-----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, FX0+mOTvCwxRkrfNf3Fn8XLT1bevR4xC7uBpUqhyZdrc0Q+Cf60gtjg6Rx1nfzGv 885bkjJHQt+VYUEP6LmC4g== 0000950152-99-007328.txt : 19990903 0000950152-99-007328.hdr.sgml : 19990903 ACCESSION NUMBER: 0000950152-99-007328 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990902 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-K SEC ACT: SEC FILE NUMBER: 001-11373 FILM NUMBER: 99705389 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-K 1 CARDINAL HEALTH, INC. 10-K 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, 1999 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 (I.R.S. Employer incorporation or organization) Identification No.) 7000 CARDINAL PLACE, DUBLIN, OHIO 43017 (Address of principal executive offices) (Zip Code) (614) 757-5000 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. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant as of August 23, 1999 was approximately $16,623,130,558. The number of Registrant's Common Shares outstanding as of August 23, 1999, was as follows: Common shares, without par value: 274,190,381. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Definitive Proxy Statement to be filed for its 1999 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.................................................................................................... 7 3. Legal Proceedings............................................................................................. 7 4. Submission of Matters to a Vote of Security Holders........................................................... 8 Executive Officers of the Company............................................................................. 8 PART II 5. Market for the Registrant's Common Shares and Related Shareholder Matters..................................... 10 6. Selected Financial Data....................................................................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 12 7a. Quantitative and Qualitative Disclosures About Market Risk.................................................... 18 8. Financial Statements and Supplementary Data................................................................... 19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 48 PART III 10. Directors and Executive Officers of the Registrant............................................................ 48 11. Executive Compensation........................................................................................ 48 12. Security Ownership of Certain Beneficial Owners and Management................................................ 48 13. Certain Relationships and Related Transactions................................................................ 48 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................................. 49 Signatures.................................................................................................... 53
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 projected, anticipated or implied. The most significant of such risks, uncertainties and other factors are described in this Form 10-K and in Exhibit 99.01 to this Form 10-K. The Company undertakes no obligation to 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, 1999. The Company is a leading health-care service provider which offers a broad array of complementary products and health-care services to health-care providers and manufacturers to help them improve the efficiency and quality of health-care. These services and products include pharmaceutical distribution, pharmaceutical services, and medical-surgical products. BUSINESS SEGMENTS A description of the Company's three reporting industry segments is as follows(1): 1. PHARMACEUTICAL DISTRIBUTION Cardinal Distribution, the Company's pharmaceutical distribution business, is one of the country's leading wholesale distributors of pharmaceutical and related health-care 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. As a full-service wholesale distributor, Cardinal Distribution 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. The Company also operates several specialty health-care distribution 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 and distribution 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. 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. 2. PHARMACEUTICAL SERVICES The Company, within the Pharmaceutical Services segment, operates a variety of related health-care 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 health-care facilities); Medicine Shoppe International, Inc. ("Medicine Shoppe") (a franchisor of apothecary-style retail pharmacies); PCI - -------- 1 For additional information concerning the Company's industry segments, see Note 13 of "Notes to Consolidated Financial Statements." 3 4 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); the Cardinal Information group of companies ("CIC") (which develop and provide clinical information systems and customer transaction systems); R.P. Scherer Corporation ("Scherer") (an international developer and manufacturer of drug delivery systems); and Cardinal OneSource(SM) (a group established to market Cardinal businesses together to assist pharmaceutical companies manufacture, develop, package, launch and market products). The Company also provides reimbursement-consulting services to pharmaceutical, biotechnology and medical products companies through its Comprehensive Reimbursement Consultants, Inc. ("CRC") subsidiary. 3. MEDICAL-SURGICAL PRODUCTS The Company's subsidiary, Allegiance Corporation ("Allegiance"), is a provider of non-pharmaceutical health-care products and cost-saving services for hospitals and other health-care providers. Allegiance offers a broad range of medical and laboratory products, representing more than 2,800 suppliers in addition to its own line of surgical and respiratory therapy products. It also manufactures sterile and non-sterile procedure kits, single-use surgical drapes, gowns and apparel, medical and surgical gloves, fluid suction and collection systems, respiratory therapy products, surgical instruments, instrument reprocessing products, special procedure products and other products. Allegiance assists its customers in reducing costs while improving the quality of patient care in a variety of ways, including supply-chain management, instrument repair and other professional consulting services. ACQUISITIONS Over the last five years, the Company has completed the following business combinations. 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. On July 18, 1994, the Company completed 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 health-care 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 abroad. 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 Westborough, Massachusetts-based supplier of clinical information management systems and services to the health-care industry. On August 7, 1998, the Company completed a merger transaction with Scherer, a Basking Ridge, New Jersey-based international developer and manufacturer of drug delivery systems. On February 3, 1999, the Company completed a merger transaction with Allegiance, a McGaw Park, Illinois-based distributor and manufacturer of medical and laboratory products and a provider of cost-saving services. On August 5, 1999, the Company announced that it signed a definitive merger agreement with privately-owned Automatic Liquid Packaging, Inc., a Woodstock, Illinois-based custom manufacturer of sterile liquid pharmaceuticals and other health-care products. The Company has also completed a number of smaller acquisition transactions during the last five years, including the acquisition of Comprehensive Reimbursement Consultants, Inc., Pharmacists: prn, Inc., The Enright Group, Inc., Pharmaceutical Packaging Specialties, Inc., and Pacific Surgical Innovations, Inc. The Company continually evaluates possible candidates for merger or acquisition and intends to continue to seek opportunities to expand its health-care operations and services in all three reporting industry segments. For additional information concerning the transactions described above, see Notes 1, 2, and 18 of "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." CUSTOMERS AND SUPPLIERS The Company distributes pharmaceuticals, 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 and abroad. 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 and abroad. Scherer develops drug delivery systems for pharmaceutical manufacturers located in the United States and abroad. Allegiance distributes non-pharmaceutical health-care products and provides cost-saving services to hospitals and other health-care providers in the United States and abroad. The Company's largest retail distribution customer in its Pharmaceutical Distribution segment accounted for approximately 8.3% of the Company's operating revenues (by dollar volume) for fiscal year 1999, and its largest retail bulk distribution customer accounted for approximately 57% of all bulk orders in the 4 5 Pharmaceutical Distribution segment. The Pharmaceutical Distribution segment could be adversely affected if the business of either of such customers were lost. The members of the two largest group purchasing organizations (each, a "GPO") having business arrangements with the Company, VHA, Inc. and Premier, Inc., accounted for approximately 11.4%, and 12.8%, respectively, of the Company's operating revenues (by dollar volume) in fiscal 1999 through the Company's Pharmaceutical Distribution and Medical-Surgical Products segments. Each of these two segments could be adversely affected if the business arrangements with either of such GPO customers were lost, although the loss of the business arrangement with either such GPO would not necessarily mean the loss of sales from all members of the GPO. The Company obtains its products from many different suppliers, the largest of which accounted for approximately 3.3% (by dollar volume) of its operating revenue in fiscal 1999. The Company's five largest suppliers accounted for approximately 15.9% (by dollar volume) of its operating revenue during fiscal 1999 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, 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, with competition being based primarily upon price, benefits offered to both the pharmacist and the customer, access to third party programs, and the reputation of the franchise; Medicine Shoppe also needs to be competitive with a pharmacist's ongoing option 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. Through Scherer, the Company's drug delivery technologies compete with a growing number of new drug delivery technologies and with continued refinements to existing delivery technologies of both pharmaceutical companies and companies formed to develop new technologies. Through Allegiance, the Company has substantial competition in all of its non-pharmaceutical health-care product and service markets, with competition focusing primarily on price, service and product performance. EMPLOYEES As of August 23, 1999, the Company had approximately 36,000 employees, of which approximately 1,400 are subject to collective bargaining agreements. Overall, the Company considers its employee relations to be good. INTELLECTUAL PROPERTY The Company has applied in the United States and certain foreign countries 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. There can be no assurance that the Company will obtain the registrations for trademarks and service marks for which it has applied. The Company holds patents relating to certain aspects of its automated pharmaceutical dispensing systems, automated medication management systems, medication packaging, medical devices, processes, products and drug delivery systems. 5 6 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. No assurances can be given that any intellectual property rights of the Company 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, a pharmaceutical packager and a manufacturer of drug delivery systems and surgical and respiratory care products, is required to register for permits and/or licenses with, and comply with 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, 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 pre-market 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. In its capacity as a distributor of prescription pharmaceuticals, the Company is also subject to Medicare, Medicaid and state health care fraud and abuse and anti-kickback laws and regulations. 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 health-care providers also subject it to certain provisions of the federal Social Security Act which (a) prohibit financial arrangements between providers of health-care services to government health-care 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 a number of restrictions upon referring physicians and providers of designated health services under Medicare and Medicaid programs. Services and products provided by the Company's information businesses include health-care data and other drug-related information gathered and assessed for the benefit of health-care clients. Greater scrutiny is being placed on a federal and state level regarding how such information should be handled and identifying the appropriate parties to do so. Future changes in regulations and/or legislation may affect how some of these information services or products are provided. 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. Products manufactured or sold by the Company's Allegiance and Scherer operations are subject to regulation by the FDA, as well as by other federal and state agencies, including those governing Medicare and Medicaid issues. The FDA regulates the introduction and advertising of new medical products and related manufacturing procedures, labeling, and record keeping. Product regulatory laws also exist in most other countries where PCI, Allegiance and Scherer conduct business. The Company is also subject to various federal, state and local laws, regulations and recommendations, both in the United States and abroad, relating to safe working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous substances. The Company's environmental policies mandate compliance with all applicable regulatory requirements concerning environmental quality and contemplate, among other things, appropriate capital expenditures for environmental protection for each of its businesses. 6 7 ITEM 2: PROPERTIES In the United States, the Company has 23 principal pharmaceutical distribution facilities and three specialty distribution facilities utilized by the Pharmaceutical Distribution segment. In the U.S., the Company also has one Pyxis assembly operation, two PCI packaging facilities, two PCI printing facilities, one Scherer pharmaceutical manufacturing facility, one Scherer health and nutritional products manufacturing facility, and one paintball manufacturing facility in the Pharmaceutical Services segment. Domestically, the Company also has 48 medical-surgical distribution facilities and 11 medical-surgical manufacturing facilities utilized by the Medical-Surgical Products segment. The Company's domestic facilities are located in a total of 33 states. Internationally, the Company owns, leases or operates through its Pharmaceutical Services segment, 14 Scherer manufacturing facilities which are located in the United Kingdom, France, Germany, Italy, Australia, Japan, Argentina, Brazil and Canada. The Company also has three PCI packaging facilities which are located in the United Kingdom and Germany, and two PCI printing facilities which are located in Puerto Rico. The Company owns, leases or operates through its Medical-Surgical Products segment, 13 medical-surgical distribution facilities located in Canada and the Netherlands, and 16 medical-surgical manufacturing facilities located in the Netherlands, Malaysia, Mexico, the Dominican Republic, Germany and France. The Company's international facilities are located in a total of 14 countries. The Company owns 77 of the domestic and international facilities described above, and the balance are leased. The Company's principal executive offices are located in a leased four-story building located at 7000 Cardinal Place in Dublin, Ohio. 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". ITEM 3: LEGAL PROCEEDINGS In November 1993, the Company and Whitmire Distribution Corporation ("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 wholesaler defendants, including the Company and Whitmire, conspired with manufacturers to inflate prices using a chargeback pricing system. 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 provided for a reimbursement mechanism for legal fees and expenses. The trial of the class action lawsuit began on September 23, 1998. On November 19, 1998, after the close of plaintiffs' case-in-chief, both the wholesaler defendants and the manufacturer defendants moved for judgment as a matter of law in their favor. On November 30, 1998, the Court granted both of these motions and ordered judgment as a matter of law in favor of both the wholesaler defendants and the manufacturer defendants. On January 25, 1999, the class plaintiffs filed a notice of appeal of the District Court's decision with the Court of Appeals for the Seventh Circuit. On July 13, 1999, the Court of Appeals for the Seventh Circuit issued its decision, which, in part, affirmed the dismissal of the wholesaler defendants, including the Company and Whitmire. On July 27, 1999, the class plaintiffs filed a Petition for Rehearing with the Court of Appeals for the Seventh Circuit. In addition to the federal court cases described above, the Company and Whitmire have also been named as defendants in a series of related antitrust lawsuits brought by chain drug stores and independent pharmacies who opted out of the federal class action lawsuits, and in a series of state court cases alleging similar claims under various state laws regarding the sale of brand name prescription drugs. The Judgment Sharing Agreement mentioned above also covers these litigation matters. On September 30, 1996, Baxter International, Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. health-care distribution business, surgical and respiratory therapy business and health-care cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. In connection with this spin-off, Allegiance, which was acquired by the Company on February 3, 1999, assumed the defense of litigation involving claims related to the Allegiance Business from Baxter Healthcare Corporation ("BHC"), including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves described below. Allegiance will be defending and indemnifying BHC, as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to the litigation assumed by Allegiance. As of June 30, 1999, there were approximately 430 lawsuits involving BHC and/or Allegiance containing allegations of sensitization to natural rubber latex products. Since none of these cases has proceeded to a hearing on the merits, the Company is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. Because of the increase in claims filed and the ongoing defense costs that will be incurred, the Company believes it is probable that it will continue to incur significant expenses related to the defense of cases involving natural rubber latex gloves. The Company also becomes involved from time-to-time in other litigation (including environmental matters) incidental to its business. Although the ultimate resolution of the litigation referenced in this Item 3 cannot be forecast with certainty, 7 8 the Company does not believe that the outcome of these lawsuits will have a material adverse effect on the Company's consolidated financial statements. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fiscal quarter ended June 30, 1999. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows (information provided as of August 23, 1999):
NAME AGE POSITION - ---------------- --- -------------------------------------------- Robert D. Walter 54 Chairman and Chief Executive Officer John C. Kane 59 President and Chief Operating Officer Joseph F. Damico 45 Executive Vice President; Group President - Allegiance Corporation George L. Fotiades 45 Executive Vice President; Group President - R.P. Scherer Corporation James F. Millar 51 Executive Vice President; Group President - Cardinal Distribution Carl A. Spalding 54 Executive Vice President; Group President - Healthcare Product Services Stephen S. Thomas 44 Executive Vice President; Group President - Pharmacy Automation and Information Systems and International Operations Steven Alan Bennett 46 Executive Vice President, General Counsel and Secretary Richard J. Miller 42 Corporate Vice President and Chief Financial Officer Michael E. Beaulieu 41 Corporate Vice President, Controller and Principal Accounting Officer
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 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. Mr. Walter also serves as a director of Bank One Corporation, CBS, Inc. and Infinity Broadcasting Corporation. 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. JOSEPH F. DAMICO has been an Executive Vice President and Group President-Allegiance Corporation, of the Company since February 1999, and President of Allegiance since June 1996. From 1992 to September 1996, he was a Corporate Vice President of Baxter. GEORGE L. FOTIADES has been an Executive Vice President and Group President-R.P. Scherer Corporation, of the Company since August 1998, and President of Scherer since January 1998. Previously, Mr. Fotiades served as Group President, Americas and Asia Pacific, of 8 9 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. 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. 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. STEPHEN S. THOMAS was named Executive Vice President and Group President - Pharmacy Automation and Information Systems and International Operations of the Company on July 1, 1999. Mr. Thomas joined the Company in October 1997, as an Executive Vice President and President of Pyxis. Prior to that, Mr. Thomas served as President of Datapro Information Services Group, a division of McGraw-Hill Companies. STEVEN ALAN BENNETT joined the Company in January 1999, as Executive Vice President, General Counsel and Secretary. Previously, Mr. Bennett served as Senior Vice President and General Counsel of Bank One Corporation, since August 1994. RICHARD J. MILLER has been the Company's Corporate Vice President and Chief Financial Officer since March 1999 and served as the Company's Acting Chief Financial Officer since August 1998. From August 1995 through March 1999, Mr. Miller served as the Company's Controller. Upon joining the Company in July 1994, and until August 1995, he served as Vice President, Auditing. MICHAEL E. BEAULIEU has been the Company's Corporate Vice President and Controller since April 1999. From August 1996 through April 1999 Mr. Beaulieu served as Senior Vice President - Finance of Cardinal Distribution. Prior to that, Mr. Beaulieu served as Vice President - Accounting of Cardinal Distribution, since August 1994. 9 10 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, 1999 and 1998. The information in the table has been adjusted to reflect retroactively all prior stock splits.
HIGH LOW DIVIDENDS Fiscal 1998: Quarter Ended September 30, 1997 $47.38 $36.42 $0.0167 December 31, 1997 51.88 45.75 0.0167 March 31, 1998 58.80 46.67 0.0200 June 30, 1998 64.17 57.08 0.0200 Fiscal 1999: Quarter Ended September 30, 1998 $71.00 $55.67 $0.0250 December 31, 1998 75.88 54.83 0.0250 March 31, 1999 80.50 66.00 0.0250 June 30, 1999 71.88 56.88 0.0250 Through August 23, 1999 $69.94 $60.88 $0.0250
As of August 23, 1999, there were approximately 26,000 shareholders of record of the Company's Common Shares. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment 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 Medicine Shoppe on November 13, 1995; Pyxis on May 7, 1996; PCI on October 11, 1996; Owen on March 18, 1997; MediQual on February 18, 1998; Scherer on August 7, 1998; and Allegiance on February 3, 1999, all of which were accounted for as pooling-of-interests transactions (see Note 2 of "Notes to Consolidated Financial Statements"). On May 21, 1999 the Company completed a merger transaction with Pacific Surgical Innovations, Inc. ("PSI"). The impact of the merger transaction with PSI, on a historical basis, was not significant. Accordingly, prior period financial statements have not been restated. The consolidated financial data includes all purchase transactions that occurred during these periods. For the fiscal years ended June 30, 1996 and 1995, the information presented is derived from consolidated financial statements which combine data from Cardinal for the fiscal years ended June 30, 1996 and 1995 with data from PCI for the fiscal years ended September 30, 1996 and 1995, respectively, Owen for the fiscal years ended November 30, 1995 and 1994, respectively, MediQual for the fiscal years ended December 31, 1995 and 1994, respectively, Scherer for the fiscal years ended March 31, 1996 and 1995, respectively, and Allegiance for the fiscal years ended December 31, 1996 and 1995, 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, 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), MediQual's financial results for the fiscal year ended December 31, 1996, Scherer's financial results for the fiscal year ended March 31, 1997, and Allegiance's financial results for the fiscal year ended December 31, 1997. 10 11 For the fiscal year ended June 30, 1998, the information presented is derived from the consolidated financial statements which combine Cardinal for the fiscal year ended June 30, 1998 with Scherer's financial results for the fiscal year ended March 31, 1998. 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 MILLIONS, EXCEPT PER SHARE AMOUNTS)
At or for the Fiscal Year Ended June 30, (1) ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- EARNINGS DATA: Revenue: Operating revenue $21,480.6 $18,004.0 $15,924.8 $14,383.9 $13,943.0 Bulk deliveries to customer warehouses 3,553.0 2,991.4 2,469.1 2,178.5 1,779.5 --------- --------- --------- --------- --------- Total revenue $25,033.6 $20,995.4 $18,393.9 $16,562.4 $15,722.5 Net earnings (loss) $ 456.3 $ 425.1 $ 334.8 $ (321.2) $ 464.3 Earnings (loss) per Common Share: (2) Basic $ 1.68 $ 1.57 $ 1.26 $ (1.24) $ 1.84 Diluted $ 1.64 $ 1.53 $ 1.23 $ (1.24) $ 1.78 Cash dividends declared per Common Share (2) $ 0.10 $ 0.07 $ 0.06 $ 0.05 $ 0.05 BALANCE SHEET DATA: Total assets $ 8,289.0 $ 7,478.0 $ 6,521.8 $ 6,469.8 $ 6,517.3 Long-term obligations, less current portion $ 1,223.9 $ 1,330.0 $ 1,320.9 $ 1,592.8 $ 451.5 Shareholders' equity $ 3,463.0 $ 2,954.9 $ 2,627.0 $ 2,222.5 $ 3,718.1
(1) Amounts reflect business combinations in all periods presented. Fiscal 1999, 1998, 1997 and 1996 amounts reflect the impact of merger-related costs and other special charges. Fiscal 1996 amounts reflect the impact of the write-down of goodwill of $550.0 million ($550.0 million, net of tax) due to the change by Allegiance in its method of assessing goodwill. In addition, fiscal 1996 amounts reflect the impact of merger-related charges and facility rationalizations of $178.5 million ($122.8 million, net of tax). See Note 2 of "Notes to Consolidated Financial Statements" for a further discussion of merger-related costs and other special charges affecting fiscal 1999, 1998 and 1997. (2) Net earnings and cash dividends per Common Share have been adjusted to retroactively reflect all stock dividends and stock splits through June 30, 1999. 11 12 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 PCI Services, Inc. ("PCI") on October 11, 1996, Owen Healthcare, Inc. ("Owen") on March 18, 1997, MediQual Systems, Inc. ("MediQual") on February 18, 1998, R.P. Scherer Corporation ("Scherer") on August 7, 1998 and Allegiance Corporation ("Allegiance") on February 3, 1999. On May 21, 1999 the Company completed a merger transaction with Pacific Surgical Innovations, Inc. ("PSI"). The impact of the merger transaction with PSI, on a historical basis, was not significant. Accordingly, prior period financial statements have not been restated for the merger transaction with PSI. 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. See "Information Regarding Forward-Looking Statements". GENERAL - ------- The Company operates within three operating business segments: Pharmaceutical Distribution, Pharmaceutical Services, and Medical-Surgical Products. See Note 13 of "Notes to Consolidated Financial Statements" for a description of these segments. RESULTS OF OPERATIONS - --------------------- OPERATING REVENUE. Operating revenue for fiscal 1999 increased 19% as compared to the prior year due to strong operating revenue growth in all three of the Company's business segments. The majority of the overall operating revenue increase (approximately 82% for the year ended June 30, 1999) 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. The Pharmaceutical Distribution segment's operating revenue (representing 69% of total 1999 operating revenue, including approximately $297.4 million sold to Owen, eliminated in consolidation) grew at a rate of 25% during the fiscal year ended June 30, 1999 primarily due to strong sales to pharmacy chain stores and through the Company's specialty distribution businesses. The Pharmaceutical Services segment's operating revenue (representing 10% of total 1999 operating revenue) grew at a rate of 15% during fiscal 1999, primarily on the strength of the Company's pharmacy automation and pharmaceutical-packaging businesses. The Company's pharmacy automation business continued to see solid growth in the U.S. hospital sector and increased demand from non-acute care customers. The pharmaceutical-packaging business' growth in fiscal 1999 was attributable to a mix of new customers and an increase in volume from existing customers. The Medical-Surgical Products segment's operating revenue (representing 21% of total 1999 operating revenue) for fiscal year 1999 grew 6% over the prior year primarily due to strong sales of self-manufactured surgical products and "best value" distributed supplies. Operating revenue for fiscal 1998 increased 13% as compared to the prior year primarily due to the strength of the Pharmaceutical Distribution and Services segments. Pharmaceutical Distribution segment's (representing 66% of total 1998 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. Pharmaceutical Services segment's (representing 10% of total 1998 operating revenue) operating revenue grew at a rate of 16% during the fiscal year ended June 30, 1998, primarily on the strength of the Company's pharmacy automation and pharmacy management businesses. The Medical-Surgical Products segment's operating revenue (representing 24% of total 1998 operating revenue) for fiscal year 1998 grew 2% over the prior year. The majority of the overall operating revenue increase (approximately 80% for the year ended June 30, 1998) came from existing customers in the form of increased volume and pharmaceutical prices. The remainder of the growth came from the addition of new customers. BULK DELIVERIES TO CUSTOMER WAREHOUSES. The Company reports as revenue bulk deliveries made to customers' warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including consolidation within the customers' industries, decisions by customers to either begin or discontinue warehousing activities, and changes in policies by manufacturers related to selling directly to customers. Due to the lack of margin generated through bulk deliveries, fluctuations in their amount have no significant impact on the Company's earnings. 12 13 GROSS MARGIN. For fiscal 1999 and 1998, overall gross margin as a percentage of operating revenue was 12.03% and 12.33%, respectively. The Pharmaceutical Distribution segment's gross margin as a percentage of operating revenue decreased from 5.58% in fiscal 1998 to 5.29% in fiscal 1999. 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 Pharmaceutical Services segment's gross margin as a percentage of operating revenue was 33.50% and 32.70% in fiscal 1999 and 1998, respectively. Operating revenue growth in the Pharmaceutical Services segment has been greater in the relatively higher margin pharmacy automation and pharmaceutical-packaging businesses than it has been in the lower margin pharmacy management business. The Medical-Surgical Products segment's gross margin as a percentage of operating revenue was 23.29% in fiscal 1999 compared to 21.62% in fiscal 1998. The increase is primarily the result of improvements in the Company's product mix, including the growth of self-manufactured product sales in both domestic and international markets as well as the impact of manufacturing and other cost efficiencies. For fiscal 1998 and 1997, gross margin as a percentage of operating revenue was 12.33% and 12.68%, respectively. The Pharmaceutical Distribution segment's gross margin as a percentage of operating revenue decreased from 5.82% in fiscal 1997 to 5.58% in fiscal 1998. The decrease was 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 enabled the Company to offer lower selling margins to its customers. The Pharmaceutical Services segment's gross margin as a percentage of operating revenue was 32.70% and 32.88% in fiscal 1998 and 1997, respectively. Operating revenue growth was greater in the relatively lower margin pharmacy management and pharmaceutical-packaging businesses than it was in the higher margin pharmacy franchising business. The Medical-Surgical Products segment's gross margin as a percentage of operating revenue was 21.62% in fiscal 1998 compared to 20.99% in fiscal 1997. The increase was primarily the result of improvements in the Company's product mix, including the growth of manufactured product sales in both domestic and international markets as well as the impact of manufacturing and other cost efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses as a percentage of operating revenue declined to 7.28% for fiscal 1999 compared to 7.72% in fiscal 1998. The improvements during fiscal 1999 reflect economies associated with the Company's revenue growth, in addition to significant productivity gains resulting from continued cost control efforts in all three segments and the continuation of consolidation and selective automation of operating facilities in the Pharmaceutical Distribution and Pharmaceutical Services segments. Pharmaceutical Distribution and Pharmaceutical Services segments' selling, general and administrative expenses as a percentage of operating revenue were 2.63% and 16.80% in fiscal 1999, respectively, compared to 2.94% and 16.90% in fiscal 1998, respectively. Offsetting these improvements was an increase in the selling, general and administrative expenses as a percentage of operating revenue in the Medical-Surgical Products segment which increased from 16.07% in fiscal 1998 to 16.86% in fiscal 1999. This increase is primarily due to the acquisitions of businesses having a higher selling, general and administrative rate than the Medical-Surgical Products segment's normal rate during fiscal 1999. These acquisitions were accounted for under the purchase method of accounting. As such, historical financial statements have not been restated. The 13% growth in selling, general and administrative expenses experienced in fiscal year 1999, compared to fiscal 1998 was due primarily to increases in personnel costs and depreciation expense, and compares favorably to the 19% growth in operating revenue during fiscal 1999. Selling, general and administrative expenses as a percentage of operating revenue improved to 7.72% in fiscal 1998 compared to 8.19% in fiscal 1997. The improvements in fiscal 1998 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. The 7% growth in selling, general and administrative expenses experienced in the fiscal year 1998, compared to fiscal 1997 was due primarily to increases in personnel costs and depreciation expense, and compares favorably to the 13% growth in operating revenues during fiscal 1998. 13 14 SPECIAL CHARGES Merger-Related Charges. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger-related costs when incurred. During fiscal 1999, merger-related costs totaling $146.6 million ($117.6 million, net of tax) were recorded. Of this amount, approximately $95.4 million related to transaction and employee-related costs, and $36.1 million related to business restructuring and asset impairment costs associated with the Company's merger transactions with Scherer and Allegiance. As part of the business restructuring, the Company is currently closing certain facilities. As such, the Company has incurred employee-related and asset impairment costs, as well as, exit costs, related to the termination of contracts and lease agreements. In addition, the Company recorded costs of $4.0 million related to the write down of impaired inventory related to a previous merger and of $1.1 million related to severance costs for restructuring associated with the change in management that resulted from the merger transaction with Owen. The Company also recorded costs of $13.7 million related to integrating the operations of companies that previously engaged in merger transactions with the Company. Partially offsetting the charge recorded was a $3.7 million credit, to adjust the estimated transaction and termination costs previously recorded in connection with the canceled merger transaction with Bergen Brunswig Corporation ("Bergen") (see Note 17 of "Notes to Consolidated Financial Statements"). This adjustment relates primarily to services provided by third parties engaged by the Company in connection with the terminated Bergen transaction. The cost of such services was estimated and recorded in the prior periods when the services were performed. Actual billings were less than the estimate originally recorded, resulting in a reduction of the current period merger-related costs. During fiscal 1998, the Company recorded merger-related charges associated with transaction costs incurred in connection with the MediQual merger transaction ($2.3 million) and 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 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 merger-related charges associated with the PCI and Owen merger transactions ($46.2 million) and additional integration costs related to the Pyxis and Medicine Shoppe mergers ($4.7 million). See further discussion in Note 2 of "Notes to Consolidated Financial Statements." The Company classifies costs associated with a merger transaction as "merger-related costs." It should be noted that the amounts presented may not be comparable to similarly titled amounts reported by other companies. Other Special Charges. During fiscal 1998, the Company recorded a special charge of $8.6 million related to the rationalization of its pharmaceutical 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 pharmaceutical distribution facility, resulting in termination of the union relationship. During fiscal 1998, Scherer, along with its joint venture partner, converted the legal ownership structure of Scherer's 51% owned subsidiary in Germany from a corporation to a partnership. As a result of this change in tax status, the Company's tax basis in the German subsidiary was adjusted, resulting in a one-time tax refund of approximately $4.6 million, as well as a reduction in the cash taxes to be paid in the current and future years. Combined, these factors reduced fiscal 1998 income tax expense by $11.7 million. The following is a summary of the special charges incurred by the Company in the last three fiscal years:
Fiscal Year Ended June 30, ---------------------------- 1999 1998 1997 ------ ------ ------ (in millions, except per share amounts) MERGER-RELATED COSTS: - --------------------- Transaction and employee-related costs: Transaction costs $(52.9) $(35.7) $(14.5) PCI vested retirement benefits and incentive fee -- -- (7.6) Employee severance/termination (39.5) -- (4.4) Other (0.4) -- (0.6) ------ ------ ------ Total transaction and employee-related costs (92.8) (35.7) (27.1)
14 15
Fiscal Year Ended June 30, ------------------------------- 1999 1998 1997 ------- ------ ------ Other merger-related costs: Asset impairments (16.8) (3.8) (13.2) Exit and restructuring costs (23.3) -- (2.2) Duplicate facilities elimination -- -- (1.7) Integration and efficiency implementation (13.7) (9.7) (6.7) ------- ------ ------ Total other merger-related costs (53.8) (13.5) (23.8) ------- ------ ------ Total merger-related costs $(146.6) $(49.2) $(50.9) ------- ------ ------ OTHER SPECIAL CHARGES: - ---------------------- Facilities closures $ -- $ (6.1) $ -- Employee severance -- (2.5) -- ------- ------ ------ Total other special charges -- (8.6) -- ------- ------ ------ TOTAL SPECIAL CHARGES (146.6) (57.8) (50.9) - --------------------- Tax effect of special charges 29.0 22.0 14.3 Tax benefit for change in tax status -- 11.7 -- ------- ------ ------ Effect on net earnings $(117.6) $(24.1) $(36.6) ======= ====== ====== Effect on diluted earnings per share $ (0.42) $(0.09) $(0.13) ======= ====== ======
