plan each Outside Director whose term did not expire at that Annual Meeting and who has then served as a director of the Company for a consecutive period of time which includes each of the last three Annual Meetings (i.e., including the Annual Meeting then just adjourned) shall automatically be granted additional Outside Director Options for that number of Shares having a fair market value of $100,000 (each an "Annual Grant"). Beginning on July 1, 2000 and on every third July 1 thereafter, the dollar value of the Initial Grants and Annual Grants shall automatically be increased under this Plan by a percentage equal to that percentage by which the fair market value per Share has increased in the immediately preceding three-year period, not to exceed a 45% aggregate increase over any such three-year period. For purposes of this Section 9, fair market value means the last sale price of the Shares on the applicable date (or, if no sale of Shares occurs on such date, on the next preceding date on which a sale occurred) as reported on the New York Stock Exchange Composite Tape. EX-10.13 4 EXHIBIT 10.13 1 Exhibit 10.13 EMPLOYMENT AGREEMENT -------------------- This is an agreement between Cardinal Health, Inc., an Ohio corporation (the "Company" ) and James F. Millar (the "Executive"), dated as of the 12th day of May, 1998. 1. Employment Period. The Company shall employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement, for the period commencing on May 12, 1998 (the "Effective Date") and ending on the third anniversary of the Effective Date (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, the Executive shall be employed by the Company, and shall perform such duties and responsibilities of an executive nature as may be determined from time to time by the Company's Board of Directors (the "Board") or its lawfully designated representative. (b) During the Employment Period, the Executive shall devote his full time and attention to the business and affairs of the Company, and shall use his best efforts to promote and establish the business of the Company and to carry out faithfully and efficiently the responsibilities assigned to him under this Agreement. It shall not be considered a violation of the foregoing for the Executive to (i) serve on corporate boards with the approval of Cardinal, (ii) serve on civic or charitable boards or committees, and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities under this Agreement. 3. Compensation. (a) Base Salary. During the Employment Period, the Company shall pay the Executive a base salary (the "Base Salary") at an annual rate of $314,449, payable in accordance with the Company's payroll practices for management personnel, as in effect from time to time (but not less frequently than monthly). During the Employment Period, the Base Salary shall be reviewed for possible increase annually in accordance with the Company's normal payroll practices for management personnel. Any increase in the Base Salary shall not limit, expand or reduce any other obligation of the Company under this Agreement. (b) Annual Bonus. In addition to the Base Salary, during the Employment Period the Executive shall be eligible to receive annual bonuses (each, regardless of whether for a 12-month period or a different period, an "Annual Bonus") pursuant to this Section 3(b). The Annual Bonus shall be determined and paid at the sole discretion of the Company pursuant to the terms and conditions of the Company's standard Management Incentive Plan as in effect from time to time, or any successor thereto (the "MIP"), with an MIP potential equal to 75 percent of the Base Salary. (c) Other Benefits. During the Employment Period, the Executive shall be entitled to participate in the group health, life, disability insurance, retirement savings and other employee benefit plans (collectively, "Group Plans") generally offered to the Company's employees in accordance with the standard terms and conditions of such plans as in effect from time to time. In addition, the Executive shall be eligible to participate in the Company's Equity Incentive Plan or any successor thereto (the "Cardinal Stock Plan"), although the actual awards and benefits, if any, 2 to be granted to the Executive thereunder shall be in the sole discretion of the Compensation and Personnel Committee of the Company's Board of Directors. The Employee shall at all times comply with the Company's policies on option exercises and the selling and buying of Company stock. (d) Expenses. The Company shall reimburse the Executive for all reasonable business expenses incurred by the Executive in the performance of his services hereunder for the Company, which expenses shall be substantiated to the reasonable satisfaction of the Company, in a manner similar to that applicable to other management personnel of the Company, and the Executive shall provide all necessary records to reflect the reasonable business expenses incurred. (e) Vacation. During the Employment Period, the Executive shall be entitled to annual paid vacations as provided in the Company's vacation policy as in effect as of the Effective Date, as it may be revised thereafter from time to time. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means the illness or disability of the Executive which prevents or hampers the performance of his obligations hereunder, and which continues for a consecutive period of one hundred and twenty (120) days or longer or an aggregate period of one hundred and eighty (180) days or longer, in either instance during the Employment Period. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective upon receipt of such notice by the Executive (the "Disability Effective Date"). (b) By the Company. The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" shall mean (A) fraud, misappropriation, embezzlement or material misconduct on the part of the Executive, (B) the Executive's (x) failure to substantially perform his duties for the Company when and to the extent requested by the Board or its lawfully designated representative to do so and (y) failure to correct same within five (5) business days after notice from the Board or its lawfully designated representative requesting the Executive to do so, or (C) the Executive's breach of any material provision of this Agreement, the Certificate of Compliance with Company Policies then applicable to management personnel of the Company, or other agreements between the Executive and the Company and such breach continues for a period of five (5) business days after notice from the Board or its lawfully designated representative of such breach. A termination of the Executive's employment by the Company without Cause shall be effected by giving the Executive five (5) business days written notice of the termination. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: (A) the assignment to the Executive of duties inconsistent in any material respect with Section 2(a) of this Agreement, other than any such action 3 that is remedied by the Company within five (5) business days after receipt of notice thereof from the Executive; or (B) any failure by the Company to comply with any provision of Section 3 of this Agreement other than any such failure that is remedied by the Company within five (5) business days after receipt of notice thereof from the Executive. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the fifth business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than 30 days after the notice is given); provided, that such a termination of employment shall not become effective if the Company shall have substantially corrected the circumstance giving rise to the Notice of Termination within such period. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason is effective, the date on which the Company gives the Executive notice of a termination of employment without Cause, or the date on which the Executive gives the Company notice of a termination of employment without Good Reason, as the case may be. 5. Obligations of the Company upon Termination. (a) Death, Disability, Cause; Without Good Reason. If, during the Employment Period, the Executive's employment is terminated because of death, Disability, for Cause, or by the Executive without Good Reason, then the Executive shall not be entitled to any compensation provided for under this Agreement, other than Base Salary through the Termination Date, benefits under any long-term disability insurance coverage in the case of termination because of Disability, and (without limiting the provisions of Section 6 hereof) vested benefits, if any, required to be paid or provided by law. (b) Without Cause; Good Reason. If, during the Employment Period, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason (collectively, an "Eligible Termination"), the Executive shall not be entitled to any compensation provided for under this Agreement except as set forth in the following three sentences. If the Eligible Termination occurs prior to the second anniversary of the Effective Date, then the Company (i) shall continue to pay the Executive his Base Salary, at the rate then in effect, for and with respect to the period beginning on the date of such termination of employment and ending on the last day of the Employment Period (hereinafter, the "Continuation Period") in the same manner as specified in Section 3(a) hereof; and (ii) shall pay the Executive, in lieu of annual bonuses pursuant to Section 3(b), an annual amount equal to the Executive's most recent previous annual bonus actually paid at the same time and in the same manner as such annual 4 bonuses would have been paid during the Continuation Period pursuant to Section 3(b). If the Eligible Termination occurs on or after the second anniversary of the Effective Date, then the Company (i) shall continue to pay the Executive his Base Salary, at the rate then in effect, for and with respect to the period beginning on the date of such termination of employment and ending on the first anniversary of such date; and (ii) shall pay the Executive, in lieu of an annual bonus pursuant to Section 3(b), an amount equal to the Executive's most recent previous annual bonus actually paid at the same time and in the same manner as such annual bonus would have been paid had the Executive continued to be employed by the Company during such one year period. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company for which the Executive may qualify, nor, subject to Section 9(f), shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any agreement with the Company. Vested benefits and other amounts that the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company on or after the Date of Termination shall be payable in accordance with such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 7. Confidential Information; Business Interference; Noncompetition; Inventions. (a) Both during his association with the Company or the Affiliated Companies (as defined below) and at all times thereafter, Executive shall not disclose to anyone else, directly or indirectly, any confidential, proprietary or business-sensitive information or trade secrets concerning or relating to the business of the Company or the Affiliated Companies (collectively, "Confidential Information") or use, or permit or assist, by acquiescence or otherwise, anyone else to use, directly or indirectly, any such Confidential Information. "Confidential Information" is information not generally known to the public and which, if released to unauthorized persons, could be detrimental to the reputation or business interests of the Company or the Affiliated Companies or parties with which the Company or the Affiliated Companies contract, or which could permit such unauthorized persons to benefit improperly. Examples of Confidential Information include, but are not limited to, the following: strategic business plans; computer materials such as software programs or documentation; information concerning the Company's and the Affiliated Companies' customers and potential customers, including their identities, contact persons, requirements, preferences, pricing or contract terms; marketing and sales information; research and development plans or data; budgets and unpublished financial statements; pricing information and cost data; information concerning the skills and compensation of other employees of the Company or the Affiliated Companies; and information concerning the suppliers of the Company and the Affiliated Companies. The foregoing restrictions shall not apply to disclosure of information by the Executive as may be required in the proper conduct of his duties on behalf of the Company or the Affiliated Companies or as may be specifically authorized in writing by the Company's chief executive officer, president, or chief financial officer. Upon termination of employment with the Company for any reason, Executive shall promptly deliver to the Company all property belonging to the Company and the Affiliated Companies and shall not retain any copies or reproductions of correspondence, reports, proposals, lists, computer 5 programs or files, or other information relating in any way to the affairs of the Company or the Affiliated Companies. (b) Both during his association with the Company and at all times thereafter, Executive shall not take any action which is intended to or would disparage or diminish the reputation of the Company or the Affiliated Companies. In addition, while associated with the Company and for a period of two (2) years after expiration or termination of employment or other association with the Company, Executive shall not directly or indirectly, employ, contact concerning employment, or participate in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) of any person who was or is at any time during the previous 12 months an employee, representative, officer, or director of the Company or any of the Affiliated Companies. (c) During the Noncompetition Period (as defined below), the Executive shall not, without the prior written consent of the Board, engage in or become associated with a Competitive Activity. For purposes of this Section 7(c): (i) the "Noncompetition Period" means (A) the period during which the Executive is employed by the Company, plus (B) one year; (ii) a "Competitive Activity" means any business or other endeavor, in the United States or Canada or any other country, of a kind then being conducted by the Company or any of the Affiliated Companies in such country; and (v) the Executive shall be considered to have become "associated with a Competitive Activity" if he 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, other organization or entity that is engaged in a Competitive Activity. Notwithstanding the foregoing, the Executive may make and retain investments during the Employment Period in not more than five 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. Should this provision be unenforceable in any jurisdiction because it is deemed too broad, as to time, area, subject matter, or otherwise, this provision shall be deemed modified to the extent necessary to be enforceable in such jurisdiction. (d) As special consideration for the Executive's agreement to be bound by the provisions of Section 7(c), the receipt and adequacy of which is hereby confirmed and acknowledged, he is receiving, as of the Effective Date, a special grant of restricted shares pursuant to the Cardinal Stock Plan. (e) All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether by himself or jointly with others, from the date of the Executive's initial employment by the Company and continuing until the end of the Employment Period and any subsequent period when the Executive is employed by the Company or any of the Affiliated Companies, relating or pertaining in any way to his employment with or the business of the Company or any of the Affiliated Companies, shall be promptly disclosed in writing to the Board and are hereby transferred to and shall redound to the benefit of the Company, and shall become and remain its sole and exclusive property. The Executive agrees to execute any assignments to the Company or its nominee, of his entire right, title and interest in and to any such 6 discoveries and improvements and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries. The Executive further agrees, during and after the Employment Period, to cooperate to the extent and in the manner required by the Company, in the prosecution or defense of any patent or copyright claims or any litigation, or other proceeding involving any trade secrets, processes, discoveries or improvements covered by this Agreement, but all necessary expenses thereof shall be paid by the Company. (f) The Executive acknowledges and agrees that the Company's remedy at law for any breach of the Executive's obligations under this Section 7 would be inadequate and agrees and consents that temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision of such Section without the necessity of proof of actual damage. With respect to any provision of this Section 7 finally determined by a court of competent jurisdiction to be unenforceable, the Executive and the Company 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 parties agree to abide by such court's determination. 8. Successors. (a) This Agreement is personal to the Executive, and he may not assign any interest herein in any manner whatsoever. Any purported assignment by the Executive shall be void. (b) In addition to assignments by operation of law, the Company shall have the right to assign this Agreement to any person, firm or corporation, controlling, controlled by or under common control with the Company (including without limitation any of the Affiliated Companies), or acquiring substantially all of its assets, but such assignment shall not release the Company from its obligations under this Agreement. 