The effects of the merger-related costs and other special charges are included in the reported net earnings of $456.3 million in fiscal 1999, $425.1 million in fiscal 1998 and $334.8 million in fiscal 1997 and in the reported diluted earnings per Common Share of $1.64 in fiscal 1999, $1.53 in fiscal 1998 and $1.23 in fiscal 1997. The Company estimates that it will incur additional merger-related costs associated with the various merger transactions it has completed to date totaling approximately $100.0 million ($61.2 million, net of tax) in future periods in order to properly integrate operations, of which a portion represents facility rationalizations, 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. 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 expansion into 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, the Company would incur additional merger-related costs. INTEREST EXPENSE. The increase in interest expense of $4.9 million during fiscal 1999 compared to fiscal 1998 is primarily due to the Company's issuance of $150 million of 6.25% Notes due 2008, in a public offering in July 1998 (see "Liquidity and Capital Resources"). The effect of the issuance of the 6.25% Notes during fiscal 1999 has been partially offset by a decrease in other debt instruments with higher interest rates. The $12.7 million decrease in interest expense in fiscal 1998 compared to fiscal 1997 is primarily due to the paydown of the Company's $100 million of 8% Notes on March 1, 1997 and a reduction in the overall interest rate on total debt outstanding during fiscal 1998 compared to fiscal 1997. 15 16 PROVISION FOR INCOME TAXES. The Company's provision for income taxes relative to pretax earnings was 39.9%, 35.6% and 38.0% for fiscal years 1999, 1998 and 1997, respectively. The fluctuation in the tax rate is primarily due to the impact of recording certain non-deductible merger-related costs during various periods as well as fluctuating state and foreign effective tax rates as a result of the Company's business mix for all three fiscal years. Also, a change in tax status of a 51% owned German subsidiary resulted in a lower tax provision during fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital increased to $2.2 billion at June 30, 1999 from $2.1 billion at June 30, 1998. This increase resulted from additional investments in inventories and trade receivables of $323.3 million and $154.0 million, respectively. Offsetting the increases in working capital was an increase in accounts payable of $218.1 million and a decrease in cash of $208.1 million. Increases in inventories reflect the higher level of business volume in pharmaceutical distribution activities, especially in the fourth quarter of fiscal 1999 when distribution revenue grew 21% over the same period in the prior year. The increase in trade receivables is consistent with the Company's revenue growth (see "Operating Revenue" above). The change in accounts payable and cash is due primarily 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 were used for working capital needs due to growth in the Company's business. The Company currently has the capacity to issue $250 million of additional debt securities pursuant to a shelf registration statement filed with the Securities and Exchange Commission (see Note 5 of "Notes to Consolidated Financial Statements"). Property and equipment, at cost, increased by $146.6 million at June 30, 1999 compared to June 30, 1998. The increase was primarily due to ongoing plant expansion and manufacturing equipment purchases and additional investments made for management information systems and upgrades to distribution facilities. 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 $3.5 billion at June 30, 1999 from $3.0 billion at June 30, 1998, primarily due to net earnings of $456.3 million and the investment of $131.6 million by employees of the Company through various stock incentive plans, offset by the retirement of $40.1 million of Allegiance treasury shares. The Company has line-of-credit agreements with various bank sources aggregating $175.8 million. The Company had $28.6 million outstanding under these lines at June 30, 1999. In addition, the Company has a commercial paper program, providing for the issuance of up to $750 million in aggregate maturity value of commercial paper. The Company had $49.2 million outstanding under this program at June 30, 1999. The Company has an unsecured bank credit facility, which provides for up to an aggregate of $1.0 billion in borrowings of which $150.0 million is part of a multi-currency allocation and $250.0 million represents a 364-day facility. As of June 30, 1999, $80.7 million of borrowings were outstanding under the multi-currency allocation portion of the facility. 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 Notes 1 and 6 to the consolidated financial statements for information regarding the use of financial instruments and derivatives thereof, including foreign currency hedging instruments. As a matter of policy, the Company does not engage in "speculative" transactions involving derivative financial instruments. OTHER - ----- PENDING BUSINESS COMBINATIONS. On August 5, 1999, the Company announced that it had entered into a definitive merger agreement with Automatic Liquid Packaging, Inc. ("ALP"), pursuant to which ALP will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. The merger is expected to be completed in the first quarter of fiscal 2000, subject to satisfaction of certain conditions, including regulatory clearances. On July 12, 1999, the Company completed the purchase of MedSurg Industries, Inc., for $31.8 million. The acquisition was accounted for as a purchase. TERMINATION AGREEMENT. On August 24, 1997, the Company and Bergen announced that they had entered into a definitive merger agreement, as amended, pursuant to which a wholly owned subsidiary of the Company would be merged with and into Bergen (the "Bergen Merger Agreement"). On July 31, 1998, the United States District Court for the 16 17 District of Columbia granted the Federal Trade Commission's request for a preliminary injunction to halt the proposed merger. On August 7, 1998, the Company and Bergen jointly terminated the Bergen Merger Agreement and, in accordance with the terms of the Bergen Merger Agreement, the Company reimbursed Bergen for $7.0 million of transaction costs. Additionally, the termination of the Bergen Merger Agreement caused the costs incurred by the Company (that would not have been deductible had the merger been consummated) to become tax deductible for federal income tax purposes, resulting in a tax benefit of $12.2 million. The obligation to reimburse Bergen and the additional tax benefit were recorded in the fourth quarter of the fiscal year ended June 30, 1998. (See Note 17 of "Notes to Consolidated Financial Statements"). YEAR 2000 PROJECT. The Company utilizes computer technologies in each of its businesses 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 properly in the year 2000. The Company is utilizing a multi-phased concurrent approach to address this issue. The first of two project segments, "Mitigation and Validation", included specific awareness, assessment, remediation, validation and implementation phases. The Company has substantially completed all of these phases of this project segment. The Company has corrected, replaced, mitigated, or retired the vast majority of those business critical systems which were 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 expects that all-remaining Mitigation and Validation issues will be fully completed on or before September 30, 1999. This process includes the multiple testing of critical systems to ensure that year 2000 readiness has been accomplished. The second project segment, "Business Protection", also includes several phases - business dependency and risk assessment, contingency planning, and situation management planning. The Company has made significant and substantial progress with this segment and expects to substantially complete the business dependency and risk assessment phase by August 31, 1999 and the remaining two phases by September 30, 1999. 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 is 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 probability 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. The Company estimates that the aggregate costs of its year 2000 project will be approximately $27.0 million, including costs incurred to date. Significant portions of these costs were not incremental costs, but rather represented 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. Since the initiation of the year 2000 project, the Company estimates that it has incurred costs of approximately $20.0 million of which approximately $6.2 million represented incremental costs. 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 statements. The Company has formally communicated 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 is in the process of developing appropriate contingency plans in the event that a significant exposure is identified relative to the dependencies on third-party systems. Although 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 or with which the Company interfaces will be converted in a timely manner, or that a failure to properly convert by a third party would not have a material adverse effect on the Company. The potential risks associated with the year 2000 issues include, but are not limited to: temporary disruption of the Company's operations, loss of communication services and loss of other utility services. The Company believes that the most reasonably likely worst-case year 2000 scenario would be a loss of communication services which could result in 17 18 problems with receiving, processing, tracking and billing customer orders; problems receiving, processing and tracking orders placed with suppliers; and problems with banks and other financial institutions. Currently, as part of the Company's normal business contingency planning, a plan has been developed for business disruptions due to natural disasters and power failures. The Company is in the process of enhancing these contingency plans to include provisions for year 2000 issues, although it will not be possible to develop contingency plans for all potential disruption. Although the Company anticipates that minimal business disruption will occur as a result of the year 2000 issues, based upon currently available information, incomplete or untimely resolution of year 2000 issues by either the Company or significant suppliers, customers and critical business partners could have a material adverse impact on the Company's consolidated financial statements. THE EURO CONVERSION. On January 1, 1999, certain member countries of the European Union irrevocably fixed the conversion rates between their national currencies and a common currency, the "Euro", which became their legal currency on that date. The participating countries' former national currencies will continue to exist as denominations of the Euro until January 1, 2002. The Company has addressed the business implications of conversion to the Euro, including the need to adapt internal systems to accommodate Euro-denominated transactions, the competitive implications of cross-border price transparency, and other strategic implications. The Company does not expect the conversion to the Euro to have a material impact on its consolidated financial statements. RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDS. As of September 30, 1998, the Company adopted, on a retroactive basis, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the presentation of comprehensive income and its components in a full set of general-purpose financial statements. The Company's comprehensive income consists of net earnings and foreign currency translation adjustments. As of June 30, 1999, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information." 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 (See Note 13 of "Notes to Consolidated Financial Statements"). As of June 30, 1999, the Company adopted Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. The new statement does not change the existing method of expense recognition. There was no effect on financial position or net income as a result of adopting SFAS 132. (See Note 8 of "Notes to Consolidated Financial Statements"). RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." 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. As amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," the provisions of SFAS 133 will require adoption no later than the beginning of the Company's fiscal year ending June 30, 2001. 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, 2000. 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 The Company is exposed to market risks, which include changes in U.S. interest rates, changes in foreign currency exchange rates as measured against the U.S. dollar and changes in commodity prices. Interest Rates. The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2000, although there can be no assurances that interest rates will not significantly change. 18 19 As of June 30, 1999, the Company had total long-term obligations outstanding of $1,235.5 million of which $1,008.0 million represented Notes and Debentures with fixed interest rates and maturity dates beginning in fiscal 2004. As of June 30, 1998, the Company had total long-term obligations outstanding of $1,337.3 million of which $898.9 million represented Notes and Debentures with fixed interest rates and maturity dates beginning in fiscal 2004. The average interest rate related to these obligations was 6.8% and 7.0% as of June 30, 1999 and 1998, respectively. The majority of the remaining outstanding long-term obligations and credit facilities have variable interest rates that fluctuate with the LIBOR or prime rates. As of June 30, 1999 and 1998, the fair value of the total long-term obligations was $1,233.3 million and $1,365.3 million, respectively. Maturities of long-term obligations for future fiscal years are: 2000 - $11.6 million; 2001 - $117.6 million; 2002 - $3.1 million; 2003 - $ 2.1 million; 2004 - $273.9 million and 2005 and thereafter - $827.2 million. The Company periodically enters into interest rate swap agreements when existing conditions and market situations dictate. The Company does not enter into interest rate swap agreements for trading or speculative purposes. The impact of interest rate swaps is not significant. See Note 6 of "Notes to Consolidated Financial Statements". Foreign Exchange. The Company conducts business in several major international currencies. The Company periodically uses financial instruments, principally foreign currency options to attempt to manage the impact of foreign exchange rate changes on earnings. In addition, the Company periodically enters into forward foreign currency exchange contracts to hedge certain exposures related to selected transactions that are relatively certain as to both timing and amount and to hedge a portion of the production costs expected to be denominated in foreign currency. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on the results of operations and cash flows. Gains and losses on the hedging activities are recognized concurrently with the gains and losses from the underlying transactions. The Company does not enter into forward exchange contracts or foreign currency options for trading purposes. In addition, the Company uses commodity contracts to hedge raw material costs expected to be denominated in foreign currency. These contracts generally cover a one-year period and all gains and losses are deferred and recognized in cost of goods sold with the underlying product costs. As of June 30, 1999, the Company did not have any material foreign currency options or forward exchange contracts outstanding. As of June 30, 1998, the Company's foreign currency options consisted of the option to exchange German marks at a fixed exchange rate of 1.722 German marks per U.S. dollar and British pound sterling at a fixed exchanged rate of $1.6242 per pound sterling. The notional principal amount under these foreign currency option contracts was approximately $3 million and its related fair value was $0.1 million at June 30, 1998. In addition, as of June 30, 1998, the Company's forward exchange contracts consisted of forward contracts to sell German marks and U.S. dollars for British pound sterling at a fixed exchange rate of 3.05679 German mark per British pound sterling and $1.67 per pound sterling. The notional principal amount under these foreign exchange contracts was approximately $35.6 million and its related fair value was $(0.4) million at June 30, 1998. As of June 30, 1998, the notional amount of the commodity hedge contracts was $14.2 million and the related fair market value of these contracts was $(1.7) million. As of June 30, 1999, the notional amount of the commodity hedge contracts was $9.6 million and the related fair market value of these contracts was $(0.3) million. The unrealized gains or losses on these options or contracts represent hedges of foreign exchange gains and losses on a portion of the Company's foreign earnings, cash flows and selected transactions. As a result, the Company does not expect future gains and losses on these contracts to have a material impact on the Company's consolidated financial statements. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Reports Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1999, 1998 and 1997 Consolidated Balance Sheets at June 30, 1999 and 1998 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 19 20 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, 1999 and 1998, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. 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 Allegiance Corporation ("Allegiance"), a wholly owned subsidiary of Cardinal Health, Inc., as of June 30, 1999 and 1998, and for the years ended June 30, 1999 and 1998 and December 31, 1997. We also did not audit the financial statements of R.P. Scherer Corporation ("Scherer"), a wholly owned subsidiary of Cardinal Health, Inc., as of June 30, 1999 and March 31, 1998, and for the years ended June 30, 1999 and March 31, 1998 and 1997. The combined financial statements of Allegiance and Scherer represent approximately 45% and 47% of consolidated total assets at June 30, 1999 and 1998, respectively, and represent combined revenues and net income of approximately 25%, 28%, and 31% and 37%, 42% and 44%, respectively, of consolidated amounts for each of the three years in the period ended June 30, 1999. 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 Allegiance and Scherer, 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 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 10, 1999 20 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - ---------------------------------------- To R.P. Scherer Corporation: We have audited the accompanying consolidated statements of financial position of R.P. SCHERER CORPORATION (a Delaware corporation and a wholly-owned subsidiary of Cardinal Health, Inc.) and subsidiaries as of June 30, 1999 and March 31, 1998 and the related consolidated statements of income, comprehensive income, cash flows and shareholders' equity for the year ended June 30, 1999 and the years ended March 31, 1998 and 1997 (not presented separately herein). These financial statements and the schedule referred to below are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and this schedule based on our audits. 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 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of R.P. Scherer Corporation and subsidiaries as of June 30, 1999 and March 31, 1998, and the results of their operations and their cash flows for the year ended June 30, 1999 and for the years ended March 31, 1998 and 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of valuation allowances is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements (not presented separately herein). This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP Detroit, Michigan, August 9, 1999 21 22 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Stockholders of Allegiance Corporation In our opinion, the consolidated balance sheets and the related consolidated statements of operations, of cash flows and of equity of Allegiance Corporation, a wholly-owned subsidiary of Cardinal Health Inc., and its subsidiaries (not presented separately herein) present fairly, in all material respects, the financial position of Allegiance Corporation and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for the years ended June 30, 1999 and 1998 and for the year ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Allegiance Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Chicago, Illinois July 29, 1999 22 23 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE ----------------------------------------------------------------- To the Stockholders of Allegiance Corporation Our audits of the consolidated financial statements of Allegiance Corporation and its subsidiaries referred to in our report dated July 29, 1999 appearing on page 22 of the Cardinal Health, Inc. 1999 Annual Report on Form 10-K also included an audit of the Financial Statement Schedule II - Valuation and Qualifying Accounts ("Financial Statement Schedule") of Allegiance Corporation and its subsidiaries (not presented separately herein). In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chicago, Illinois July 29, 1999 23 24 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Revenue: Operating revenue $21,480.6 $18,004.0 $15,924.8 Bulk deliveries to customer warehouses 3,553.0 2,991.4 2,469.1 --------- --------- --------- Total revenue 25,033.6 20,995.4 18,393.9 Cost of products sold: Operating cost of products sold 18,892.2 15,783.4 13,904.8 Cost of products sold - bulk deliveries 3,553.0 2,991.4 2,469.1 Merger-related costs 4.0 -- -- --------- --------- --------- Total cost of products sold 22,449.2 18,774.8 16,373.9 Gross margin 2,584.4 2,220.6 2,020.0 Selling, general and administrative expenses 1,564.8 1,390.3 1,304.3 Special charges: Merger-related costs (142.6) (49.2) (50.9) Other special charges -- (8.6) -- --------- --------- --------- Total special charges (142.6) (57.8) (50.9) Operating earnings 877.0 772.5 664.8 Other income (expense): Interest expense (99.4) (94.5) (107.2) Other, net (includes minority interests) (18.4) (18.3) (17.9) --------- --------- --------- Earnings before income taxes 759.2 659.7 539.7 Provision for income taxes 302.9 234.6 204.9 --------- --------- --------- Net earnings $ 456.3 $ 425.1 $ 334.8 ========= ========= ========= Net earnings per Common Share: Basic $ 1.68 $ 1.57 $ 1.26 Diluted $ 1.64 $ 1.53 $ 1.23 Weighted average number of Common Shares outstanding: Basic 271.6 271.2 265.8 Diluted 279.0 277.9 272.0
The accompanying notes are an integral part of these statements. 24 25 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
JUNE 30, JUNE 30, 1999 1998 -------- -------- ASSETS Current assets: Cash and equivalents $ 165.2 $ 373.3 Trade receivables, net 1,590.3 1,436.3 Current portion of net investment in sales-type leases 152.5 91.4 Inventories 2,931.4 2,608.1 Prepaid expenses and other 307.2 277.0 -------- -------- Total current assets 5,146.6 4,786.1 -------- -------- Property and equipment, at cost: Land, buildings and improvements 700.3 761.6 Machinery and equipment 1,970.3 1,735.7 Furniture and fixtures 77.7 104.4 -------- -------- Total 2,748.3 2,601.7 Accumulated depreciation and amortization (1,207.8) (1,134.0) -------- -------- Property and equipment, net 1,540.5 1,467.7 Other assets: Net investment in sales-type leases, less current portion 454.3 233.1 Goodwill and other intangibles, net 942.1 850.5 Other 205.5 140.6 -------- -------- Total $8,289.0 $7,478.0 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable, banks $ 28.6 $ 24.7 Current portion of long-term obligations 11.6 7.3 Accounts payable 2,360.8 2,142.7 Other accrued liabilities 558.0 550.7 -------- -------- Total current liabilities 2,959.0 2,725.4 -------- -------- Long-term obligations, less current portion 1,223.9 1,330.0 Deferred income taxes and other liabilities 643.1 467.7 Shareholders' equity: Common Shares, without par value 1,090.0 1,063.6 Retained earnings 2,439.1 2,006.9 Common Shares in treasury, at cost (17.2) (82.3) Cumulative foreign currency adjustment (44.0) (27.9) Other (4.9) (5.4) -------- -------- Total shareholders' equity 3,463.0 2,954.9 -------- -------- Total $8,289.0 $7,478.0 ======== ========
The accompanying notes are an integral part of these statements. 25 26 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN MILLIONS)
COMMON SHARES CUMULATIVE ------------------ TREASURY SHARES FOREIGN TOTAL SHARES RETAINED ------------------ CURRENCY SHAREHOLDERS' ISSUED AMOUNT EARNINGS SHARES AMOUNT ADJUSTMENT OTHER EQUITY ------ -------- -------- ------ -------- ---------- ----- -------- BALANCE, JUNE 30, 1996 132.1 $ 897.8 $1,343.1 (1.1) $ (11.6) $ (3.8) $(3.0) $2,222.5 Comprehensive income: Net earnings 334.8 334.8 Foreign currency translation adjustments (8.7) (8.7) -------- Total comprehensive income 326.1 Employee stock plans activity, including tax benefits of $21.0 3.5 123.4 (0.6) 10.6 (1.1) 132.9 Treasury shares acquired and shares retired (0.7) (7.1) 0.9 (30.7) (37.8) Dividends paid (32.0) (32.0) Stock split effected as a stock dividend and cash paid in lieu of fractional shares 33.4 Adjustment for change in fiscal year of an acquired subidiary (see Note 1) 0.2 5.7 0.1 0.1 6.0 Stock issued for acquisitions and other 0.1 10.5 (1.2) 9.3 ----- -------- -------- ---- ------- ------ ----- -------- BALANCE, JUNE 30, 1997 168.4 $1,024.8 $1,651.6 (0.7) $ (31.6) $(12.5) $(5.3) $2,627.0 Comprehensive income: Net earnings 425.1 425.1 Foreign currency translation adjustments (16.0) (16.0) -------- Total comprehensive income 409.1 Employee stock plans activity, including tax benefits of $35.2 2.0 65.0 (0.3) 29.0 (0.4) 93.6 Treasury shares acquired and shares retired (0.4) (25.4) (0.8) (104.9) (130.3) Dividends paid (34.8) (34.8) Other adjustments (0.5) (0.5) Adjustment for change in fiscal year of an acquired subidiary (see Note 1) (0.1) (0.8) (35.0) 0.4 25.2 0.6 0.8 (9.2) ----- -------- -------- ---- ------- ------ ----- -------- BALANCE, JUNE 30, 1998 169.9 $1,063.6 $2,006.9 (1.4) $ (82.3) $(27.9) $(5.4) $2,954.9 Comprehensive income: Net earnings 456.3 456.3 Foreign currency translation adjustments (17.0) (17.0) -------- Total comprehensive income 439.3 Employee stock plans activity, including tax benefits of $55.8 2.7 99.7 (0.7) 34.8 (2.9) 131.6 Treasury shares acquired and shares retired (1.7) (73.8) 1.7 30.3 3.4 (40.1) Dividends paid (31.9) (31.9) Stock split effected as a stock dividend and cash paid in lieu of fractional shares 103.1 (0.3) (0.3) Adjustment for change in fiscal year of an acquired subidiary (see Note 1) 0.1 0.5 8.6 0.9 10.0 Stock issued for acquisitions and other 0.2 (0.5) (0.5) ----- -------- -------- ---- ------- ------ ----- -------- BALANCE, JUNE 30, 1999 274.3 $1,090.0 $2,439.1 (0.4) $ (17.2) $(44.0) $(4.9) $3,463.0 ===== ======== ======== ==== ======= ====== ===== ========
The accompanying notes are an integral part of these statements. 26 27 CARDINAL HEALTH INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
FISCAL YEAR ENDED JUNE 30, ------------------------------- 1999 1998 1997 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 456.3 $ 425.1 $ 334.8 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 233.5 214.5 209.1 Provision for deferred income taxes 132.4 90.1 32.9 Provision for bad debts 29.5 15.5 8.6 Change in operating assets and liabilities, net of effects from acquisitions: Increase in trade receivables (214.1) (204.9) (15.3) Increase in inventories (318.5) (473.7) (106.6) Increase in net investment in sales-type leases (282.3) (103.3) (5.1) Increase (decrease) in accounts payable 230.5 523.3 (33.2) Other operating items, net 78.4 65.5 63.8 ------- ------- ------- Net cash provided by operating activities 345.7 552.1 489.0 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiaries, net of cash acquired (147.5) (45.8) (43.7) Proceeds from asset dispositions 57.8 10.7 21.0 Additions to property and equipment (319.9) (278.8) (227.9) Purchase of marketable securities available for sale -- -- (3.4) Proceeds from sale of marketable securities available for sale -- -- 57.7 Other -- (4.7) 2.5 ------- ------- ------- Net cash used in investing activities (409.6) (318.6) (193.8) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowing activity (207.4) (89.2) (185.4) Reduction of long-term obligations (118.5) (49.1) (277.8) Proceeds from long-term obligations, net of issuance costs 223.7 111.4 94.7 Proceeds from issuance of Common Shares 62.0 59.1 108.2 Dividends on common shares, minority interests and cash paid in lieu of fractional shares (56.7) (51.4) (40.0) Purchase of treasury shares (40.1) (130.7) (37.7) Other (4.8) (10.8) (10.8) ------- ------- ------- Net cash used in financing activities (141.8) (160.7) (348.8) ------- ------- ------- EFFECT OF CURRENCY TRANSLATION ON CASH AND EQUIVALENTS (2.4) (1.6) (1.2) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (208.1) 71.2 (54.8) CASH AND EQUIVALENTS AT BEGINNING OF YEAR 373.3 302.1 356.9 ------- ------- ------- CASH AND EQUIVALENTS AT END OF YEAR $ 165.2 $ 373.3 $ 302.1 ======= ======= =======
The accompanying notes are an integral part of these statements. 27 28 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cardinal Health, Inc., together with its subsidiaries (collectively the "Company"), is a provider of services to the healthcare industry offering an array of value-added pharmaceutical and other healthcare products distribution services and pharmaceutical-related products and services to a broad base of customers. The Company currently conducts its business within three business segments; Pharmaceutical Distribution, Pharmaceutical Services and Medical-Surgical Products. The Pharmaceutical Distribution segment distributes a broad line of pharmaceuticals, 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, within the Pharmaceutical Services segment, operates a variety of related healthcare service and manufacturing 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); the Cardinal Information group of companies ("CIC") (a developer and provider of clinical information systems); and R.P. Scherer Corporation ("Scherer") (an international developer and manufacturer of drug delivery systems). The Medical-Surgical Products segment primarily encompasses Allegiance Corporation ("Allegiance"). Allegiance is a distributor and manufacturer of medical, surgical and respiratory therapy products, and a provider of distribution and cost-saving services. See "Basis of Presentation" below. 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 PCI on October 11, 1996; Owen on March 18, 1997; MediQual Systems, Inc. ("MediQual") on February 18, 1998; Scherer on August 7, 1998; and Allegiance on February 3, 1999 (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, MediQual's, Scherer's and Allegiance's fiscal year ends were November 30, December 31, March 31, and December 31, respectively. 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) and with the financial results for MediQual's fiscal year ended December 31, 1996, Scherer's fiscal year ended March 31, 1997, and Allegiance's fiscal year ended December 31, 1997. For the fiscal year ended June 30, 1998, the consolidated financial statements combine the Company's fiscal year ended June 30, 1998 with Scherer's fiscal year ended March 31, 1998. 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 month of December 1996 are not included in the combined results of operations but are reflected as an adjustment in the Consolidated Statements of Shareholders' Equity. As a result of changing MediQual's fiscal year end from December 31 to June 30, the results of operations for the six months ended June 30, 1997 are not included in the combined results of operations but are reflected as an adjustment in the Consolidated Statements of Shareholders' Equity. MediQual's total revenue and net earnings for this period were $6.0 million and $1.7 million, respectively. MediQual's cash flows from operating activities for this period were $1.2 million, while cash flows used in investing and financing activities were $0.3 million and $0.1 million, respectively. Due to the change in Scherer's fiscal year end from March 31 to conform with the Company's June 30 fiscal year end, Scherer's results of operations for the three months ended June 30, 1998 are not included in the combined results of operations but are reflected as an adjustment in the Consolidated Statements of Shareholders' Equity. Scherer's net revenue and net earnings for this period were $161.6 million and $8.6 million, respectively. Scherer's cash flows from operating and financing activities for this period were $12.6 million and $32.6 million, respectively, while cash flows used in investing activities were $12.2 million. As a result of changing Allegiance's fiscal year end from December 31 to June 30, the results of operations for the six months ended December 31, 1997 are included in the combined results of operations for both the fiscal years ended June 30, 1997 and 1998 and are reflected as an adjustment in the Consolidated Statements of Shareholders' Equity. Allegiance's total revenue and net earnings for this period were $2.2 billion and $47.9 million, respectively. Allegiance's cash flows from operating 28 29 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS activities for this period were $147.2 million, while cash flows used in investing and financing activities were $63.7 million and $83.8 million, respectively. On May 21, 1999, the Company completed a merger with Pacific Surgical Innovations, Inc. ("PSI"). The merger transaction with PSI was accounted for as a pooling-of-interests. Because the impact of the merger transaction with PSI was not significant on a historical basis, prior period financial statements have not been restated. PSI's financial information for all periods, beginning with May 21, 1999, has been included in the Company's consolidated financial results for fiscal 1999. 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. Cash payments for interest were $105.5 million, $97.4 million and $111.4 million and cash payments for income taxes were $79.5 million, $146.9 million and $116.8 million for fiscal 1999, 1998 and 1997, respectively. See Notes 2 and 5 for additional information regarding non-cash investing and financing activities. RECEIVABLES. Trade receivables are primarily comprised of amounts owed to the Company through its pharmaceutical and other healthcare distribution activities and are presented net of an allowance for doubtful accounts of $53.6 million and $64.6 million at June 30, 1999 and 1998, respectively. 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 $19.8 million and $66.6 million at June 30, 1999 and 1998, respectively (the current portions are $9.2 million and $29.4 million, respectively), and are included in other assets. These amounts are reported net of an allowance for doubtful accounts of $4.9 million and $6.4 million at June 30, 1999 and 1998, respectively. During fiscal 1999, the Company formed Medicine Shoppe Capital Corporation ("MSCC") and Pyxis Capital Corporation ("PCC"), as wholly owned subsidiaries of Medicine Shoppe and Pyxis, respectively. MSCC and PCC were incorporated for the sole purpose of buying receivables and selling those receivables to certain financial institutions or to other investors. They are designed to be special purpose, bankruptcy remote entities. Although consolidated to the extent required by generally accepted accounting principles, MSCC and PCC are separate corporations from the Company, Medicine Shoppe and Pyxis, they each maintain separate financial statements, and their assets will be available first and foremost to satisfy the claims of their creditors. INVENTORIES. A majority of inventories (approximately 60% in 1999 and 1998) are stated at lower of cost, using the last-in, first-out ("LIFO") method, or market and are primarily merchandise inventories. The remaining inventory is primarily stated at the lower of cost using the first-in, first-out ("FIFO") method or market. If the Company had used the FIFO method of inventory valuation, which approximates current replacement cost, inventories would have been higher than the LIFO method reported at June 30, 1999 and 1998 by $50.4 million and $54.4 million, respectively. The Company continues to consolidate locations, automate selected distribution facilities and invest in management information systems to achieve efficiencies in inventory management processes. As a result of the facility and related inventory consolidations, and the operational efficiencies achieved in fiscal 1999 and 1998, the Company had partial inventory liquidations in certain LIFO pools which reduced the LIFO provision by approximately $0.1 million and $2.3 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 one to fifty 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. 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. 29 30 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 that range from ten to forty years. Accumulated amortization was $599.9 million and $529.8 million at June 30, 1999 and 1998, 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 a review of projected undiscounted operating cash flows for each subsidiary, except Allegiance. Allegiance assesses goodwill impairment based upon a fair value approach. 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 the drug distribution industry, the Company reports as revenue bulk deliveries made to customers' warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including consolidation within the customers' industry, decisions by customers to either begin or discontinue warehousing activities, and changes in policy by manufacturers related to selling directly to the customers. Due to the insignificant margins generated through bulk deliveries, fluctuations in their amount do not have a significant impact on earnings. 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. Pharmacy management and other service revenue are recognized as the related services are rendered according to the contracts established. A fee is charged under such contracts through 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. Revenue is adjusted to reflect the estimated effects of such contractual guarantees and risk-sharing provisions. Packaging revenue is recognized from services provided upon the completion of such services. Clinical information system license revenue is 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. Drug delivery system revenue is recognized upon shipment of products to the customer. Non-product revenue related to option, milestone and exclusivity fees are recognized when earned and all obligations of performance have been completed. TRANSLATION OF FOREIGN CURRENCIES. The financial position and the results of operations of the Company's foreign operations, excluding the Company's Malaysian and Mexican manufacturing operations which are denominated in U.S. dollars, are measured using the local currencies of the countries in which they operate and are translated into U.S. dollars. Although the effects of foreign currency fluctuations are mitigated by the fact that expenses of foreign subsidiaries are generally incurred in the same currencies in which sales are generated, the reported results of operations of the Company's foreign subsidiaries are affected by changes in foreign currency exchange rates and, as compared to prior periods, will be higher or lower depending upon a weakening or strengthening of the U.S. dollar. In addition, the net assets of foreign subsidiaries are translated into U.S. dollars at the foreign currency exchange rates in effect at the end of each period. Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the relative strengthening or weakening of the U.S. dollar versus relevant foreign currencies. DERIVATIVE FINANCIAL INSTRUMENT RISK. The Company uses derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. The Company also periodically enters into foreign currency exchange contracts to hedge certain exposures related to selected transactions that are relatively certain as to both timing and amount. The Company does not use derivative financial instruments for trading or speculative purposes (see Note 6 for further discussion). 30 31 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT COSTS. Costs incurred in connection with the development of new products and manufacturing methods are charged to expense as incurred. Research and development expenses, net of customer reimbursements, were $49.7 million, $45.7 million and $35.4 million in fiscal 1999, 1998 and 1997, respectively. Customer reimbursements in the amount of $11.8 million, $13.0 million and $8.0 million were received for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. INCOME TAXES. No provision is made for U.S. income taxes on earnings of foreign subsidiary companies which the Company controls but does not include in the consolidated federal income tax return since it is management's practice and intent to permanently reinvest the earnings. EARNINGS PER COMMON SHARE. 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. Excluding dividends paid by all entities with which the Company has merged, the Company paid cash dividends per Common Share of $0.095, $0.070 and $0.060 for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. STOCK SPLITS. On August 12, 1998, the Company declared a three-for-two stock split which was effected as a stock dividend and distributed on October 30, 1998 to shareholders of record on October 9, 1998. 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 these stock splits. ALLEGIANCE SPIN-OFF. On September 30, 1996 (the "Distribution Date"), Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. healthcare distribution business, surgical and respiratory therapy business and healthcare cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. The spin-off occurred on the Distribution Date through a distribution of Allegiance common stock to Baxter stockholders (the "Distribution") based on a distribution ratio of one Allegiance share for each five Baxter shares held. The Distribution of approximately 68.4 million equivalent Company Common Shares of Allegiance common stock was made to Baxter stockholders of record on September 26, 1996. 2. BUSINESS COMBINATIONS, MERGER-RELATED COSTS AND OTHER SPECIAL ITEMS Business Combinations and Merger-Related Costs. On February 3, 1999, the Company completed a merger transaction with Allegiance that was accounted for as a pooling-of-interests transaction. The Company issued approximately 70.7 million Common Shares to Allegiance stockholders and Allegiance's outstanding stock options were converted into options to purchase approximately 10.3 million Company Common Shares. In addition, on August 7, 1998, the Company completed a merger transaction with Scherer that was accounted for as a pooling-of-interests. The Company issued approximately 34.2 million Common Shares to Scherer stockholders and Scherer's outstanding stock options were converted into options to purchase approximately 3.5 million Common Shares. The Company recorded a merger-related charge to reflect transaction and other costs incurred as a result of these merger transactions in fiscal 1999. Additional merger-related costs associated with integrating the separate companies and instituting efficiencies are charged to expense in subsequent periods when incurred. On May 21, 1999, the Company completed a merger transaction with PSI. The Company issued approximately 233,000 Common Shares to PSI shareholders. The historical cost of PSI's assets combined was approximately $3.9 million and the total liabilities assumed were approximately $3.0 million. The impact of the merger transaction with PSI, on a historical basis, is not significant. Accordingly, prior period historical financial statements have not been restated for the PSI Merger. PSI's financial results have been included in the consolidated financial results of the Company since May 21, 1999. During the fiscal 1999, merger-related costs totaling $146.6 million ($117.6 million, net of tax) were recorded. Of this amount, approximately $95.4 million related to transaction and employee-related costs, and $36.1 million related to business restructuring and asset impairment costs associated with the Company's merger transactions with Scherer and Allegiance. As part of the business restructuring, the Company is currently closing certain facilities. As such, the Company has incurred employee-related costs associated with the elimination of approximately 360 positions, asset impairment costs and exit costs 31 32 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS related to the termination of contracts and lease agreements. In addition, the Company recorded costs of $4.0 million related to the write down of impaired inventory related to a previous merger and of $1.1 million related to severance costs for a restructuring associated with the change in management that resulted from the merger with Owen. The Company recorded costs of $13.7 million related to integrating the operations of companies that previously engaged in merger transactions with the Company. Partially offsetting the charge recorded was a $3.7 million credit to adjust the estimated transaction and termination costs previously recorded in connection with the canceled merger transaction with Bergen Brunswig Corporation ("Bergen") (see Note 17). This adjustment relates primarily to services provided by third parties engaged by the Company in connection with the terminated Bergen transaction. The cost of such services was estimated and recorded in the prior periods when the services were performed. Actual billings were less than the estimate originally recorded, resulting in a reduction of the current period merger-related costs. On February 18, 1998, the Company completed a merger transaction with MediQual (the "MediQual Merger") which was accounted for as a pooling-of-interests. The Company issued approximately 860,000 Common Shares to MediQual shareholders and MediQual's outstanding stock options were converted into options to purchase approximately 36,000 Common Shares of the Company. The table below presents a reconciliation of total revenue and net earnings available for Common Shares as reported in the accompanying consolidated financial statements with those previously reported by the Company. The term "Cardinal Health" as used herein refers to Cardinal Health, Inc. and subsidiaries prior to the MediQual, Scherer and Allegiance mergers. See Note 1 for periods combined.
(in millions) Cardinal Health Scherer MediQual Allegiance Combined --------- ------- -------- ---------- --------- Fiscal year ended June 30, 1997 Total revenue $13,437.2 $588.7 $11.0 $4,357.0 $18,393.9 Net earnings $ 184.6 $ 57.0 $ 2.3 $ 90.9 $ 334.8 Fiscal year ended June 30, 1998 Total revenue $15,918.1 $620.8 $ 7.9 $4,448.6 $20,995.4 Net earnings $ 247.1 $ 69.7 $ 1.4 $ 106.9 $ 425.1
Adjustments affecting net earnings and shareholders' equity resulting from the MediQual, Scherer and Allegiance mergers to adopt the same accounting practices were not material for any periods presented herein. There were no material intercompany transactions. In addition to the merger transactions described above, during fiscal 1999, the Company completed several individually immaterial acquisitions, which were accounted for under the purchase method of accounting. These business combinations were primarily related to the Company's med/surg distribution, point-of-use pharmacy systems and pharmaceutical-packaging services. The aggregate purchase price, which was paid primarily in cash, including fees and expenses, was approximately $160.8 million. Liabilities of the operations assumed were approximately $18.9 million, consisting of debt of $3.2 million. Had the acquisitions taken place July 1, 1998, consolidated results would not have been materially different from reported results. During fiscal 1998, the Company made a number of individually immaterial acquisitions for an aggregate purchase price of $47.8 million and exchanged nonmonetary assets with a value of approximately $10.5 million to acquire an interest in Source Medical Corporation, a new venture in Canada. All of these acquisitions were accounted for as purchase transactions. Had the acquisitions taken place July 1, 1997, consolidated results would not have been materially different from reported results. During fiscal 1998, the Company recorded merger-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 June 30, 1998 (see Note 17). In accordance with the terms of the Agreement and Plan of Merger between the Company, a wholly owned subsidiary of the Company, and Bergen, as amended, its termination required the Company to reimburse Bergen for $7.0 million of transaction costs upon termination of such Agreement (See Note 17). Additional merger-related costs, related to asset impairments ($3.8 million) 32 33 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and integrating the operations of companies that previously merged with the Company ($9.6 million), were incurred and recorded during fiscal 1998. 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 11.6 million Common Shares to Owen shareholders and Owen's outstanding stock options were converted into options to purchase approximately 1.0 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 4.7 million Common Shares to PCI shareholders and PCI's outstanding stock options were converted into options to purchase approximately 0.3 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. During fiscal 1997, the Company made individually immaterial acquisitions, accounted for under the purchase method of accounting, totaling $71.4 million. Had these acquisitions taken place July 1, 1996, consolidated results would not have been materially different from reported results. In addition to the merger-related costs recorded in fiscal 1997 for the Owen Merger and the PCI Merger (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. Other Special Items. 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 pharmaceutical 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 pharmaceutical distribution facility, resulting in termination of the union relationship. During fiscal 1998, Scherer finalized part of its long-term tax planning strategy by converting, with its joint venture partner, the legal ownership structure of Scherer's 51% owned subsidiary in Germany from a corporation to a partnership. As a result of this change in tax status, the Company's tax basis in the German subsidiary was adjusted, resulting in a one-time tax refund of approximately $4.6 million, as well as a reduction in cash taxes to be paid in the current and future years. Combined, these factors resulted in a one-time reduction of fiscal 1998 income tax expense by approximately $11.7 million. The net effect of the various merger-related costs and other special items recorded during fiscal 1999 was to reduce reported net earnings by $117.6 million to $456.3 million and to reduce reported diluted earnings per Common Share by $0.42 per share to $1.64 per share. The fiscal 1998 effect of various merger-related charges and other special items was to reduce reported net earnings by $24.1 million to $425.1 million and to reduce reported diluted earnings per Common Share by $0.09 per share to $1.53 per share. The effect of the various merger-related costs recorded in fiscal 1997 was to reduce reported net earnings by $36.6 million to $334.8 million and to reduce reported diluted earnings per Common Share by $0.13 per share to $1.23 per share. Certain merger-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. 33 34 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restructuring Program. In fiscal 1993, Baxter (see Note 1) announced a restructuring plan designed in part to make Allegiance more efficient and responsive in addressing the changes in the U.S. healthcare system. Charges totaling $560.0 million were recorded to cover costs associated with these restructuring initiatives. During fiscal 1999, 1998 and 1997, the Company had cash outflows related to the restructuring program of $6.6 million, $15.8 million and $15.6 million, respectively, and noncash charges against the restructuring program of $7.4 million, $9.1 million and $0.9 million, respectively. Prior to fiscal 1997, the total cash outflows and noncash charges related to the restructuring program were $242.4 million and $251.5 million, respectively. During the fiscal year ended June 30, 1999, $7.9 million of unnecessary restructuring reserves were reversed. The reversal of unnecessary reserves was principally the result of facility closures and consolidations being finalized at costs lower than originally anticipated. The cash outflows pertain primarily to employee-related costs for severance, outplacement assistance, relocation, implementation teams and facility consolidations. Since the inception of the restructuring program, approximately 2,500 positions have been eliminated. As of June 30, 1999 and 1998, the remaining restructuring reserve balance was $2.8 million and $24.7 million, respectively, both of which are classified as current liabilities. The remaining expenditures to be charged against the restructuring program are expected to occur in fiscal 2000, as implementation projects are completed as planned. 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 millions):
June 30, June 30, 1999 1998 -------- -------- Future minimum lease payments receivable $ 717.7 $387.5 Unguaranteed residual values 1.0 1.3 Unearned income (100.1) (55.5) Allowance for uncollectible minimum lease payments receivable (11.8) (8.8) ------- ------ Net investment in sales-type leases 606.8 324.5 Less: current portion 152.5 91.4 ------- ------ Net investment in sales-type leases, less current portion $ 454.3 $233.1 ======= ======
Future minimum lease payments to be received pursuant to sales-type leases during the next five years are: 2000 -$169.5 million, 2001 - $166.0 million, 2002 - $151.5 million, 2003 - $132.1 million, 2004 - $83.7 million and 2005 and thereafter - $14.9 million. Lease Related Financing Arrangements. Pyxis has previously financed its working capital needs through the sale of certain lease receivables to a non-bank financing company. As of June 30, 1999, $68.9 million of lease receivables were owned by the financing company. In June 1998, the agreement with the financing company was amended to terminate Pyxis' obligation to sell lease receivables to the financing company. Due to Pyxis customers upgrading the Pyxis machines or expanding the number of units being leased under the original lease agreements that have been sold to the financing company, Pyxis has been converting the original lease agreements with customers to an updated lease agreement. Pyxis has been maintaining these revised leases and not selling them to the financing company to replace the original lease receivables. As such, during fiscal 1999, Pyxis has entered into an agreement with the financing company to pay the financing company the remaining portion of the original lease receivables outstanding at the time of revision over the original terms. The future minimum payments for these notes at June 30, 1999 are 2000 - $39.5 million; 2001 - $26.9 million; 2002 - $14.0 million; and 2003 - $3.1 million. 4. NOTES PAYABLE, BANKS The Company has entered into various unsecured, uncommitted line-of-credit arrangements that allow for borrowings up to $177.8 million at June 30, 1999, at various money market rates. At June 30, 1999, $28.6 million, at a weighted average interest rate of 6.4%, was outstanding under such arrangements and $24.7 million, at a weighted average interest rate of 7.2% was outstanding at June 30, 1998. The total available but unused lines of credit at June 30, 1999 was $149.2 million. 34 35 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LONG-TERM OBLIGATIONS AND CREDIT FACILITIES Long-term obligations consist of the following (in millions):
June 30, June 30, 1999 1998 -------- -------- 6.0% Notes due 2006 $ 150.0 $ 150.0 6.25% Notes due 2008 150.0 -- 6.5% Notes due 2004 100.0 100.0 6.75% Notes due 2004 99.7 100.0 7.3% Notes due 2006 183.2 199.6 7.8% Debentures due 2016 125.2 149.4 7.0% Debentures due 2026 (7 year put option in 2003) 199.9 199.9 Borrowings under credit facilities 132.2 248.8 Commercial paper 49.2 142.0 Other obligations; interest averaging 6.7% in 1999 and 6.1% in 1998, due in varying installments through 2020 46.1 47.6 -------- -------- Total 1,235.5 1,337.3 Less: current portion 11.6 7.3 -------- -------- Long-term obligations, less current portion $1,223.9 $1,330.0 ======== ========
The 6%, 6.25% and 6.5% Notes represent unsecured obligations of the Company, and the 6.75% Notes represent unsecured obligations of Scherer which are guaranteed by the Company. The 7.3% Notes and the 7.8% and 7.0% Debentures represent unsecured obligations of Allegiance which are guaranteed by the Company. These obligations are not redeemable prior to maturity and are not subject to a sinking fund. During fiscal 1999, the Company established an unsecured bank credit facility, which expires in March 2004. The credit facility provides for up to an aggregate of $1.0 billion in borrowings of which $150.0 million is part of a multi-currency allocation and $250.0 million represents a 364-day facility. Interest rates on outstanding borrowings are at LIBOR plus 0.25%. As of June 30, 1999, $80.7 million of borrowings were outstanding under the multi-currency allocation portion of the facility. The amounts outstanding under the short-term portion of the credit facility will be classified as long-term debt, as amounts are supported by a long-term credit facility, and will be refinanced. The agreement requires the Company to maintain a minimum net worth of $2.55 billion. The Company has a commercial paper program, providing for the issuance of up to $750.0 million in aggregate maturity value of commercial paper. Commercial paper with an aggregate maturity value of $49.2 million and $142.0 million was outstanding as of June 30, 1999 and 1998, respectively with an effective interest rate of 4.82%. During fiscal 1999, the Company terminated its unsecured revolving credit agreement (originally expiring 2001) and its unsecured bank credit facility (originally expiring 2002) which provided up to an aggregate of $900.0 million and $175.0 million in borrowings, respectively. As of June 30, 1998, $51.3 million was outstanding under the $175.0 million facility and no amounts were outstanding under the $900.0 million facility. The Company maintains other short-term credit facilities. At June 30, 1999 and 1998, $51.5 million and $197.5 million, respectively, was outstanding under these uncommitted facilities. The effective interest rate as of June 30, 1999 was 6.00%. The amounts outstanding under the commercial paper program and short-term credit facilities have been classified as long-term debt, as amounts are supported by a long-term credit facility and will continue to be refinanced. Certain long-term obligations are collateralized by property and equipment of the Company with an aggregate book value of approximately $28.7 million at June 30, 1999. Maturities of long-term obligations for future fiscal years are 2000 -$11.6 million; 2001 - $111.7 million; 2002 - $3.1 million; 2003- $2.2 million; 2004 - $278.8 million and 2005 and thereafter - $828.1 million. At June 30, 1999, 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. 35 36 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. FINANCIAL INSTRUMENTS Interest Rate Management. The Company has entered into an interest rate swap agreement that matures November 2002 to hedge against variable interest rates. The Company exchanged its variable rate position related to a lease agreement for a fixed rate of 7.08%. The Company recognizes in income the periodic net cash settlements under the swap agreement as it accrues. Foreign Exchange Risk Management. The Company in fiscal 1998 purchased various foreign currency options which expired as of June 30, 1999 to partially protect the Company from the risk that fluctuations in the foreign currency rates that could have an adverse effect on foreign subsidiaries' earnings. In addition during fiscal 1998, the Company had foreign currency forward and option contracts that hedged a portion of anticipated production costs expected to be denominated in foreign currency. When the dollar strengthens against foreign currencies, the decline in the value of the foreign currency cash flows is partially offset by the recognition of gains in value of purchased currency options. Conversely, when the dollar weakens against foreign currencies, the increase in the value of foreign currency cash flows is reduced only by the recognition of the premium paid to acquire the options. Market value gains, losses and premiums on these contracts are recognized as income upon occurrence. The fair value is based upon the estimated amount the Company would receive to terminate the options. Net expense during fiscal 1999 was not material. Net expense during fiscal 1998 was $11.6 million related to these foreign currency forward contracts and options. In addition, the Company periodically enters into forward foreign currency exchange contracts to hedge certain exposures related to identifiable foreign currency transactions that are relatively certain as to both timing and amount. Gains and losses on the forward contracts are recognized concurrently with the gains and losses from the underlying transactions. The Company also uses commodity contracts to hedge raw material costs expected to be denominated in foreign currency. These contracts generally cover a one-year period and all gains and losses are deferred and recognized in cost of goods sold with the underlying product costs. The contracts qualify as hedges for accounting purposes in accordance with the criteria established in SFAS No. 80 "Accounting for Futures Contracts." Cash flows resulting from these commodity contracts are classified in the same category as the items being hedged. The counterparties to these contracts are major financial institutions and the Company does not have significant exposure to any one counterparty. Management believes the risk of loss is remote and in any event would not be material. 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, 1999 and 1998, 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 $1,240.0 million and $1,365.3 million as compared to the carrying amounts of $1,235.5 million and $1,337.3 million at June 30, 1999 and 1998, respectively. The fair value of long-term insurance receivables and long-term litigation liabilities at June 30, 1999 were $52.2 million and $31.7 million compared to the carrying amounts of $57.3 million and $34.1 million, respectively. At June 30, 1998, the Company did not have balances related to these long-term receivables and long-term liabilities. The fair value of the Company's long-term obligations and other items is estimated based on either the quoted market prices for the same or similar issues and the current interest rates offered for debt of the same remaining maturities or estimated discounted cash flows. The following is a summary of the fair value of the Company's derivative instruments, based upon the estimated amount that the Company would receive or (pay) to terminate the contracts at the reporting date. The fair values are based on quoted market prices for the same or similar instruments.
(in millions) Fiscal Year ended June 30, 1999 1998 ------------------------ ----------------------- Notional Fair Notional Fair Amount Value (Loss) Amount Value (Loss) -------- ------------ -------- ------------ Foreign currency exchange contract $ -- $ -- $35.6 $(0.4) Foreign currency options -- -- 3.0 0.1 Commodity contracts 9.6 (0.3) 14.2 (1.7) Interest Rate Swaps 20.0 (0.7) 8.3 (1.0)
36 37 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. INCOME TAXES Consolidated income before taxes (in millions):
Fiscal Year Ended June 30, ---------------------------------- 1999 1998 1997 ------ ------ ------ U.S. Based Operations $684.8 $550.6 $437.4 Non-U.S. Based Operations 74.4 109.1 102.3 ------ ------ ------ $759.2 $659.7 $539.7 ====== ====== ======
The provision for income taxes consists of the following (in millions):
Fiscal Year Ended June 30, ---------------------------------- 1999 1998 1997 ------ ------ ------ Current: Federal $122.5 $106.1 $131.9 State 26.3 22.6 21.3 Foreign 21.7 15.8 18.8 ------ ------ ------ Total 170.5 144.5 172.0 Deferred 132.4 90.1 32.9 ------ ------ ------ Total provision $302.9 $234.6 $204.9 ====== ====== ======
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, -------------------------------- 1999 1998 1997 ---- ---- ---- Provision at Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of Federal benefit 3.9 4.1 3.9 Foreign tax rates (3.0) (4.8) (3.8) Nondeductible expenses 4.5 1.5 2.5 Other (0.5) (0.2) 0.4 ---- ---- ---- Effective income tax rate 39.9% 35.6% 38.0% ==== ==== ====
Provision has not been made for U.S. or additional foreign taxes on $343.2 million of undistributed earnings of foreign subsidiaries because those earnings are considered to be permanently reinvested in the operations of those subsidiaries. It is not practical to estimate the amount of tax that might be payable on the eventual remittance of such earnings. 37 38 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 millions):
June 30, June 30, 1999 1998 -------- -------- Deferred income tax assets: Receivable basis difference $ 27.8 $ 21.6 Accrued liabilities 101.0 156.7 Net operating loss carryforwards 9.1 48.7 Foreign tax and other credit carryforwards 16.5 -- Other 35.0 26.5 ------- ------- Total deferred income tax assets 189.4 253.5 Valuation allowance for deferred income tax assets (7.0) (21.7) ------- ------- Net deferred income tax assets 182.4 231.8 ------- ------- Deferred income tax liabilities: Inventory basis differences (138.9) (90.0) Property-related (218.9) (237.0) Revenues on lease contracts (165.9) (111.0) Other 2.7 -- ------- ------- Total deferred income tax liabilities (521.0) (438.0) ------- ------- Net deferred income tax liabilities $(338.6) $(206.2) ======= =======
The above amounts are classified in the consolidated balance sheets as follows (in millions):
June 30, June 30, 1999 1998 -------- -------- Other current assets $ 82.5 $ 133.3 Deferred income taxes and other liabilities (421.1) (339.5) ------- ------- Net deferred income tax liabilities $(338.6) $(206.2) ======= =======
The Company had Federal net operating loss carryforwards of $3.3 million and state net operating loss carryforwards of $186.3 million as of June 30, 1999. At June 30, 1999, the Company did not have any foreign tax credit and capital loss carryforwards. A valuation allowance of $7.0 million at June 30, 1999 has been provided for the state net operating loss, foreign tax credit and capital 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. 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 2000 and the state net operating loss carryforward expires through 2013. Expiring state net operating loss carryforwards and the required valuation allowances have been adjusted annually. Under a tax-sharing agreement with Baxter, Allegiance will pay for increases and be reimbursed for decreases to the net deferred tax assets transferred on the Distribution Date. Such increases or decreases may result from audit adjustments to Baxter's prior period tax returns. 38 39 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE RETIREMENT BENEFIT PLANS The Company sponsors various retirement and pension plans, including defined benefit and defined contribution plans. Substantially all of the Company's domestic 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 domestic union employees are covered by multi-employer 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. Certain Allegiance employees who participated in Baxter-sponsored defined benefit plans prior to the Distribution (see Note 1) are eligible to receive a contribution to their qualified 401(k) account in an amount ranging from 2 to 8 percent of their annual compensation, depending on years of service. This transitional benefit will be provided to eligible employees through 2003. The total expense for employee retirement benefit plans (excluding defined benefit plans (see below)) was as follows (in millions):
Fiscal Year Ended June 30, ------------------------------- 1999 1998 1997 ----- ----- ----- Defined contribution plans $44.3 $37.9 $34.4 Multi-employer plans 0.5 0.5 0.9 ----- ----- ----- Total $44.8 $38.4 $35.3 ===== ===== =====
Defined Benefit Plans. The Company has several defined benefit plans covering substantially all salaried and hourly Scherer employees. The Company's domestic defined benefit plans provide defined benefits based on years of service and level of compensation. Foreign subsidiaries provide for pension benefits in accordance with local customs or law. The Company funds its pension plans at amounts required by the applicable regulations. Effective July 1, 1998, the Company adopted SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits". In accordance with SFAS 132, the following tables provide a reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the consolidated balance sheets (based on measurement date of March 31, in millions):
Pension Benefits ------------------- June 30, 1999 1998 ----- ----- Change in benefit obligation: Benefit obligation at beginning of year $86.7 $73.0 Service cost 6.5 4.9 Interest cost 6.7 5.4 Plan participant contributions 0.7 -- Amendments 0.2 -- Actuarial loss 4.6 7.7 Benefits paid (3.7) (2.1) Translation adjustment (3.0) (2.2) ----- ----- Benefit obligation at end of year $98.7 $86.7 ----- -----
39 40 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 1998 ------ ------ Change in plan assets: Fair value of plan assets at beginning of year $ 42.2 $ 34.5 Actual return on plan assets 12.2 4.4 Employer contributions 4.9 4.3 Plan participant contributions 0.7 -- Benefits paid (2.6) (1.3) Translation adjustment (1.7) 0.3 ------ ------ Fair value of plan assets at end of year $ 55.7 $ 42.2 ====== ====== Funded status $(43.0) $(44.5) Unrecognized net actuarial loss 7.5 12.7 Unrecognized net transition (asset) obligation (2.0) 0.3 Unrecognized prior service cost 0.2 (0.1) ------ ------ Net amount recognized $(37.3) $(31.6) ====== ====== Amounts recognized in the Consolidated Balance Sheet: Prepaid benefit cost $ 1.6 $ 1.8 Accrued benefit liability (38.9) (33.4) ------ ------ Net amount recognized $(37.3) $(31.6) ====== ======
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $89.4 million, $85.1 million and $47.8 million, respectively, as of June 30, 1999 and $85.4 million, $75.8 million and $40.6 million, respectively, as of June 30, 1998. Components of the Company's net periodic benefit costs are as follows (in millions):
Pension Benefits ---------------------------------- For the Fiscal Year Ended June 30, ---------------------------------- 1999 1998 1997 ----- ----- ----- Components of net periodic Benefit cost: Service cost $ 6.5 $ 4.9 $ 4.5 Interest cost 6.7 5.4 5.2 Expected return on plan assets (6.9) (5.1) (4.1) Amortization of actuarial loss 1.9 1.0 1.2 Amortization of transition (asset)/obligation -- 0.1 (0.2) Amortization of prior service cost 0.3 -- -- ----- ----- ----- Net amount recognized $ 8.5 $ 6.3 $ 6.6 ===== ===== =====
For fiscal 1999 and 1998, the weighted - average actuarial assumptions used in determining the funded status information and net periodic benefit cost information were: discount rate of 6.4% and 7.5%, expected return on plan assets of 6.2% and 10.1% and rate of compensation increase of 3.7% and 4.6%, respectively. 40 41 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. COMMITMENTS AND CONTINGENT LIABILITIES The future minimum rental payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year at June 30, 1999 are: 2000 - $42.8 million; 2001 - $27.3 million; 2002 - $18.5 million; 2003 - $15.3 million; 2004 - $13.0 million and 2005 and thereafter - $32.8 million. Rental expense relating to operating leases was approximately $69.6 million, $64.8 million and $68.2 million in fiscal 1999, 1998, and 1997, 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 May 2004, 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 $286.2 million, which is the total estimated cost of the construction projects. As of June 30, 1999, the amount expended was $176.8 million. Currently, the Company's minimum annual lease payments under the agreements are approximately $11.5 million. As of June 30, 1999, the Company has capital expenditure commitments related primarily to plant expansions and facility acquisitions of approximately $119.3 million. As of June 30, 1999, amounts outstanding on customer notes receivable sold with full recourse to a commercial bank totaled approximately $9.6 million. The Company also has outstanding guarantees of indebtedness and financial assistance commitments that totaled approximately $3.0 million at June 30, 1999. The Company becomes involved from time-to-time in litigation incidental to its business. In November 1993, Cardinal, 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. The trial of this matter began on September 23, 1998. On November 19, 1998, after the close of plaintiffs' case-in-chief, both the wholesaler defendants and the manufacturer defendants moved for a judgment as a matter of law in their favor. On November 30, 1998, the Court granted both of these motions and ordered judgment as a matter of law in favor of both the wholesaler and the manufacturer defendants. On January 25, 1999, the class plaintiffs filed a notice of appeal of the District Court's decision with the Court of Appeals for the Seventh Circuit. On July 13, 1999, the Court of Appeals for the Seventh Circuit issued its decision, which, in part, affirmed the dismissal of the wholesaler defendants, including the Company. On July 27, 1999, the class plaintiffs filed a Petition for Rehearing with the Court of Appeals for the Seventh Circuit. The Company believes that the allegations set forth against Cardinal in these lawsuits are without merit. Allegiance assumed the defense of litigation involving claims related to the Allegiance Business from Baxter (see Note 1), including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Since none of the cases involving natural rubber latex gloves has proceeded to a hearing on merits, the Company is unable to evaluate the extent of any potential liability, and unable to estimate any potential loss. The Company believes a substantial portion of any potential liability and defense costs, excluding defense costs already reserved, related to natural latex gloves cases and claims will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. 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, 1999, the Company's authorized capital shares consisted of (a) 500,000,000 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, 1998, the Company's authorized capital shares consisted of (a) 300,000,000 Class A common shares, without par value; (b) 5,000,000 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 41 42 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1999 and 1998. 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 1999, the Company's two largest customers individually accounted for 11% and 13% of operating revenue, respectively. During fiscal 1998, the same two customers individually accounted for 14% and 11% of operating revenue, respectively. During fiscal 1997, the same two customers individually accounted for 13% and 10% of operating revenue, respectively. These two customers are serviced primarily through the Pharmaceutical Distribution and Medical-Surgical Products segments. During fiscal 1999, one customer accounted for 57% of bulk deliveries. During fiscal years 1998 and 1997, one customer accounted for 62% of bulk deliveries. 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 two or 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 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 $83.1 million and $0.30 per share, respectively, for fiscal 1999, $33.6 million and $0.12 per share, respectively, for fiscal 1998, and $19.2 million and $0.07 per share, respectively, for fiscal 1997. During fiscal 1999, stock option grants under the previous Allegiance and Scherer plans vested immediately on the merger date. These accelerated grants increased the fiscal 1999 pro forma effect on net income and diluted earnings per Common Share by $32.9 million and $0.12 per share, respectively. 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 under the plans from July 1, 1996 through June 30, 1999, giving retroactive effect to conversions of options in connection with merger transactions and stock splits (in millions, except per share amounts):
Fiscal 1999 Fiscal 1998 Fiscal 1997 ------------------------- ------------------------- ------------------------- Weighted Weighted Weighted average average average Options exercise price Options exercise price Options exercise price ------- -------------- ------- -------------- ------- -------------- Outstanding, beginning of year 21.1 $23.96 20.1 $19.25 21.7 $16.50 Granted 3.4 69.61 6.3 43.70 6.2 24.84 Exercised (3.6) 16.80 (3.7) 14.62 (6.7) 15.81 Canceled (0.6) 45.60 (0.9) 21.46 (1.1) 17.07 Change in fiscal year -- -- (0.7) 28.26 -- -- ------------------- ------------------- ------------------- Outstanding, end of year 20.3 $34.51 21.1 $23.96 20.1 $19.25 =================== =================== =================== Exercisable, end of year 14.3 $23.84 6.6 $15.45 8.7 $13.98 ------------------- ------------------- -------------------
42 43 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Giving retroactive effect to conversion of stock options related to mergers and stock splits, the weighted average fair value of options granted during fiscal 1999, 1998 and 1997 was $22.55, $14.19 and $9.57, respectively. The fair values of the options granted to Company employees and directors were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in the respective periods:
As of June 30, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Risk-free interest rate 5.72% 5.53% 6.23% Expected Life 4 years 3 years 3 years Expected Volatility 30% 27% 25% Dividend Yield 0.18% 0.16% 0.17%
Information relative to stock options outstanding as of June 30, 1999:
Options Outstanding Options Exercisable ---------------------------------------------- ------------------------------ Weighted average remaining Weighted Weighted Range of Options contractual life average Options average exercise prices (in millions) in years exercise price (in millions) exercise price - --------------------------------------------------------------- ------------------------------ $ 0.05-$17.15 5.6 6.21 $14.20 5.5 $14.21 $17.22-$37.79 5.5 6.31 24.18 5.3 23.71 $38.06-$54.46 5.2 8.18 41.98 3.5 39.13 $55.67-$79.56 4.0 8.98 67.68 -- -- ---------------------------------------------- ------------------------------ 20.3 7.28 $34.51 14.3 $23.84 ============================================== ==============================
As of June 30, 1999, there remained approximately 0.8 million additional shares available to be issued pursuant to the Plans. 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, 1999, approximately 0.3 million shares remained restricted and subject to forfeiture. Prior to the Allegiance Merger, Allegiance had an employee stock purchase plan under which the sale of 4.0 million of Allegiance's common stock had been authorized. The purchase price was the lower of 85 percent of the closing market price on the date of subscription or 85 percent of the closing market price on the date of purchase. Under this plan, Allegiance sold to its employees 0.6 million shares at an average price per share of $23.33 in fiscal 1999 and 1.2 million shares at an average price per share of $10.88 in fiscal 1998. At June 30, 1998, subscriptions of 0.7 million were outstanding. The weighted average fair value of the purchase rights was $3.32. Subsequent to the Allegiance Merger, all outstanding subscriptions were canceled. On May 2, 1997, Allegiance received $54.8 million in cash from 141 members of its management who purchased approximately 3.0 million equivalent Cardinal Common Shares. Allegiance granted one-day options for the shares, which were immediately exercised. This Shared Investment Plan was designed to align management and stockholders interests. 13. SEGMENT INFORMATION As of June 30, 1999, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 requires companies to define and report financial and descriptive information about its operating segments. The Company is organized based on the products and services it offers. Under this organizational structure, the Company operates in three business segments: Pharmaceutical Distribution, Pharmaceutical Services and Medical-Surgical Products. 43 44 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Pharmaceutical Distribution segment involves the distribution of a broad line of pharmaceuticals, health and beauty care products, therapeutic plasma and other specialty pharmaceutical products and other items typically sold by hospitals, retail drug stores and other healthcare providers. The Pharmaceutical Services segment provides services to the healthcare industry through the design of unique drug delivery systems, comprehensive packaging services, integrated pharmacy management, reimbursement services, clinical information system services and pharmacy automation equipment. The Medical-Surgical Products segment involves the manufacture of medical, surgical and laboratory products and the distribution of these products to hospitals, physician offices, surgery centers and other healthcare providers. The Company evaluates the performance of the segments based on operating earnings after the corporate allocation of administrative expenses. Information about interest income and expense, and income taxes is not provided on a segment level. In addition, special charges are not allocated to the segments. The accounting policies of the segments are the same as described in the summary of significant accounting policies. The following table includes revenue, operating earnings, capital expenditures, and depreciation and amortization expense for the fiscal years ended June 30, 1999, 1998 and 1997 and assets as of June 30, 1999, 1998 and 1997 for each segment and reconciling items necessary to total to amounts reported in the consolidated financial statements:
(in millions) Net Revenue --------------------------------------- 1999 1998 1997 --------------------------------------- Operating revenue: Pharmaceutical Distribution $14,977.0 $11,938.7 $10,019.2 Pharmaceutical Services 2,081.5 1,812.4 1,558.7 Medical-Surgical Products 4,719.5 4,448.7 4,357.1 Inter-segment (1) (297.4) (195.8) (10.2) --------------------------------------- Total operating revenue $21,480.6 $18,004.0 $15,924.8 Bulk Deliveries to Customer Warehouses: Pharmaceutical Distribution 3,553.0 2,991.4 2,469.1 --------------------------------------- Total Net Revenue $25,033.6 $20,995.4 $18,393.9 - ----------------------------------------------------------------------------------- Operating Earnings --------------------------------------- 1999 1998 1997 --------------------------------------- Pharmaceutical Distribution $ 398.4 $ 315.5 $ 252.5 Pharmaceutical Services 347.7 286.4 236.1 Medical-Surgical Products 303.4 246.8 224.5 Corporate (2) (172.5) (76.2) (48.3) --------------------------------------- Total operating earnings $ 877.0 $ 772.5 $ 664.8 - ----------------------------------------------------------------------------------- Depreciation and Amortization --------------------------------------- 1999 1998 1997 --------------------------------------- Pharmaceutical Distribution $ 28.0 $ 23.2 $ 20.5 Pharmaceutical Services 71.9 55.4 56.3 Medical-Surgical Products 119.9 122.8 126.0 Corporate (2) 13.7 13.1 6.3 --------------------------------------- Total depreciation and amortization $ 233.5 $ 214.5 $ 209.1 - -----------------------------------------------------------------------------------