9. Miscellaneous. (a) The provisions of Sections 5, 6, 7, 8, and 9 of this Agreement shall survive any expiration or termination of this Agreement. (b) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices, requests, consents and other communications required or provided under this Agreement shall be in writing and shall be deemed sufficient if delivered by facsimile, overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and shall be effective upon delivery as follows: 7 If to the Executive: -------------------- James F. Millar 5555 Glendon Court Dublin, Ohio 43016 Facsimile: (614) 717-8676 If to the Company: ------------------ Cardinal Health, Inc. 5555 Glendon Court Dublin, Ohio 43016 Attention: General Counsel Facsimile: (614) 717-8919 Either party may change the address and/or facsimile number to which notices are to be sent to that party by giving written notice of such change of address to the other party in the same manner above provided for giving notice. (d) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective, but only to the extent of such prohibition or unenforceability, without invalidating the other provisions hereof or without affecting the validity or unforceability of such provision in any other jurisdiction. (e) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (f) As of the Effective Date, this Agreement shall constitute the entire agreement between the parties relative to the subject matter contained herein, superseding, canceling and replacing all prior agreements. No promises, covenants or representations of any character or nature other than those expressly stated herein have been made to induce either party to enter into this Agreement. This Agreement shall not be modified, waived or discharged except in writing duly signed by each of the parties or their authorized assignees. (g) The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement except to the extent any other party hereto is materially prejudiced by such failure. 8 (h) The term "Affiliated Companies" means all companies controlled by, controlling or under common control with the Company. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. /s/ JAMES F. MILLAR ------------------------------------ James F. Millar CARDINAL HEALTH, INC. By /s/ JOHN C. KANE ---------------------------------- Title President ------------------------------- EX-10.14 5 EXHIBIT 10.14 1 Exhibit 10.14 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT among GEORGE L. FOTIADES (the "Employee"), R.P. SCHERER CORPORATION, a Delaware corporation (the "Company"), and Cardinal Health, Inc., an Ohio corporation ("Parent"), dated as of May 17, 1998, amends and restates the EMPLOYMENT AGREEMENT between the Employee and the Company dated as of January 15, 1998 (the "Prior Agreement"). WHEREAS, the Company 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 the date hereof, with Parent and GEL Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"); and WHEREAS, the Company desires to assure itself of the benefit of the Employee's services and experience for a period of time following the Merger, and the Employee is willing to enter into an agreement to that end 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: 1. Term of Agreement. Subject to the terms and conditions hereof, the term of employment of the Employee under this Agreement shall be for the period beginning at the Effective Time (as defined in the Merger Agreement) and ending on the first anniversary of the Effective Time. Thereafter, so long as Employee is capable of performing his duties hereunder and provided this Agreement is not terminated pursuant to Section 4, this Agreement shall be 2 automatically renewed for successive periods of one year, unless, prior to 30 days before the termination date of any one-year period, either party notifies the other of an intention to terminate this Agreement on such termination date, in which event the Agreement shall be terminated on such date. Such term of employment, as renewed, is hereinafter referred to as the "Employment Period." 2. Services to be Rendered. (a) During the term of employment of the Employee under this Agreement (and any renewals thereof) the Employee shall serve the Company as President - R.P. Scherer and Executive Vice President - Cardinal Health, Inc. (b) The Employee agrees that he will, during the term of employment under this Agreement (and any renewals thereof) devote his time, attention and ability to the business of the Company and its subsidiaries as President - R.P. Scherer and Executive Vice President - Cardinal Health, Inc. and shall well and faithfully serve the Company and its subsidiaries and shall exercise the powers and authorities and fulfill the responsibilities hereby conferred upon him honestly, diligently, in good faith and in the best interest of the Company and its subsidiaries and use his best efforts to promote their interests. The Employee may, however, serve as an outside director of any other corporation provided Employee obtains the consent of the Company, which shall not be unreasonably withheld. 3. Compensation. (a) In full payment for services rendered to the Company under this Agreement, the Company shall pay the Employee a salary of Four Hundred Thousand and -2- 3 00/100 Dollars ($400,000) per year during the first year of the Employment Period ("Base Salary"). The Board of Directors of the Company (the "Board") shall determine the salary to be paid to the Employee during subsequent years of the Employment Period. (b) In addition to the compensation otherwise provided for in this Section 3, during the term of his employment hereunder, the Employee also shall be entitled to: (i) participate in the Company's stock option plans, in accordance with the terms thereof, as from time to time may be in effect; (ii) by resolution of the Board, participate in the Company's annual incentive compensation plan, in accordance with the terms thereof, as from time to time may be in effect, with a target annual bonus of 85% of his Base Salary (provided, that the bonus for the 1999 fiscal year shall not be less than 50% of his target annual bonus); (iii) participate in the Company's retirement plans, in accordance with the terms thereof, as from time to time may be in effect; and (iv) participate in such group life, disability, accident, hospital and medical insurance plans ("Welfare Plans") in accordance with the terms thereof, as from time to time may be in effect; provided, that any such participation is generally appropriate to Employee's responsibilities hereunder; and provided, further, that benefits and terms of participation under the Welfare Plans may be changed by the Company from time to time in its sole discretion. (c) The Employee shall be entitled, during the Employment Period, to vacations and fringe benefits consistent with the practices of the Company. (d) The Company shall provide the Employee, during the Employment Period, with the use of a Company-owned or leased automobile, and will pay all taxes and insurance on said vehicle. -3- 4 (e) The Company will reimburse the Employee for the costs associated with relocation, pursuant to the standard relocation program in effect at the time of relocation. (f) In consideration of the Employee's agreement to continue to serve the Company pursuant to the terms of this Agreement following the Effective Time, including without limitation the waiver of the provision of the Prior Agreement whereby a termination by the Employee of his employment within six months after the Merger would have been deemed a termination for "Good Reason," the Company shall pay the Employee the sum of $500,000, in the following installments: (i) one-sixth upon the Effective Time; (ii) one-sixth upon the first anniversary of the Effective Time; (ii) one-third upon the second anniversary of the Effective Time; and (iii) one-third upon the third anniversary of the Effective Time; provided, in each case, that the Employee remains employed hereunder on the date the installment is to be paid. 4. Disability, Death and Termination. (a) In the event of the Employee's inability to perform the principal duties of his job at the Company due to physical or mental condition, as determined by a physician ("Permanent Incapacitating Disability") for any consecutive period of at least one year with or without accommodation, the Company may, at its election, terminate the Employee's employment hereunder. The date of Permanent Incapacitating Disability shall be on the last day of such period. In the event of any such termination, the Company shall be obligated (i) for compensation earned by the Employee hereunder, but not yet paid, prior to such termination, and (ii) to pay the Employee each month, for twenty-four consecutive months, an amount equal to the monthly Termination Benefit (the "Disability Benefit"); provided, however, that the amount of the Disability Benefit shall be reduced by any amounts received by the Employee in respect of -4- 5 the Employee's disability from any employee benefit or disability plans maintained by the Company. (b) The obligations of the Company under this Agreement shall terminate upon the death of the Employee. (c) If any of the following events should occur: (1) the Employee voluntarily terminates employment with the Company without Good Reason before retirement (which for purposes of this Agreement shall be determined at or over the age of 55 or at any earlier date approved by the Company), or (2) the Company terminates the Employee's employment for Cause, the Company's obligations hereunder shall terminate and no further payments of any kind (other than in respect of compensation earned by the Employee as determined hereunder prior to such termination) shall thereafter be made by the Company to the Employee hereunder. For purposes of the foregoing, "Cause" means: (i) any act or acts of the Employee constituting a felony (or its equivalent) under the laws of the United States, any state thereof or any foreign jurisdiction; (ii) any material breach by the Employee of any employment agreement with the Company or the policies of the Company or any of its subsidiaries or the willful and persistent (after written notice to the Employee) failure or refusal of the Employee to perform his duties of employment or comply with any lawful directives of the Board of Directors of the Company; (iii) a course of conduct amounting to gross neglect, willful misconduct or dishonesty; or (iv) any misappropriation of material property of the Company by the Employee or any misappropriation of a corporate or business opportunity of the Company by the Employee. -5- 6 For purposes of the foregoing, "Good Reason" means: (i) any material reduction by the Company of such Employee's duties, responsibilities or titles; (ii) any involuntary removal of such Employee from any position previously held (except in connection with a promotion or a termination for Cause, death or disability, or the voluntary termination by the Employee other than for Good Reason); (ii) such other reasons (including nonemployment-related reasons) as may be approved by the Company, in its sole discretion, from time to time. (d) If the Company terminates the Employee's employment without Cause, if the Employee voluntarily terminates employment with the Company for Good Reason, or if the Company notifies the Employee of its intention to terminate this Employment Agreement pursuant to Section 1 hereof, the Company shall: (1) pay the Employee a monthly amount, for twenty-four consecutive months after termination (the "Termination Benefit"), equal to one twelfth of the Employee's annual average Base Salary as computed by the Company for the prior twenty-four consecutive months, or if the Employee has not been employed for twenty-four consecutive months, for the number of consecutive months employed, preceding the date of termination (such prior period, the "Prior Period") until the Termination Benefit is paid in full; (2) pay the Employee, on each of the first two anniversaries of the date of termination, an amount equal to the average of the annual bonuses paid to the Employee during the Prior Period; (3) pay the Employee the amounts provided for in Section 3(f), to the extent not previously paid, as and when they are required to be paid thereunder; and (4) provide Employee with benefits in accordance with Section 3(b)(iv) and Section 3(d) for a period of twenty-four consecutive months after termination. -6- 7 5. Confidentiality. For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of the Company or any of its subsidiaries that has not previously been publicly released by duly authorized representatives of the Company and shall include (but shall not be limited to) Company 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 the business of the Company. The Employee agrees to regard and preserve as confidential all proprietary information pertaining to the Company's business that has been or may be obtained by the Employee in the course of his employment with the Company, whether he has such information in his memory or in writing or other physical form. The Employee will not, without prior written authority from the Company to do so, use for his benefit or purposes, or disclose to any other person, firm, partnership, corporation or other entity, either during the term of his employment hereunder or thereafter, any proprietary information connected with the business or developments of the Company, except as required in connection with the performance by the Employee of his duties and responsibilities as an employee of the Company. This provision shall not apply after the proprietary information has been voluntarily disclosed to the public, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. 6. Removal of Documents or Objects. The Employee agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the -7- 8 business of the Company or any of its subsidiaries, or except as specifically permitted in writing by the Company, any document (regardless of the medium on which it is recorded), object, computer program, computer source code, object code or data (the "Documents") containing or reflecting any proprietary information of the Company. The Employee recognizes that all such Documents, whether developed by him or by someone else, are the exclusive property of the Company. 7. Non-Competition. The Employee agrees that during the term of his employment hereunder and for a period of two years after such term of employment terminates or is terminated, he will not in any way, directly or indirectly, manage, operate, control, solicit officers or employees of the Company, accept employment, a directorship or a consulting position with or otherwise advise or assist or be connected with or own or have any other interest in or right with respect to (other than through ownership of not more than one percent of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise which competes or shall compete with the Company, by engaging in or otherwise carrying on the research, development, manufacture or sale of any product of any type developed, manufactured or said by the Company or any subsidiary thereof, whether now or hereafter (to the extent that any such product is under consideration by the Board of Directors of the Company at the time the Employee's employment terminates or is terminated). 8. Corporate Opportunities. The Employee agrees that during the Employment Period he will not take any action which might divert from the Company or any subsidiary of the Company any opportunity which would be within the scope of any of the present or future businesses of the Company or any of its subsidiaries (which future businesses -8- 9 are then under consideration by the Board of Directors of the Company), the loss of which has or would have had, in the reasonable judgment of the Board of Directors of the Company, an adverse effect upon the Company, unless the Board of Directors of the Company has given prior written approval. 9. Relief. It is understood and agreed by and between the parties hereto that the service to be rendered by the Employee hereunder, and the rights and privileges granted to the Company by the Employee hereunder, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the provisions contained in this Agreement will cause the Company great irreparable injury and damage. The Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of this Agreement by the Employee. The Employee further expressly agrees that in the event the Employee breaches the non-competition provisions of Section 7 of this Agreement or the confidentiality provisions of Section 5 of this Agreement, the balance of any payments due under this Agreement shall be forfeited by the Employee. The provisions of this Section 9 shall not, however, be construed as a waiver of any of the rights which the Company may have for damages or otherwise. 10. Warranty. The Employee hereby warrants that he is free to enter into this Agreement and to render his services pursuant hereto. -9- 10 11. Non-Assignability. Except as otherwise provided herein, this Agreement may not be assigned by either the Company or the Employee. 12. Withholding. The Company shall have the right to withhold the amount of taxes, which in the determination of the Company, are required to be withheld under law with respect to any amount due or paid under this Agreement. 13. Notices. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Company, to it at: R.P. Scherer Corporation 2301 West Big Beaver Road Troy, Michigan 48084 Attention: Secretary With a copy to: Cardinal Health, Inc. 5555 Glendon Court Dublin, Ohio 43016 Attention: General Counsel (b) If to the Employee, to him at such address as set forth in the signature page hereof or as he shall otherwise have specified by notice in writing to the Company. -10- 11 14. Governmental Regulation. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law and wherever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, the latter shall prevail, but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 15. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. Any suit, action or proceeding against the Employee with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any court of competent jurisdiction in the State of Michigan and the Employee hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. The Employee hereby irrevocably waives any objections which he may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court of competent jurisdiction in the State of Michigan, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. No suit, action or proceeding against the Company with respect to this Agreement may be brought in any court, domestic or foreign, or before any similar domestic or foreign authority other than in a court of competent jurisdiction in the State of Michigan, and the Employee hereby irrevocably waives any right which he may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. The Company hereby submits to the jurisdiction of such courts for the purpose of any such suit, action or proceeding. The Employee irrevocably waives his right to trial by jury with -11- 12 regard to any suit, action, or proceeding with respect to this Agreement; provided, however, that if such waiver of the right to jury trial shall be held unenforceable, the invalidity or unenforceability of this provision shall not impair the validity or enforceability of any other provision of this Agreement. 16. Entire Agreement; Amendment; Termination. From and after the Effective Time, this Agreement shall set forth the entire understanding of the parties in respect of the subject matter contained herein and shall supersede all prior agreement, arrangements and understandings relating to the subject matter (including without limitation the Prior Agreement). This Agreement may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. 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. -12- 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. R.P. SCHERER CORPORATION By:/s/ ALEKSANDER ERDELJAN Title:Chairman, President & CEO /s/George L. Fotiades George L. Fotiades 281 Summit Avenue Summit, New Jersey 07901 CARDINAL HEALTH, INC. By:/s/ GEORGE H. BENNETT, JR. Title: Executive Vice President -13- EX-10.15 6 EXHIBIT 10.15 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of June 1, 1994, between ALEKSANDAR ERDELJAN (the "Employee") and R.P. SCHERER CORPORATION, a Delaware corporation (the "Company"). WHEREAS, the Company desires to assure itself of the benefit of the Employee's services and experience for a period of time and the Employee is willing to enter into an agreement to that end 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: 1. Term of Agreement. Subject to the terms and conditions hereof, the term of employment of the Employee under this Agreement shall be for the period of one year commencing from the date set forth above. Thereafter, so long as Employee is capable of performing his duties hereunder and provided this Agreement is not terminated pursuant to Section 4, this Agreement shall be automatically renewed for successive periods of one year, unless, prior to 30 days before the termination date of any one-year period, either party notifies the other of an intention to terminate this Agreement on such termination date in which event the Agreement shall be terminated on such date. Such term of employment, as renewed, is hereinafter referred to as the "Employment Period." 2. Services to be Rendered. (a) During the term of employment of the Employee under this Agreement (and any renewals thereof) the Employee shall serve the Company as its President and Co-Chief Executive Officer. (b) The Employee agrees that he will, during the term of employment under this Agreement (and any renewals thereof) devote his time, attention and ability to the business of the Company and its subsidiaries as the Company's President and Co-Chief Executive Officer and shall well and faithfully serve the Company and its subsidiaries and shall exercise the powers and authorities and fulfill the responsibilities hereby conferred upon him honestly, diligently, in good faith and in the best interest of the Company and its subsidiaries and use his best efforts to promote their interests. The Employee may, however, serve as an outside director of any other corporation provided Employee obtains the consent of the Company, which shall not be unreasonably withheld. 3. Compensation. (a) In full payment for services rendered to the Company under this Agreement, the Company shall pay the Employee a salary of Six Hundred Thirty-Two Thousand Two Hundred Eighty Six and 00/100 Dollars ($632,286) per year during the first year of the Employment Period ("Base Salary"). The Compensation Committee of the Board of Directors of the Company shall determine the salary to be paid to the Employee during subsequent years of the Employment Period. (b) In addition to the compensation otherwise provided for in this Section 3, during the term of his employment hereunder, the Employee also shall be entitled to: (i) participate in the Company's stock option plans, in accordance with the terms thereof, as from time to time may be in effect; (ii) by resolution of the Compensation Committee, participate in the Company's incentive compensation plans, in accordance with the terms thereof, as from time to time may be in effect; (iii) participate in the Company's retirement plans, in accordance with the terms thereof, as from time to time may be in effect; and (iv) participate in such group life, disability, accident, hospital and medical insurance plans ("Welfare Plans") in accordance with the terms thereof, as from time to time may be in effect; provided, that any such participation is generally appropriate to Employee's responsibilities hereunder; and provided, further, that benefits and terms of participation under the Welfare Plans may be changed by the Company from time to time in its sole discretion. To the extent stock options are to be granted in accordance with a Company stock option plan for the Company fiscal year ending within the year Employee's employment agreement terminates, Employee is entitled to such options in accordance with the plan's terms. (c) The Employee shall be entitled, during the Employment Period, to vacations and fringe benefits consistent with the practices of the Company. 2 (d) The Company shall provide the Employee, during the Employment Period, with the use of a Company-owned or leased automobile, and will pay all taxes and insurance on said vehicle. 4. Disability, Death and Termination. (a) In the event of the Employee's inability to perform the principal duties of his job at the Company due to physical or mental condition, as determined by a physician ("Permanent Incapacitating Disability") for any consecutive period of at least one year with or without accommodation, the Company may, at its election, terminate the Employee's employment hereunder. The date of Permanent Incapacitating Disability shall be on the last day of such period. In the event of any such termination, the Company shall be obligated (i) for compensation earned by the Employee hereunder, but not yet paid, prior to such termination, and (ii) to pay the Employee each month, for twenty-four consecutive months, an amount equal to the monthly Termination Benefit (the "Disability Benefit"); provided, however, that the amount of the Disability Benefit shall be reduced by any amounts received by the Employee in respect of the Employee's disability from any employee benefit or disability plans maintained by the Company. (b) The obligations of the Company under this Agreement shall terminate upon the death of the Employee. (c) If any of the following events should occur: (1) the Employee voluntarily terminates employment with the Company without Good Reason before retirement (which for purposes of this Agreement shall be determined at or over the age of 55 or at any earlier date approved by the Company), or (2) the Company terminates the Employee's employment for Cause, the Company's obligations hereunder shall terminate and no further payments of any kind (other than in respect of compensation earned by the Employee as determined hereunder prior to such termination) shall thereafter be made by the Company to the Employee hereunder. For purposes of the foregoing, "Cause" means: (i) any act or acts of the Employee constituting a felony (or its equivalent) under the laws of the United States, any state thereof or any foreign jurisdiction; (ii) any material breach by the Employee of any employment agreement with the Company or the policies of the Company or any of its subsidiaries or the willful and persistent (after written notice to the Employee) failure or refusal of the Employee to perform his duties of employment or comply with any lawful directives of the Board of Directors of the Company; (iii) a course of conduct amounting to gross neglect, willful misconduct or dishonesty; or (iv) any misappropriation of material property of the Company by the Employee or any misappropriation of a corporate or business opportunity of the Company by the Employee. For purposes of the foregoing, "Good Reason" means: (i) any material reduction by the Company of such Employee's duties, responsibilities or titles; (ii) any involuntary removal of such Employee from any position previously held (except in connection with a promotion or a termination for Cause, death or disability, or the voluntary termination by the Employee other than for Good Reason); (iii) within six months after a Change in Control; or 3 (iv) such other reasons (including nonemployment-related reasons) as may be approved by the Company, in its sole discretion, from time to time. (d) If the Company terminates the Employee's employment without Cause, if the Employee voluntarily terminates employment with the Company for Good Reason, or if the Company notifies the Employee of its intention to terminate this Employment Agreement pursuant to Section 1 hereof, the Company shall: (1) pay the Employee a monthly amount, for twenty-four consecutive months after termination, equal to one twelfth of the Employee's annual average salary as computed by the Company for the prior twenty-four consecutive months, or if the Employee has not been employed for twenty-four consecutive months, for the number of consecutive months employed, preceding the date of termination (the "Termination Benefit") until the Termination Benefit is paid in full; and (2) provide Employee with benefits in accordance with Section 3(b)(iv) and Section 3(d) for a period of twenty- four consecutive months after termination. 5. Confidentiality. For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of the Company or any of its subsidiaries that has not previously been publicly released by duly authorized representatives of the Company and shall include (but shall not be limited to) Company 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 the business of the Company. The Employee agrees to regard and preserve as confidential all proprietary information pertaining to the Company's business that has been or may be obtained by the Employee in the course of his employment with the Company, whether he has such information in his memory or in writing or other physical form. The Employee will not, without prior written authority from the Company to do so, use for his benefit or purposes, or disclose to any other person, firm, partnership, corporation or other entity, either during the term of his employment hereunder or thereafter, any proprietary information connected with the business or developments of the Company, except as required in connection with the performance by the Employee of his duties and responsibilities as an employee of the Company. This provision shall not apply after the proprietary information has been voluntarily disclosed to the public, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. 6. Removal of Documents or Objects. The Employee agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or any of its subsidiaries, or except as specifically permitted in writing by the Company, any document (regardless of the medium on which it is recorded), object, computer program, computer source code, object code or data (the "Documents") containing or reflecting any proprietary information of the Company. The Employee recognizes that all such Documents, whether developed by him or by someone else, are the exclusive property of the Company. 7. Non-Competition. The Employee agrees that during the term of his employment hereunder and for a period of two years after such term of employment terminates or is terminated, he will not in any way, directly or indirectly, manage, operate, control, solicit officers or employees of the Company, accept employment, a directorship or a consulting position with or otherwise advise or assist or be connected with or own or have any other interest in or right with respect to (other than through ownership of not more than one percent of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise which competes or shall compete with the Company, by engaging in or otherwise carrying on the research, development, manufacture or sale of any product of any type developed, manufactured or sold by the Company or any subsidiary thereof, whether now or hereafter (to the extent that any such product is under consideration by the Board of Directors of the Company at the time the Employee's employment terminates or is terminated). 8. Corporate Opportunities. The Employee agrees that during the Employment Period he will not take any action which might divert from the Company or any subsidiary of the Company any opportunity which would be within the scope of any of the present or future businesses of the Company or any of its subsidiaries (which future businesses are then under consideration by the Board of Directors of 4 the Company), the loss of which has or would have had, in the reasonable judgment of the Board of Directors of the Company, an adverse effect upon the Company, unless the Board of Directors of the Company has given prior written approval. 9. Relief. It is understood and agreed by and between the parties hereto that the service to be rendered by the Employee hereunder, and the rights and privileges granted to the Company by the Employee hereunder, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the provisions contained in this Agreement will cause the Company great irreparable injury and damage. The Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of this Agreement by the Employee. The Employee further expressly agrees that in the event the Employee breaches the non-competition provisions of Section 7 of this Agreement or the confidentiality provisions of Section 5 of this Agreement, the balance of any payments due under this Agreement shall be forfeited by the Employee. The provisions of this Section 9 shall not, however, be construed as a waiver of any of the rights which the Company may have for damages or otherwise. 10. Warranty. The Employee hereby warrants that he is free to enter into this Agreement and to render his services pursuant hereto. 11. Non-Assignability. Except as otherwise provided herein, this Agreement may not be assigned by either the Company or the Employee. 12. Merger or Consolidation. In the event (a) the Company merges with or into, or consolidates with, another entity; (b) the Company sells, exchanges or otherwise disposes of all or substantially all of the assets of the Company; (c) 50% or more of the Company's then outstanding shares of voting stock is acquired by another corporation, person or entity; (d) the Company liquidates or dissolves; or (e) the Company recapitalizes or enters into any similar transaction, and as a result of which the Common Stock either (i) is no longer a voting equity security of the Company or (ii) is no longer listed on a national securities exchange or authorized for quotation on an inter-dealer quotation system of a national securities association (referred to collectively as a "Change in Control"), this Agreement may be assigned and transferred to such successor in interest as an asset of the Company upon such assignee assuming the Company's obligations hereunder, in which event the Employee agrees to continue to perform his duties and obligations according to the terms and conditions hereof for such assignee or transferee of this Agreement subject to Employee's right to terminate for Good Reason in accordance with Section 4(c)(iii). 13. Withholding. The Company shall have the right to withhold the amount of taxes, which in the determination of the Company, are required to be withheld under law with respect to any amount due or paid under this Agreement. 14. Notices. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Company, to it at: R.P. Scherer International Corporation 2075 West Big Beaver Road Troy, Michigan 48084 Attention: Secretary With a copy to: R.P. Scherer Corporation 2075 West Big Beaver Road Troy, Michigan 48084 Attention: Secretary 5 (b) If to the Employee, to him at such address as set forth in the signature page hereof or as he shall otherwise have specified by notice in writing to the Company. 