44 45 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Expenditures ---------------------------------- 1999 1998 1997 ---------------------------------- Pharmaceutical Distribution $ 61.9 $ 54.7 $ 44.8 Pharmaceutical Services 150.0 143.9 98.8 Medical-Surgical Products 108.0 80.2 84.3 ---------------------------------- Total capital expenditures $ 319.9 $ 278.8 $ 227.9 - -------------------------------------------------------------------- Assets ---------------------------------- 1999 1998 1997 ---------------------------------- Pharmaceutical Distribution $3,223.6 $2,698.3 $2,172.5 Pharmaceutical Services 2,176.2 1,684.7 1,358.1 Medical-Surgical Products 2,823.7 2,694.9 2,696.6 Corporate (3) 65.5 400.1 294.6 ---------------------------------- Total assets $8,289.0 $7,478.0 $6,521.8 - --------------------------------------------------------------------
(1) Inter-segment - revenue consists primarily of the elimination of inter-segment activity - primarily sales from Pharmaceutical Distribution to Pharmaceutical Services. Sales from one segment to another are priced at the equivalent external customer selling prices. (2) Corporate - operating earnings primarily consists of special charges of $146.6 million, $57.8 million and $50.9 million for fiscal 1999, 1998 and 1997 and unallocated corporate depreciation and amortization and administrative expenses. (3) Corporate - assets include primarily corporate cash and cash equivalents, corporate property, plant and equipment, net, unallocated deferred taxes and the elimination of investment in subsidiaries. The following table presents revenue and long-lived assets by geographic area (in millions):
Revenue Long-Lived Assets ------------------------------------- --------------------- For The Fiscal Year Ended June 30, As of June 30, ------------------------------------- --------------------- 1999 1998 1997 1999 1998 --------- --------- --------- -------- -------- United States $24,121.6 $20,255.7 $17,646.1 $1,080.7 $1,010.3 International 912.0 739.7 747.8 459.8 457.4 --------- --------- --------- -------- -------- Total $25,033.6 $20,995.4 $18,393.9 $1,540.5 $1,467.7 ========= ========= ========= ======== ========
Long-lived assets include property, plant and equipment, net of accumulated depreciation. 45 46 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following selected quarterly financial data (in millions, except per share amounts) for fiscal 1999 and 1998 has been restated to reflect the pooling-of-interests business combinations as discussed in Note 2.
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- Fiscal 1999 Revenue: Operating revenue $4,999.2 $5,269.4 $5,558.7 $5,653.3 Bulk deliveries to customer warehouses 781.7 999.8 874.7 896.8 -------- -------- -------- -------- Total revenue $5,780.9 $6,269.2 $6,433.4 $6,550.1 Gross margin $ 583.0 $ 644.1 $ 667.3 $ 690.0 Selling, general and administrative expenses $ 368.6 $ 398.0 $ 393.2 $ 405.0 Net earnings $ 90.8 $ 134.1 $ 81.9 $ 149.5 Comprehensive income $ 89.0 $ 138.2 $ 62.1 $ 150.0 Net earnings per Common Share: Basic $ 0.34 $ 0.50 $ 0.30 $ 0.54 Diluted $ 0.33 $ 0.48 $ 0.29 $ 0.53 - --------------------------------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- Fiscal 1998 Revenue: Operating revenue $4,107.3 $4,416.0 $4,643.6 $4,837.1 Bulk deliveries to customer warehouses $ 681.2 750.6 720.1 839.5 -------- -------- -------- -------- Total revenue $4,788.5 $5,166.6 $5,363.7 $5,676.6 Gross margin $ 505.7 $ 539.2 $ 572.7 $ 603.0 Selling, general and administrative expenses $ 331.4 $ 341.4 $ 348.2 $ 369.3 Net earnings $ 92.3 $ 105.3 $ 109.2 $ 118.3 Comprehensive income $ 90.7 $ 99.7 $ 102.7 $ 116.0 Net earnings per Common Share: Basic $ 0.34 $ 0.39 $ 0.40 $ 0.44 Diluted $ 0.33 $ 0.38 $ 0.39 $ 0.43 - ---------------------------------------------------------------------------------------------------
As more fully discussed in Note 2, merger-related costs and other special charges were recorded in various quarters in fiscal 1999 and 1998. 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 (in millions, except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Fiscal 1999: Net earnings $(27.8) $ (1.9) $(74.2) $(13.7) Diluted net earnings per Common Share $(0.10) $(0.01) $(0.27) $(0.05) - ------------------------------------------------------------------------------ Fiscal 1998: Net earnings $ (1.3) $ (1.9) $(12.0) $ (8.9) Diluted net earnings per Common Share $(0.01) $(0.01) $(0.05) $(0.03) - ------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS Certain foreign subsidiaries purchase gelatin materials and the Company's German subsidiary leases plant facilities, purchases other services and receives loans from time-to-time from a German company which is also the minority partner of the Company's German and certain other European subsidiaries. Gelatin purchases, at prices comparable to estimated market 46 47 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS prices, amounted to $28.0 million, $25.0 million and $24.6 million for the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Rental payments amounted to $8.4 million, $4.8 million and $5.4 million and purchased services amounted to $9.4 million, $5.2 million and $5.5 million for each of the respective fiscal years. 16. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". 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. As amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," the provisions of SFAS 133 will require adoption no later than the beginning of the Company's fiscal year ending June 30, 2001. 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, 2000. 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. 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"). 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, the Company was required to reimburse Bergen for $7.0 million of transaction costs upon termination of the Bergen Merger Agreement. 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. 18. SUBSEQUENT EVENTS On August 5, 1999, the Company announced that it had entered into a definitive merger agreement with Automatic Liquid Packaging, Inc. ("ALP"), pursuant to which ALP will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. Upon consummation of the merger, the Company will record a merger-related charge to reflect transaction and other costs incurred as a result of the merger. The merger is expected to be completed in the first quarter of fiscal 2000, subject to satisfaction of certain conditions, including regulatory clearances. On July 12, 1999, the Company completed the purchase of MedSurg Industries, Inc., for $31.8 million. The acquisition was accounted for as a purchase. 47 48 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Cardinal Health, Inc. ("Cardinal") and R. P. Scherer Corporation ("Scherer") completed a merger on August 7, 1998. Cardinal and Allegiance Corporation ("Allegiance") completed a merger on February 3, 1999. Cardinal has historically engaged Deloitte & Touche LLP ("D&T") as its certifying accountant while Scherer has historically engaged Arthur Andersen LLP ("AA") and Allegiance has historically engaged PricewaterhouseCoopers LLP ("PWC") as their certifying accountants. For Cardinal's fiscal year ended June 30, 1999, these certifying accountant relationships were left intact, with D&T serving as the principal certifying accountant, with reference in its audit opinion to work performed on Scherer by AA and Allegiance by PWC. This was done to provide management with sufficient time to conduct a diligent process to select one firm as the certifying accountant for the merged entity. Selection of AA as the certifying accountant was recommended to and approved by the Cardinal Health, Inc. Audit Committee on August 30, 1999. The reports of D&T on the financial statements of Cardinal and PWC on the financial statements of Allegiance for the past two fiscal years contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with their audits for the two most recent fiscal years and through August 30, 1999, there have been no disagreements with D&T or PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of D&T or PWC would have caused them to make reference thereto in their reports on the financial statements for such years. In addition, there were no reportable events (as defined in SEC Regulation S-K, Item 304(a)(1)(v)) during the two most recent fiscal years and through August 30, 1999. Cardinal has requested that D&T and PWC each furnish it with a letter addressed to the SEC stating whether or not they agree with the above statements. A copy of D&T's letter dated September 2, 1999 is filed as Exhibit 16.01 to this Form 10-K. A copy of PWC's letter dated September 1, 1999 is filed as Exhibit 16.02 to this Form 10-K. 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 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." 48 49 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......................................... 20 Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1999, 1998 and 1997........................................ 24 Consolidated Balance Sheets at June 30, 1999 and 1998................. 25 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1999, 1998 and 1997............................ 26 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1999, 1998 and 1997........................................ 27 Notes to Consolidated Financial Statements............................ 28
(a)(2) The following Supplemental Schedule is included in this report:
PAGE ---- Schedule II - Valuation and Qualifying Accounts....................... 54
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. 49 50 (a)(3) Exhibits required by Item 601 of Regulation S-K: Exhibit Exhibit Description ------- ------------------- Number ------ 2.01 Agreement and Plan of Merger, dated as of August 4, 1999, among the Registrant, Flower Merger Corp., Automatic Liquid Packaging, Inc. ("ALP") and the Stockholders of ALP (the "Stockholders"), including form of Escrow Agreement by and among the Registrant, ALP, Gerhard H. Weiler, Bank One Trust Company, NA, as escrow agent, and the Stockholders. 3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended (1) 3.02 Restated Code of Regulations, as amended (1) 4.01 Specimen Certificate for the Registrant's Class A common shares (4) 4.02 Indenture dated as of May 1, 1993 between the Registrant and Bank One, Indianapolis, NA, Trustee, relating to the Registrant's 6 1/2% Notes Due 2004 and 6% Notes Due 2006 (2) 4.03 Indenture dated as of April 18, 1997 between the Registrant and Bank One, Columbus, NA, Trustee, relating to the Registrant's 6 1/4 % Notes due 2008 (3) 4.04 Indenture dated as of October 1, 1996 between Allegiance Corporation and PNC Bank, Kentucky, Inc. ("PNC"), Trustee; and First Supplemental Indenture dated as of February 3, 1999 by and among Allegiance Corporation, the Company and Chase Manhattan Trust Company National Association (as successor in interest to PNC), Trustee (4) 4.05 Indenture dated January 1, 1994 between R.P. Scherer International Corporation and Comerica Bank; First Supplemental Indenture by and among R.P. Scherer International Corporation, R.P. Scherer Corporation and Comerica Bank dated February 28, 1995; and Second Supplemental Indenture by and among R.P. Scherer Corporation, the Registrant and Comerica Bank dated as of August 7, 1998 (5) 4.06 Form of Warrant Certificate to Purchase Company Common Shares (6) 10.01 Stock Incentive Plan of the Registrant, as amended (7)* 10.02 Directors' Stock Option Plan of the Registrant, as amended and restated (7)* 10.03 Amended and Restated Equity Incentive Plan of the Registrant* 10.04 Form of Nonqualified Stock Option Agreement, as amended* 10.05 Form of Restricted Shares Agreement, as amended* 10.06 Form of Directors' Stock Option Agreement, as amended* 10.07 Allegiance Corporation 1996 Incentive Compensation Program (8)* 10.08 Allegiance Corporation 1998 Incentive Compensation Program (8)* 10.09 Allegiance Corporation 1996 Outside Director Incentive Corporation Plan (8)* 10.10 R.P. Scherer Corporation 1997 Stock Option Plan (9)* 10.11 R.P. Scherer Corporation 1990 Nonqualified Performance Stock Option Plans (9)* 51 10.12 Cardinal Health, Inc. Performance-Based Incentive Compensation Plan (10)* 10.13 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended and Restated Effective July 1, 1997 (11)* 10.14 Employment Agreement dated October 11, 1993, among Whitmire, Melburn G. Whitmire and the Registrant, as amended effective November 14, 1995 (16)* 10.15 Amendment to Change in Control Agreement, dated as of October 8, 1998, by and among the Company, Allegiance Corporation and Joseph F. Damico (12)* 10.16 Employment Agreement dated May 12, 1998, between the Registrant and James F. Millar (5)* 10.17 Amended and Restated Employment Agreement dated May 17, 1998, among Scherer, George L. Fotiades and the Registrant (5)* 10.18 Resignation and Release Agreement, dated as of June 30, 1999, by and between the Registrant, Allegiance and Lester B. Knight* 10.19 Form of Indemnification Agreement between the Registrant and individual Directors (13)* 10.20 Form of Indemnification Agreement between the Registrant and individual Officers (13)* 10.21 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 (7)* 10.22 364-Day Credit Agreement dated as of March 31, 1999 among the Registrant, certain subsidiaries of the Registrant, certain lenders, The First National Bank of Chicago, as Administrative Agent, Bank of America NT & SA, as Syndication Agent, Citibank, N.A., as Co-Documentation Agent, and Credit Suisse First Boston, as Co-Documentation Agent 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, as amended (14, except for the Omnibus Amendment which is included in this Annual Report on Form 10-K) 10.24 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. (15, except for Amendments No. 1 and 2, which are included in this Annual Report on Form 10-K) 10.25 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 (5), (14) and (15) 10.26 Pharmaceutical Services Agreement, dated as of August 1, 1996, as amended, between Kmart Corporation and Cardinal Distribution (17, except for Amendment No. 1, which is included in this Annual Report on Form 10-K) 10.27 Form of Commercial Paper Dealer Agreement 4(2) Program between The Company, as Issuer, and certain entities, each as Dealer, concerning notes to be issued pursuant to Issuing and Paying Agency Agreement between the Issuer and The First National Bank of Chicago, as Issuing and Paying Agent 10.28 Partnership Agreement of R.P. Scherer GMBH & Co. KG (5) 10.29 Five-year Credit Agreement dated as of March 31, 1999 among the Registrant, certain 52 subsidiaries of the Registrant, certain lenders, The First National Bank of Chicago, as Administrative Agent, Bank of America NT &SA, as Syndication Agent, Citibank, N.A., as Co-Documentation Agent, and Credit Suisse First Boston, as Co-Documentation Agent 16.01 Letter of Deloitte & Touche LLP required by Item 304 of Regulation S-K 16.02 Letter of PricewaterhouseCoopers LLP required by Item 304 of Regulation S-K 21.01 List of subsidiaries of the Registrant 23.01 Consent of Deloitte & Touche LLP 23.02 Consent of Arthur Andersen LLP 23.03 Consent of PricewaterhouseCoopers LLP 27.01 Financial Data Schedule 99.01 Statement Regarding Forward-Looking Information - ------------------ (1) Included as an exhibit to the Registrant's Current Report on Form 8-K filed November 24, 1998 (File No. 0-12591) and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (File No. 0-12591) and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Current Report on Form 8-K filed April 21, 1997 (File No. 0-12591) and incorporated herein by reference. (4) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-74761) and incorporated herein by reference. (5) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (File No. 0-12591) and incorporated herein by reference. (6) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-30889) and incorporated herein by reference. (7) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (File No. 0-12591) and incorporated herein by reference. (8) Included as an exhibit to the Registrant's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-68819-01) and incorporated herein by reference. (9) 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) and incorporated herein by reference. (10) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (File No. 0-12591) and incorporated herein by reference. 53 (11) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 0-12591) and incorporated herein by reference. (12) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-68819) and incorporated herein by reference. (13) Included as an exhibit to the Company's Amendment No. 1 to Annual Report on Form 10-K/A for the fiscal year ended June 30, 1997 (File 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 ended June 30, 1996 (File No. 0-12591) and incorporated herein by reference. (15) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-12591) and incorporated herein by reference. (16) Included as exhibits to the Registrant's Quarterly Reports on Form 10-Q for the quarters ended December 31, 1993 and December 31, 1995 (File No. 0-12591) and incorporated herein by reference. (17) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 0-124\591) and incorporated herein by reference. * Management contract or compensation plan or arrangement (b) Reports on Form 8-K None 54 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 2, 1999 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 September 2, 1999 - --------------------------- Officer and Director (principal Robert D. Walter executive officer) /s/ Richard J. Miller Corporate Vice President and September 2, 1999 - --------------------------- Chief Financial Officer Richard J. Miller (principal financial officer) /s/ Michael E. Beaulieu Corporate Vice President, September 2, 1999 - --------------------------- Controller and Principal Michael E. Beaulieu Accounting Officer /s/ John C. Kane President, Chief Operating September 2, 1999 - --------------------------- Officer and Director John C. Kane /s/ Silas S. Cathcart Director September 2, 1999 - --------------------------- Silas S. Cathcart /s/ John F. Finn Director September 2, 1999 - --------------------------- John F. Finn /s/ Robert L. Gerbig Director September 2, 1999 - --------------------------- Robert L. Gerbig /s/ John F. Havens Director September 2, 1999 - --------------------------- John F. Havens /s/ Regina E. Herzlinger Director September 2, 1999 - --------------------------- Regina E. Herzlinger /s/ J. Michael Losh Director September 2, 1999 - --------------------------- J. Michael Losh /s/ George R. Manser Director September 2, 1999 - --------------------------- George R. Manser /s/ John B. McCoy Director September 2, 1999 - --------------------------- John B. McCoy /s/ Michael D. O'Halleran Director September 2, 1999 - --------------------------- Michael D. O'Halleran /s/ Jerry E. Robertson Director September 2, 1999 - --------------------------- Jerry E. Robertson /s/ Melburn G. Whitmire Director September 2, 1999 - --------------------------- Melburn G. Whitmire
52 55 CARDINAL HEALTH, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
BALANCE AT CHARGED TO CHARGED TO CHANGE BALANCE AT BEGINNING COSTS AND OTHER IN FISCAL END DESCRIPTION OF YEAR EXPENSES ACCOUNTS (1) DEDUCTIONS (2) YEAR (3) OF YEAR - ---------------------------------------- ---------- ---------- ------------ -------------- --------- ---------- Fiscal Year 1999: Accounts receivable $64.6 $29.0 $1.3 $(41.3) $ -- $53.6 Finance notes receivable 6.4 -- -- (1.5) -- 4.9 Net investment in sales-type leases 8.8 0.5 2.7 (0.2) -- 11.8 ----- ----- ---- ------ ---- ----- $79.8 $29.5 $4.0 $(43.0) $ -- $70.3 ===== ===== ==== ====== ==== ===== Fiscal Year 1998: Accounts receivable $62.8 $19.0 $3.3 $(20.5) $ -- $64.6 Finance notes receivable 8.2 0.1 0.1 (2.0) -- 6.4 Net investment in sales-type leases 4.7 4.2 -- (3.7) 3.6 8.8 ----- ----- ---- ------ ---- ----- $75.7 $23.3 $3.4 $(26.2) $3.6 $79.8 ===== ===== ==== ====== ==== ===== Fiscal Year 1997: Accounts receivable $68.2 $10.0 $0.4 $(15.8) -- $62.8 Finance notes receivable 9.1 -- -- (0.9) -- 8.2 Net investment in sales-type leases 8.7 -- -- (4.0) -- 4.7 ----- ----- ---- ------ ---- ----- $86.0 $10.0 $0.4 $(20.7) $ -- $75.7 ===== ===== ==== ====== ==== =====
(1) During fiscal 1999, 1998 and 1997 recoveries of amounts provided for or written off in prior years were $4.0 million, $3.4 million, and $0.4 million, respectively. (2) Write-off of uncollectible accounts. (3) Change in fiscal year of acquired subsidiary. 54 EX-2.01 2 EXHIBIT 2.01 1 Exhibit 2.01 AGREEMENT AND PLAN OF MERGER AMONG CARDINAL HEALTH, INC. ("Cardinal"), FLOWER MERGER CORP. a wholly owned direct subsidiary of Cardinal ("Subcorp"), AUTOMATIC LIQUID PACKAGING, INC. ("ALP") and the STOCKHOLDERS OF ALP 2 TABLE OF CONTENTS ARTICLE I. THE MERGER............................................................................................2 SECTION 1.1 The Merger..................................................................................2 SECTION 1.2 Effective Time..............................................................................2 SECTION 1.3 Effects of the Merger.......................................................................2 SECTION 1.4 Articles of Incorporation and By-laws.......................................................2 SECTION 1.5 Directors and Officers......................................................................2 SECTION 1.6 Additional Actions..........................................................................2 ARTICLE II. CONVERSION OF SECURITIES.............................................................................3 SECTION 2.1 Conversion of Capital Stock.................................................................3 SECTION 2.2 Exchange Ratios; Fractional Shares..........................................................3 SECTION 2.3 Exchange of Certificates....................................................................4 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF RED AND SUBCORP...................................................7 SECTION 3.1 Organization and Standing...................................................................7 SECTION 3.2 Corporate Power and Authority...............................................................7 SECTION 3.3 Capitalization of Cardinal and Subcorp......................................................7 SECTION 3.4 Conflicts, Consents and Approval............................................................8 SECTION 3.5 Brokerage and Finder's Fees.................................................................9 SECTION 3.6 Cardinal SEC Documents......................................................................9 SECTION 3.7 Absence of Certain Events...................................................................9 SECTION 3.8 Accounting Matters..........................................................................9 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ALP...............................................................10 SECTION 4.1 Organization and Standing..................................................................10 SECTION 4.2 Subsidiaries...............................................................................10 SECTION 4.3 Corporate Power and Authority..............................................................10 SECTION 4.4 Capitalization of ALP......................................................................10 SECTION 4.5 Conflicts; Consents and Approvals..........................................................11 SECTION 4.6 Absence of Certain Changes.................................................................12 SECTION 4.7 Officers, Employees and Compensation.......................................................13 SECTION 4.8 Financial Statements.......................................................................13 SECTION 4.9 Taxes......................................................................................14 SECTION 4.10 Compliance with Law; FDA Matters..........................................................16 SECTION 4.11 Intellectual Property.....................................................................17 SECTION 4.12 Title to and Condition of Properties......................................................19 SECTION 4.13 Environmental Matters.....................................................................20 SECTION 4.14 Litigation................................................................................21 SECTION 4.15 Brokerage and Finder's Fees...............................................................21 SECTION 4.16 Accounting Matters........................................................................21 SECTION 4.17 Employee Benefit Plans....................................................................22
-i- 3 SECTION 4.18 Contracts.................................................................................24 SECTION 4.19 Accounts Receivable; Inventories..........................................................25 SECTION 4.20 Labor Matters.............................................................................25 SECTION 4.21 Undisclosed Liabilities...................................................................26 SECTION 4.22 Operation of ALP's Business; Relationships................................................26 SECTION 4.23 Product Warranties and Liabilities........................................................26 SECTION 4.24 Board Recommendation......................................................................27 SECTION 4.25 IBCA and State Takeover Laws..............................................................27 SECTION 4.26 Insurance.................................................................................27 SECTION 4.27 Books of Account; Records.................................................................27 SECTION 4.28 Investment Representation.................................................................27 SECTION 4.29 No Other Representations and Warranties...................................................28 ARTICLE V. COVENANTS OF THE PARTIES.............................................................................28 SECTION 5.1 Mutual Covenants...........................................................................28 SECTION 5.2 Covenants of Cardinal......................................................................29 SECTION 5.3 Covenants of ALP and the ALP Stockholders..................................................30 ARTICLE VI. CONDITIONS..........................................................................................35 SECTION 6.1 Mutual Conditions..........................................................................35 SECTION 6.2 Conditions to Obligations of ALP...........................................................36 SECTION 6.3 Conditions to Obligations of Cardinal and Subcorp..........................................36 ARTICLE VII. TERMINATION AND AMENDMENT..........................................................................39 SECTION 7.1 Termination................................................................................39 SECTION 7.2 Effect of Termination......................................................................39 SECTION 7.3 Amendment..................................................................................39 SECTION 7.4 Extension; Waiver..........................................................................40 ARTICLE VIII. INDEMNIFICATION...................................................................................40 SECTION 8.1 Survival of Representations, Warranties and Agreements.....................................40 SECTION 8.2 Indemnification............................................................................40 SECTION 8.3 Limitations on Indemnification.............................................................41 SECTION 8.4 Procedure for Indemnification with Respect to Third Party Claims...........................42 SECTION 8.5 Procedure For Indemnification with Respect to Non-Third Party Claims.......................43 SECTION 8.6 ALP Stockholders Representative............................................................44 SECTION 8.7 Valuation of Shares Released from Escrow...................................................44 SECTION 8.8 Termination of ALP's Warranties............................................................44 ARTICLE IX. MISCELLANEOUS.......................................................................................45 SECTION 9.1 Notices....................................................................................45
-ii- 4 SECTION 9.2 Interpretation.............................................................................45 SECTION 9.3 Counterparts...............................................................................46 SECTION 9.4 Entire Agreement...........................................................................46 SECTION 9.5 Third Party Beneficiaries..................................................................46 SECTION 9.6 Governing Law..............................................................................46 SECTION 9.7 Consent to Jurisdiction; Venue.............................................................46 SECTION 9.8 Specific Performance.......................................................................46 SECTION 9.9 Assignment.................................................................................47 SECTION 9.10 Expenses..................................................................................47
EXHIBITS Exhibit A - Form of Escrow Agreement Exhibit B - Form of Affiliate Letter Exhibit C - Form of Consulting Agreement Exhibit D - Form of Opinion of Baker & Hostetler LLP Exhibit E - Form of Opinion of Schwartz & Freeman Exhibit F - Form of Release Exhibit G - Form of Agreement between ALP and Weiler Engineering, Inc. Exhibit H-1 through H-5 - Forms of Other Ancillary Agreements -iii- 5 AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger (this "Agreement") is made and entered into as of August 4, 1999, by and among Cardinal Health, Inc., an Ohio corporation ("Cardinal"), Flower Merger Corp., an Illinois corporation and a wholly owned subsidiary of Cardinal ("Subcorp"), Automatic Liquid Packaging, Inc., an Illinois corporation ("ALP"), and all of the Stockholders of ALP (the "ALP Stockholders"). PRELIMINARY STATEMENTS: A. Cardinal desires to acquire the liquid packaging business and other businesses operated by ALP through the merger of Subcorp with and into ALP, with ALP as the surviving corporation (the "Merger"), pursuant to which each share of ALP Common Stock (as defined in Section 4.4) outstanding at the Effective Time (as defined in Section 1.2) will be converted into the right to receive Cardinal Common Shares (as defined in Section 3.3) as more fully provided herein. B. ALP desires to combine its packaging business and personal care product businesses with the healthcare service businesses operated by Cardinal and for the ALP Stockholders to have a continuing equity interest in the combined businesses. C. The ALP Stockholders own all of the outstanding capital stock of ALP, and Cardinal is unwilling to enter into this Agreement without the agreements of the ALP Stockholders set forth herein. D. The parties intend that the Merger constitute a tax-free "reorganization" within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), by reason of Section 368(a)(2)(E) thereof. E. The parties intend that the Merger be accounted for as a pooling-of-interests for financial reporting purposes. F. The respective Boards of Directors of Cardinal, Subcorp and ALP have determined the Merger, in the manner contemplated herein, to be desirable and in the best interests of their respective shareholders and, by resolutions duly adopted, have approved and adopted this Agreement. AGREEMENT NOW, THEREFORE, in consideration of these premises and the mutual and dependent promises hereinafter set forth, the parties hereto, intending to be legally bound, agree as follows: 6 ARTICLE I. THE MERGER SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions hereof and in accordance with the provisions of the Illinois Business Corporation Act of 1983, as amended (the "IBCA"), Subcorp shall be merged with and into ALP at the Effective Time (as defined in Section 1.2). As a result of the Merger, the separate corporate existence of Subcorp shall cease and ALP shall continue its existence under the laws of the State of Illinois. ALP, in its capacity as the corporation surviving the Merger, is hereinafter sometimes referred to as the "Surviving Corporation." SECTION 1.2 EFFECTIVE TIME. The Merger shall be consummated by filing with the Secretary of State of the State of Illinois (the "Illinois Secretary of State") articles of merger (the "Certificate of Merger") in such form as is required by and executed in accordance with the IBCA. The Merger shall become effective (the "Effective Time") when the Certificate of Merger has been filed with the Illinois Secretary of State or at such later time as shall be specified in the Certificate of Merger. Prior to the filing referred to in this Section 1.2, a closing (the "Closing") shall be held at the offices of Cardinal, 7000 Cardinal Place, Dublin, Ohio 43017, or such other place as the parties may agree on a date (the "Closing Date") specified by Cardinal, which date shall be within ten business days following the date upon which all conditions set forth in Article VI hereof have been satisfied or waived. SECTION 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 5/11.50 of the IBCA. SECTION 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Certificate of Merger shall provide that at the Effective Time (i) the Articles of Incorporation of the Surviving Corporation as in effect immediately prior to the Effective Time shall be amended as of the Effective Time so as to contain the provisions, and only the provisions, contained immediately prior thereto in the Articles of Incorporation of Subcorp, except for Article FIRST thereof which shall continue to read "The name of the corporation is Automatic Liquid Packaging, Inc." and (ii) the By-laws of Subcorp in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation; in each case until amended in accordance with applicable law. SECTION 1.5 DIRECTORS AND OFFICERS. From and after the Effective Time, the officers of ALP shall be the officers of the Surviving Corporation and the directors of Subcorp shall be the directors of the Surviving Corporation, in each case until their respective successors are duly elected and qualified. On the Closing Date, ALP shall deliver to Cardinal evidence satisfactory to Cardinal of the resignations of the directors of ALP, such resignations to be effective as of the Effective Time. SECTION 1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances in law or any other acts are reasonably necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of ALP, or (b) otherwise carry out the provisions of this Agreement, ALP shall execute and deliver all such deeds, assignments or assurances in law -2- 7 and to take all acts necessary, proper or desirable to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and otherwise to carry out the provisions of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of ALP or otherwise to take any and all such action. ARTICLE II. CONVERSION OF SECURITIES SECTION 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of Cardinal, Subcorp or ALP: (a) Each share of common stock, $.01 par value, of Subcorp issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock, $0.01 par value, of the Surviving Corporation. Such newly issued shares shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation. (b) Each share of ALP Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into and represent a number of Cardinal Common Shares equal to the Exchange Ratio (as defined in Section 2.2). (c) Each share of capital stock of ALP held in the treasury of ALP shall be cancelled and retired and no payment shall be made in respect thereof. (d) Notwithstanding anything in this Section 2.1 to the contrary, Cardinal shall retain a number of Cardinal Common Shares otherwise issuable to the ALP Stockholders in the Merger, from such ALP Stockholders on a proportionate basis (based on the respective numbers of Cardinal Common