15. Governmental Regulation. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law and wherever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, the latter shall prevail, but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 16. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. Any suit, action or proceeding against the Employee with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any court of competent jurisdiction in the State of Michigan and the Employee hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. The Employee hereby irrevocably waives any objections which he may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court of competent jurisdiction in the State of Michigan, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. No suit, action or proceeding against the Company with respect to this Agreement may be brought in any court, domestic or foreign, or before any similar domestic or foreign authority other than in a court of competent jurisdiction in the State of Michigan, and the Employee hereby irrevocably waives any right which he may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. The Company hereby submits to the jurisdiction of such courts for the purpose of any such suit, action or proceeding. The Employee irrevocably waives his right to trial by jury with regard to any suit, action, or proceeding with respect to this Agreement; provided, however, that if such waiver of the right to jury trial shall be held unenforceable, the invalidity or unenforceability of this provision shall not impair the validity or enforceability of any other provision of this Agreement. 17. Entire Agreement; Amendment. This Agreement sets forth the entire understanding of the parties in respect of the subject matter contained herein and supersedes all prior agreement, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. R.P. SCHERER CORPORATION By: /s/ Nicole S. Williams Title:Executive Vice President /s/ Aleksandar Erdeljan Aleksandar Erdeljan 6 AMENDMENT TO EMPLOYMENT AGREEMENT This AMENDMENT dated as of May 17, 1998 to the EMPLOYMENT AGREEMENT among ALEKSANDAR ERDELJAN (the "Employee"), R.P. SCHERER CORPORATION, a Delaware corporation (the "Company"), and Cardinal Health, Inc., an Ohio corporation ("Parent"), dated as of June 1, 1994 (the "Employment Agreement"). WHEREAS, the Company 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 the date hereof, with Parent and GEL Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"); and WHEREAS, the Company desires to assure itself of the benefit of the Employee's services and experience for a period of time following the Merger, and the Employee is willing to enter into an agreement to that end 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: 1. Continued Employment; Noncompetition. In consideration of the provisions of Section 2 of this Amendment, the Employee hereby agrees that: (a) notwithstanding Section 4(d) of the Employment Agreement and clause (iii) of the definition of "Good Reason" in Section 4(c) of the Employment Agreement, a termination of his employment by the Employee before the 90th day following the Effective Time shall not be treated as a termination for "Good Reason," and if the Employee does terminate his employment before the 7 90th day following the Effective Time, he shall not be entitled to any further payments or benefits pursuant to the Employment Agreement or this Amendment; and (b) Section 7 of the Employment Agreement is hereby amended to provide that the covenant contained therein shall apply for five years, rather than two years, following termination of his employment. 2. Severance. In consideration of the provisions of Section 1, Section 4(d) of the Employment Agreement is hereby amended by adding the following at the end hereof: In addition, if the date of termination is after the 90th day following the Effective Time: (A) after the Termination Benefit provided for in clause (1) above is paid in full, the Company shall continue to (x) pay the Employee the monthly amount described in said clause (1), and provide benefits in accordance with Section 3(d), for an additional 12 months, and (y) provide benefits in accordance with Section 3(c)(iv) for an additional 36 months; and (B) the Company shall pay the Employee, on each of the first three anniversaries of the date of termination, an amount equal to the last annual bonus paid to the Employee by the Company before the date of termination. 3. Effect of this Amendment; Amendment; Termination. Except as specifically set forth in this Amendment, the Employment Agreement shall continue in effect without amendment. This Amendment may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. Notwithstanding anything else contained herein, if the Merger Agreement is terminated without the Effective Time having occurred, then this Amendment shall be null and void and of no effect ab initio, and the Employment Agreement shall remain in effect without amendment hereby. -2- 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. R.P. SCHERER CORPORATION By:/s/ ROBERT H. ROCK Title: Chairman, Comp. Committee /s/Aleksandar Erdeljan Aleksandar Erdeljan Address: CARDINAL HEALTH, INC. By:/s/ GEORGE H. BENNETT, JR. Title: Executive Vice President -3- EX-10.24 7 EXHIBIT 10.24 1 Exhibit 10.24 RIDER NO. 6 TO VENDOR PROGRAM AGREEMENT DATED AS OF OCTOBER 10, 1991, AS AMENDED AMONG GENERAL ELECTRIC CAPITAL CORPORATION ("GE CAPITAL"), PYXIS CORPORATION ("PYXIS") AND CARDINAL HEALTH, INC. ("CARDINAL") THIS RIDER is hereby incorporated into and made a part of the above referenced Vendor Program Agreement, as amended from time to time (the "Agreement") and is subject to all applicable terms and provisions of the Agreement. Capitalized terms used and not defined herein shall have the meanings set forth in the Agreement. WHEREAS, PYXIS and CARDINAL have requested that in lieu of PYXIS offering to sell and assign to GE CAPITAL any Rental Agreements for the period April 1, 1998 through March 10, 1999 or at any time thereafter, PYXIS be permitted to pay GE CAPITAL upon the execution of this Rider No. 6 an amount to be mutually agreed upon by the parties hereto (the "Quarterly New Portfolio Aggregate Buyout Amount"). WHEREAS, PYXIS has requested that in the event that any Rental Agreement, including any New Portfolio Rental Agreement, is terminated as a result of an upgrading of Equipment or any other event which PYXIS and the applicable Customer mutually agree upon, the sole responsibility of PYXIS shall be to replace the terminated Rental Agreement with a new obligation of comparable value to be issued by CARDINAL and to be secured by inventory consisting of all pharmaceutical products owned by CARDINAL or its wholly owned subsidiary, Cardinal Florida, Inc. ("Cardinal Florida"), and which is now or hereafter located in the warehouse facility located at 2700 Interstate Drive, Lakeland, Florida 33805 which is owned by SunTrust Banks, Inc. and leased to Cardinal Florida pursuant to that certain Lease Agreement between SunTrust Banks, Inc., as lessor, and Cardinal Florida, as lessee, dated as of August 14, 1996 (the " Lakeland Facility"). WHEREAS, the parties further wish to modify the Agreement to amend the Uniform Commercial Code financing statement filed by GE CAPITAL to reflect its security interest in the Rental Agreements which it has financed and the Equipment which is subject thereto, and to amend the provision of the Agreement which deals with GE CAPITAL's commitment to consult with PYXIS prior to entering into a Vendor Program Agreement, Operating Agreement or similar agreement with a competing company. NOW THEREFORE, for the consideration set forth herein and in the Agreement, GE CAPITAL, PYXIS and CARDINAL hereby agree as follows: A. QUARTERLY NEW PORTFOLIO AGGREGATE BUYOUT AMOUNT. -1- 2 (1) Upon ten (10) business days following the execution of this Rider No. 6, PYXIS shall pay to GE CAPITAL via wire transfer to an account designated by GE CAPITAL the amount of Four Million One Hundred Fourteen Thousand Six Hundred Forty Nine Dollars ($4,114,649.00) in payment of the Quarterly New Portfolio Aggregate Buyout Amount. (2) Payment by PYXIS of the Quarterly New Portfolio Aggregate Buyout Amount shall relieve PYXIS of any obligation to offer to GE CAPITAL any Rental Agreements under the Agreement for the period April 1, 1998 through March 10, 1999 or at any time thereafter, including without limitation, the obligations under Sections A and M(2) of Rider No. 5 to the Agreement, but shall not otherwise affect the rights or obligations of the parties pursuant to Rider No. 5 to the Agreement, except as provided in Sections A(3), A(4) and B(1) hereof. (3) The fifth sentence of Section K of Rider No. 5 to the Agreement is hereby amended to read as follows: "Should GE CAPITAL elect this option, PYXIS shall remit to GE CAPITAL on the termination date a termination fee (the "Termination Fee") equal to the Aggregate Portfolio Net Book Value (as hereinafter defined)." (4) Payment by PYXIS of the Quarterly New Portfolio Aggregate Buyout Amount shall also relieve PYXIS of any further obligation to (i) pay GE CAPITAL any late charge receivables which were transferred by GE CAPITAL to PYXIS pursuant to the transition in account administration implemented pursuant to Rider No. 5 to the Agreement, and (ii) notify GE CAPITAL if PYXIS elects to outsource the account administration of any Serviced Accounts and offer GE CAPITAL the right of first refusal to administer the Serviced Accounts for which PYXIS proposes to outsource the account administration as provided in Section M(1) of Rider No. 5 to the Agreement. B. OBLIGATION TO REPLACE A TERMINATED RENTAL AGREEMENT WITH A NEW OBLIGATION. (1) In the event that any Rental Agreement, including any New Portfolio Rental Agreement, is terminated as a result of an upgrading of Equipment or any other event which PYXIS and the applicable Customer mutually agree upon, the sole responsibility and obligation of PYXIS shall be to replace the terminated Rental Agreement with a new obligation of comparable value to be issued by CARDINAL which shall be in the form of Exhibit A annexed hereto and incorporated herein by reference (the "New Note"). One New Note shall be issued by CARDINAL on or before the fifteenth day of each month to cover the aggregate obligations of CARDINAL with respect to all Rental Agreements (if any) which were terminated pursuant to this Section B(1) during the preceding calendar month provided that such termination was reflected in PYXIS' books and records. Each New Note shall (A) have an original principal amount equal to the sum of (1) the net present value of the remaining payments to be made under the Rental Agreements which were terminated during the preceding month (the "Terminated Rental Agreements") as of their respective dates of termination discounted to present value at the applicable Standard Rate of each Terminated Rental Agreement, and (2) the accrued and unpaid amounts (if any) due under the Terminated Rental Agreements, (B) have a rate of interest equal to the weighted average of the Standard Rates of the Terminated Rental Agreements, and (C) be payable in monthly installments, with each monthly installment representing the scheduled payments which were due to be made under the Terminated Rental Agreements during such month. Each New Note shall be secured by -2- 3 inventory consisting of all pharmaceutical products now or hereafter owned by CARDINAL or Cardinal Florida and which is now or hereafter located in the Lakeland Facility pursuant to the terms of the Security Agreement among CARDINAL, Cardinal Florida and GE CAPITAL which is annexed hereto as Exhibit B and incorporated herein by reference. C. UNIFORM COMMERCIAL CODE FINANCING STATEMENT CHANGE. GE CAPITAL hereby agrees to prepare and file within three (3) business days following the execution by all parties hereto of this Rider No. 6 Form UCC-2s in the State of California which amend the original Uniform Commercial Code financing statement filed by GE CAPITAL under the Program. The Form UCC-2s to be prepared and filed by GE CAPITAL shall be substantially in the form annexed hereto as Exhibit C, and shall be submitted to PYXIS for its execution. Upon return of the executed Form UCC-2s from PYXIS, GE CAPITAL shall file the Form UCC-2s in the office in which the original Uniform Commercial Code financing statement was first filed. D. COMMITMENT TO CONSULT. Section C of Rider No. 3 to the Agreement is hereby amended in its entirety to read as follows: "COMMITMENT TO CONSULT. PYXIS shall provide the Vendor Financial Services division of GE CAPITAL ("VFS") with a list (each such list being referred to as the "Competing Companies List") of those companies or those divisions of companies which compete directly with PYXIS in the sale of drug supply dispensing products (each such company or division being hereinafter referred to as a "Competing Company"). Where a Competing Company consists of a division or a subsidiary, nothing herein shall prohibit or restrict VFS' ability to enter into a Vendor Program Agreement, an Operating Agreement or a similar agreement with the parent corporation or any other affiliate of such Competing Company, provided that VFS shall not enter into a Vendor Program Agreement, an Operating Agreement or a similar agreement with such Competing Company except in accordance with the terms of this Section C. PYXIS may revise the Competing Companies List at any time by providing GE CAPITAL with a list of additional Competing Companies. Each Competing Companies List shall be subject to GE CAPITAL's review and approval which shall not be unreasonably withheld or delayed. The first approved Competing Companies List is annexed hereto as Exhibit D. Once a Competing Companies List is approved by GE CAPITAL, GE CAPITAL shall be obligated to give PYXIS prior written notice ("Consultation Notice") of the intention of VFS or of any new division or affiliate established by GE CAPITAL on or after the date hereof that offers a domestic vendor financing program which is similar to the vendor financing programs offered by VFS ("Newco") to enter into a Vendor Program Agreement, Operating Agreement or similar agreement with a Competing Company whose name appears on an approved Competing Companies List (other than Baxter International, Inc. or any division thereof). If PYXIS opposes the entry by VFS or Newco into a Vendor Program Agreement or an Operating Agreement or a similar agreement with such Competing Company, then the issue shall be referred to VFS' General Manager and PYXIS' Chief Financial Officer. If such officers cannot resolve the issue within thirty (30) days after submission of the issue to such officers, and VFS or Newco nevertheless elects to enter into a Vendor Program Agreement or an Operating Agreement or a similar agreement with such Competing Company, then PYXIS may terminate the Agreement upon thirty (30) days notice to GE CAPITAL and shall be entitled to exercise the rights afforded to PYXIS under Section J of Rider No. 3 to the Agreement in the event of a -3- 4 default by GE CAPITAL of its obligations under the Agreement. GE CAPITAL agrees that VFS and Newco will not enter into a Vendor Program Agreement or an Operating Agreement or a similar agreement with any Competing Company (other than Baxter International, Inc. or any division thereof) whose name appears on an approved Competing Companies List for a period of one hundred and twenty (120) days following the giving of the applicable Consultation Notice to PYXIS. The obligation of GE CAPITAL to provide a Consultation Notice to PYXIS shall automatically terminate upon the expiration of the last Owned Account." E. CONFIDENTIALITY. The following sentence is hereby added to the end of Section K of Rider No. 3 to the Agreement: "If prior to the expiration of the last Owned Account, either GE CAPITAL or PYXIS utilizes any such confidential information other than in connection with the transactions contemplated by the Agreement, or divulges any such confidential information to a third party, then the disclosing party shall have breached the Agreement. If the disclosing party is GE CAPITAL, then PYXIS shall be entitled to exercise the rights afforded to PYXIS under Section J of Rider No. 3 to the Agreement in the event of default by GE CAPITAL." F. PARTIES TO THIS AGREEMENT. PYXIS, CARDINAL and GE CAPITAL agree that the obligations of PYXIS described in this Rider No. 6 are joint and several obligations of PYXIS and CARDINAL. In the event that PYXIS fails to perform any of its obligations under this Rider No. 6, GE CAPITAL may demand performance by CARDINAL who waives notice of default by PYXIS and any requirement that GE CAPITAL be required to first proceed against PYXIS or exhaust any collateral or security of PYXIS before requiring CARDINAL to perform any of the obligations of PYXIS under this Rider No. 6. G. NO FURTHER AMENDMENTS. Except as specifically amended herein, all other provisions of the Agreement and the obligations of the parties pursuant thereto shall remain in full force and effect. -4- 5 IN WITNESS WHEREOF, the parties have caused this Rider No. 6 to be executed by their duly authorized representatives as of the dates set forth below. PYXIS CORPORATION GENERAL ELECTRIC CAPITAL CORPORATION By:/s/ SCOTT R. PETERSON By:/s/ STEPHEN M. BENNETT ------------------------------ -------------------------------- Title: V.P. Finance, CFO Title: Vice President --------------------------- ---------------------------- Date: June 1, 1998 Date: June 1, 1998 --------------------------- ---------------------------- CARDINAL HEALTH, INC. By:/s/ DAVID BEARMAN ------------------------------ Title: Chief Financial Officer --------------------------- Date: June 1, 1998 --------------------------- -5- 6 EXHIBIT A PROMISSORY NOTE Date: ________, ____ FOR VALUE RECEIVED, CARDINAL HEALTH, INC., an Ohio corporation whose principal executive offices are located at 5555 Glendon Court, Dublin, Ohio 43016 ("Debtor"), promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any subsequent holder hereof (each, a "Payee") at its office located at 55 Federal Road, P.O. Box 3199, Danbury, Connecticut 06813-3199 or at such other place as Payee may designate, the principal sum of _____________ Dollars ($______), with interest on the unpaid principal balance from and including the date hereof at the rate of ___ percent ( %) per annum, to be paid in arrears in lawful money of the United States, in _________(_______) consecutive monthly installments of principal and interest. The amount of each monthly installment may vary and shall be equal to the aggregate amount of principal and interest set forth opposite the applicable Payment Date (as hereinafter defined) on Exhibit A annexed hereto and made a part hereof, and a final monthly installment shall be in the amount of the total outstanding principal and interest. The first monthly installment shall be due and payable on ________, ____ and the following monthly installments shall be due and payable on the same day of each succeeding month (each a "Payment Date"). The final monthly installment shall be due and payable on __________, _________. All payments shall be applied first to interest and then to principal. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. Interest shall be calculated on the basis of a 360 day year and will be charged for each calendar day on which any principal is outstanding. Time is of the essence hereof. If any installment of principal and interest is not received within five (5) business days after the applicable Payment Date, Debtor agrees to pay in addition to the amount of each such installment a late payment charge of one percent (1%) of said installment, but not exceeding any lawful maximum. In the event that (i) Debtor fails to make payment of any amount due hereunder within ten (10) business days after the same becomes due and payable; or (ii) Debtor defaults or fails to perform any term or condition contained in the Security Agreement (hereafter defined), then the entire unpaid principal sum of this Promissory Note, together with all interest accrued thereon, and all other sums due under the Security Agreement dated May __, 1998 among Debtor and its wholly-owned subsidiary, Cardinal Florida, Inc., as debtors, and General Electric Capital Corporation, as secured party (the "Security Agreement"), shall, at the option of Payee, immediately become due and payable, and Payee shall be entitled to exercise one or more of the remedies provided in Section 9 of the Security Agreement. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Promissory Note or the Security Agreement, in no event shall this Promissory Note or the Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Promissory Note or the Security Agreement, then (a) the provisions of this paragraph shall govern and control, (b) neither Debtor nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in -6- 7 excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Debtor, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Promissory Note or the Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Debtor or otherwise by Payee in connection with such indebtedness; provided, however, that if the interest rate is reduced pursuant to this paragraph and any applicable state law is then amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater simple interest per annum rate than is allowed at the time of the reduction, Debtor agrees that on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the lower of the original interest rate provided under this Promissory Note or the maximum simple interest per annum rate allowed by the higher of the amended state law or the law of the United States of America. Debtor and all sureties, endorsers, guarantors or any others (each such person, other than Debtor, an "Obligor") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Promissory Note or the Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Promissory Note. Debtor and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, and diligence in collecting this Promissory Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's reasonable attorneys' fees. CARDINAL HEATH, INC. By: - -------------------------------- -------------------------- (Witness) - ------------------------------- ----------------------------- (Print or Type Name) (Print or Type Name) - ------------------------------- ----------------------------- (Address) (Print or Type Title) -7- 8 EXHIBIT A TO PROMISSORY NOTE Payment Date Principal Interest Aggregate Payment - ------------ --------- -------- ------------------ -8- 9 EXHIBIT B SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Security Agreement") is made as of the ___ day of May, 1998 by and among GENERAL ELECTRIC CAPITAL CORPORATION ("GE CAPITAL"), as secured party, and CARDINAL HEALTH, INC. ("CARDINAL") and its wholly-owned subsidiary CARDINAL FLORIDA, INC. ("CARDINAL FLORIDA"), as debtors. 1. Reference is made to the Vendor Program Agreement among GE CAPITAL, PYXIS CORPORATION ("PYXIS"), and CARDINAL dated as of October 10, 1991, as amended (the "Vendor Program Agreement"). Capitalized terms used herein without definition shall have the meanings set forth in the Vendor Program Agreement. 2. In order to induce GE CAPITAL to: (a) agree to delete the requirement set forth in the fourth sentence of Section A(1) of Rider No. 5 to the Vendor Program Agreement that PYXIS offer GE CAPITAL the right to finance new Rental Agreements of comparable value in the event that the Rental Agreements originally financed by GE CAPITAL are terminated as a result of an upgrading of Equipment or any other event which PYXIS and the applicable Customers mutually agree upon, and (b) agree to accept in place of the terminated Rental Agreements certain promissory notes of comparable value to be issued by CARDINAL to GE CAPITAL (individually, a "Promissory Note", and collectively, the "Promissory Notes"), and in consideration of GE CAPITAL doing so, CARDINAL and CARDINAL FLORIDA hereby grant GE CAPITAL a security interest in all present and future inventory (as such term is defined in the Uniform Commercial Code in effect in the State of New York) of pharmaceutical products ("Inventory"), together with all accessions, replacements, exchanges or returns thereto, and all cash and non-cash proceeds thereof, whether now owned or hereafter acquired by CARDINAL or CARDINAL FLORIDA which are now or hereafter located at the warehouse facility located at 2700 Interstate Drive, Lakeland, Florida 33805 (the "Lakeland Facility") which is legally owned by SunTrust Banks, Inc. ("SunTrust Banks") and leased by SunTrust Banks to CARDINAL FLORIDA pursuant to that certain Lease Agreement dated as of August 14, 1996 (the "Lakeland Lease") between SunTrust Banks, as lessor, and CARDINAL FLORIDA, as lessee (collectively, the "Collateral"). 3. The security interest granted to GE CAPITAL in the preceding paragraph shall continue in effect for so long as any obligation of CARDINAL to GE CAPITAL under any Promissory Note remains outstanding. CARDINAL and CARDINAL FLORIDA agree to execute and deliver to GE CAPITAL for filing in the appropriate filing office(s) Uniform Commercial Code financing statement(s) substantially in the form of Exhibit A hereto, continuation statement(s) thereto and/or any other document which is necessary to perfect and maintain the perfection of GE CAPITAL's security interest in the Collateral. This Security Agreement or any photographic or other copy of it may be filed in any appropriate public office(s) as a financing statement. 4. This Security Agreement creates a valid and continuing lien (the "Lien") upon the Collateral in favor of GE CAPITAL. CARDINAL and CARDINAL FLORIDA each represents, warrants and covenants to GE CAPITAL that: (i) CARDINAL and CARDINAL FLORIDA are each duly organized and validly existing corporations, and have the power to enter into this Security Agreement and to carry out the transactions contemplated hereby; (ii) the execution and delivery of this Security Agreement and the performance by CARDINAL and CARDINAL FLORIDA of the transactions contemplated hereby have been duly authorized by all necessary corporate action; (iii) this Security Agreement constitutes a legal, valid and binding obligation of CARDINAL and CARDINAL FLORIDA enforceable in accordance with its terms, except as may -9- 10 be limited by bankruptcy, insolvency or similar laws affecting the rights and remedies of creditors generally and the availability of equitable remedies; (iv) upon the filing of the Uniform Commercial Code financing statement(s) referenced in Section 3 above, the Lien will be a fully perfected lien on all Collateral, and will be enforceable as a first priority lien against all other creditors of, and purchasers from, CARDINAL or CARDINAL FLORIDA (other than purchasers of Inventory in the ordinary course of business); (v) CARDINAL or CARDINAL FLORIDA is the sole owner of each item of Collateral and has good and marketable title to the Collateral free and clear of any other liens, claims or encumbrances; (vi) no effective security agreement, financing statement or equivalent security covering all or any part of the Collateral is or will be on file or of record in any public office, except those filed in favor of GE CAPITAL pursuant to Section 3 hereof; (vii) CARDINAL and CARDINAL FLORIDA shall defend the right, title and interest of GE CAPITAL in and to the Collateral against the claims and demands of all persons (other than purchasers of Inventory in the ordinary course of business), and shall take such actions, including the institution of litigation against third parties as shall be prudent in order to protect and preserve GE CAPITAL's first priority security interest in the Collateral; (viii) CARDINAL and CARDINAL FLORIDA will at all times maintain Collateral at the Lakeland Facility in an amount (valued at the original manufacturer's wholesale prices) equal to or greater than CARDINAL's aggregate outstanding obligations to GE CAPITAL under the Promissory Notes; (ix) CARDINAL and CARDINAL FLORIDA shall mark their respective books and records pertaining to the Collateral to evidence the Lien on the Collateral granted under this Security Agreement; (x) CARDINAL's and CARDINAL FLORIDA's handling, storage, wholesale sale and/or distribution of the Collateral conforms in all material respects to all federal and state rules, regulations and standards which pertain to the handling, storage, wholesale sale or distribution of similar pharmaceutical products; (xi) CARDINAL and CARDINAL FLORIDA will obtain from SunTrust Banks a duly authorized and executed Lessor's Consent and Waiver (the "SunTrust Banks Agreement") in which SunTrust Banks will acknowledge the superiority of GE CAPITAL's liens and security interest in the Collateral and shall authorize GE CAPITAL to enter the Lakeland Facility to remove, inspect or otherwise deal with the Collateral and to conduct private or public sales of the Collateral whenever GE CAPITAL deems it necessary to protect its interest in the Collateral; and (xii) CARDINAL and CARDINAL FLORIDA will advise GE CAPITAL promptly in writing of (a) any fact which causes any representation, warranty or covenant of CARDINAL and/or CARDINAL FLORIDA contained in this Security Agreement to become materially inaccurate during the term of this Security Agreement or (b) the occurrence of any other event which would have a material adverse effect on the value of the Collateral or the Lien granted hereunder. 5. So long as CARDINAL and CARDINAL FLORIDA are not in default under any of their respective obligations to GE CAPITAL under the Promissory Notes or this Security Agreement, CARDINAL and CARDINAL FLORIDA may sell Collateral which consists of Inventory in the normal course of their business; provided that CARDINAL and CARDINAL FLORIDA shall not sell or otherwise transfer, voluntarily or involuntarily, any Collateral which consists of Inventory outside of the normal course of their business. 6. CARDINAL and CARDINAL FLORIDA hereby, transfer and assign to GE CAPITAL all representations and warranties made by the manufacturers of the Collateral which consists of Inventory, to the extent such representations and warranties are assignable, including any representations and warranties that the Inventory conforms in all material respects to all federal and state rules, regulations and standards which pertain to similar pharmaceutical products, and will cooperate with all reasonable requests made by GE CAPITAL to enforce such representations or warranties against such manufacturers in the event that GE CAPITAL sustains any losses, claims or liabilities in connection with its repossession, disposal or sale of such Inventory as a result of such representations or warranties being false or incorrect when made. Notwithstanding anything herein to the contrary, CARDINAL and CARDINAL FLORIDA each -10- 11 reserve their rights under such manufacturers' representations and warranties and the remedies available to them for any breach by the manufacturers of such representations and warranties. 7. (a) CARDINAL and CARDINAL FLORIDA will at all times keep complete and accurate records of the Collateral, its wholesale prices and its sales, including warehouse receipts, bills of lading, certificates of title, sales and accounts receivables, and other documents and will make such records and the Collateral available for inspection by GE CAPITAL or its designee with at least three business days advance written notice to CARDINAL and CARDINAL FLORIDA at a reasonable time and at the location where such records and the Collateral are maintained. (b) CARDINAL and CARDINAL FLORIDA will provide GE CAPITAL with a monthly report regarding the value of the Collateral, as reflected on CARDINAL's and CARDINAL FLORIDA's books and records, which shall be prepared in accordance with CARDINAL's and CARDINAL FLORIDA's standard accounting practices. (c) In the event that the Lakeland Lease is not renewed upon its expiration and the Lakeland Facility is not conveyed from SunTrust Banks to CARDINAL or CARDINAL FLORIDA, CARDINAL and CARDINAL FLORIDA covenant to: (a) grant to GE CAPITAL or secure the grant to GE CAPITAL by another wholly-owned subsidiary of CARDINAL ("Newsub") of a first priority security interest in the entire Inventory located at another facility which is owned or leased by CARDINAL, CARDINAL FLORIDA or Newsub (the "Replacement Collateral") which has a value which is at least equal to CARDINAL's aggregate outstanding obligations to GE CAPITAL under the Promissory Notes, (b) duly execute and deliver to GE CAPITAL, or secure the due execution and delivery by Newsub to GE CAPITAL, for filing in the appropriate filing office(s) of, Uniform Commercial Code financing statement(s) in the form of Exhibit A hereto and/or any other document which is necessary to perfect GE CAPITAL's security interest in the Replacement Collateral, (c) if the new facility is not owned by CARDINAL, CARDINAL FLORIDA or Newco, secure the due execution and delivery by the lessor of the new facility of an agreement substantially in the form of the SunTrust Banks Agreement, and (d) secure the due authorization and delivery by Newsub of a Security Agreement in the form of this Security Agreement if the Replacement Collateral is pledged by Newsub. 