Shares into which their ALP Common Stock will be convertible upon the Effective Time), equal to 10% of the aggregate number of Cardinal Common Shares which would be issuable to the ALP Stockholders on the Closing Date if Cardinal Common Shares were not to be issued into escrow pursuant to this Section 2.1(d) (the "Retained Shares"), by withholding the Retained Shares from the Cardinal Common Shares issuable in the Merger and depositing such Retained Shares in escrow pursuant to an escrow agreement in substantially the form attached hereto as Exhibit A (the "Escrow Agreement"). The escrow created by the Escrow Agreement shall be for the purpose of providing for the payment of certain indemnification obligations pursuant to Article VIII hereof, all in accordance with the terms and conditions contained herein and in the Escrow Agreement. SECTION 2.2 EXCHANGE RATIOS; FRACTIONAL SHARES. (a) The "Exchange Ratio" (rounded to the nearest ten-thousandth of a share) shall be equal to the quotient obtained by dividing (i) the quotient obtained by dividing (A) the Aggregate Consideration (as defined below) by (B) the Average Share Price (as defined below) by (ii) the number of shares of ALP Common Stock issued and outstanding immediately prior to the Effective Time; provided, however, that if the Average Share Price is less than $67.00, then the Average Share Price shall be deemed to be equal to $67.00, and if the Average Share Price is greater than $79.00, then the Average Share Price shall be deemed to be equal to $79.00. -3- 8 For purposes of this Section 2.2(a), (x) "Average Share Price" shall mean the average of the closing prices of Cardinal Common Shares as reported on the New York Stock Exchange ("NYSE") Composite Tape on each of the last ten (10) trading days ending on the third business day preceding the Closing Date, and (y) "Aggregate Consideration" shall mean the sum of (I) $375 million and (II) the amount of cash and marketable securities in excess of $5 million on the balance sheet of ALP included in the July 31, 1999 Interim Statements (net of unrealized gains or losses incurred as a result of the liquidation of any security prior to the Closing or existing as of the Closing) minus (III) the following amounts to be paid at or in connection with the Closing: (1) the amount or amounts to be paid pursuant to the Feltes Agreement (as defined in Section 6.3(q)); (2) all bonuses, severance payments, transaction fees and other compensation payable pursuant to Section 5.3(b)(vii) of the ALP Disclosure Schedule; (3) any amounts paid or payable to Weiler Engineering, Inc. in connection with the settlement of deposit accounts; (4) any amounts paid by ALP for any so-called "tail coverage" for its product liability insurance; and (5) any other expenditures of cash between July 31, 1999 and the Closing that are outside the usual and ordinary course of business; provided, however, that if the Closing Date is after September 30, 1999, the date of the balance sheet referred to in clause (II) and the date in clause (III)(5) shall be a date that is the last day of the month that is two months prior to the month in which the Closing Date occurs. (b) No certificates for fractional Cardinal Common Shares shall be issued as a result of the conversion provided for in Section 2.1. To the extent that an outstanding share of ALP Common Stock would otherwise have become a fractional Cardinal Common Share, the holder thereof, upon presentation of such fractional interest represented by an appropriate certificate for ALP Common Stock to the Exchange Agent pursuant to Section 2.3, shall be entitled to receive a cash payment therefor in an amount equal to the value (determined with reference to the closing price of Cardinal Common Shares as reported on the NYSE Composite Tape on the last full trading day immediately prior to the Effective Time) of such fractional interest. Such payment with respect to fractional shares is merely intended to provide a mechanical rounding off of, and is not a separately bargained for, consideration. If more than one certificate representing shares of ALP Common Stock shall be surrendered for the account of the same holder, the number of Cardinal Common Shares for which certificates have been surrendered shall be computed on the basis of the aggregate number of shares represented by the certificates so surrendered. In the event that prior to the Effective Time, Cardinal shall declare a stock dividend or other distribution payable in Cardinal Common Shares or securities convertible into Cardinal Common Shares, or effect a stock split, reclassification, combination or other change with respect to Cardinal Common Shares, the exchange ratios set forth in this Section 2.2 shall be adjusted to reflect such dividend, distribution, stock split, reclassification, combination or other change. SECTION 2.3 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Promptly following the Effective Time, Cardinal shall deposit with First Chicago Trust Company, a division of EquiServe, Limited Partnership or such other exchange agent as may be designated by Cardinal (the "Exchange Agent"), for the benefit of the ALP Stockholders, for exchange in accordance with this Section 2.3, certificates representing Cardinal Common Shares issuable pursuant to Section 2.1 in exchange for outstanding shares of ALP Common Stock (other than Retained Shares) and shall from time to time deposit cash in an amount reasonably expected to be paid pursuant to Section 2.2 (such Cardinal Common Shares -4- 9 and cash, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). (b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of ALP Common Stock whose shares were converted into the right to receive Cardinal Common Shares pursuant to Section 2.1 a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Cardinal may reasonably specify and (ii) instructions for effecting the surrender of the Certificates in exchange for certificates representing Cardinal Common Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with a duly executed letter of transmittal, the holder of such Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of Cardinal Common Shares which such holder has the right to receive pursuant to Section 2.1 and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions with respect to such Cardinal Common Shares, if any, which such holder has the right to receive pursuant to the provisions of this Article II, after giving effect to any required withholding tax, and the shares represented by the Certificate so surrendered shall forthwith be cancelled. Cardinal will use its reasonable efforts to cause the Exchange Agent to send such certificate and check within three business days of its receipt of a Certificate and a duly executed letter of transmittal. No interest will be paid or accrued on the cash in lieu of fractional shares, if any, and unpaid dividends and distributions with respect to such Cardinal Common Shares, if any, payable to holders of shares of ALP Common Stock. In the event of a transfer of ownership of shares of ALP Common Stock which is not registered on the transfer records of ALP, a certificate representing the proper number of Cardinal Common Shares, together with a check for the cash to be paid in lieu of fractional shares, if any, and unpaid dividends and distributions with respect to such Cardinal Common Shares, if any, may be issued to such transferee if the Certificate representing such shares of ALP Common Stock held by such transferee is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.3, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon surrender a certificate representing Cardinal Common Shares and cash in lieu of fractional shares, if any, and unpaid dividends and distributions with respect to such Cardinal Common Shares, if any, as provided in this Article II. Notwithstanding the foregoing, Cardinal shall make available at the Closing certificates for Cardinal Common Shares to be issued in the Merger to any ALP Stockholder who delivers to Cardinal certificates representing ALP Common Stock and a duly executed letter of transmittal at least three business days before the Closing Date. (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time with respect to Cardinal Common Shares having a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate, and no cash payment in lieu of fractional shares shall be paid to any such holder, until the holder shall surrender such Certificate as provided in this Section 2.3. Until such Certificate has been surrendered as provided in this -5- 10 Section 2.3, Cardinal shall deposit the amount of any dividends or other distributions with the Exchange Agent. Subject to the effect of Applicable Laws (as defined in Section 4.10), following surrender of any such Certificate, the Exchange Agent shall pay to the holder of the certificates representing whole Cardinal Common Shares issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole Cardinal Common Shares and not paid, less the amount of any withholding taxes which may be required thereon, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole Cardinal Common Shares, less the amount of any withholding taxes which may be required thereon. (d) NO FURTHER OWNERSHIP RIGHTS IN ALP COMMON STOCK. All Cardinal Common Shares issued upon surrender of Certificates in accordance with the terms hereof (including any cash paid pursuant to this Article II) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of ALP Common Stock represented thereby, and there shall be no further registration of transfers on the stock transfer books of ALP of shares of ALP Common Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 2.3. Certificates surrendered for exchange by any ALP Affiliate (as defined in Section 5.3(e)) shall not be exchanged until Cardinal has received written undertakings from such person in the form attached hereto as EXHIBIT B (an "Affiliate Letter"). (e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which remains undistributed to the ALP Stockholders for one year after the Effective Time shall be delivered to Cardinal, upon demand thereby, and holders of shares of ALP Common Stock who have not theretofore complied with this Section 2.3 shall thereafter look only to Cardinal for payment of any claim to Cardinal Common Shares, cash in lieu of fractional shares thereof, or dividends or distributions, if any, in respect thereof. (f) NO LIABILITY. None of Cardinal, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any shares of ALP Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to seven years after the Effective Time of the Merger (or immediately prior to such earlier date on which any cash, any cash in lieu of fractional shares or any dividends or distributions with respect to whole shares of ALP Common Stock in respect of such Certificate would otherwise escheat to or become the property of any Governmental Authority (as defined in Section 3.4)), any such cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by Applicable Laws, become the property of Cardinal, free and clear of all claims or interest of any person previously entitled thereto. (g) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Cardinal, on a daily basis. Any interest and other -6- 11 income resulting from such investments shall be paid to Cardinal upon termination of the Exchange Fund pursuant to Section 2.3(e). ARTICLE III. REPRESENTATIONS AND WARRANTIES OF RED AND SUBCORP In order to induce ALP to enter into this Agreement, Cardinal and Subcorp hereby represent and warrant to ALP that the statements contained in this Article III are true, correct and complete as of the date hereof and shall be true, correct and complete as of the Closing Date. SECTION 3.1 ORGANIZATION AND STANDING. Each of Cardinal and Subcorp is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation with full power and authority (corporate and other) to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted. Each of Cardinal and Subcorp is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates, makes such qualification necessary, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect (as defined in Section 9.2) on Cardinal. Cardinal is not in default in the performance, observance or fulfillment of any provision of its Articles of Incorporation, as amended and restated (the "Cardinal Articles"), or Code of Regulations, as amended and restated (the "Cardinal Code of Regulations"), and Subcorp is not in default in the performance, observance or fulfillment of any provisions of its Articles of Incorporation or By-laws. Subcorp is a new corporation formed solely for the purpose of effectuating this transaction. SECTION 3.2 CORPORATE POWER AND AUTHORITY. Each of Cardinal and Subcorp has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Cardinal and Subcorp. This Agreement has been duly executed and delivered by each of Cardinal and Subcorp, and constitutes the legal, valid and binding obligation of each of Subcorp and Cardinal enforceable against each of them in accordance with its terms. SECTION 3.3 CAPITALIZATION OF CARDINAL AND SUBCORP. (a) As of June 30, 1999, Cardinal's authorized capital stock consisted solely of (a) 500,000,000 common shares, without par value ("Cardinal Common Shares"), of which (i) 273,925,971 shares were issued and outstanding, (ii) 332,863 shares were issued and held in treasury (which does not include the shares reserved for issuance as set forth in clause (a)(iii) below) and (iii) 20,168,653 shares were reserved for issuance upon the exercise or conversion of options, warrants or convertible securities granted or issuable by Cardinal, (b) 5,000,000 Class B common shares, without par value, none of which was issued and outstanding or reserved for issuance, and (c) 500,000 Non-Voting Preferred Shares, without par value, none of which was issued and outstanding or reserved for issuance. Each outstanding Cardinal Common Share is, and all Cardinal Common Shares to be issued in connection with the Merger will be, duly -7- 12 authorized and validly issued, fully paid and nonassessable, and each outstanding share of Cardinal capital stock has not been, and all Cardinal Common Shares to be issued in connection with the Merger will not be, issued in violation of any preemptive or similar rights. As of June 30, 1999, other than as set forth in the first sentence hereof or in Section 3.3, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, claims or other commitments or rights of any type relating to the issuance, sale or transfer by Cardinal of any equity securities of Cardinal, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of Cardinal. (b) Subcorp's authorized capital stock consists solely of 1,000 shares of Common Stock, .01 par value ("Subcorp Common Stock"), of which, as of the date hereof, 100 were issued and outstanding and none were reserved for issuance. As of the date hereof, all of the outstanding shares of Subcorp Common Stock are owned free and clear of any liens, claims or encumbrances by Cardinal. SECTION 3.4 CONFLICTS, CONSENTS AND APPROVAL. Neither the execution and delivery of this Agreement by Cardinal or Subcorp nor the consummation of the transactions contemplated hereby will: (a) conflict with, or result in a breach of any provision of, the Cardinal Articles or Cardinal Code of Regulations or the Articles of Incorporation or By-laws of Subcorp; (b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Cardinal or any of its subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which Cardinal or any of its subsidiaries is a party; (c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Cardinal or any of its subsidiaries or their respective properties or assets; or (d) require any action or consent or approval of, or review by, or registration or filing by Cardinal or any of its affiliates with, any third party or any local, domestic, foreign or multi-national court, arbitral tribunal, administrative agency or commission or other governmental or regulatory body, agency, instrumentality or authority (a "Governmental Authority"), other than (i) authorization for inclusion of the Cardinal Common Shares to be issued in the Merger and the transactions contemplated hereby on the NYSE, subject to official notice of issuance, (ii) actions required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act"), or (iii) registrations or other actions required under federal and state securities laws as are contemplated by this Agreement; -8- 13 except in the case of (b), (c) and (d) for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect on Cardinal or upon the ability of Cardinal or Subcorp to consummate the transactions contemplated hereby. SECTION 3.5 BROKERAGE AND FINDER'S FEES. Neither Cardinal nor any of its shareholders, directors, officers or employees has incurred, or will incur, on behalf of Cardinal, any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. SECTION 3.6 CARDINAL SEC DOCUMENTS. Cardinal has timely filed with the Commission all forms, reports, schedules, statements and other documents required to be filed by it since July 1, 1998 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act of 1933, as amended (the "Securities Act") (such documents, as supplemented and amended since the time of filing, collectively, the "Cardinal SEC Documents"). The Cardinal SEC Documents, including, without limitation, any financial statements or schedules included therein, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively) (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be. The financial statements of Cardinal included in the Cardinal SEC Documents at the time filed (and, in the case of registration statements and proxy statements on the dates of effectiveness and the dates of mailing, respectively) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly present (subject in the case of unaudited statements to normal, recurring audit adjustments) the consolidated financial position of Cardinal and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. SECTION 3.7 ABSENCE OF CERTAIN EVENTS. Except as otherwise disclosed in the Cardinal SEC Documents, since March 31, 1999 there has not been any event, circumstance or condition that has had or is reasonably likely to have a Material Adverse Effect on Cardinal and its Subsidiaries taken as one enterprise. SECTION 3.8 ACCOUNTING MATTERS. Neither Cardinal nor any of its affiliates has taken or agreed to take any action that (without giving effect to any actions taken or agreed to be taken by ALP or any of its affiliates) would (a) prevent Cardinal from accounting for the business combination to be effected by the Merger as a pooling-of-interests for financial reporting purposes or (b) prevent the Merger from constituting a reorganization qualifying under the provisions of Section 368(a) of the Code. -9- 14 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ALP In order to induce Subcorp and Cardinal to enter into this Agreement, ALP hereby represents and warrants to Cardinal and Subcorp that the statements contained in this Article IV are true, correct and complete as of the date hereof and shall be true, correct and complete as of the Closing Date. SECTION 4.1 ORGANIZATION AND STANDING. ALP is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois with full power and authority (corporate and other) to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted. ALP is duly qualified to do business and in good standing in each jurisdiction listed in Section 4.1 of the disclosure schedule delivered by ALP to Cardinal and dated the date hereof (the "ALP Disclosure Schedule"), is not qualified to do business in any other jurisdiction and neither the nature of the business conducted by it nor the property it owns, leases or operates requires it to qualify to do business as a foreign corporation in any other jurisdiction, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect on ALP. ALP is not in default in the performance, observance or fulfillment of any provision of its Articles of Incorporation (the "ALP Articles"), or its By-laws, as in effect on the date hereof (the "ALP By-laws"). ALP has heretofore furnished to Cardinal a complete and correct copy of the ALP Articles and the ALP By-laws. SECTION 4.2 SUBSIDIARIES. ALP does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise. ALP is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such entity. SECTION 4.3 CORPORATE POWER AND AUTHORITY. ALP has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of ALP, including the authorization and adoption of the Merger and the transactions contemplated hereby by ALP's Board of Directors and the ALP Stockholders. This Agreement has been duly executed and delivered by ALP and the ALP Stockholders and constitutes the legal, valid and binding obligation of ALP and the ALP Stockholders, enforceable against ALP and the ALP Stockholders in accordance with its terms. The Employment Agreements (as defined in Section 6.3(j)) have been duly executed and delivered by the parties thereto and constitute the legal, valid and binding obligations of the parties thereto, enforceable against such parties in accordance with their respective terms. The Ancillary Agreements (as defined in Section 5.3(h)), when duly executed by the parties thereto, will constitute the legal, valid and binding obligations of the parties thereto, enforceable against such parties in accordance with their respective terms. SECTION 4.4 CAPITALIZATION OF ALP. As of June 30, 1999, ALP's authorized capital stock consisted solely of 5,000,000 shares of common stock, no par value ("ALP Common Stock"), of which (i) 1,519,835 shares were issued and outstanding and (ii) no shares were issued and held in treasury. Each outstanding share of ALP Common Stock is duly -10- 15 authorized and validly issued, fully paid and nonassessable, and has not been issued in violation of any preemptive or similar rights. Except as set forth in Section 4.4 of the ALP Disclosure Schedule, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale or transfer of any securities of ALP by ALP or, to the knowledge of ALP, any other person or entity, nor are there outstanding any securities which are convertible into or exchangeable for any shares of ALP Common Stock, and ALP has no obligation of any kind to issue any additional securities or to pay for securities of ALP or any predecessor. The issuance and sale of all of the shares of ALP Common Stock have been in compliance with federal and state securities laws. Section 4.4 of the ALP Disclosure Schedule contains a correct and complete list of the names and addresses of (x) the holders of all the outstanding ALP Common Stock, (y) the spouses of each married ALP Stockholder and (z) any other person having a beneficial or other interest in any ALP Common Stock. Such Section 4.4 also states the number of shares of ALP Common stock owned beneficially and of record by each ALP Stockholder. Except as set forth in Section 4.4 of the ALP Disclosure Schedule, ALP has not agreed to register any securities under the Securities Act or under any state securities law or granted registration rights to any person or entity. SECTION 4.5 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and delivery of this Agreement by ALP nor the consummation of the transactions contemplated hereby will: (a) conflict with, or result in a breach of any provision of, the ALP Articles or the ALP By-laws; (b) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any material lien, security interest, charge or encumbrance upon any of the properties or assets of ALP under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which ALP or any ALP Stockholder is a party; (c) violate any order, writ, injunction, decree, statute, rule or regulation applicable to ALP or any ALP Stockholder; or (d) require any action or consent or approval of, or review by, or registration or filing by ALP, any ALP Stockholder or any of their respective affiliates with, any third party or any Governmental Authority, other than (i) actions required by the HSR Act, (ii) registrations or other actions required under federal and state securities laws, (iii) consents or approvals of any Governmental Authority set forth in Section 4.5 of the ALP Disclosure Schedule, and (iv) filing of the Certificate of Merger with the Illinois Secretary of State; except in the case of clause (b) or (d) for any of the foregoing that are set forth in Section 4.5 of the ALP Disclosure Schedule, and in the case of clauses (b) through (d) for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect on ALP. -11- 16 SECTION 4.6 ABSENCE OF CERTAIN CHANGES. Except as expressly provided for or permitted under Section 5.3(b) of this Agreement, except as provided in any agreement to be executed in connection with the Closing, or as set forth in Section 4.6 of the ALP Disclosure Schedule, since March 31, 1999 there has not been: (a) Any material adverse change in the business, operations, assets, properties, customer base, prospects, rights or condition (financial or otherwise) of ALP or any occurrence, circumstance, or combination thereof which reasonably could be expected to result in any such material adverse change, including, without limitation, any material adverse change relating to ALP's relationship with any material customer. (b) Any declaration, setting aside or payment of any dividend or any distribution (in cash or in kind) to any stockholder of ALP, or any direct or indirect redemption, purchase or other acquisition by ALP of any of its capital stock or any options, warrants, rights or agreements to purchase or acquire such stock; (c) Any increase in amounts payable by ALP to or for the benefit of, or committed to be paid by ALP to or for the benefit of, any stockholder, director, officer or other consultant, agent or employee of ALP whose total annual compensation exceeds $100,000 or any relatives of such person, or any increase in any benefits granted under any bonus, stock option, profit-sharing, pension, retirement, severance, deferred compensation, group health, insurance, or other direct or indirect benefit plan, payment or arrangement made to, with or for the benefit of any such person; (d) Any material transaction entered into or carried out by ALP other than in the ordinary and usual course of business consistent with past practices; (e) Any material borrowing or agreement to borrow funds by ALP, any incurring by ALP of any other obligation or liability (contingent or otherwise), except liabilities incurred in the usual and ordinary course of ALP's business (consistent with past practices), or any endorsement, assumption or guarantee of payment or performance of any loan or obligation of any other person by ALP; (f) Any material change in ALP's method of doing business or any change in its accounting principles or practices or its method of application of such principles or practices; (g) Any material mortgage, pledge, lien, security interest, hypothecation, charge or other encumbrance imposed or agreed to be imposed on or with respect to the property or assets of ALP; (h) Any sale, lease or other disposition of, or any agreement to sell, lease or otherwise dispose of any of the properties or assets of ALP, other than sales, leases or other dispositions in the usual and ordinary course of business for fair equivalent value to persons other than directors, officers, stockholders, or other affiliates of ALP; (i) Any purchase of or any agreement to purchase assets (other than purchases (including purchases of inventory) in the ordinary course of business consistent with past practices) for an amount in excess of $150,000 for any one purchase or $400,000 for all such -12- 17 purchases made by ALP or any lease or any agreement to lease, as lessee, any capital assets with payments over the term thereof to be made by ALP exceeding an aggregate of $400,000; (j) Any loan or advance made by ALP to any person other than loans made to ALP's customers in the ordinary course of business consistent with past practices not exceeding $50,000, in the aggregate, to any customer; (k) Any modification, waiver, change, amendment, release, rescission or termination of, or accord and satisfaction with respect to, any material term, condition or provision of any contract, agreement, license or other instrument to which ALP is a party, other than any satisfaction by performance in accordance with the terms thereof in the usual and ordinary course of business; or (l) Any labor dispute or disturbance adversely affecting the business operations, prospects or condition (financial or otherwise) of ALP, including, without limitation, the filing of any petition or charge of unfair labor practice with any governmental or regulatory authority, efforts to effect a union representation election, actual or threatened employee strike, work stoppage or slow down. SECTION 4.7 OFFICERS, EMPLOYEES AND COMPENSATION. Section 4.7 of the ALP Disclosure Schedule sets forth the names of all directors and officers of ALP, the total salary, bonus, fringe benefits and perquisites each received from ALP in the year ended December 31, 1998, and any changes to the foregoing which have occurred subsequent to December 31, 1998. Section 4.7 of the ALP Disclosure Schedule also lists and describes the current compensation of the ten most highly compensated managers of ALP and any other employee of ALP whose total current salary and bonus exceeds $100,000. Except as disclosed in Section 4.7 of the ALP Disclosure Schedule, there are no other forms of compensation paid to any such director, officer or employee of ALP. Except as disclosed in Section 4.7 of the ALP Disclosure Schedule, the amounts accrued on the books and records of ALP for vacation pay, sick pay, and all commissions and other fees payable to agents, salesmen and representatives will be adequate to cover ALP's liabilities for all such items. Except as set forth in Section 4.7 of the ALP Disclosure Schedule, ALP has not become obligated, directly or indirectly, to any stockholder, director or officer of ALP or any person related to such person by blood or marriage, except for current liability for such compensation. Except as set forth in Section 4.7 of the ALP Disclosure Schedule, to the Knowledge of ALP, no stockholder, director, officer, agent or employee of ALP or any person related to such person by blood or marriage holds any position or office with or has any material financial interest, direct or indirect, in any supplier, customer or account of, or other outside business which has material transactions with, ALP. ALP has no agreement or understanding with any stockholder, director, officer, employee or representative of ALP which would influence any such person not to become associated with Cardinal from and after the Closing or from serving ALP after the Closing in a capacity similar to the capacity presently held. SECTION 4.8 FINANCIAL STATEMENTS. (a) ALP has furnished to Cardinal the balance sheet of ALP as of December 31, 1998, and the related statements of income, changes in stockholders' equity, and cash flows for -13- 18 the nine-month period then ended, including, in each case, the related notes (collectively, the "Compilation Statements"), which are accompanied by the compilation report of Altschuler, Melvoin and Glasser LLP. ALP has also furnished to Cardinal the balance sheet of ALP as of March 31, 1999 and the related statements of income, changes in stockholders' equity, and cash flows for the three-month period then ended (the "March 31 Statements"). The Compilation Statements and the March 31 Statements, which have been initialed for identification by the president of ALP, have been prepared from and are in accordance with the books and records of ALP, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis (except for the absence of footnotes and except for normal year-end adjustments in the case of the March 31 Statements), and fairly present the financial condition of ALP as of the date stated and the results of operations of ALP for the period then ended in accordance with such practices except as described in Section 4.8 of the ALP Disclosure Schedule. (b) When delivered in accordance with Section 5.3(f), the balance sheet for ALP as of the end of each calendar month after the date hereof, and the related statements of income, changes in stockholders' equity, and cash flows for the period beginning January 1, 1999 and then ended, including the related notes (the "Interim Statements"), shall have been prepared from and in accordance with the books and records of ALP and in accordance with generally accepted accounting principles applied on a basis consistent with that used in the Compilation Statements, and shall fairly present the financial condition of ALP as of such date and the results of operations of ALP for such period in accordance with such practices, subject to normal year-end adjustments. SECTION 4.9 TAXES. (a) ALP has duly filed all federal, state, local and foreign income, franchise, excise, real and personal property and other Tax Returns (as defined below in Section 4.9(f))and reports (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by ALP prior to the date hereof. All of the foregoing Tax Returns and reports are true and correct, and ALP has paid or, prior to the Effective Time, will pay all Taxes (as defined below in Section 4.9(f)), interest and penalties required to be paid in respect of the periods covered by such returns or reports or otherwise due to any federal, state, foreign, local or other taxing authority. The unpaid Taxes of ALP do not, as of the date hereof and as of the Closing Date, exceed the reserve for Tax liability (as distinguished from any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the balance sheet of ALP included in the March 31 Statements (as distinguished from in any notes thereto). ALP will not have any liability for any Taxes in excess of the amounts so paid or reserves so established and ALP is not delinquent in the payment of any material Tax, assessment or governmental charge and it has not requested or filed any document having the effect of causing any extension of time within which to file any returns in respect of any fiscal year which have not since been filed. Except as disclosed in Section 4.9 of the ALP Disclosure Schedule, no deficiencies for any Tax, assessment or governmental charge have been proposed in writing, asserted or assessed (tentatively or definitely), in each case, by any taxing authority, against ALP for which there are not adequate reserves. Except as set forth in Section 4.9 of the ALP Disclosure Schedule, ALP is not the subject of any Tax audit. As of the date of this Agreement, there are no pending requests for waivers of the time to assess any such Tax, other -14- 19 than those made in the ordinary course and for which payment has been made or there are adequate reserves. With respect to any taxable period ended prior to March 31, 1996, all federal income Tax Returns including ALP have been audited by the Internal Revenue Service or are closed by the applicable statute of limitations. ALP has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. There are no liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible of ALP (other than liens for Taxes not yet due). No claim has ever been made by an authority in a jurisdiction where ALP does not file Tax Returns that ALP is or may be subject to taxation by that jurisdiction. ALP has not filed an election under Section 341(f) of the Code to be treated as a consenting corporation. As of the date of this Agreement, ALP has not previously undergone an "Ownership Change" as defined by Section 382(g) of the Code which would limit the amount of pre-change losses, credits and recognition of built-in losses to offset post change income. (b) ALP is not obligated by any contract, agreement or other arrangement to indemnify any other person with respect to Taxes. ALP is not now and has not during the last four years been a party to or bound by any agreement or arrangement (whether or not written and including, without limitation, any arrangement required or permitted by law) binding ALP which (i) requires ALP to make any Tax payment to or for the account of any other person, (ii) affords any other person the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax attribute which could reduce Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) of ALP, (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to ALP, from any other person, or (iv) otherwise requires ALP to indemnify any other person in respect of Taxes. (c) Section 4.9(c) of the ALP Disclosure Schedule sets forth (i) a list of all jurisdictions (whether foreign or domestic) to which any material Tax is or has been properly payable by ALP, (ii) all sales for which gain has been reported under the installment method of accounting for Tax purposes and for which gain has to be recognized for Tax purposes by ALP subsequent to the Closing Date, (iii) all rulings or determinations obtained by ALP from any Governmental Authority responsible for the imposition of any Tax that may affect ALP subsequent