8. CARDINAL and CARDINAL FLORIDA will pay promptly when due all taxes and transportation, storage and warehousing charges on the Collateral and shall keep the Collateral insured against all customary perils for at least the lesser of its insurable value, less a deductible of no more than $150,000 per occurrence, or the aggregate amount CARDINAL owes to GE CAPITAL under the Promissory Notes, with GE CAPITAL named as a loss payee, and with such policies subject to cancellation or modification only upon thirty days prior written notice to GE CAPITAL. Upon GE CAPITAL's request, CARDINAL and CARDINAL FLORIDA will furnish GE CAPITAL with evidence that the required insurance is in full force and effect. In the event of the loss, damage or destruction of the Collateral, if the insurance proceeds received by GE CAPITAL are insufficient to cover the aggregate amount which CARDINAL owes to GE CAPITAL under the Promissory Notes, then within ten days following receipt of written notice from GE CAPITAL, CARDINAL, in its sole discretion, shall either pay to GE CAPITAL an amount equal to such deficiency or replace the lost, damaged or destroyed Collateral with new Collateral, which shall be pledged to GE CAPITAL pursuant to the terms of this Security Agreement. If CARDINAL or CARDINAL FLORIDA fails to pay any of such taxes or other charges, or to keep the Collateral properly insured, GE CAPITAL may at its option, but is not required to, correct such default and any amounts expended by GE CAPITAL in doing so will be deemed a CARDINAL obligation or a CARDINAL FLORIDA obligation, as the case may be, and will be evidenced by a new promissory note to be issued by CARDINAL or CARDINAL FLORIDA, as the case may be, on behalf of GE CAPITAL and secured by the Lien created hereunder. -11- 12 9. If (i) CARDINAL fails to pay when due any amount payable under a Promissory Note or CARDINAL or CARDINAL FLORIDA fails to observe or perform any representation, warranty, covenant or agreement contained in this Security Agreement and such failure continues uncured for longer than ten days after receipt of written notice from GE CAPITAL identifying such failure; or (ii) any representation, warranty or covenant contained herein proves to have been materially false or incorrect when made; or (iii) any of the Collateral is subject to, or threatened with, attachment, execution, levy or seizure in any legal proceeding; or (iv) CARDINAL or CARDINAL FLORIDA makes an assignment for the benefit of creditors, or ceases to do business as a going concern, or if a petition under Title 11 of the United States Code or any successor or similar law (the "Bankruptcy Code") or for a receiver is filed by CARDINAL or CARDINAL FLORIDA or if any involuntary proceeding is filed against CARDINAL or CARDINAL FLORIDA under the Bankruptcy Code and CARDINAL or CARDINAL FLORIDA fails to have such involuntary proceeding dismissed within sixty days after it is filed; or (v) the value of the Collateral maintained by CARDINAL and CARDINAL FLORIDA at the Lakeland Facility at any time decreases to less than CARDINAL's aggregate outstanding obligations to GE CAPITAL under the Promissory Notes and CARDINAL and CARDINAL FLORIDA fail within ten days after receipt of written notice from GE CAPITAL to: (a) grant to GE CAPITAL, or secure the grant to GE CAPITAL by Newsub of, a first priority security interest in the entire Inventory of pharmaceutical products located at another facility which is owned or leased by CARDINAL, CARDINAL FLORIDA or Newsub ("Additional Collateral") with a value that when added to the value of the Collateral will at least equal CARDINAL's aggregate outstanding obligations to GE CAPITAL under the Promissory Notes, and (b) duly execute and deliver to GE CAPITAL, or secure the due execution and delivery by Newsub to GE CAPITAL, for filing in the appropriate filing office(s) of, Uniform Commercial Code financing statement(s) in the form of Exhibit A hereto and/or any other document which is necessary to perfect GE CAPITAL's security interest in the Additional Collateral, and (c) secure the due execution and delivery by the lessor of the new facility of an agreement substantially in the form of the SunTrust Banks Agreement, if the new facility is not owned by CARDINAL, CARDINAL FLORIDA or Newco, and (d) secure the due execution and delivery by Newsub of a Security Agreement in the form of this Security Agreement if the Additional Collateral is pledged by Newsub; or (vi) CARDINAL's credit rating falls below BBB+, as defined by Standard and Poors, CARDINAL and CARDINAL FLORIDA will be in default under this Security Agreement. 10. Upon the occurrence of any such default, GE CAPITAL may exercise one or more of the following remedies: (i) effective as of the date of the default, upon notice to CARDINAL, increase the rate of interest on the Promissory Notes by the lower of one hundred (100) basis points or the maximum amount permitted by applicable law for so long as any default shall be continuing, (ii) declare all indebtedness then owed and secured hereby to be immediately due and payable and proceed to enforce payment of said amount, and (iii) exercise any other rights and remedies available to GE CAPITAL at law or at equity, including all remedies available to it under the Uniform Commercial Code. CARDINAL and CARDINAL FLORIDA expressly waive further notice of intention to accelerate the indebtedness secured hereby and of acceleration. CARDINAL and CARDINAL FLORIDA agree, at GE CAPITAL's request, to assemble the Collateral and make it available to GE CAPITAL at the Lakeland Facility. GE CAPITAL, by itself or its agent, may, without notice to CARDINAL or CARDINAL FLORIDA, enter into any premises where the Collateral may be, and may repossess all or any portion of the Collateral. GE CAPITAL shall have the right, but not the obligation, to sell or otherwise dispose of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, to such parties and upon such reasonable terms and conditions as GE CAPITAL, in its sole discretion, may deem advisable. Any notice which GE CAPITAL is required to give to CARDINAL or CARDINAL FLORIDA under the Uniform Commercial Code or other applicable law of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is mailed to the last known address of -12- 13 CARDINAL and CARDINAL FLORIDA at least ten (10) days prior to such action. Such sales may be adjourned or continued, from time to time, with or without notice to CARDINAL or CARDINAL FLORIDA. GE CAPITAL shall have the right to conduct such sales at the Lakeland Facility or elsewhere and shall have the right to use the Lakeland Facility for a reasonable amount of time without rent or charge for such sales, provided that such sales do not unreasonably interfere with CARDINAL FLORIDA's use of the Lakeland Facility. To the maximum extent permitted by applicable law, CARDINAL and CARDINAL FLORIDA waive all claims, damages or demands against GE CAPITAL or its agents arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen solely out of the negligence or willful misconduct of GE CAPITAL or such agent. Any proceeds of any sale of Collateral by GE CAPITAL shall be applied first to the payment of the reasonable expenses incurred by GE CAPITAL in the repossession, storage and sale of the Collateral, including attorneys', appraisers' and auctioneers' fees, then to the payment of all the obligations of CARDINAL to GE CAPITAL then in default under the Promissory Notes and then to the discharge of any remaining obligations of CARDINAL and CARDINAL FLORIDA to GE CAPITAL under this Security Agreement. CARDINAL and CARDINAL FLORIDA shall pay to GE CAPITAL on demand any deficiency which may remain after such sale or other disposition, and GE CAPITAL shall remit to CARDINAL and CARDINAL FLORIDA any surplus remaining after such sale or other disposition and the distribution described herein. 11. In no event will CARDINAL or CARDINAL FLORIDA have to pay any charge which would exceed that lawfully permitted. If any provision, practice, document or agreement would, in the absence of this Section, require the payment, or permit the receipt or charging, of any interest or other charge which would exceed the amount permitted by applicable law on the principal from time to time actually outstanding, then: (1) this Section will control, (2) CARDINAL and CARDINAL FLORIDA will not be obligated to pay the amount of such charges to the extent they exceed the maximum amount permitted by law for written contracts, (3) any excess which is collected or received will either be applied to the unpaid principal lawfully owed by CARDINAL and CARDINAL FLORIDA or refunded to CARDINAL and CARDINAL FLORIDA, and (4) the effective rate of interest and other charges will be automatically reduced to the maximum rate for written contracts permitted by applicable law. As used in this Section, the term "interest" includes all amounts, however denominated, which under applicable law are considered to be interest. 12. CARDINAL and CARDINAL FLORIDA shall indemnify GE CAPITAL against and hold GE CAPITAL harmless from any and all claims, actions, suits, damages, and liabilities, and all costs and expenses, including reasonable attorneys fees, incurred by GE CAPITAL which arise out of or in way relate to CARDINAL's or CARDINAL FLORIDA's handling, storage, wholesale sale or distribution of the Collateral. 13. This Security Agreement will continue in effect for so long as any obligation of CARDINAL to GE CAPITAL under any Promissory Note remains outstanding. Upon the expiration (or earlier termination) of the last remaining obligation under the last Promissory Note, the terms of this Security Agreement (other than Sections 6 and 12 hereof) shall automatically terminate and GE CAPITAL shall, upon CARDINAL's and CARDINAL FLORIDA's request, execute and file UCC-3 financing statement(s) terminating its Lien on the Collateral. 14. This Security Agreement constitutes the entire agreement among GE CAPITAL and CARDINAL and CARDINAL FLORIDA with respect to the subject matter hereof and supersedes all previous negotiations, proposals, commitments, writings and understandings between the parties with respect to the subject matter hereof. 15. Any modification of this Security Agreement, or waiver of any provision herein contained, shall not be binding unless in writing and signed by an authorized official of -13- 14 CARDINAL, CARDINAL FLORIDA and GE CAPITAL. Any waiver by GE CAPITAL of a default by CARDINAL or CARDINAL FLORIDA will not be a waiver of any subsequent or other default. No right or remedy is exclusive of any other right or remedy provided under this Security Agreement or permitted by law or equity, and all such rights and remedies shall be cumulative and may be exercised singularly or concurrently, at GE CAPITAL's option. Time is of the essence with regard to each and every provision of this Security Agreement. 16. The invalidity or unenforceability of any provision of this Security Agreement shall not affect the validity or enforceability of any other provision, and the remaining provisions of this Security Agreement shall remain in full force and effect. 17. This Security Agreement and any amendment or addendum hereto may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 18. Without GE CAPITAL's prior written consent, CARDINAL and CARDINAL FLORIDA shall not assign or transfer any of their obligations hereunder, except that Newsub may assume certain obligations in accordance with Section 9(v) hereof and CARDINAL FLORIDA may assign or transfer its obligations to any other wholly-owned subsidiary of CARDINAL into which CARDINAL FLORIDA may be merged or consolidated ("Successor Sub"), provided that the Successor Sub shall execute and deliver to GE CAPITAL for filing in the appropriate filing office(s) a UCC-3 financing statement(s) which reflects the change of the debtor's name from CARDINAL FLORIDA to Successor Sub and that Successor Sub shall execute an agreement acknowledging its assumption of the obligations of CARDINAL FLORIDA under this Security Agreement. Any attempted transfer by CARDINAL or CARDINAL FLORIDA (except as provided in the preceding sentence) without GE CAPITAL's prior written consent shall be null and void. Subject to the provisions of this Section 18, this Security Agreement will be binding on, and inure to the benefit of, GE CAPITAL's, CARDINAL's and CARDINAL FLORIDA's respective successors and assigns. 19. This Security Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the laws of the State of New York (without regard to the conflict of laws principles of such State). CARDINAL, CARDINAL FLORIDA and GE CAPITAL hereby consent and submit to the jurisdiction of any state or federal court located in the State of New York, and waive all objections thereto based on improper venue or forum non conveniens. 20. TO THE EXTENT PERMITTED BY APPLICABLE LAW, CARDINAL , CARDINAL FLORIDA AND GE CAPITAL HEREBY UNCONDITIONALLY WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM, COUNTERCLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR THE PROMISSORY NOTES. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS OR MODIFICATIONS TO THIS SECURITY AGREEMENT OR TO THE PROMISSORY NOTES. IN THE EVENT OF LITIGATION, THIS SECURITY AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 21. CARDINAL, CARDINAL FLORIDA and GE CAPITAL agree that the obligations of CARDINAL and CARDINAL FLORIDA described in this Security Agreement are joint and several obligations of CARDINAL and CARDINAL FLORIDA. In the event that either CARDINAL or CARDINAL FLORIDA fails to perform any of its obligations under this Security Agreement, GE CAPITAL may demand performance by the non-defaulting party who waives notice of default and of any requirement that GE CAPITAL be required to first proceed against the -14- 15 defaulting party or to exhaust any Collateral or security of the defaulting party before requiring the non-defaulting party to perform any of the obligations of the defaulting party under this Security Agreement. IN WITNESS WHEREOF, the parties have caused this Security Agreement to be executed by their duly authorized representatives as of the date set forth above. CARDINAL HEALTH, INC. GENERAL ELECTRIC CAPITAL CORPORATION By: By: ----------------------------- --------------------------- Name: Name: --------------------------- ------------------------- Title: Title: ------------------------- ------------------------ CARDINAL FLORIDA, INC. By: ----------------------------- Name: -------------------------- Title: ------------------------- -15- 16 EXHIBIT A TO SECURITY AGREEMENT DESCRIPTION OF COLLATERAL IN UNIFORM COMMERCIAL CODE FINANCING STATEMENT TO BE FILED BY CARDINAL The Collateral shall include all right title and interest of Cardinal Health, Inc., and its successors and assigns ("Debtor"), in and to all of the following: All present and future inventory of pharmaceutical products now owned or hereafter acquired by Debtor which are now or hereafter located at 2700 Interstate Drive, Lakeland, Florida 33805. The Collateral shall include all present and future proceeds and products of, replacements, exchanges and accessions to the Collateral and any right to insurance covering the Collateral up to the amount Debtor owes Secured Party. In addition, the term "proceeds" shall include, without limitation, all accounts, chattel paper, instruments, goods, documents, general intangibles, money and other proceeds which arise from the sale, lease, transfer or other use or disposition of any Collateral or proceeds and all proceeds of any type described above acquired with cash proceeds up to the amount Debtor owes Secured Party. Debtor: --------------------------------------------- CARDINAL HEALTH, INC. Secured Party: --------------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION -16- 17 EXHIBIT A TO SECURITY AGREEMENT DESCRIPTION OF COLLATERAL IN UNIFORM COMMERCIAL CODE FINANCING STATEMENT TO BE FILED BY CARDINAL FLORIDA The Collateral shall include all right title and interest of Cardinal Florida, Inc., and its successors and assigns ("Debtor"), in and to all of the following: All present and future inventory of pharmaceutical products now owned or hereafter acquired by Debtor which are now or hereafter located at 2700 Interstate Drive, Lakeland, Florida 33805. The Collateral shall include all present and future proceeds and products of, replacements, exchanges and accessions to the Collateral and any right to insurance covering the Collateral up to the amount Debtor owes Secured Party. In addition, the term "proceeds" shall include, without limitation, all accounts, chattel paper, instruments, goods, documents, general intangibles, money and other proceeds which arise from the sale, lease, transfer or other use or disposition of any Collateral or proceeds and all proceeds of any type described above acquired with cash proceeds up to the amount Debtor owes Secured Party. Debtor: -------------------------------------------- CARDINAL FLORIDA, INC. Secured Party: -------------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION -17- 18 EXHIBIT C EXHIBIT A TO FORM UCC-2 DESCRIPTION OF COLLATERAL The Collateral shall include all right title and interest of Pyxis Corporation, and its successors and assigns ("Debtor"), in and to all of the following: All Chattel Paper assigned or sold to Secured Party under that certain Vendor Program Agreement dated as of October 10, 1991, as the same may be from time to time amended (the "Agreement"). The term "Chattel Paper" means: rental agreements (or with respect to any master rental agreement, each equipment schedule or similar document relating to particular equipment assigned or sold to Secured Party), leases, guaranties, and all other writings evidencing any obligation to pay for equipment or software rented, leased or sold thereunder and all rights and claims to payments, security deposits and other revenues due or to become due thereunder and all other rights or claims at any time existing or arising thereunder. All accounts, contract rights, and general intangibles arising out of or in connection with the Chattel Paper, including without limitation, rights in any loss pool account; all computer or other records of Debtor, in machine readable or printed form applicable to the Chattel Paper or the Agreement. All equipment and software, and related printed or machine readable materials, and miscellaneous hardware parts and upgrades, including without limitation, all attachments, replacements, accessions, exchanges and substitutions thereto, which are the subject of the Chattel Paper assigned or sold to Secured Party under the Agreement. The Collateral shall include all present and future proceeds and products of, replacements and accessions to the Collateral and any right to insurance covering the Collateral up to the amount Debtor owes Secured Party. In addition, the term "proceeds" shall include, without limitation, all accounts, chattel paper, instruments, goods, documents, general intangibles, money and other proceeds which arise from the sale, lease, transfer or other use or disposition of any Collateral or proceeds and all proceeds of any type described above acquired with cash proceeds up to the amount Debtor owes Secured Party. Notwithstanding anything to the contrary contained herein, the term "software" shall not include any rights to confidential, proprietary, copyrighted or licensed material contained in, constituting or made part thereof. Debtor: --------------------------------------------- PYXIS CORPORATION Secured Party: --------------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION -18- 19 EXHIBIT D 1 Automated Healthcare, Inc. (Subsidiary of McKesson) 2 MedSelect Systems Inc. (Subsidiary of Diebold Inc.) 3 Omnicell Technologies Inc. 4 Baxter International Inc. 5 Allscripts 6 Auto Med Technologies Inc. 7 LifeServ Technology Systems, Inc. 8 Medication Management Systems, Inc. 9 Medical Technology Systems, Inc. 10 MedVantage International, Inc. 11 ApotheCare 12 HealthMate Robotics 13 Key Communications Service, Inc. 14 Securel, Inc. 15 Promedic Support Inc. 16 Medicart Enterprises 17 Artromick 18 Medi-Dose, Inc. 19 Mediserv 20 Baker APS 21 Summit Inventory Management Systems 22 Wyeth-Ayerst 23 Lionville Systems, Inc. -19- EX-10.27 8 EXHIBIT 10.27 1 Exhibit 10.27 Partnership Agreement of R.P. Scherer GmbH & Co. KG 2 INDEX Preamble 1 Sec. 1 Business Name, Seat, Legal Form........................... 1 Sec. 2 Object of the Limited Partnership......................... 