to the Closing Date, (iv) all ALP returns with respect to which the applicable period for assessment under Applicable Law, after giving effect to extensions or waivers, has not expired, (v) any material intercompany items (as described in Treasury Regulations Section 1.1502-13(b)(2) or in similar state or local income Tax provisions) resulting from any intercompany transaction to which ALP is a party, (vi) a list of all pending Tax audits or inquiries, and (vii) any Tax reserves included in the "Deferred Taxes" or similar line item in ALP's financial statements included in the ALP Disclosure Schedule, separately identified and itemized by dollar amount. (d) Except as disclosed in Section 4.9(d) of the ALP Disclosure Schedule, ALP has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party. (e) ALP is now and has been at all times since April 1, 1998 an S Corporation for federal income tax purposes within the meaning of Section 1361(a) of the Code pursuant to a -15- 20 valid election to be an S Corporation filed by ALP prior to June 15, 1998. Section 4.9(e) of the ALP Disclosure Schedule sets forth each jurisdiction in which a valid S corporation election for ALP is in effect or ALP is otherwise treated as an S corporation for state or local tax purposes and the date beginning with such election or treatment has been continuously in effect. (f) For purposes of this Agreement, the following terms have the definitions given below: "Tax Returns" means returns, reports and forms required to be filed with any Governmental Authority of the United States or any other jurisdiction responsible for the imposition or collection of Taxes. "Tax" or "Taxes" means (i) all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including, without limitation, gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, employment, excise, or property taxes, together with any interest or penalties imposed with respect thereto and (ii) any obligations under any agreements or arrangements with respect to any taxes described in clause (i) above. SECTION 4.10 COMPLIANCE WITH LAW; FDA MATTERS. (a) Except as set forth in Section 4.10 of the ALP Disclosure Schedule, ALP is in compliance with, and at all times since January 1, 1995 has been in compliance with, all applicable laws, statutes, orders, rules, regulations, policies or guidelines promulgated, or judgments, decisions or orders entered by any Governmental Authority (collectively, "Applicable Laws") relating to ALP or its business or properties, including, without limitation, the Food, Drug and Cosmetic Act and similar state laws, any federal or state Pharmacy Practice Acts, the Occupational Safety and Health Act and the regulations promulgated thereunder ("OSHA"), the Securities Act, the Exchange Act, any state or federal laws respecting rights of privacy and all rules of professional conduct applicable to ALP or by which any of its properties are bound or subject. ALP has heretofore made available to Cardinal copies of all material correspondence from and to all Governmental Authority and inspectors. (b) Except as set forth in Section 4.10 of the ALP Disclosure Schedule, since January 1, 1998 ALP has not received any written communication (including, any warning letter) or is otherwise aware of any action or proceeding pending or, to ALP's Knowledge, threatened, including, without limitation, warning letter, prosecution, injunction, seizure, civil fine or recall, alleging that it is not in compliance with any and all applicable laws, regulations or orders implemented by the Food and Drug Administration, or implemented by the relevant state, local or international agency responsible for regulating the pharmaceutical industry, including but not limited to, allegations related to (i) drug development establishments operated by ALP or (ii) drug or product license applications submitted directly by ALP or, to ALP's Knowledge, by a customer of ALP that includes data generated by ALP. To ALP's Knowledge, no employee of ALP is or has been the subject of any similar pending or threatened action or proceeding. (c) To ALP's Knowledge, all consultants utilized by ALP to generate information to be submitted to the Food and Drug Administration, or any equivalent state, local or international -16- 21 agency, including, but not limited to, contract research organizations, pre-clinical testing laboratories, clinical investigators and institutional review boards, have complied with all applicable Food and Drug Administration requirements, as well as the applicable requirements of relevant state, local and international agencies with regard to the development of data to be utilized by ALP as part of the relevant drug or product approval process. (d) Neither ALP nor, to ALP's Knowledge, any employee of ALP, has received any correspondence from the Food and Drug Administration or is aware of any action or proceeding, pending or, to the best of ALP's knowledge, threatened, against ALP or any such employee regarding any debarment action or investigation undertaken pursuant to the Generic Drug Enforcement Act of 1992, 21 U.S.C. Section 335a, or any other similar regulation of the Food and Drug Administration. (e) Neither ALP nor, to ALP's Knowledge, any employee of ALP, has been the subject, officially or otherwise, of any investigation by the Food and Drug Administration pursuant to its Fraud, Untrue, Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy (also known as the Application Integrity Policy). (f) To ALP's Knowledge, no data generated by ALP that has been provided to customers of ALP is the subject, either pending or threatened, of any regulatory or other action by the Food and Drug Administration or by any state, local or international regulatory entity relating to the truthfulness or scientific adequacy of such data. (g) Except as set forth on Section 4.10(g) of the ALP Disclosure Schedule, ALP has not made any drug or product license applications or related filings with the Food and Drug Administration during the past five years. SECTION 4.11 INTELLECTUAL PROPERTY. (a) Set forth in Section 4.11 of the ALP Disclosure Schedule is a true and complete list of (i) all of ALP's foreign and domestic patents, patent applications, invention disclosures, trademarks, service marks, tradenames, copyrights (and any registrations or applications for registration for any of the foregoing) and all material design rights, and (ii) all material agreements to which ALP is a party which concern any of the Intellectual Property ("Intellectual Property" shall mean all intellectual property or other proprietary rights of every kind, including, without limitation, all domestic or foreign patents, patent applications, inventions (whether or not patentable), processes, products, technologies, discoveries, copyrightable and copyrighted works, apparatus, trade secrets, trademarks and trademark applications and registrations, service marks and service mark applications and registrations, trade names, trade dress, copyright applications and registrations, design rights, customer lists, marketing and customer information, mask works rights, know-how, licenses, technical information (whether confidential or otherwise), software, hardware, systems, databases, models, methodologies and all documentation thereof owned, licensed or used by ALP). Other than the Intellectual Property set forth in Section -17- 22 4.11 of the ALP Disclosure Schedule, no name, patent, invention, trade secret, proprietary right, computer software, trademark, trade name, service mark, logo, copyright, franchise, license, sublicense, or other such right is necessary for the operation of the business of ALP in substantially the same manner as such business is presently or proposed to be conducted. Except as set forth in Section 4.11 of the ALP Disclosure Schedule, (A) ALP owns, free and clear of any liens, claims or encumbrances, or has the right to use under valid licenses as it is currently being used by ALP, the Intellectual Property and has the exclusive right to bring actions for the infringement thereof; (B) all of the patents, trademark registrations, service mark registrations, tradename registrations, design right registrations, and copyright registrations included in the Intellectual Property are valid; (C) the Intellectual Property does not infringe and has not infringed any now existing or subsequently issued domestic or foreign patent, trademark, service mark, tradename, copyright, design right or other intellectual property or proprietary right; (D) no person or entity has asserted in writing to ALP that, with respect to the Intellectual Property, ALP or a licensee of ALP is infringing or has infringed any domestic or foreign patent, trademark, service mark, tradename, copyright or design right, or has misappropriated or improperly used or disclosed any trade secret, confidential information or know-how; (E) the Intellectual Property, and its use or operation, do not infringe, and have not infringed, any foreign or domestic patent, trademark, service mark, tradename, copyright or contractual right of any entity, and have not involved the misappropriation or improper use or disclosure of any trade secrets, confidential information or know-how of any entity; (F) all working requirements and all fees, annuities, and other payments which are due from ALP on or before the Effective Time for any of the Intellectual Property, including, without limitation, all foreign or domestic patents, patent applications, trademark registrations, service mark registrations, tradename registrations, copyright registrations and any applications for any of the preceding, have been met or paid; (G) the claims made in the foreign or domestic patents and patent applications that are a part of the Intellectual Property are not dominated by claims of patents owned by other persons or entities; (H) to ALP's Knowledge, the making, using, selling, manufacturing, marketing, licensing, reproduction, distribution, or publishing of any process, service, machine, manufacture, composition of matter, or material pursuant to any part of the Intellectual Property, does not and will not infringe any domestic or foreign patent, trademark, service mark, tradename, copyright or other intellectual property right; (I) to ALP's Knowledge, no unexpired foreign or domestic patents or patent applications exist that are adverse to the material interests of ALP; (J) the Intellectual Property is not the subject of any pending Action (as defined in Section 4.14); (K) no part of the Intellectual Property was obtained through inequitable conduct or fraud in the United States Patent and Trademark Office or any foreign governmental entity; (L) to ALP's Knowledge, there has occurred no (1) prior act that would adversely affect, void or invalidate any of the Intellectual Property or (2) conduct or use by ALP or any third party that would adversely affect, void or invalidate any of the Intellectual Property; (M) the execution, delivery and performance of this Agreement by ALP, and the consummation of the transactions contemplated thereby, will not breach, violate or conflict with any instrument or agreement governing or contained within any of the Intellectual Property, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any of the Intellectual Property or in any way impair the right of Cardinal or Subcorp to use, sell, offer to sell, license or dispose of, or to bring any action for the infringement of, any Intellectual Property; (N) there are no royalties, honoraria, fees or other payments payable to any third party by reason of the ownership, use, license, sale or disposition of the Intellectual Property; (O) no part of the source or object code, algorithms or structure included in any of the Intellectual Property is copied from, based upon or derived from any source or object code, algorithm or structure included in any computer software product owned by any third party nor does any substantial similarity of any of such source or object code, algorithms or structure to any computer software product owned by any third party result from -18- 23 such source or object code, algorithms or structure being copied from, based upon or derived from any computer software product owned by any third party; and (P) to ALP's Knowledge, no software included in the Intellectual Property contains any "Self-Help Code," i.e., any back door, time bomb, drop dead device, or other software routine designed to disable a computer program automatically with the passage of time or under the positive control of any unauthorized person, or, to ALP's Knowledge, any "Unauthorized Code," i.e., any virus, Trojan horse, worm, or other software routines or hardware components designed to permit unauthorized access, disable, erase, or otherwise harm software, hardware, or data or to perform any other such actions. (b) ALP has taken all steps that are reasonably necessary and appropriate to safeguard and maintain the secrecy and confidentiality of all trade secrets contained in the Intellectual Property (including, without limitation, entering into appropriate confidentiality, nondisclosure and non-competition agreements with all officers, directors, employees and third-party consultants of ALP). (c) ALP has taken all steps that are reasonably necessary and appropriate to safeguard and maintain all copyrights and patents contained in the Intellectual Property, including, without limitation, entering into appropriate assignments with all current and former officers, directors, employees and third party consultants of ALP. SECTION 4.12 TITLE TO AND CONDITION OF PROPERTIES. (a) Except as set forth in Section 4.12(a) of the ALP Disclosure Schedule, ALP has good, valid and indefeasible title to all of its material assets and properties of every kind, nature and description, tangible or intangible, wherever located, which constitute all of the property now used in and necessary for the conduct of its business as presently conducted (including, without limitation, all material property and assets shown or reflected on the Compilation Statements or the Interim Statements, when delivered, except assets sold in the ordinary course of business). Except as set forth in Section 4.12(a) of the ALP Disclosure Schedule, all such properties are owned free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of any nature whatsoever, including, without limitation, (a) rights or claims of parties in possession; (b) easements or claims of easements; (c) encroachments, overlaps, boundary line or water drainage disputes or any other matters; (d) any lien or right to a lien for services, labor or material furnished; (e) special tax or other assessments; (f) options to purchase, leases, tenancies, or land contracts; (g) contracts, covenants, or reservations which restrict the use of such properties and (h) violations of any Applicable Laws applicable to such properties. All such properties are usable for their current uses without violating any Applicable Laws, or any applicable private restriction, and such uses are legal conforming uses. Except as set forth in Section 4.12(a) of the ALP Disclosure Schedule, no financing statement under the Uniform Commercial Code or similar law naming ALP or any of its predecessors is on file in any jurisdiction in which ALP owns property or does business, and ALP is not a party to or bound under any material agreement or legal obligation authorizing any party to file any such financing statement. Section 4.12(a) of the ALP Disclosure Schedule contains a complete and accurate list of the location of all real property which is or has been owned, leased or operated by ALP during the last five (5) years and describes the nature of ALP's interest or prior interest in that real property. With respect to any real property leased by ALP, ALP has an insurable leasehold interest in that real property. -19- 24 (b) Except as set forth in Section 4.12(b) of the ALP Disclosure Schedule, all real property, plants and structures and all machinery and equipment and tangible personal property owned, leased or used by ALP and material to the operation of its business are suitable for the purpose or purposes for which they are being used (including substantial compliance with all Applicable Laws) and are in good condition and repair, ordinary wear and tear excepted. Section 4.12(b) of the ALP Disclosure Schedule lists, and ALP has furnished or made available to Cardinal, copies of all engineering, geologic and environmental reports prepared by or for ALP or with respect to the real property owned, leased or used by ALP within the past five (5) years. SECTION 4.13 ENVIRONMENTAL MATTERS. (a) As used herein, the term "Environmental Laws" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, petroleum, pollutants, contaminants, or industrial, toxic or hazardous substances or wastes (collectively, "Hazardous Materials") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. (b) There are, with respect to ALP or its predecessor, no past or present violations of Environmental Laws, releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or any other Environmental Law and ALP has not received any written notice with respect to any of the foregoing, nor is any Action pending or, to ALP's Knowledge, threatened in writing in connection with any of the foregoing. (c) No Hazardous Materials were or are contained on or about any real property currently or previously owned or leased by ALP or predecessors and no Hazardous Materials were released on or about any real property previously owned or leased by ALP or its predecessors during the period the property was owned or leased by ALP or its predecessors, except in the normal course of ALP's business. To the extent ALP or its predecessors currently uses or previously used real property which ALP or predecessors never owned or leased, no Hazardous Materials were or are contained on or about the portion of such property currently or previously used by ALP or its predecessors and no Hazardous Materials were released on or about any such portion of property previously used by ALP or its predecessors during the period the property was used by ALP or its predecessors, except in the normal course of ALP's business which is otherwise in compliance with all applicable Environmental Laws. (d) Except as set forth in Section 4.13(d) of the ALP Disclosure Schedule, there are no underground storage tanks on or under any real property currently or previously owned, leased or used by ALP. -20- 25 (e) ALP has obtained all permits, licenses and other authorizations ("Environmental Permits") required under the Environmental Laws relating to the real property owned, leased or used by ALP and ALP's use thereof. The Environmental Permits are in full force and effect and ALP is and has been in compliance with them since the dates of their issuance. Section 4.13 of the ALP Disclosure Schedule lists, and ALP has furnished or made available to Cardinal, copies of all Environmental Permits. (f) Except as set forth in Section 4.13(f), no asbestos-containing materials are located on the real property owned, leased or used by ALP. (g) ALP has not received any written notice from any Governmental Authority or private entity advising or asserting that (i) any real property owned, leased or used by ALP, (ii) any real property previously owned, leased or used by ALP, or (iii) ALP are the subject of any Action relating to the environmental condition of such property or ALP. No such property is listed in CERCLAS, the federal National Priorities List or any similar state or federal lists of suspected contaminated property and no off-site disposal location currently or formerly used by ALP or its predecessors is so listed. SECTION 4.14 LITIGATION. Except as set forth in Section 4.14 of the ALP Disclosure Schedule, there is no suit, claim, action, or proceeding (an "Action") pending or, to ALP's Knowledge, threatened against ALP or any officer or director of ALP alleging damages in excess of $100,000. ALP is not subject to any outstanding order, writ, injunction or decree which, individually or in the aggregate, insofar as can be reasonably foreseen, could have a Material Adverse Effect on ALP or a Material Adverse Effect on the ability of ALP to consummate the transactions contemplated hereby. Except as set forth in Section 4.14 of the ALP Disclosure Schedule, since December 31, 1996, (i) there has not been any Action asserted, or to ALP's Knowledge, threatened against ALP relating to ALP's method of doing business or its relationship with past, existing or future users or purchasers of any goods or services of ALP and (ii) ALP has not been subject to any outstanding order, writ, injunction or decree relating to ALP's method of doing business or its relationship with past, existing or future customers, lessees, users, purchasers or licensees of any Intellectual Property, goods or services of ALP. SECTION 4.15 BROKERAGE AND FINDER'S FEES. Neither ALP nor, to ALP's Knowledge, any stockholder, director, officer or employee thereof, has incurred or will incur on behalf of ALP, any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. SECTION 4.16 ACCOUNTING MATTERS. Neither ALP nor any of its affiliates has taken or agreed to take any action that (without giving effect to any actions taken or agreed to be taken by Cardinal or any of its affiliates) would (a) prevent the Merger from constituting a reorganization qualifying under the provisions of Section 368(a) of the Code or (b) to ALP's Knowledge, prevent Cardinal from accounting for the business combination to be effected by the Merger as a pooling-of-interests for financial reporting purposes. -21- 26 SECTION 4.17 EMPLOYEE BENEFIT PLANS. (a) For purposes of this Section 4.17, the following terms have the definitions given below: "Controlled Group Liability" means any and all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage requirements of section 601 et seq. of ERISA and Section 4980B of the Code and the portability and nondiscrimination requirements of Section 701 ET SEQ. of ERISA and Section 9801 ET SEQ. of the Code, (v) Section 4975 of the Code and (vi) corresponding or similar provisions of foreign laws or regulations, in each case other than pursuant to the Plans. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "ERISA Affiliate" means, with respect to any entity, trade or business, any other entity, trade or business that is or was a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is or was a member of the same "controlled group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA. "Plans" means all employee benefit plans, programs, policies, practices, and other arrangements providing benefits to any employee or former employee or beneficiary or dependent thereof, whether or not written, and whether covering one person or more than one person, sponsored or maintained by ALP or any ERISA Affiliate or to which ALP or any ERISA Affiliate contributes or is obligated to contribute. Without limiting the generality of the foregoing, the term "Plans" includes all employee welfare benefit plans within the meaning of Section 3(1) of ERISA and all employee pension benefit plans within the meaning of Section 3(2) of ERISA. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA. (b) Section 4.17(b) of the ALP Disclosure Schedule lists all Plans sponsored, maintained or contributed to, or required to be contributed to, by ALP or by any ERISA Affiliate within the last six (6) years. With respect to each Plan, ALP has made available to Cardinal a true, correct and complete copy of: (i) each writing constituting a part of such Plan, including, without limitation, all plan documents and amendments thereto, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the three (3) most recent Annual Reports (Form 5500 Series) and accompanying schedules, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any; (v) the most recent determination letter from the Internal Revenue Service, if any; and (vi) the most recent actuarial/valuation, if any. Neither ALP nor any ERISA Affiliate has any plan or commitment to create any additional Plan or to modify or change any existing Plan that would affect any employee or terminated employee of ALP or any ERISA Affiliate. -22- 27 (c) The Internal Revenue Service has issued a favorable determination letter with respect to each Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code (a "Qualified Plan"), and, to ALP's Knowledge, except as set forth in Section 4.17(c) of the ALP Disclosure Schedule, there are no existing circumstances nor any events that have occurred that could adversely affect the qualified status of any Qualified Plan or the related trust. (d) Except as set forth in Section 4.17(d) of the ALP Disclosure Schedule, all contributions required to be made to any Plan by Applicable Laws or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date hereof have been timely made or paid in full and through the Closing Date will be timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof or the Closing Date, as applicable, have been or will be fully reflected in the Compilation Statements and the Interim Statements. (e) Except as set forth in Section 4.17(e) of the ALP Disclosure Schedule, ALP and all ERISA Affiliates have complied and are in compliance with all provisions of ERISA, the Code and all laws and regulations applicable to the Plans. Each Plan has been operated in compliance with its terms and in accordance with all Applicable Laws. There is not now, and there are no existing, circumstances that could give rise to, any requirement for the posting of security with respect to a Plan or the imposition of any lien on the assets of ALP or any ERISA Affiliate under ERISA or the Code. Each Plan includes provisions which effectively reserve the rights of the sponsor of the Plan to amend or terminate the Plan. (f) No Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code. No Plan is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has ALP or any of its respective ERISA Affiliates, at any time within five years before the date hereof, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan. (g) Except as set forth in Section 4.17(g) of the ALP Disclosure Schedule, there does not now exist, and there are no existing, circumstances that could result in, any Controlled Group Liability that would be a liability of ALP following the Closing. Without limiting the generality of the foregoing, neither ALP nor any of its ERISA Affiliates has engaged in any transaction described in Section 4069 of ERISA or any transaction that constitutes a withdrawal under Section 4201 ET SEQ. of ERISA. (h) Except as set forth in Section 4.17(h) of the ALP Disclosure Schedule and except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA, ALP has no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof. (i) Except as set forth in Section 4.17(i) of the ALP Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in, cause the accelerated vesting or delivery of, or increase the -23- 28 amount or value of, any payment or benefit to any employee, officer, director or consultant of ALP, and Section 4.17(i) of the ALP Disclosure Schedule specifies the amount of any such payment or benefit. Without limiting the generality of the foregoing and except as set forth in Section 4.17(i) of the ALP Disclosure Schedule, no amount paid or payable by ALP in connection with the transactions contemplated hereby either solely as a result thereof or as a result of such transactions in conjunction with any other events will be an "excess parachute payment" within the meaning of Section 280G of the Code. (j) There are no pending or, to ALP's Knowledge, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted against the Plans, any fiduciaries thereof with respect to their duties to the Plans or the assets of any of the trusts under any of the Plans which could reasonably be expected to result in any material liability of ALP. SECTION 4.18 CONTRACTS. (a) Section 4.18(a) of the ALP Disclosure Schedule lists all written or oral contracts, agreements, guarantees, leases and executory commitments (each a "Contract") to which ALP is a party and which fall within any of the following categories: (i) Contracts not entered into in the ordinary course of ALP's business, (ii) joint venture, partnership and similar agreements, (iii) Contracts which are service contracts or equipment leases involving payments by ALP of more than $100,000 per year, (iv) Contracts containing covenants purporting to limit the freedom of ALP to compete in any line of business in any geographic area or to hire any individual or group of individuals, including, without limitation, Contracts with any customers granting the customer any exclusive rights, (v) Contracts which after the Effective Time would have the effect of limiting the freedom of Cardinal or its subsidiaries (other than ALP) to compete in any line of business in any geographic area or to hire any individual or group of individuals, including any Contracts with distributors granting any exclusive rights, (vi) Contracts which contain minimum purchase conditions or requirements or other terms that restrict or limit the purchasing relationships of ALP or its affiliates, or any customer, licensee or lessee thereof, (vii) Contracts relating to any outstanding commitment for capital expenditures in excess of $100,000, (viii) Contracts relating to the lease or sublease of or sale or purchase of real or personal property involving any annual expense or price in excess of $100,000 and not cancelable by ALP (without premium or penalty) within ninety days, (ix) Contracts with any labor organization, (x) indentures, mortgages, promissory notes, loan agreements, guarantees of amounts in excess of $100,000, letters of credit or other agreements or instruments of ALP or commitments for the borrowing or the lending of amounts in excess of $100,000 by ALP or providing for the creation of any charge, security interest, encumbrance or lien upon any of the assets of ALP, (xi) Contracts which are fixed price, capitation or other risk sharing agreements with customers not cancelable by ALP (without premium or penalty) within one month; (xii) Contracts involving annual revenues or expenditures to the business of ALP in excess of 3.0% of ALP's annual revenues, (xiii) Contracts providing for "earn-outs" or other contingent payments involving more than $100,000 over the term of the Contract and (xiv) Contracts with or for the benefit of any affiliate (as such term is defined in Rule 12b-2 promulgated under the Exchange Act) of ALP or immediate family member thereof. All such Contracts are valid and binding obligations of ALP and, to ALP's Knowledge, the valid and binding obligation of each other party thereto. Except as set forth in Section 4.18(a) of the ALP Disclosure Schedule, neither ALP nor, to ALP's -24- 29 Knowledge, any other party thereto is in violation of or in default in respect of, nor has there occurred an event or condition which with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any Contract. (b) Except as set forth in Section 4.18 of the ALP Disclosure Schedule or as contemplated by the transactions contemplated hereby, there are no Contracts or other transactions between ALP, on the one hand, and any (i) officer or director of ALP, (ii) record or beneficial owner of any securities of ALP or (iii) affiliate of any such officer, director or beneficial owner, on the other hand. (c) Except as set forth in Section 4.18 of the ALP Disclosure Schedule, no consent, permission, waiver or approval is required to be obtained, and no penalty, assessment or special payment is required to paid to, any third party or governmental authority in order to preserve for ALP after the Merger the benefits of the Contracts. SECTION 4.19 ACCOUNTS RECEIVABLE; INVENTORIES. (a) All accounts and notes receivable (including lease and finance notes receivable) and accrued interest receivable of ALP have arisen in the ordinary course of business and the accounts receivable reserves reflected on the balance sheet included in the Compilation Statements and the Interim Statements (which reserves shall not exceed $50,000) will be as of the date thereof established in accordance with generally accepted accounting principles consistently applied. All such accounts and notes receivable outstanding as of the Closing will be collected in full (subject only to the aforementioned reserves) within 180 days of the Closing. (b) The inventories reflected on the balance sheet included in the Compilation Statements and the Interim Statement have been (or will be) valued in accordance with generally accepted accounting principles consistently applied. Physical adjustments since the date of the Compilation Statements have been correctly recorded in the ordinary course of business. Such inventories (i) are carried at an amount not in excess of the lower of cost or net realizable value, and (ii) do not include any inventory which is obsolete, surplus or not usable or saleable in the lawful and ordinary course of business of ALP as heretofore conducted, in each case net of reserves provided therefor. Such inventories consist of items of quality and quantity that are adequate for the conduct of the business of ALP and inventory levels are not in excess of normal operating requirements of ALP. SECTION 4.20 LABOR MATTERS. Except as set forth in Section 4.20 of the ALP Disclosure Schedule, ALP does not have any labor contracts, collective bargaining agreements or employment or consulting agreements (except for employment or consulting agreements that provide for annual payments of not more than $50,000) with any persons employed by ALP or any persons otherwise performing services primarily for ALP (the "ALP Business Personnel"). ALP has not engaged in any unfair labor practice with respect to ALP Business Personnel, and there is no unfair labor practice complaint pending or, to the knowledge of ALP, threatened, against ALP with respect to ALP Business Personnel. There is no labor strike, dispute, slowdown or stoppage pending or, to ALP's Knowledge, threatened against ALP, and ALP has not experienced any labor strike, dispute, slowdown or stoppage or other labor difficulty involving its employees since December 31, 1996. -25- 30 SECTION 4.21 UNDISCLOSED LIABILITIES. Except (i) as and to the extent disclosed or reserved against on the balance sheet of ALP as of March 31, 1999 included in the Interim Statements, (ii) as incurred after the date thereof in the ordinary course of business consistent with prior practice and not prohibited by this Agreement and which in any event are not material, (iii) as set forth in Section 4.21 of the ALP Disclosure Schedule, or (iv) as provided in any Contract disclosed in Section 4.18(a) of the ALP Disclosure Schedule (excluding any liability for a breach of any such Contract), ALP does not have any liabilities or obligations of any nature, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due, that, individually or in the aggregate, could have a Material Adverse Effect on ALP. SECTION 4.22 OPERATION OF ALP'S BUSINESS; RELATIONSHIPS. (a) Since January 1, 1999 through the date of this Agreement, ALP has not engaged in any transaction which, if done after execution of this Agreement, would violate Section 5.3(b) hereof except as set forth in Section 4.22 of the ALP Disclosure Schedule. Section 4.22 of the ALP Disclosure Schedule describes each termination or non-renewal that has occurred with respect to any Contract with any customer or supplier from January 1, 1999 to the date of this Agreement. (b) The relationships of ALP with its customers and suppliers are satisfactory, and, to ALP's Knowledge, the execution of this Agreement, the consummation of the Merger and the other transactions contemplated hereby will not materially adversely affect the relationships of ALP with such customers or suppliers. (c) No product produced by ALP or produced for ALP by a third party has been recalled voluntarily or involuntarily since January 1, 1996, no such recall is being considered by ALP, and, to ALP's Knowledge, no such recall is being considered by or has been requested or ordered by any ALP customer, Governmental Authority or consumer group. (d) ALP is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "ALP Permits"), and there is no Action pending or, to ALP's Knowledge, threatened regarding any of the ALP Permits. ALP is not in conflict with, or in default or violation of any of the ALP Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on ALP. Except as set forth in Section 4.22(d) of the ALP Disclosure Schedule, during the period commencing on January 1, 1997 and ending on the date hereof, ALP has not received any written notification with respect to possible conflicts, defaults or violations of Applicable Laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations could not have a Material Adverse Effect on ALP. Except as set forth in Section 4.22(d) of the ALP Disclosure Schedule, no consent, approval, registration or filing with any third party or Governmental Authority pursuant to any ALP Permits is required as a result of the transactions contemplated by this Agreement. SECTION 4.23 PRODUCT WARRANTIES AND LIABILITIES. Section 4.23 of the ALP Disclosure Schedule lists all forms of warranties, guarantees or assurances of its products and -26- 31 services that are in effect or proposed to be used by it. Section 4.23 of the ALP Disclosure Schedule sets forth a description of each pending or, to ALP's Knowledge, threatened Action under any warranty or guaranty against ALP. ALP has not incurred, nor, to ALP's Knowledge, is there any basis for alleging, any liability, damage, loss, cost or expense as a result of any defect or other deficiency (whether of design, materials, workmanship, labeling instructions or otherwise) ("Product Liability") with respect to any product sold or services rendered by or on behalf of ALP (including any licensee thereof) after December 31, 1995 and prior to the Effective Time which would have a Material Adverse Effect on ALP, whether such Product Liability is incurred by reason of any express or implied warranty (including, without limitation, any warranty of merchantability or fitness), any doctrine of common law (tort, contract or other), any statutory provision or otherwise and irrespective of whether such Product Liability is covered by insurance. SECTION 4.24 BOARD RECOMMENDATION. The Board of Directors of ALP, at a meeting duly called and held, has by unanimous vote of those directors present (who constituted 100% of the directors then in office) (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to and in the best interests of the stockholders of ALP, and (ii) recommended that the holders of the shares of ALP Common Stock approve this Agreement and the transactions contemplated herein, including the Merger (the "ALP Board Recommendation"). SECTION 4.25 IBCA AND STATE TAKEOVER LAWS. Prior to the date hereof, the Board of Directors of ALP has taken all action necessary to exempt under or make the following not subject to any state takeover law or other state law that purports to limit or restrict business combinations or the ability to acquire or vote shares: (i) the execution of this Agreement, (ii) the Merger and (iii) the other transactions contemplated hereby. SECTION 4.26 INSURANCE. ALP is presently insured, and during each of the past five calendar years has been insured, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Except as set forth in Section 4.26 of the ALP Disclosure Schedule, the policies of fire, theft, liability, professional practice and other insurance currently maintained with respect to the assets or businesses of the Company may be continued by ALP without modification or premium increase after the Effective Time and for the duration of their current terms which terms expire as set forth in Section 4.26 of the ALP Disclosure Schedule. SECTION 4.27 BOOKS OF ACCOUNT; RECORDS. ALP's general ledgers, stock record books, minute books and other material records relating to the assets, properties, contracts and outstanding legal obligations of ALP are, in all material respects, complete and correct, and have been maintained in accordance with good business practices and the matters contained therein are appropriate and accurately reflected in the Compilation Statements and the Interim Statements. SECTION 4.28 INVESTMENT REPRESENTATION. Each ALP Stockholder (a) is either an "accredited investor" (as such term is defined in Regulation D of the Securities Act) or, alone or with his or her purchaser representative(s), has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of an investment in -27- 32 Cardinal Common Shares and (b) received from ALP a copy of the Prospectus (as defined in Section 5.2(a)) and each of the documents incorporated by reference therein. SECTION 4.29 NO OTHER REPRESENTATIONS AND WARRANTIES. Except as expressly set forth in this Article IV, ALP makes no representations and warranties, express or implied, at law or in equity, in respect of ALP or any of its assets, liabilities or operations. ARTICLE V. COVENANTS OF THE PARTIES The parties hereto agree as follows with respect to the period from and after the execution of this Agreement: SECTION 5.1 MUTUAL COVENANTS. (a) GENERAL. Each of the parties shall use its reasonable efforts to take all action and to do all things necessary, proper or advisable to consummate the Merger and the transactions contemplated by this Agreement (including, without limitation, using its reasonable efforts to cause the conditions set forth in Article VI for which they are responsible to be satisfied as soon as reasonably practicable and to prepare, execute and deliver such further instruments and take or cause to be taken such other and further action as any other party hereto shall reasonably request). (b) HSR ACT. As soon as practicable, and in any event no later than fifteen business days after the date hereof, each of the parties hereto will file any Notification and Report Forms and related material required to be filed by it with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the HSR Act with respect to the Merger, will use its reasonable efforts to obtain an early termination of the applicable waiting period, and shall promptly make any further filings pursuant thereto that may be necessary, proper or advisable. Cardinal and ALP agree to cooperate with respect to, and shall cause each of their respective subsidiaries to cooperate with respect to, and agree to use all reasonable efforts to contest and resist, any Action, including legislative, administrative or judicial Action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) (an "Order") of any Governmental Authority that is in effect and that restricts, prevents or prohibits the consummation of the Merger or any other transactions contemplated by this Agreement, including, without limitation, by pursuing all available avenues of administrative and judicial appeal and all available legislative action. Upon the terms and subject to the conditions set forth in this Agreement, in connection with the HSR Act, each of ALP and Cardinal agrees to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Authorities and the making of all necessary registrations and filings (including filings with Governmental Authorities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Authority; provided, however, that a party shall not be -28- 33 obligated to take any action pursuant to the foregoing if the taking of such action or the obtaining of any waiver, consent, approval or exemption is reasonably likely (x) to impact in a materially adverse manner the economic or business benefits of the transactions contemplated by this Agreement so as to render inadvisable the consummation of the Merger or (y) to result in an Order (i) prohibiting or limiting the ownership or operation by Cardinal of any material portion of the business or assets of ALP or compelling Cardinal to dispose of or hold separate any of the business or assets of Cardinal or any material portion of the business or assets of ALP as a result of the Merger or any of the other transactions contemplated by this Agreement, (ii) imposing limitations on the ability of Cardinal to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of ALP, including, without limitation, the right to vote such capital stock on all matters properly presented to the ALP Stockholders, or (iii) prohibiting Cardinal from effectively controlling in any material respect the business or operations of ALP. (c) OTHER GOVERNMENTAL MATTERS. Each of the parties shall use its reasonable efforts to take any additional action that may be necessary, proper or advisable in connection with any other notices to, filings with, and authorizations, consents and approvals of any Governmental Authority that it may be required to give, make or obtain. (d) POOLING-OF-INTERESTS. Each of the parties agrees that it shall not, and shall not permit any of its subsidiaries to, take any actions (regardless of whether such action would otherwise be permitted or not prohibited hereunder) that would, or would be reasonably likely to, prevent Cardinal from accounting, and shall use its reasonable best efforts (including, without limitation, providing appropriate representation letters to Cardinal's accountants in addition to the representation letter provided by ALP to Cardinal's accountants on the date hereof) to allow Cardinal to account, for the Merger in accordance with the pooling-of-interests method of accounting under the requirements of Opinion No. 16 "Business Combinations" of the Accounting Principles Board of the American Institute of Certified Public Accountants, as amended by applicable pronouncements by the Financial Accounting Standards Board, and all related published rules, regulations and policies of the Commission ("APB No. 16"), and to obtain a letter, in form and substance reasonably satisfactory to Cardinal, from Deloitte & Touche LLP dated the Closing Date stating that they concur with management's conclusion that the Merger will qualify as a transaction to be accounted for by Cardinal in accordance with the pooling-of-interests method of accounting under the requirements of APB No. 16. (e) TAX-FREE TREATMENT. Each of the parties shall use all reasonable efforts to cause the Merger to constitute a tax-free "reorganization" under Section 368(a) of the Code. (f) PUBLIC ANNOUNCEMENTS. Unless otherwise required by Applicable Laws or requirements of the NYSE (and in that event only if time does not permit), at all times prior to the earlier of the Effective Time or termination of this Agreement pursuant to Section 7.1, Cardinal and ALP shall consult with each other before issuing any press release with respect to the Merger and shall not issue any such press release prior to such consultation. SECTION 5.2 COVENANTS OF CARDINAL. (a) SECURITIES LAWS. Assuming the accuracy of the statements made in Sections 4.28 and 5.3(a), (i) the issuance of Cardinal Common Shares to the ALP Stockholders in the Merger -29- 34 shall be registered under the Securities Act pursuant to Cardinal's Registration Statement on Form S-4 (Commission File No. 333-74761) and the Prospectus included therein dated April 7, 1999 (the "Prospectus") and (ii) the Cardinal Common Shares issued in the Merger will be freely transferable under the Securities Act of 1933 by the ALP Stockholders to whom they are issued, subject to the provisions of Rule 145 thereunder. Cardinal shall use all reasonable efforts to keep the Registration Statement effective until the Closing. (b) NOTIFICATION OF CERTAIN MATTERS. Cardinal shall give prompt notice to ALP of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any Cardinal or Subcorp representation or warranty contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii) any material failure of Cardinal to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.2(b) shall not limit or otherwise affect the remedies available hereunder to ALP. (c) NYSE LISTING. Cardinal shall use its reasonable efforts to cause the Cardinal Common Shares issuable pursuant to the Merger to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time. (d) CONTINUITY OF BUSINESS ENTERPRISE; CONTINUITY OF INTERESTS. It is the present intention of Cardinal and Subcorp to continue at least one significant historic business of ALP, or to use at least a significant portion of ALP's historic business assets in a business, in each case within the meaning of Reg. Section 1.368-1(d) promulgated pursuant to the Code. Neither Cardinal nor any "related person" within the meaning of Reg. Section 1.368-1(e)(3) has any plan or intent to redeem, in connection with the transactions contemplated by this Agreement, any Cardinal Common Shares issued to the ALP Stockholders in the Merger or take any other action which might violate the "continuity of interest" provisions of Reg. Section 1.368-1(e), except any reacquisition of Cardinal Common Shares pursuant to Article VIII of this Agreement or the Escrow Agreement. (e) DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. For a period of six years from and after the Effective Time, Cardinal shall cause the Surviving Corporation to indemnify and hold harmless the former officers and directors of ALP in respect of acts or omissions occurring prior to the Effective Time (so long as such acts or omissions do not constitute Indemnifiable Claims of Cardinal under Article VIII) to the fullest extent permitted or provided under the ALP Articles and ALP By-laws. Cardinal shall, for a period of six years, cause ALP to maintain the current policies of directors, and officers' liability insurance and fiduciary liability insurance maintained by ALP (provided that Cardinal may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are, in the aggregate, no less advantageous to the insured and provided that ALP shall not be required to spend each year more than 125% of the current annual premium for such current policies) with respect to claims arising from facts or events that occurred at or before the Effective Time. SECTION 5.3 COVENANTS OF ALP AND THE ALP STOCKHOLDERS. (a) PROSPECTUS DELIVERY. ALP acknowledges receipt from Cardinal of 15 copies of the Prospectus and all of the documents incorporated by reference therein. ALP sent or delivered -30- 35 the Prospectus and such incorporated documents to each of the ALP Stockholders at least 20 business days prior to the date hereof. (b) CONDUCT OF ALP'S OPERATIONS. During the period from the date of this Agreement to the Effective Time, ALP shall, and the ALP Stockholders shall take all actions as may be necessary to cause ALP to, conduct its operations only in the ordinary course, except as expressly contemplated by this Agreement and the transactions contemplated hereby, and to use all reasonable efforts to maintain and preserve its business organization and its material rights and franchises and to retain the services of its officers and key employees and maintain relationships with customers, suppliers, lessees, licensees and other third parties, and to maintain all of its operating assets in their current condition (normal wear and tear excepted), to the end that their goodwill and ongoing business shall not be impaired in any material respect. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, ALP shall not, except as otherwise expressly contemplated by this Agreement or as set forth in Section 5.3(b) of the ALP Disclosure Schedule, without the prior written consent of Cardinal: (i) do or effect any of the following actions with respect to its securities: (A) adjust, split, combine or reclassify its capital stock, (B) make, declare or pay any dividend or distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of ALP Common Stock or any securities or obligations convertible into or exchangeable for any shares of ALP Common Stock, (C) grant any person any right or option to acquire any shares of ALP Common Stock, (D) issue, deliver or sell or agree to issue, deliver or sell any additional shares of ALP Common Stock or any securities or obligations convertible into or exchangeable or exercisable for any shares of ALP Common Stock or such securities, or (E) enter into any agreement, understanding or arrangement with respect to the sale or voting of ALP Common Stock; (ii) directly or indirectly sell, transfer, lease, pledge, mortgage, encumber or otherwise dispose of any of its material property or assets, other than in the ordinary course of business; (iii) make or propose any changes in the ALP Articles or the ALP By-laws; (iv) merge or consolidate with any other person or acquire the assets (other than the acquisition of inventory, supplies and equipment in the ordinary course of business) or capital stock of any other person, or enter into any confidentiality agreement with any person in contemplation of any of the foregoing; (v) incur, create, assume or otherwise become liable for any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity, other than in the ordinary course of business consistent with past practice not in excess of $100,000 in the aggregate; (vi) create any subsidiaries; -31- 36 (vii) enter into or modify any employment, severance, termination or similar agreements or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officer, director, consultant or employee or otherwise increase the compensation or benefits provided to any officer, director, consultant or employee other than salary increases granted in the ordinary course of business consistent with past practice to employees who are not officers or directors of ALP, and except as may be required by Applicable Law or a binding written contract in effect on the date of this Agreement; (viii) enter into, adopt or amend any employee benefit or similar plan; (ix) change its method of doing business or change any method or principle of accounting in a manner that is inconsistent with past practice; (x) settle any Actions, whether now pending or hereafter made or brought involving an amount in excess of $100,000, or settle the Action entitled Vital Pharma, Inc. v. Automatic Liquid Packaging, Inc., case no. 99-8163-CIV-HURLEY (S.D. Flor. - West Palm Beach Division) without the prior written consent of Cardinal, which will not be unreasonably withheld; (xi) write up, write down or write off the book value of any assets, individually or in the aggregate, in excess of $100,000, except for depreciation and amortization in accordance with generally accepted accounting principles consistently applied; (xii) modify, amend or terminate, or waive, release or assign any material rights or claims with respect to, any Contract set forth in Section 4.18(a) of the ALP Disclosure Schedule, any other material Contract to which ALP is a party or any confidentiality agreement to which ALP is a party; (xiii) incur or commit to any capital expenditures, obligations or liabilities in respect thereof which in the aggregate exceed or would exceed $100,000; (xiv) make any material changes or modifications to any pricing policy or investment policy or enter into any new management agreements or leases on terms different from those in effect in the ordinary and usual course of business, consistent with past practice; (xv) pay (or agree to become obligated to pay) any professional fees and expenses in excess of the amount set forth in Section 4.21 of the ALP Disclosure Schedule; (xvi) take any action to exempt or make not subject to any other state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares, any person or entity (other than Cardinal or its subsidiaries) or any action taken thereby, which person, entity or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom; -32- 37 (xvii) take any action that could result in the representations and warranties set forth in Article IV becoming false or inaccurate in any material respect; (xviii) enter into or carry out any other material transaction other than in the ordinary and usual course of business; (xix) agree in writing or otherwise to take any of the foregoing actions. (c) INTELLECTUAL PROPERTY MATTERS. Except as provided in Section 5.3(c) of the ALP Disclosure Schedule, ALP shall use all reasonable efforts to preserve its ownership rights to the Intellectual Property free and clear of any liens, claims or encumbrances and shall use its best efforts to assert, contest and prosecute any infringement of any issued foreign or domestic patent, trademark, service mark, tradename or copyright that forms a part of the Intellectual Property or any misappropriation or disclosure of any trade secret, confidential information or know-how that forms a part of the Intellectual Property. (d) NO SOLICITATION. ALP and each of the ALP Stockholders agree that, during the term of this Agreement, ALP and each ALP Stockholder shall not, and shall not authorize or permit any of ALP's directors, officers, employees, agents or representatives to, directly or indirectly, solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal with respect to any recapitalization, merger, consolidation or other business combination involving ALP, or acquisition of any capital stock of ALP or any material portion of the assets of ALP, or any combination of the foregoing (a "Competing Transaction"), or negotiate, explore or otherwise engage in discussions with any person (other than Cardinal, Subcorp or their respective directors, officers, employees, agents and representatives) with respect to any Competing Transaction or enter into any agreement, arrangement or understanding requiring it to abandon, terminate or fail to consummate the Merger or any other transactions contemplated by this Agreement. Neither the Board of Directors of ALP nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Cardinal, the ALP Board Recommendation, (ii) approve or recommend, or propose publicly to approve or recommend, any Competing Transaction or (iii) cause ALP to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, an "Acquisition Agreement") related to any Competing Transaction or proposal for a Competing Transaction. From and after the execution of this Agreement, ALP and each ALP Stockholder shall immediately advise Cardinal in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations or proposals relating to a Competing Transaction (including the specific terms thereof and the identity of the other party or parties involved) and promptly furnish to Cardinal a copy of any such proposal or inquiry in addition to any information provided to or by any third party relating thereto. (e) AFFILIATES OF ALP. ALP has obtained from each person who may be at the Effective Time or was on the date hereof an "affiliate" of ALP for purposes of Rule 145 under the Securities Act (each, an "ALP Affiliate") an Affiliate Letter in the form of Exhibit B hereto. On the date hereof, ALP has (after consultation with outside counsel for ALP) provided Cardinal with a letter specifying all of the persons or entities who may be deemed to be "affiliates" of ALP under the preceding sentence. -33- 38 (f) ACCESS; FINANCIAL STATEMENTS. ALP shall permit representatives of Cardinal to have appropriate access at all reasonable times to ALP's premises, properties, books, records, contracts, tax records, documents, customers and suppliers. ALP shall deliver to Cardinal Interim Statements within 20 days following the end of each calendar month, beginning with Interim Statements for July 1999. (g) NOTIFICATION OF CERTAIN MATTERS. ALP shall give prompt notice to Cardinal of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any ALP representation or warranty contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii) any material failure of ALP to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.3(g) shall not limit or otherwise affect the remedies available hereunder to Cardinal. (h) OTHER AGREEMENTS. ALP shall use all reasonable efforts to cause the individual set forth in Section 5.3(h)(i) of the ALP Disclosure Schedule to enter into a Consulting Agreement with ALP substantially in the form attached hereto. The individuals set forth on Section 5.3(h)(ii) of the ALP Disclosure Schedule shall enter into the agreements substantially in the form attached hereto as Exhibits H-1 through H-5. (The agreements referred to in this Section 5.3(h) are hereinafter sometimes referred to collectively as the "Ancillary Agreements.") (i) TERMINATION OF AGREEMENTS. ALP shall cause prior to Closing the termination of, and the waiver or satisfaction of all remaining obligations or liabilities, contingent or otherwise, of ALP under, the agreements or plans listed in Section 5.3(i) of the ALP Disclosure Schedule. (j) CERTAIN TAX MATTERS. (i) For each taxable period of ALP that ends before the Closing Date, the ALP Stockholders shall cause to be timely prepared, submitted to Cardinal for review and filed with the appropriate authorities (with copies provided to Cardinal) all tax returns of ALP and shall cause to be paid by the parties responsible therefor all taxes when due. Cardinal shall cause to be prepared and filed all tax returns for ALP for tax periods not described in the foregoing sentence of this Section 5.3(j)(i) and ALP shall pay all taxes required to be paid for such periods. (ii) The ALP Stockholders, ALP and Cardinal reasonably and in good faith shall cooperate with each other in preparing and filing all tax returns, including maintaining and making available to each other all records necessary in connection with the preparation and filing of such tax returns. (iii) The ALP Stockholders shall be responsible for causing to be filed any amended tax returns of ALP for taxable periods ending prior to the Closing Date which are required as a result of an examination or adjustments made by taxing authorities, and for causing to be paid by the parties responsible therefor when due any taxes resulting therefrom. Any such amended returns shall be furnished to Cardinal for approval (which approval shall not be unreasonably withheld), signature and filing at least ten (10) business days prior to the due date for the filing of such amended returns. -34- 39 (iv) If a claim is made by any taxing authority: (A) For any taxable period ending before the Closing Date, ALP Stockholders shall control the proceedings taken in connection with such claim; and (B) For any taxable period ending on or after the Closing Date, Cardinal shall control the proceedings taken in connection with such claim. Subject to the foregoing clauses (A) and (B), the parties reasonably and in good faith shall cooperate with each other in the contesting of any tax claim, and shall keep each other fully apprised of the status of such claims. Notwithstanding any of the foregoing to the contrary, Cardinal shall not without the prior written approval of the ALP Stockholders Representative (as defined in Section 8.6) (1) agree to an extension of the statute of limitations with respect to any taxable period of ALP ending before the Closing Date or (2) amend any tax return of ALP for any taxable period of ALP ending before the Closing Date. (v) Notwithstanding any other provision of this Agreement to the contrary, as provided in Section 8.2(a), the ALP Stockholders shall jointly and severally indemnify Cardinal and ALP, and hold them harmless from and against, all liability of ALP for federal income taxes and all interest, penalties and other costs and expenses related thereto (including reasonable attorneys' fees) attributable to the failure of ALP to be an "S" corporation within the meaning of Section 1361(a)(1) of the Code at all times during each taxable year included in the period beginning April 1, 1998, and ending on the day before the Closing Date, and for state, local and foreign income or franchise taxes and all interest, penalties and other costs and expenses related thereto (including reasonable attorneys' fees) attributable to any such failure of ALP to be an S corporation under the comparable provisions of the laws of such jurisdictions. (k) INJUNCTIVE RELIEF. ALP acknowledges and agrees that Cardinal's and Subcorp's remedies at law for any violation or attempted violation of any of ALP's obligations under this Article V would be inadequate and incomplete, and agree that in the event of any such violation or attempted violation, Cardinal and Subcorp (or either of them) shall be entitled to a temporary restraining order, temporary and permanent injunctions, and other equitable relief, without the necessity of posting any bond or proving any actual damage, in addition to all other rights and remedies which may be available to Cardinal and Subcorp from time to time. ARTICLE VI. CONDITIONS SECTION 6.1 MUTUAL CONDITIONS. The obligations of the parties hereto to consummate the Merger shall be subject to fulfillment of the following conditions: (a) NO ADVERSE PROCEEDING. No temporary restraining order, preliminary or permanent injunction or other order or decree which prevents the consummation of the Merger -35- 40 shall have been issued and remain in effect, and no statute, rule or regulation shall have been enacted by any Governmental Authority which prevents the consummation of the Merger. (b) HSR ACT. Any applicable waiting periods applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) SECURITIES AND EXCHANGE COMMISSION. On the Closing Date and at the Effective Time, no stop order or similar restraining order shall have been threatened by the Commission or entered by the Commission or any state securities administrator prohibiting the Merger. (d) NO GOVERNMENT ACTION. No Action shall be instituted by any Governmental Authority which seeks to prevent consummation of the Merger or seeking material damages in connection with the transactions contemplated hereby which continues to be outstanding. SECTION 6.2 CONDITIONS TO OBLIGATIONS OF ALP. The obligations of ALP to consummate the Merger and the transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by ALP: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of each of Cardinal and Subcorp set forth in Article III shall be true and correct in all material respects on the date hereof and on and as of the Closing Date as though made on and as of the Closing Date, except that representations and warranties made as of a specified date need be true and correct only as of the specified date and, except that representations and warranties that are qualified by concepts of materiality or Material Adverse Effect shall be true and correct in all respects on the date hereof and on and as of the Closing Date. (b) PERFORMANCE OF AGREEMENT. Each of Cardinal and Subcorp shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by it hereunder at or prior to the Effective Time. (c) CERTIFICATES. Each of Cardinal and Subcorp shall have furnished ALP with a certificate dated the Closing Date signed on behalf of it by the Chairman, President or any Vice President to the effect that the conditions set forth in Sections 6.2(a) and (b) have been satisfied. (d) OPINION OF COUNSEL. ALP shall have received the legal opinion, dated the Closing Date, of Baker & Hostetler LLP substantially in the form attached hereto as EXHIBIT D. (e) NYSE AUTHORIZATION. The Cardinal Common Shares to be issued in the Merger and the transactions contemplated hereby shall have been authorized for inclusion on the NYSE, subject to official notice of issuance. SECTION 6.3 CONDITIONS TO OBLIGATIONS OF CARDINAL AND SUBCORP. The obligations of Cardinal and Subcorp to consummate the Merger and the other transactions contemplated hereby shall be subject to the fulfillment of the following conditions unless waived by each of Cardinal and Subcorp: -36- 41 (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of ALP and the ALP Stockholders set forth in Article IV shall be true and correct in all material respects on the date hereof and on and as of the Closing Date as though made on and as of the Closing Date, except that representations and warranties made as of a specified date need be true and correct only as of the specified date and except that representations and warranties qualified by concepts of materiality or Material Adverse Effect shall be true and correct in all respects on the date hereof and on and as of the Closing Date. (b) PERFORMANCE OF AGREEMENT. ALP and the ALP Stockholders shall have performed in all material respects each obligation and agreement and shall have complied in all material respects with each covenant to be performed and complied with by it hereunder at or prior to the Effective Time. (c) CERTIFICATE. ALP shall have furnished Cardinal with a certificate dated the Closing Date signed on its behalf by its Chairman, President or any Vice President, and each ALP Stockholder shall have furnished Cardinal with a certificate dated the Closing Date, to the effect that the conditions set forth in Sections 6.3(a) and (b) have been satisfied. (d) OPINION OF COUNSEL. Cardinal shall have received the legal opinion, dated the Closing Date, of Schwartz & Freeman, substantially in the form attached hereto as EXHIBIT E. (e) POOLING LETTER. Cardinal shall have received a letter, in form and substance reasonably satisfactory to Cardinal, from Deloitte & Touche LLP dated the date of the Effective Time stating that they concur with management's conclusion that the Merger will qualify as a transaction to be accounted for by Cardinal in accordance with the pooling-of-interests method of accounting under the requirements of APB No. 16. (f) AFFILIATE LETTERS. Each ALP Affiliate shall have executed and delivered to Cardinal an Affiliate Letter in accordance with Section 5.3(e). (g) CONSENTS AND APPROVALS. ALP shall have received all customer, vendor, lessee, licensee, licensor and other third party consents and approvals listed on Section 6.3(g) of the ALP Disclosure Schedule. (h) ESCROW AGREEMENT. ALP, Cardinal, the Escrow Agent and all of the ALP Stockholders shall have executed and delivered the Escrow Agreement. (i) STOCKHOLDERS RELEASE. Each of the ALP Stockholders shall have executed and delivered to Buyer a Release, dated as of the Effective Time, in the form of EXHIBIT F attached hereto. (j) CERTAIN AGREEMENTS. The Ancillary Agreements referenced in Section 5.3(h) of the Agreement shall have been executed and delivered by all the parties thereto, and the Employment Agreements dated the date hereof between ALP and each of Frank N. Leo and Gregory J. Lapkoff (the "Employment Agreements") shall remain in full force and effect according to their terms as of the Closing. -37- 42 (k) TERMINATION OF CERTAIN AGREEMENTS. As of or prior to the Closing, the agreements and plans listed in Section 5.3(i) of the ALP Disclosure Schedule shall have been effectively terminated and all of ALP's obligations and liabilities, contingent or otherwise, thereunder shall have been satisfied or irrevocably waived by the other parties thereto or the participants therein. (l) PROSPECTUS. The Prospectus, including the documents incorporated by reference therein, shall not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (m) WEILER ENGINEERING AGREEMENT. The Agreement between ALP and Weiler Engineering, Inc. ("Weiler Engineering") in the form attached hereto as EXHIBIT G shall have been executed and delivered by the parties thereto on or prior to the Effective Time. (n) NO NOTICE FROM CUSTOMERS. Neither ALP nor any ALP Stockholder shall have received notice from any of ALP's three largest customers (based on net revenue for calendar year 1998) that it has terminated or intends to terminate its relationship with ALP. (o) NET WORTH. The shareholders' equity of ALP as reflected in the July 31, 1999 Interim Statements shall equal or exceed $110,000,000. (p) REAL ESTATE MATTERS. With respect to each parcel of real property owned by ALP, ALP shall have obtained and delivered to Cardinal (i) a title insurance policy in an amount reasonably determined by Cardinal (the "Policy") based on a title commitment for an ALTA Form B Owners Policy of Title Insurance issued by a title insurance company selected by Cardinal, which Policy shall be in form and content satisfactory to Cardinal and (ii) current surveys prepared by a surveyor selected by Cardinal, which surveys (y) shall conform to Minimum Standard Detail Requirements for ALTA/ACSM Title Surveys and (z) shall not disclose any survey defect or encroachment from or onto any of such real property. (q) TERMINATION AND RELEASE. The Termination and Release Agreement dated August 3, 1999, among John Feltes, individually and as trustee, Barbara Feltes, individually and as trustee (collectively, "Feltes"), and ALP (the "Feltes Agreement") pursuant to which Feltes releases all claims against ALP, except as provided in Section 5(b) thereof, shall be in full force and effect, and ALP shall have paid all amounts required to be paid thereunder. (r) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall not have been any change in the assets, liabilities, business, prospects, results of operations or financial condition of ALP which would constitute a Material Adverse Effect or any event, occurrence or development which would have a material adverse effect on the ability of ALP to consummate the transactions contemplated hereby. (s) PLAN AMENDMENT. ALP shall have amended the Automatic Liquid Packaging, Inc. Employees 401(k) Savings Plan (the "ALP Plan") to adopt a non-standardized prototype plan document as an amendment and restatement effective as of January 1, 1997, of the ALP Plan. -38- 43 ARTICLE VII. TERMINATION AND AMENDMENT SECTION 7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval and adoption of this Agreement by the ALP Stockholders: (a) by mutual consent of Cardinal and ALP; (b) by either Cardinal or ALP if any permanent injunction or other order of a court or other competent Governmental Authority preventing the consummation of the Merger shall have become final and nonappealable; (c) by either Cardinal or ALP if the Merger shall not have been consummated before December 31, 1999, unless extended by the Boards of Directors of both Cardinal and ALP (provided that the right to terminate this Agreement under this Section 7.1(c) shall not be available to any party whose failure or whose affiliate's failure