1 Sec. 3 Partners, Capital Participation, Liability................ 1 Sec. 4 Partners' Accounts........................................ 2 Sec. 5 Management, Representation, Exercise of Control........... 2 Sec. 6 Remuneration of the General Partner....................... 2 Sec. 7 Partners' Meeting......................................... 3 Sec. 8 Partners' Resolutions..................................... 3 Sec. 9 Business Year............................................. 4 Sec. 10 Annual Financial Statements............................... 4 Sec. 11 Application of Profits.................................... 5 Sec. 12 Withdrawals............................................... 5 Sec. 13 Term of the Partnership, Termination...................... 5 Sec. 14 Assignment of Interest.................................... 6 Sec. 15 Exclusion of a Limited Partner............................ 7 Sec. 16 Miscellaneous............................................. 8 3 Preamble R.P. Scherer GmbH & Co. KG is formed by a change of the legal form of R.P. Scherer GmbH with its statutory seat in Eberbach/Baden (registered in the Commercial Register of the Lower Court Heidelberg under HRB No. 957), pursuant to today's shareholders' resolution, with effect as from the registration of the new form in the Commercial Register of the Lower Court Heidelberg. Thereby R.P. Scherer GmbH with its statutory seat in Eberbach/Baden continues to exist with the same legal and economic identity in the new legal form of GmbH & Co. KG with the business name R.P. Scherer GmbH & Co. KG. The former shareholders of R.P. Scherer GmbH with its statutory seat in Eberbach/Baden are the F&F Holding GmbH with its statutory seat in Eberbach/Baden (registered in the Commercial Register of the Lower Court Heidelberg under HRB 5361), Deutsche Gelatine-Fabriken Stoess AG with statutory seat in Eberbach/Baden (registered in the Commercial Register of the Lower Court Heidelberg under HRB No. 3796) and R.P. Scherer Verwaltungs GmbH (presently SOCORRO Vierundsechzigste Verwaltungsgesellschaft mbH, presently registered in the Commercial Register of the Lower Court of Hamburg under HRB 63412). SEC. 1 BUSINESS NAME, SEAT, LEGAL FORM (1) The business name of the Limited Partnership is R.P. Scherer GmbH & Co. KG. (2) The Limited Partnership has its seat in Eberbach/Baden. (3) The business is organized as a Limited Partnership. SEC. 2 OBJECT OF THE LIMITED PARTNERSHIP (1) The purpose of the Limited Partnership is to be the fabrication and distribution of capsules of gelatin and other materials, employing R.P. Scherer Corporation capsule machines and patents and such other equipment, procedures and/or methods as may be approved of by the corporate meeting, as well as filling the capsules fabricated in this manner with all substances suitable therefore, as well as fabrication and commerce in such substances which are suitable for being filled in capsules. (2) The Company shall be entitled to engage in other activities, both in Germany and abroad, to purchase other companies, to invest therein, to represent such companies, and to establish branch offices. SEC. 3 PARTNERS, CAPITAL PARTICIPATION, LIABILITY (1) General Partner shall become R.P. Scherer Verwaltungs GmbH with its statutory seat in Eberbach/Baden with the entry of the new legal entity into the Commercial Register. It holds a fixed capital participation (Capital Account 1) in the amount of DM 10.000.--. -1- 4 (2) Upon registration of the new legal form in the Commercial Register, Limited Partners will become F&F Holding GmbH holding a fixed capital participation (Capital Account I) in the amount of DM 4,584,900.-- and Deutsche Gelatine-Fabriken Stoess AG holding a fixed capital participation (Capital Account I) in the amount of DM 4,405,100.--. (3) The personal liability of the Limited Partners conforms to their capital participation pursuant to sec. 3 subsec. 2 and shall be registered as personal liability in the Commercial Register. SEC. 4 PARTNERS' ACCOUNTS (1) The following accounts shall be kept for each partner: a fixed capital account (Capital Account I) a floating capital account as clearing account (Capital Account II) a Loss Carry Forward Account (2) The Capital Account I shall record the fixed capital contribution of the partners; this account does not bear interest. (3) The Capital Account II shall record all capital transactions between the Limited Partnership and the respective partner, and profits shall be credited thereto in accordance with sec. 11 subsec. 3 (e.g., advance profits pursuant to [section] 11 para. 2, withdrawals, remuneration for activities, interest). The Capital Account II bears an interest at a rate of 2% p.a. above the respective discount rate of Deutsche Bundesbank. Interest shall be expense of the Company. (4) Losses attributable to a partner shall be booked to the Loss Carry Forward Account. SEC. 5 MANAGEMENT, REPRESENTATION, EXERCISE OF CONTROL (1) Only the general partner is entitled and obliged to manage and represent the Limited Partnership. The General Partner itself and its managing directors are released from the restrictions of sec.181 Civil Code for business transactions with the Limited Partnership. (2) The Limited Partners' right to objection according to sec. 164 Commercial Code is excluded. SEC. 6 REMUNERATION OF THE GENERAL PARTNER (1) As long as the General Partner acts on behalf of the Limited Partnership, the Limited Partnership shall reimburse all costs and expenses for the management, which includes also any salaries and other payments to a Geschaftsfuhrer employed with the General Partner. -2- 5 (2) The General Partner shall receive in addition a yearly remuneration to be paid before the allocation of profits to the partners at the end of each business year amounting to 10% of its paid in capital as reflected in its balance sheet at the beginning of the business year. (3) Amounts payable to the General Partner pursuant to this Section are expenses of the Company. SEC. 7 PARTNERS' MEETING (1) Each managing director of R.P. Scherer Verwaltungs GmbH and each Limited Partner may convene a Shareholders' Meeting if this appears necessary in the interest of the Limited Partnership. (2) The ordinary Shareholders' Meeting shall take place annually at the registered office of the Limited Partnership within eight months after the end of the business year. In this Shareholders' Meeting, the R.P. Scherer Verwaltungs GmbH shall report on the position of the Limited Partnership, and the Limited Partners shall decide on the approval of the annual statement of accounts, the exoneration of the services of R.P. Scherer Verwaltungs GmbH and the appointment of the auditor. (3) The Shareholders' Meeting shall be convened by a managing director of R.P. Scherer Verwaltungs GmbH or by a Limited Partner in writing by registered letter, by telegram, telex or telecopy. The invitation must give the date, place (must be in Germany), and the agenda. The invitation must be sent in time so that, taking into account existing communications situation, the invitation will be received at least two weeks before the date of the meeting. (4) The Shareholders' Meeting shall be chaired by the person elected by the Limited Partners with a simple majority of the votes cast. (5) Minutes shall be prepared of a Shareholders' Meeting, which must be signed by the chairperson. These minutes shall state the place and date of the meeting, the participants, the items on the agenda, all motions and the results of the votes. A copy of the minutes shall be sent straight away to each shareholder and to each member of the Beirat of R.P. Scherer Verwaltungs GmbH. SEC. 8 PARTNERS' RESOLUTIONS (1) The decisions to be made by the Partners in connection with the affairs of the Limited Partnership shall be made by passing of a resolution. Shareholders' resolutions shall be passed in Shareholders' Meetings. They may also be passed outside Shareholders' Meetings by writing, by telex, by telegram, by telefax or by telephone, if no Limited Partner objects to this procedure. (2) Unless something different is expressly stipulated in mandatory provisions of the law or in this Partnership Agreement, shareholders' resolutions shall require a majority of the votes of all Shareholders entitled to vote. Each Partner has as many votes as fixed capital -3- 6 contributions are credited in full DM 100.-- on the Capital Account I. R.P. Scherer Verwaltungs GmbH shall not have a vote. (3) The following Partners' resolutions shall require a majority of 75% of the votes of all partners entitled to vote: a) Exoneration of the actions of the General Partner and enforcement of damages claimed against it; b) Conclusion, alteration and termination of contracts between the Company and a shareholder or an enterprise associated with a shareholder, unless something to the contrary is provided in the individual contracts, and transactions of the Company which are directly or indirectly of considerable importance for a shareholder; c) Amendments of the Articles of Incorporation; d) Dissolution of the Partnership. (4) Resolutions of the Partners shall be recorded in the Minutes of the Shareholders' Meeting or, if they are passed outside a Partners' Meeting, in special minutes to be prepared and signed by a Geschaftsfuhrer of R.P. Scherer Verwaltungs GmbH, showing how the individual Partners voted and the result of the vote, unless mandatory provisions of law stipulate notarization. Each Partner shall receive a copy of the Minutes without delay. (5) The incorrectness of a Partners' resolution can only be asserted by filing a complaint within a prescriptive period of three months after receipt of the copy pursuant to para. (4) above. After expiry of this period, any defect shall be deemed remedied. SEC. 9 BUSINESS YEAR The business year runs from April 1 to March 31 of the following year. SEC. 10 ANNUAL FINANCIAL STATEMENTS (1) R. P. Scherer Verwaltungs GmbH has to establish the annual accounts for the previous business year within six months after the termination of such business year based on generally applicable provisions of the commercial law, the provisions of this Partnership Agreement as well as the provisions regarding the determination of the profits under applicable tax law as far as those do not deviate from mandatory commercial laws, and has to present these accounts immediately to the auditor determined by Partners' resolution for review. (2) R. P. Scherer Verwaltungs GmbH has to present the audited annual accounts and the review report immediately to the Beirat of the General Partner and to present this together with the comments of the Beirat at the latest with the invitation to the ordinary Partners' Meeting to all Partners. The annual accounts shall be determined by Partners' resolution. -4- 7 (3) If the income tax general and separate profit determination is based on balance sheet items which deviate from the annual accounts within the meaning of subpara. (2), in such a case the annual accounts which follow the final decision by tax audit have to be adjusted accordingly as far as this is permitted by commercial law. SEC. 11 APPLICATION OF PROFITS (1) After any allocations pursuant to Section 11 subsec. 2, the Limited Partners shall participate in profits and losses in proportion to their fixed capital accounts (sec. 4 subsec. 2). The rules regarding the limitation of personal liability of limited partners remain unaffected. Amounts pursuant to sec. 6 of this agreement shall be credited to the Capital Account II of the General Partner prior to profit allocation and regardless of whether a profit in this amount exists. (2) In the process of distributing profit or loss, effects of trade tax on income resulting from partner's supplementary balance sheet have to be allocated to such shareholder as profit or loss first, who gave reason for these effects of trade tax on income. (3) The profit shall be credited to the partners' account pursuant to the following provisions: a) As far as the Loss Carry Forward Account shows a loss carried forward, this loss shall first be offset. b) Any exceeding profits shall be credited to the Capital Account II. SEC. 12 WITHDRAWALS (1) The general partner may withdraw the compensation pursuant to sec. 6 subsec. 1 from its Capital Account II as soon as such costs or expenses arise. The remuneration for the assumption of personal liability pursuant to sec. 6 subsec. 2 can be withdrawn at the end of the respective business year. (2) Withdrawals by the Limited Partners can only be made from the Capital Accounts II, if as a balance in favor of the Limited Partner exists. Withdrawals for the payment of taxes on income from the Partnership and its assets as well as the interest on the capital account II are always possible. Sec. 13 Term of the Partnership, Termination (1) Upon registration of the new legal form in the Commercial Register the Limited Partnership continues to exist as R.P. Scherer GmbH & Co. KG for an unlimited term. (2) It can be terminated effective at the end of a calendar year, but the first time being only March 31, 2008. -5- 8 SEC. 14 ASSIGNMENT OF INTEREST (1) Transfer of interests in the Limited Partnership or portions thereof effective before the period ending March 31, 2008 shall require prior consent by way of a Limited Partners' resolution passed with a majority of 75% of the votes of the Limited Partners entitled to vote. With respect to the interest of R.P. Scherer Verwaltungs GmbH in the Limited Partnership, such consent is also required after March 31, 2008. (2) The transfer is only enforceable if the transferor transfers at the same time a corresponding equivalent share of the share capital of R.P. Scherer Verwaltungs GmbH (Share) to the transferee. The corresponding transfer of the Share is only and insofar necessary as such transfer is required to achieve the corresponding equal interests of the transferee in the R.P. Scherer Verwaltungs GmbH and in the Limited Partnership. (3) With the transfer of such interest or a part thereof to a third party according to subsections (1) and (2), the legal position of the transferor shall pass to the transferee with respect to the capital account and the loss-carry-forward account fully or to a respective part, disregarding any further liability of the transferor for a debt, if any. The transferee shall have declared his consent to such transfer as soon as this becomes effective. (4) The consent set forth in para. (1) shall not be required for transfers of interests or portions thereof: a) from Deutsche Gelatine-Fabriken Stoess AG to wholly owned subsidiaries and vice versa, and from one wholly owned subsidiary to another; b) from F+F Holding GmbH to wholly owned subsidiaries of R.P. Scherer Corporation or of F+F Holding GmbH and vice versa, and from one wholly owned subsidiary to another; c) in the cases described in paras. (5) and (6); d) after March 31, 2008 F+F Holding GmbH or Deutsche Gelatine-Fabriken Stoess AG or their legal successors within the meaning of para. (4) a) and b) may transfer their interests in the Limited Partnership by sale or exchange to third parties other than those listed in sec. 14 (4) a) and b) subject, however, to a Vorkaufsrecht - preemptive right - (as set forth in [section] [section] 504 et seq. BGB - German Civil Code) of the other Limited Partner subject to the modification that the price to be paid by the other Limited Partner shall be the price agreed to by the third party (ies) or the fair market value of such shares as determined by experts approved by both Limited Partners, whichever is lower. If both Limited Partners cannot agree on an expert to make the determination of such fair market value, then such expert shall be selected by the president of the Chamber -6- 9 of Industry and Commerce responsible for the location of the registered office of the Corporation. (5) If more than fifty per cent of the shares of R.P. Scherer Corporation or Deutsche Gelatine-Fabriken Stoess AG are acquired by a person or legal entity not a member or affiliated with or related by blood or marriage to a member of the Scherer, Koepff or Stoess families and such transaction has not been approved by a majority of the governing body of the entity whose shares are so transferred (the Board of Directors in the case of R.P. Scherer Corporation and the Supervisory Board in the case of Deutsche Gelatine-Fabriken Stoess AG), the Limited Partner confronted with this change shall be entitled to declare within six months after the change of ownership has become known to it that it either elects to sell its interest to the other Limited Partner or to acquire the interest of the other Limited Partner. The price of acquisition of interests from the other Limited Partner shall be the fair market value of such interest as agreed between the Limited Partners, or, lacking such agreement, 112.5 % of the fair market value fixed by the expert approved by both Limited Partners. If both Limited Partners cannot agree on the expert to make the determination of such fair market value, then such expert shall be selected by the president of the Chamber of Industry and Commerce responsible for the location of the registered office of the Corporation. (6) Para. (5) shall apply accordingly if a subsidiary of R.P. Scherer Corporation or of Deutsche Gelatine-Fabriken Stoess AG which holds the interests in the Limited Partnership is no longer wholly owned by R.P. Scherer Corporation or Deutsche Gelatine-Fabriken Stoess AG, and if this fact is not altered immediately upon request of the other Limited Partner, at the latest within three months; it shall not depend on the consent of the competent body of R.P. Scherer Corporation or of Deutsche Gelatine-Fabriken Stoess AG. SEC. 15 EXCLUSION OF A LIMITED PARTNER (1) The Limited Partners can resolve to exclude a Limited Partner without the consent of such Limited Partner, if: a) execution measures are taken upon the share of the Limited Partner and if these are not warded off immediately by him upon written request by a Limited Partner; b) bankruptcy proceedings or court composition proceedings are legally opened against the assets of the Limited Partner or if the opening of such proceedings if refused due to lack of assets; c) another important cause lies in the person of the Limited Partner which makes it impossible for the remaining Limited Partners to continue the Partnership with him. (2) Instead of excluding a Limited Partner, the Limited Partners can according to para. (1) resolve to transfer part or all of the Interest of the Limited Partner concerned to a person -7- 10 to be named in the resolution who is prepared to accept the interest, provided he acquires at the same time, a corresponding share of the General Partner. (3) The resolutions according to paras. (1) and (2) shall require a majority of the votes of all Limited Partners entitled to vote. The Limited Partner concerned shall not be entitled to vote. (4) Exclusion and assignment shall not depend upon a counter-performance to be effected concurrently. (5) In the event that a Limited Partner is excluded or that, instead, his interest is transferred, the Limited Partner concerned shall be entitled to payment of compensation. The party liable for payment of the compensation shall be, in case of exclusion, the Limited Partnership, otherwise the purchaser of the share. (6) The compensation shall amount to 87.5 % of the fair market value of the interest at the point in time when the exclusion or transfer was decided by resolution (date of withdrawal). If no agreement is reached on the compensation within three months after the date of withdrawal, it will be fixed bindingly by an arbitrator, who will be appointed - upon application by the Limited Partnership or the Limited Partner concerned - by the president of the Chamber of Industry and Commerce competent for the location of the registered office of the Limited Partnership if the parties cannot agree on the person of the arbitrator either. The costs of the fixing of the compensation shall be shared equally between the Limited Partnership and the Limited Partner concerned. (7) The compensation shall be paid in five equal yearly installments. The first installment shall fall due at the end of the month following that in which the amount of compensation is fixed. From the date of withdrawal onwards, interest shall accrue on the compensation amount at a rate 2% above the discount rate of the German Federal Reserve Bank. The accumulated interest shall be payable with each installment. It shall be possible to pay part or all of the compensation at an earlier date. SEC. 16 MISCELLANEOUS (1) In the event that certain provisions or parts of provisions of this agreement are or become unenforceable, invalid or void, the enforceability or validity of the remaining provisions shall not be affected thereby. The respective provision shall be replaced by a provision that comes as close as possible to the partners' economic and legal intentions. (2) Amendments of and additions to this Partnership Agreement require written form for their validity unless a stricter form requirement is provided by law. The written form requirement also applies to the amendment or waiver of this written-form-clause. (3) The determinative version of this agreement is the one written in the German language. Therefore, in the case of different interpretation of the German and the English text, the German version shall prevail. -8- 11 (4) All disputes or differences of opinion arising out of or concerning these Articles or any breach hereof, shall, unless otherwise amicably settled, be referred to and settled by arbitration. Arbitration shall take place at the place of business or the domicile of the defendant, in accordance with the provisions of the separate arbitration agreement made between the shareholders, which is annexed to this Agreement. Frankfurt am Main, den 29.11.1997 F&F Holding GmbH durch /s/ DR. THOMAS ARNTZ ------------------------------------- (Dr. Thomas Arntz aufgrand Vollmacht) Deutsche Gelatine-Fabriken Stoess AG durch /s/ MARTIN MAAB ------------------------------------- (Martin Maab aufgrand Vollmacht) R.P. Scherer Verwaltungs GmbH durch /s/ DR. THOMAS TROLITZSCH ------------------------------------- (Dr. Thomas Trolitzsch aufgrand Vollmacht und Untervollmacht) -9- EX-21 9 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- C. International, Inc. Ohio Cardal, Inc. Ohio Cardinal Florida, Inc. Florida Cardinal Health Systems, Inc. Ohio Cardinal Mississippi, Inc. Mississippi Cardinal Syracuse, Inc. New York CORD Logistics, Inc. Ohio Chapman Drug Company Tennessee Renlar Systems, Inc. Kentucky Comprehensive Reimbursement Consultants, Inc. Minnesota James W. Daly, Inc. Massachusetts Ellicott Drug Company New York The Griffin Group, Inc. Nevada Allied Healthcare Services, Inc. Nevada Brighton Capital, Inc. Nevada Cardinal Information Corporation Nevada Cardinal West, Inc. Nevada Cascade Development, Inc. Nevada CDI Investments, Inc. Delaware Griffin Capital Corporation Nevada Pinnacle Intellectual Property Services, Inc. Nevada Pinnacle Intellectual Property Services International, Inc. Nevada ScriptLINE, Inc. Nevada Leader Drugstores, Inc. Delaware Marmac Distributors, Inc. Connecticut Medical Strategies, Inc. Massachusetts Medicine Shoppe International, Inc. Delaware Pharmacy Operations of New York, Inc. New York Pharmacy Operations, Inc. Delaware Medicine Shoppe Internet, Inc. Missouri - ---------------------- 2 SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Managed Pharmacy Benefits, Inc. Missouri Pharmacy Service Corporation Missouri MediQual Systems, Inc. Delaware National Pharmpak Services, Inc. Ohio National Specialty Services, Inc. Tennessee The Heron Corporation Ohio Nexus Healthcare, Inc. Ohio Ohio Valley-Clarksburg, Inc. Delaware Owen Healthcare, Inc. Texas MediTROL, Inc. Nevada MediTROL Automation Systems, Inc. Texas Cardinal Health International Ventures, Limited Bermuda foreign sales corp. Owen Healthcare Building, Inc. Texas Owen Shared Services, Inc. Texas PCI Services, Inc. Delaware Packaging Coordinators, Inc. Pennsylvania Packaging Coordinators Incorporated, Caribe Delaware PCI/DELVCO, Inc. Delaware The Tri-Line Co., Inc. Delaware PCI/Tri-Line (USA), Inc. Delaware PCI/Allpack Holdings, Inc. Delaware PCI allpack GmbH Germany PCI Acquisition I, Inc. Delaware PCI Acquisition II, Inc. Delaware PCI Holdings (UK) Co. England and Wales Unipack Limited (UK) Co. England and Wales Phillipi Holdings, Inc. Ohio Pyxis Corporation Delaware Pyxis Healthcare Systems, Inc. Canada R.P. Scherer Corporation Delaware F & F Holding GmbH Germany R.P. Scherer GmbH(1) Germany - ---------------------- (1) F & F Holding GmbH owns 51% of R.P. Scherer GmbH. 3 SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Allcaps Weichgelatinekapseln GmbH Germany Gelatin Products International Delaware R.P. Scherer Argentina S.A.I.C. Argentina Vivax Interamericana S.A. Argentina R.P. Scherer Canada Inc. Canada R.P. Scherer do Brasil Encapsulacoes, Ltda. Brazil R.P. Scherer Egypt(2) Egypt R.P. Scherer (Europe) AG Switzerland R.P. Scherer Hardcapsule (West) Utah R.P. Scherer Holdings Ltd. England R.P. Scherer Limited England Scherer DDS Limited England R.P. Scherer Holdings Pty. Ltd. Australia R.P. Scherer Pty. Limited Australia R.P. Scherer K.K.(3) Japan R.P. Scherer Korea Limited(4) Korea R.P. Scherer Production S.A. France R.P. Scherer S.A.(5) France R.P. Scherer S.p.A. Italy R.P. Scherer DDS BV Holland R.P. Scherer DDS Holdings BV Holland R.P. Scherer Pharmaceutical, Inc. New Jersey RPS Technical Services, Inc. Delaware R.P. Scherer Verwaltungs GmbH(6) Germany Allcaps Wichgelatinkapseln Verwaltungs GmbH Germany R.P. Scherer International (FSC), Ltd. Barbados R.P. Scherer (Spain) SA Spain The LVC Corporation Missouri RedKey, Inc. Ohio - ---------------------- (2) R.P. Scherer Corporation has a 10% ownership interest. (3) R.P. Scherer Corporation has a 60% ownership interest. (4) R.P. Scherer Corporation has a 50% ownership interest. (5) R.P. Scherer Corporation has a 70% ownership interest. (6) F&F Holidng GmbH has a 51% ownership interest. 4 SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Solomons Company Georgia Whitmire Distribution Corporation Delaware Williams Drug Distributors, Inc. Delaware EX-23.01 10 EXHIBIT 23.01 1 Exhibit 23.01 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-24483 of Cardinal Health, Inc. on Form S-3 and Registration Statement No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537, No. 33-52539, No. 33-63283-01, No. 33-64337, No. 333-01927-01, No. 333-11803-01, No. 333-21631-01, No. 333-21631-02, No. 333-30889-01 and No. 333-56655-01 of Cardinal Health Inc. on Form S-8 of our report dated August 12, 1998, appearing in this Annual Report on Form 10-K of Cardinal Health, Inc., for the year ended June 30, 1998. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio August 28, 1998 EX-23.02 11 EXHIBIT 23.02 1 Exhibit 23.02 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 333-24483 of Cardinal Health, Inc. on Form S-3 and Registration Statements No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537, No. 33-52539, No. 33-63283-01, No. 33-64337, No. 333-01927-01, No. 333-11803-01, No. 333-21631-01, No. 333-21631-02, No. 333-30889-01, and No. 333-56655-01 of Cardinal Health, Inc. on Form S-8 of our report dated August 2, 1996, with respect to the consolidated financial statements of Pyxis Corporation (not presented), appearing in the Annual Report on Form 10-K of Cardinal Health, Inc., for the year ended June 30, 1998. /s/ Ernst & Young LLP ERNST & YOUNG LLP San Diego, California August 28, 1998 EX-23.03 12 EXHIBIT 23.03 1 Exhibit 23.03 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement (No. 333-24483) of Cardinal Health, Inc. on Form S-3 and in Registration Statements No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537, No. 33-52539, No. 33-63283-01, No. 33-64337, No. 333-01927-01, No. 333-11803-01, No. 333-21631-01, No. 333-21631-02, No. 333-30889-01 and No. 333-56655-01 of Cardinal Health, Inc. on Form S-8 of our report dated January 30, 1997, appearing in this Annual Report on Form 10-K of Cardinal Health, Inc., for the year ended June 30, 1998. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas August 28, 1998 EX-27.1 13 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S FORM 10-K FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 1 304,951 0 860,395 (34,196) 1,895,525 3,228,651 548,435 (217,032) 3,961,077 1,844,119 272,575 0 0 713,006 912,192 3,961,077 15,918,138 15,918,138 14,876,588 14,876,588 567,756 0 (23,022) 402,513 155,432 247,081 0 0 0 247,081 2.25 2.22
EX-27.2 14 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS 6-MOS 9-MOS JUN-30-1998 JUN-30-1998 JUN-30-1998 JUL-01-1997 JUL-01-1997 JUL-01-1997 SEP-30-1997 DEC-31-1997 MAR-31-1998 1 1 1 180,515 111,654 90,151 0 0 0 728,409 790,748 850,937 (36,806) (38,417) (39,605) 1,614,140 1,938,526 2,157,814 2,655,030 2,954,558 3,303,380 492,539 514,221 537,672 (206,573) (210,075) (222,825) 3,259,489 3,602,491 3,973,029 1,494,534 1,769,328 2,003,075 277,882 275,615 273,267 0 0 0 0 0 0 656,596 667,858 700,603 740,897 803,702 846,799 3,259,489 3,602,491 3,973,029 3,551,126 7,432,221 11,533,801 3,551,126 7,432,221 11,533,801 3,325,261 6,957,458 10,779,662 3,325,261 6,957,458 10,779,662 135,054 270,265 412,470 0 0 0 (5,005) (10,165) (17,261) 88,585 197,022 297,766 34,545 76,804 121,234 54,040 120,218 176,532 0 0 0 0 0 0 0 0 0 54,040 120,218 176,532 0.50 1.10 1.61 0.49 1.08 1.58
EX-27.3 15 EXHIBIT 27.3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1997 AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996, DECEMBER 31, 1996 AND MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR YEAR 3-MOS 6-MOS 9-MOS JUN-30-1996 JUN-30-1997 JUN-30-1997 JUN-30-1997 JUN-30-1997 JUL-01-1995 JUL-01-1996 JUL-01-1996 JUL-01-1996 JUL-01-1996 JUN-30-1996 JUN-30-1997 SEP-30-1996 DEC-31-1996 MAR-31-1997 1 1 1 1 1 312,030 243,061 125,119 87,460 12,521 54,335 0 57,735 37,185 0 668,669 707,116 693,771 775,122 797,088 (36,803) (34,952) (37,159) (38,351) (37,882) 1,272,112 1,436,220 1,577,493 1,725,725 1,558,882 2,374,943 2,487,110 2,513,187 2,706,346 2,455,093 411,781 477,420 289,892 456,393 467,652 (161,222) (199,949) (117,176) (192,213) (200,815) 2,959,401 3,091,750 2,979,124 3,299,147 3,039,959 1,432,903 1,389,433 1,494,828 1,666,946 1,407,265 320,327 277,766 263,655 297,909 279,539 0 0 0 0 0 0 0 0 0 0 589,476 645,051 582,840 623,580 629,879 505,749 689,679 518,464 585,490 631,563 2,959,401 3,091,750 2,979,124 3,299,147 3,039,959 11,586,123 13,437,180 3,107,180 6,547,469 9,997,337 11,586,123 13,437,180 3,107,180 6,547,460 9,997,337 10,776,410 12,537,522 2,913,352 6,129,783 9,332,993 10,776,410 12,537,522 2,913,352 6,129,783 9,332,993 514,879 515,551 193,828 251,569 383,071 0 0 0 0 0 (30,611) (27,974) (6,606) (13,974) (22,388) 227,502 311,080 65,745 138,490 215,137 100,262 126,481 26,419 57,838 92,304 127,240 184,599 39,326 80,652 122,833 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 127,240 184,599 39,326 80,652 122,833 1.22 1.72 0.38 0.76 1.15 1.19 1.69 0.37 0.75 1.13
EX-99.01 16 EXHIBIT 99.01 1 Exhibit 99.01 CARDINAL HEALTH, INC. STATEMENT REGARDING FORWARD-LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for "forward-looking statements" (as defined in the Act). The Form 10-K to which this exhibit is attached, the Company's Annual Report to Shareholders, any Form 10-Q or any Form 8-K of the Company, or any other written or oral statements made by or on behalf of the Company may include or incorporate by reference forward-looking statements which reflect 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. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from those made, implied or projected in such statements. These uncertainties and other factors include, but are not limited to: - uncertainties relating to general economic conditions; - the loss of one or more key customer or supplier relationships, including pharmaceutical manufacturers for which alternative supplies may not be available; - the malfunction or failure of the Company's information systems, including malfunctions or failures associated with Year 2000 readiness problems; - the costs and/or difficulties related to the integration of recently acquired businesses; - changes to the presentation of financial results and position resulting from adoption of new accounting principles or upon the advice of the Company's independent auditors, or the staff of the Securities and Exchange Commission; - changes in the distribution or outsourcing pattern for pharmaceutical products and/or services, including any increase in direct distribution or decrease in contract packaging by pharmaceutical manufacturers; - changes in, or failure to comply with, government regulations; - the costs and other effects of legal and administrative proceedings; - injury to person or property resulting from the Company's packaging, repackaging, delivery system development and manufacturing or pharmacy management services; - competitive factors in the Company's healthcare service businesses, including pricing pressures; - the continued financial viability and success of the Company's customers, suppliers, and franchisees; - technological developments and products offered by competitors; - failure to retain or continue to attract senior management or key personnel; - risks associated with international operations, including fluctuations in 2 currency exchange ratios; - successful challenges to the validity of the Company's patents, copyrights and/or trademarks; - difficulties or delays in the development, production and marketing of new products and services; - strikes or other labor disruptions; - labor and employee benefit costs; - pharmaceutical manufacturers' pricing policies and overall drug price inflation; - changes in hospital buying groups or hospital buying practices; and - other factors referenced in the Form 10-K to which this exhibit is attached or other filings or written or oral statements made by or on behalf of the Company. 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. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. -----END PRIVACY-ENHANCED MESSAGE-----