to perform any material covenant or obligation under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date); (d) by Cardinal if the Board of Directors of ALP shall withdraw, modify or change the ALP Board Recommendation in a manner adverse to Cardinal, or if the Board of Directors of ALP shall have refused to affirm the ALP Board Recommendation within two business days of any written request from Cardinal; (e) by ALP if the Board of Directors of Cardinal shall withdraw, modify or change its approval of this Agreement and the transactions contemplated hereby in a manner adverse to ALP, or if the Board of Directors of Cardinal shall have refused to affirm such approval within two business days of any written request from ALP; (f) by Cardinal if at any time the representations and warranties of ALP set forth in Section 4.16 shall not be true and correct or Cardinal shall have been advised that the condition set forth in Section 6.3(e) cannot be satisfied. SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement, except for the provisions of this Section 7.2 and Section 9.10, shall become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders. Notwithstanding the foregoing, nothing in this Section 7.2 shall relieve any party to this Agreement of liability for a material breach of any provision of this Agreement. SECTION 7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors; provided, however, that no amendment shall be made which by law requires further approval or authorization by the ALP Stockholders without such further approval or authorization. Notwithstanding the foregoing, this Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. -39- 44 SECTION 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Cardinal (with respect to ALP) and ALP (with respect to Cardinal and Subcorp) by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of such party, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE VIII. INDEMNIFICATION SECTION 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (a) Subject to the limitations set forth in Section 8.3, below, and notwithstanding any investigation conducted at any time with regard thereto by or on behalf of Cardinal or ALP, all representations, warranties, covenants and agreements of ALP or Cardinal in this Agreement and in any other documents executed or delivered by ALP or Cardinal pursuant to this Agreement or in connection with the transactions contemplated by this Agreement (the "Additional Documents") shall survive the execution, delivery and performance of this Agreement and the Additional Documents. All representations and warranties of ALP or Cardinal set forth in this Agreement and in the Additional Documents shall be deemed to have been made again by ALP or Cardinal, as the case may be, at and as of the Effective Time (except for representations and warranties made as of a specified date, which shall be deemed to have been made only as of the specified date). This Section 8.1 shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time or after the termination of this Agreement. (b) As used in this Article VIII, any reference to a representation, warranty or covenant contained in any section of this Agreement shall include the section of the Disclosure Schedule relating to such section. SECTION 8.2 INDEMNIFICATION. (a) Subject to the limitations set forth in Sections 8.3 and 8.8 below, the ALP Stockholders, jointly and severally, shall indemnify and hold harmless Cardinal from and against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments or causes of action, assessments, costs and expenses, including, without limitation, interest, penalties, attorneys' fees, any and all expenses incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, "Damages"), asserted against, resulting to, imposed upon, or incurred or suffered by Cardinal, directly or indirectly, as a result of or arising from (i) any inaccuracy in or breach or nonfulfillment of, or any alleged inaccuracy in or breach or nonfulfillment of, any of the representations, warranties, covenants or agreements made by ALP or any ALP Stockholder in this Agreement or the Additional Documents, whether or not arising out of a third-party claim, or any claim or other occurrence or circumstance that is or was inconsistent with any such representations, warranties, covenants or agreements, (ii) any product -40- 45 shipped or manufactured by, or any services provided by, ALP prior to the Effective Time, (iii) the installation or operation of any machinery or equipment sold by Weiler Engineering to or through ALP (whether used and operated by ALP or sold to third parties) or any engineering or technical support services provided by Weiler Engineering to ALP or any customers of ALP, (iv) any liabilities to any party under the Feltes Agreement (other than liabilities for salary continuation payments expressly provided for therein), or any other liability whatsoever to Feltes (including, without limitation, under the Founding Officers Agreement (as defined in the ALP Disclosure Schedule (collectively, "Feltes Liabilities"), (v) any inaccuracy in or breach of, or any alleged inaccuracy in or breach of, the representation and warranty made by ALP in Section 4.17(g), without regard to any disclosures regarding or limitations on such representation or warranty in any Section of the ALP Disclosure Schedule (collectively, "Controlled Group Liabilities"), and (vi) any liabilities of the type described in Section 5.3(j)(v) (collectively, "Indemnifiable Claims" when used in the context of Cardinal as the Indemnified Party as defined in Section 8.3(c)). (b) Subject to the limitations set forth in Section 8.3 and 8.8, Cardinal hereby covenants and agrees to indemnify and hold harmless the ALP Stockholders, from and after the Effective Time, from and against any and all Damages, asserted against, resulting to, imposed upon, or incurred or suffered by ALP or the ALP Stockholders, directly or indirectly, as a result of or arising from any inaccuracy in or breach or nonfulfillment of, or any alleged inaccuracy in or breach or nonfulfillment of, any of the representations and warranties made by Cardinal in this Agreement (collectively, "Indemnifiable Claims" when used in the context of ALP or the ALP Stockholders as the Indemnified Party). (c) For purposes of this Article VIII, all Damages shall be computed (i) net of any insurance coverage which reduces the Damages that would otherwise be sustained; provided that in all cases the timing of the receipt or realization of insurance proceeds shall be taken into account in determining the amount of reduction of Damages and (ii) net of the present value of the reasonably expected tax savings to the Indemnified Party of the Damages paid or incurred grossed-up by the reasonably expected tax cost of the amount that but for this subparagraph would be received by the Indemnified Party in satisfaction of the Indemnifiable Claim. (d) Cardinal shall be deemed to have suffered Damages arising out of or resulting from the matters referred to in Section 8.2(a) if the same shall be suffered by any parent, subsidiary or affiliate of Cardinal, including, without limitation, the Surviving Corporation after the Effective Time. SECTION 8.3 LIMITATIONS ON INDEMNIFICATION. Rights to indemnification under this Article VIII are subject to the following limitations: (a) Neither Cardinal nor ALP nor the ALP Stockholders shall be entitled to indemnification hereunder with respect to an Indemnifiable Claim (or, if more than one such Indemnifiable Claim is asserted, with respect to all such Indemnifiable Claims) unless the aggregate amount of Damages with respect to such Indemnifiable Claim or Claims exceeds $750,000 (the "Threshold"), in which event Cardinal shall be entitled to indemnification hereunder from the ALP Stockholders and the ALP Stockholders shall be entitled to indemnification from Cardinal for Damages with respect to all Indemnifiable Claims in excess of -41- 46 the Threshold up to the amount equal to fifteen percent (15%) of the Aggregate Consideration (the "Cap"); provided, however, that any Damages with respect to an Indemnifiable Claim arising from any Controlled Group Liability or any Feltes Liability shall not be subject to or applied toward the Threshold and Cardinal shall be entitled to indemnification for the entire amount of said Damages up to the amount of the Cap. In addition, Cardinal's right to indemnification and the ALP Stockholders' responsibility for any Damages relating to any Feltes Liability shall not apply to the Cap until, and then only to the extent that, the amount of Damages arising from the Feltes Liability for which the ALP Stockholders have indemnified Cardinal exceeds an amount equal to five percent (5%) of the Aggregate Consideration. (b) The obligation of indemnity with respect to the representations and warranties set forth in Article III and in Article IV shall terminate on the earlier of (i) the date on which Cardinal's audited financial statements for the first fiscal year ending after the Effective Time are issued and (ii) the first anniversary of the Effective Time. (c) The foregoing provisions of this Section 8.3 notwithstanding, if, prior to the termination of any obligation to indemnify, written notice of a claimed breach or other occurrence or matter giving rise to a claim of indemnification is given by the Party seeking indemnification (the "Indemnified Party") to the Party from whom indemnification is sought (the "Indemnifying Party"), or a suit or action based upon a claimed breach is commenced against the Indemnifying Party, the Indemnified Party shall not be precluded from pursuing such claimed breach, occurrence, other matter, or suit or action, or from recovering from the Indemnifying Party (whether through the courts or otherwise) on the claim, suit or action, by reason of the termination otherwise provided for above. SECTION 8.4 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY CLAIMS. (a) If the Indemnified Party determines to seek indemnification under this Article VIII with respect to Indemnifiable Claims resulting from the assertion of liability by third parties, it shall give notice to the Indemnifying Party within 60 days of the Indemnified Party's becoming aware of any such Indemnifiable Claim, which notice shall set forth such material information with respect to such Indemnifiable Claim as is then reasonably available to the Indemnified Party. If any such liability is asserted against the Indemnified Party and the Indemnified Party notifies the Indemnifying Party of such liability, the Indemnifying Party shall be entitled, if it so elects by written notice delivered to the Indemnified Party within 15 days after receiving the Indemnified Party's notice, to assume the defense of such asserted liability with counsel reasonably satisfactory to the Indemnified Party unless the Indemnifying Party fails to provide reasonable assurance to the Indemnified Party of its financial capacity to assume such defense. If the Indemnifying Party elects to assume the defense of such asserted liability, the claims made by such third party shall be conclusively established as being within the scope of and subject to the indemnification provisions of this Agreement. Notwithstanding the foregoing: (i) the Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be payable by the Indemnified Party; (ii) the Indemnified Party shall not have any obligation to give any notice of any assertion of liability by a third party unless such assertion is in writing; and (iii) the rights of the Indemnified Party to be indemnified in respect of Indemnifiable Claims resulting from the assertion of liability by third parties shall not be adversely affected by its failure to give notice pursuant to the foregoing provisions unless, -42- 47 and, if so, only to the extent that, the Indemnifying Party is materially prejudiced by such failure. With respect to any assertion of liability by a third party that results in an Indemnifiable Claim, the Parties shall make available to each other all relevant information in their possession which is material to any such assertion. (b) In the event that the Indemnifying Party fails to assume the defense of the Indemnified Party against any such Indemnifiable Claim, within 15 days after receipt of the Indemnified Party's notice of such Indemnifiable Claim, the Indemnified Party shall have the right to defend, compromise or settle such Indemnifiable Claim on behalf, for the account, and at the risk of the Indemnifying Party. (c) Notwithstanding anything in this Section 8.4 to the contrary, (i) if there is a reasonable probability that an Indemnifiable Claim may materially and adversely affect the Indemnified Party, its corporate parent, if any, its subsidiaries or affiliates, including, without limitation, the Surviving Corporation after the Effective Time if Cardinal is the Indemnified Party, other than as a result of money damages or other money payments, then the Indemnified Party shall have the right, at the cost and expense of the Indemnifying Party, to defend, compromise or settle such Indemnifiable Claim; and (ii) the Indemnifying Party shall not, without the Indemnified Party's prior written consent, settle or compromise any Indemnifiable Claim or consent to entry of any judgment in respect of any Indemnifiable Claim unless such settlement, compromise or consent (A) includes as an unconditional term the giving by the claimant or the plaintiff to the Indemnified Party (and its corporate parent, if any, its subsidiaries and affiliates including, without limitation, the Surviving Corporation after the Effective Time if Cardinal is the Indemnified Party) a release from all liability in respect of such Indemnifiable Claim and (B) does not include a finding or admission by ALP or Cardinal of any violation of Applicable Laws or any violation of the rights of any person. SECTION 8.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD PARTY CLAIMS. In the event that the Indemnified Party asserts the existence of an Indemnifiable Claim giving rise to Damages (but excluding Indemnifiable Claims resulting from the assertion of liability by third parties, but including a dispute among the parties as to whether a third-party claim is subject to indemnification under this Article VIII), it shall give written notice to the Indemnifying Party specifying the nature and amount of the Indemnifiable Claim asserted. If the Indemnifying Party, within 20 business days after the mailing of such notice by the Indemnified Party, has not given written notice to the Indemnified Party announcing its intent to contest such assertion by the Indemnified Party, such assertion shall be deemed accepted and the amount of Indemnifiable Claim shall be deemed a valid Indemnifiable Claim. In the event, however, that the Indemnifying Party contests the assertion of an Indemnifiable Claim by giving such written notice to the Indemnified Party within such 20-day period, then if the Parties, acting in good faith, cannot reach agreement with respect to such Indemnifiable Claim within 30 business days after receipt by the Indemnified Party of such notice, the contested assertion of the claim shall be referred to arbitration in Columbus, Ohio, in accordance with the then-current rules of the American Arbitration Association. The determination made in accordance with such rules shall be delivered in writing to the Parties and shall be final and binding and conclusive on the Parties and the amount of the Indemnifiable Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each Party shall pay its own legal, accounting and other fees in connection with such a contest; provided that if the contested claim is referred to and ultimately -43- 48 determined by arbitration, the legal, auditing and other fees of the prevailing Party and the fees and expenses of any arbitrator shall be borne by the nonprevailing Party. SECTION 8.6 ALP STOCKHOLDERS REPRESENTATIVE. The ALP Stockholders hereby irrevocably appoint Gerhard H. Weiler (the "ALP Stockholders Representative") to act on behalf of the ALP Stockholders with respect to all matters relating to this Article VIII and the Escrow Agreement, including, without limitation, in considering and certifying the amount of any indemnification hereunder, in communicating with the ALP Stockholders, in appointing a successor Escrow Agent under the Escrow Agreement, in considering and acting with respect to any amendment or termination of this Agreement, and generally in performing all acts expressly required or permitted to be performed by the ALP Stockholders Representative pursuant hereto and pursuant to the Escrow Agreement. Cardinal and the Escrow Agent shall have the right to deal exclusively with the ALP Stockholders Representative with respect to all matters under the Escrow Agreement and neither Cardinal nor the Escrow Agent shall have any liability to any ALP Stockholder for any acts or omissions of the ALP Stockholders Representative, or any acts or omissions taken or not taken by Cardinal or the Escrow Agent at the direction of the ALP Stockholders Representative, including, but not limited to (i) any acts or omissions relating to the voting of any Retained Shares or (ii) the transferring or the failure to transfer any shares or funds released from escrow. Upon any distribution of Cardinal Common Shares or other funds to the ALP Stockholders Representative (or to one or more of the ALP Stockholders upon written instruction of the ALP Stockholders Representative) in accordance with the Agreement, the Escrow Agent and Cardinal shall be deemed to have fully satisfied any and all obligations to the ALP Stockholders under this Agreement and the Escrow Agreement with respect to the amount of such distribution. The ALP Stockholders Representative will have no liability to ALP or the ALP Stockholders with respect to actions taken or omitted to be taken in his capacity as ALP Stockholders Representative, except with respect to any liability resulting primarily from the ALP Stockholders Representative's gross negligence or willful misconduct. The ALP Stockholders Representative shall be entitled to rely upon any directions received from holders (the "Majority Holders") of a majority of the ALP Common Stock. SECTION 8.7 VALUATION OF SHARES RELEASED FROM ESCROW. For purposes of determining the number of Retained Shares which shall be necessary to satisfy an Indemnifiable Claim against the ALP Stockholders, each Escrowed Share (as defined in the Escrow Agreement) shall be deemed to have a value equal to the last reported sale price of Cardinal Common Shares on the New York Stock Exchange on the trading day immediately preceding the Closing Date (subject to equitable adjustment for stock splits, reclassifications, combinations, reorganizations or other similar changes). Indemnifiable Claims against the ALP Stockholders shall be made first against the Retained Shares. After all of the Retained Shares have been used to satisfy such Indemnifiable Claims, Cardinal shall be entitled to make additional Indemnifiable Claims directly against the ALP Stockholders. SECTION 8.8 TERMINATION OF ALP'S WARRANTIES. Notwithstanding any provisions of this Agreement to the contrary: (a) all representations, warranties and covenants made by ALP in this Agreement or the Additional Documents shall terminate as to ALP (but only as to ALP, and not as to the ALP Stockholders) as of the Closing; and (b) after the Closing, ALP shall not have any obligation or liability to any ALP Stockholder as a direct or indirect result of any -44- 49 misrepresentation, breach of covenant or other occurrence or circumstance for which the ALP Stockholders have or may have liability to Cardinal under this Agreement. ARTICLE IX. MISCELLANEOUS SECTION 9.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or dispatched by a nationally recognized overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Cardinal or Subcorp: Cardinal Health, Inc. 7000 Cardinal Place Dublin, Ohio 43017 Attention: General Counsel Telecopy No.: (614) 757-6948 with a copy to: John M. Gherlein, Esq. Baker & Hostetler LLP 3200 National City Center 1900 East Ninth Street Cleveland, Ohio 44114-3485 Telecopy No.: (216) 696-0740 (b) if to ALP: Automatic Liquid Packaging, Inc. 2200 Lake Shore Drive Woodstock, Illinois 60098 Attention: Gerhard H. Weiler Telecopy No.: (815) 338-5504 with a copy to Stuart Duhl, Esq. Schwartz & Freeman 401 North Michigan Avenue, Suite 1900 Chicago, Illinois 60611 Telecopy No.: (312) 222-0818 SECTION 9.2 INTERPRETATION. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The headings and the table of contents contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. For the purposes of any provision of this Agreement, a "Material Adverse Effect" with respect to any party shall mean a material adverse effect on the assets, liabilities, results of operations, prospects or condition (financial or otherwise) of such party and its subsidiaries taken -45- 50 as a whole. For purposes of this Agreement, a "subsidiary" of any person means another person, an amount of the voting securities or other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting securities or interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. For the purposes of this Agreement, the "Knowledge" of ALP shall mean the actual knowledge of facts, matters or circumstances of the officers and directors of ALP, or in the absence of such knowledge, the actual knowledge that such individuals would have had if they had undertaken a reasonable investigation of the fact, matter or circumstance in question. SECTION 9.3 COUNTERPARTS. This Agreement may be executed in counterparts, which together shall constitute one and the same Agreement. The parties may execute more than one copy of the Agreement, each of which shall constitute an original. SECTION 9.4 ENTIRE AGREEMENT. This Agreement (including the documents and the instruments referred to herein), constitutes the entire agreement among the parties and supersede all prior agreements and understandings, agreements or representations by or among the parties, written and oral, with respect to the subject matter hereof and thereof. SECTION 9.5 THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or implied, is intended or shall be construed to create any third party beneficiaries. SECTION 9.6 GOVERNING LAW. Except to the extent that the laws of the jurisdiction of organization of any party hereto, or any other jurisdiction, are mandatorily applicable to the Merger or to matters arising under or in connection with this Agreement, this Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any Ohio state or federal court sitting in the City of Columbus. SECTION 9.7 CONSENT TO JURISDICTION; VENUE. (a) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state courts of Ohio and to the jurisdiction of the United States District Court for the Southern District of Ohio, for the purpose of any action or proceeding arising out of or relating to this Agreement and each of the parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in any Ohio state or federal court sitting in the City of Columbus. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each of the parties hereto irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to the Merger, on behalf of itself or its property, by the personal delivery of copies of such process to such party. Nothing in this Section 9.7 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. SECTION 9.8 SPECIFIC PERFORMANCE. The transactions contemplated by this Agreement are unique. Accordingly, each of the parties acknowledges and agrees that, in -46- 51 addition to all other remedies to which it may be entitled, each of the parties hereto is entitled to a decree of specific performance, provided such party is not in material default hereunder. SECTION 9.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. SECTION 9.10 EXPENSES. Subject to the provisions of Section 7.2, Cardinal shall be responsible for all costs and expenses incurred by Cardinal and Subcorp in connection with this Agreement and the transactions contemplated hereby and ALP, both before and after the Effective Time, shall be responsible for such reasonable costs and expenses incurred by the ALP Stockholders in connection with this Agreement and the transactions contemplated hereby, subject to Section 5.3(b)(xv). -47- 52 [Signature page to Agreement and Plan of Merger.] IN WITNESS WHEREOF, Cardinal, Subcorp, ALP and the ALP Stockholders have signed this Agreement as of the date first written above. CARDINAL HEALTH, INC. By: /s/ John C. Kane ----------------------------------- Name: John C. Kane --------------------------- Title: President and COO --------------------------- FLOWER MERGER CORP. By: /s/ John C. Kane ----------------------------------- Name: John C. Kane --------------------------- Title: President --------------------------- AUTOMATIC LIQUID PACKAGING, INC. By: /s/ Gerhard H. Weiler ----------------------------------- Name: --------------------------- Title: --------------------------- THE ALP STOCKHOLDERS /s/ Gerhard H. Weiler ------------------------------------ Gerhard H. Weiler, as the ALP Stockholders Representative and as Trustee of the Gerhard H. Weiler Dec. of Trust dated 9/3/93 /s/ Patricia Weiler ------------------------------------ Patricia Weiler /s/ Lisa Hoffman ------------------------------------ Lisa Hoffman 53 [Signature page to Agreement and Plan of Merger.] /s/ Amy Weiler ------------------------------------ Amy Weiler /s/ Siegfried Weiler ------------------------------------ Siegfried Weiler /s/ Ruth Weiler ------------------------------------ Ruth Weiler /s/ Kurt A. Weiler ------------------------------------ Kurt A. Weiler, individually and as Trustee of the Kurt A. Weiler Gift Trust /s/ Anita W. Reiche ------------------------------------ Anita W. Reiche, individually and as Trustee of the Anita W. Reiche Gift Trust /s/ Carol J. Zolp ------------------------------------ Carol J. Zolp /s/ Lori Brockrogge ------------------------------------ Lori Brockrogge /s/ Frank N. Leo ------------------------------------ Frank N. Leo /s/ Stanley Nowak ------------------------------------ Stanley Nowak /s/ Arjun Ramrakhyani ------------------------------------ Arjun Ramrakhyani 54 FINAL EXHIBIT A ESCROW AGREEMENT This Escrow Agreement is made and entered into as of _____________ ___, 1999, by and among Cardinal Health, Inc., an Ohio corporation ("Cardinal"), Automatic Liquid Packaging, Inc., an Illinois corporation ("ALP"), Gerhard H. Weiler (the "ALP Stockholders Representative"), Bank One Trust Company, NA, a national banking association, as escrow agent (the "Escrow Agent"), and the undersigned stockholders of ALP ("ALP Stockholders"). PRELIMINARY STATEMENTS: A. Cardinal, ALP, Flower Merger Corp., an Illinois corporation ("Subcorp"), and the ALP Stockholders have entered into an Agreement and Plan of Merger dated as of August ___, 1999 (the "Merger Agreement"), providing for, among other things, Cardinal's acquisition of the businesses operated by ALP through the merger of Subcorp with and into ALP, with ALP as the surviving corporation, in accordance with the terms and conditions of the Merger Agreement. B. Capitalized terms used but not otherwise defined herein shall have the respective meanings given them in the Merger Agreement. C. Pursuant to the Merger Agreement, the ALP Stockholders are obligated to indemnify Cardinal for certain damages. D. To facilitate such indemnification, the Merger Agreement provides for the deposit into escrow of a portion of the Cardinal Common Shares otherwise to be issued to the ALP Stockholders in the Merger in order to secure the indemnification obligations of the ALP Stockholders. E. Cardinal and the ALP Stockholders desire to secure the services of the Escrow Agent, and the Escrow Agent is willing to provide such services, pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: SECTION I APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR 1.1 Appointment of Escrow Agent. The Escrow Agent is hereby appointed, and accepts its appointment and designation as, Escrow Agent pursuant to the terms and conditions of this Agreement. 55 FINAL 1.2 Resignation of Escrow Agent; Appointment of Successor. The Escrow Agent acting at any time hereunder may resign at any time by giving at least 30 days' prior written notice of resignation to Cardinal and the ALP Stockholders Representative, such resignation to be effective on the date specified in such notice. Upon receipt of such notice, Cardinal shall, unless otherwise agreed between Cardinal and the ALP Stockholders Representative, appoint a bank or trust company with a combined capital and surplus of at least $100 million as successor Escrow Agent, by a written instrument delivered to such Escrow Agent and the ALP Stockholders Representative, whereupon such successor Escrow Agent shall succeed to all the rights and obligations of the retiring Escrow Agent as of the effective date of resignation as if originally named herein. Upon such assignment of this Escrow Agreement, the retiring Escrow Agent shall duly transfer and deliver the Escrow Deposit at the time held by the retiring Escrow Agent, provided that, if no successor Escrow Agent shall have been appointed on the effective date of resignation of the resigning Escrow Agent hereunder, the resigning Escrow Agent may pay the Escrow Deposit into a court of competent jurisdiction. SECTION II ESCROW ARRANGEMENTS 2.1 Liability Secured by the Escrow Deposit. This Escrow Agreement has been executed and delivered and the Escrow Account (as defined in Section 2.2(d)) is hereby established to facilitate any indemnification which may be owed to Cardinal pursuant to Article VIII of the Merger Agreement. The Escrow Deposit (as defined below), including any Additional Property (as defined below), deposited into the Escrow Account in respect of such shares (hereinafter referred to collectively as the "Escrowed Amount"), will be available to satisfy claims of Cardinal in accordance with Section 3.1 hereof. 2.2 Delivery of the Escrowed Shares; etc. (a) On the Closing Date, Cardinal shall issue instructions to its transfer agent directing it to issue and deliver to the Escrow Agent certificates bearing any appropriate legends registered in the name of the "Escrow Agent under Escrow Agreement, dated ____________ __, 1999, by and among Cardinal Health, Inc., an Ohio corporation, Automatic Liquid Packaging, Inc., an Illinois corporation, ALP Stockholders Representative, Bank One Trust Company, NA, a national banking association, and the ALP Stockholders," for the applicable number of Cardinal Common Shares determined in accordance with Section 2.1(d) of the Merger Agreement (such Shares, together with any additional Cardinal Common Shares distributed in an extraordinary dividend with respect thereof pursuant to any stock split (or deposited with respect to any such stock split shares), and any cash deposited into the Escrow Account pursuant to Section 2.2(b), collectively, the "Escrowed Shares"). From time to time, Cardinal shall also deliver to the Escrow Agent for deposit into the Escrow Account all Cardinal Common Shares distributed pursuant to any stock dividend, reclassification of shares or other transaction to which such shares may be subject, and any other securities, cash or other property distributed in an extraordinary dividend with respect of the Escrowed Shares (whether by way of liquidation, merger, exchange, spin-off or otherwise), any investments or securities permitted by this Agreement and any interest received thereon (collectively, the "Additional Property"). (The Escrowed Shares, together with the Additional Property, shall constitute the "Escrow Deposit.") From time to time, Cardinal shall also deliver to the Escrow Agent for -2- 56 FINAL prompt distribution to the ALP Stockholders all cash dividends on the Escrowed Shares, such distributions to be made pro rata to the ALP Stockholders in accordance with their respective ownership as reflected on the then current ownership Certificate (as hereinafter defined). Notwithstanding any other provision of this Agreement to the contrary, whenever Escrowed Shares are to be distributed pursuant to this Agreement, except for distributions made pursuant to Section 2.2(b), there shall be distributed to the party entitled to such Escrowed Shares, concurrently with the delivery of such Escrowed Shares, the Additional Property relating thereto. The parties agree that all such distributions of Additional Property and cash dividends made to the ALP Stockholders in respect of such Escrowed Shares, including, without limitation, all such interest and all other income earned on such shares, shall be interest and income of the ALP Stockholders and shall be reported for federal, state and local tax purposes as for the accounts of the ALP Stockholders, pro rata in accordance with their respective ownership as reflected on the then current Ownership Certificate. (b) Subject to applicable state and federal securities laws, each ALP Stockholder, at any time and from time to time during the term of this Agreement, shall have the right to require the ALP Stockholders Representative to sell up to the number of Escrowed Shares owned by such ALP Stockholder as reflected in the Ownership Certificate, and the proceeds of any such sale shall be deposited in and become part of the Escrow Deposit. Upon any such sale, the Escrow Agent shall open a separate subaccount for such ALP Stockholder and the proceeds of such sale shall be reflected on the Ownership Certificate as owned by and allocable to such ALP Stockholder and shall be treated as Escrowed Shares for purposes of this Agreement. As provided in Section 8.7 of the Merger Agreement, for purposes of determining the number of Escrowed Shares which shall be necessary to satisfy an Indemnifiable Claim against the ALP Stockholders, each Escrowed Share is deemed to have a value equal to the last reported sale price of Cardinal Common Shares on the New York Stock Exchange on the trading day immediately preceding the Closing Date. Accordingly, the proceeds from the sale of an Escrowed Share sold pursuant to this Section 2.2(b) shall be deemed to have a value equal to the last reported sale price of a Cardinal Common Share on the New York Stock Exchange on the trading day immediately preceding the Closing Date. For example, if such last reported sale price on the trading day immediately preceding the Closing is $73.00 and an Escrowed Share is sold out of escrow for $83.00, the $83.00 in cash proceeds shall be deemed to have a value of $73.00 for purposes of satisfying an Indemnifiable Claim. Similarly, if Escrowed Shares are sold for $63.00, the $63.00 proceeds shall be deemed to have a value of $73.00 in satisfying any Indemnifiable Claim. Upon receipt of the proceeds of the sale of Escrowed Shares as described above, together with a certified Form W-9 and such other information as the Escrow Agent may reasonably require, the Escrow Agent shall release such Substituted Shares to the ALP Stockholders Representative on behalf of such ALP Stockholder. (c) On the Closing Date, the ALP Stockholders Representative shall deliver to the Escrow Agent a written certificate setting forth the respective ownership interests of each ALP Stockholder with respect to the Escrowed Shares (as the same may be amended from time to time in accordance with the next sentence, the "Ownership Certificate"). The Ownership Certificate may be amended from time to time by written certificate executed by the ALP Stockholders Representative and delivered to the Escrow Agent. -3- 57 FINAL (d) The Escrow Agent shall hold the Escrow Deposit in an escrow account (the "Escrow Account") for the benefit of the ALP Stockholders and Cardinal. The Escrow Deposit shall not be subject to any lien or attachment of any creditor or any party thereto, and shall be used solely for the purposes and subject to the conditions set forth in this Agreement and the Merger Agreement. 2.3 Investment of the Escrow Deposit. Except for the sale of the Escrowed Shares pursuant to Section 2.2(b) and the release of the Escrow Deposit pursuant to Section 3 hereof, the Escrow Agent shall not sell or transfer any of the Escrowed Shares. The Escrow Agent is hereby authorized and directed to invest any cash contained in the Escrow Deposit in the following obligations (collectively, the "Permitted Investments"): (a) obligations of, or fully guaranteed as to timely payment of principal and interest by, the United States of America; (b) such money market funds as are agreed to from time to time by Cardinal and the ALP Stockholders Representative; and (c) certificates of deposit with any bank or trust company organized under the laws of the United States of America or any agency or instrumentality thereof or under the laws of any state thereof which has a combined capital and surplus of at least $100,000,000. Subject to the foregoing limitations, the Escrow Agent shall invest any such cash in accordance with written instructions delivered to it by the ALP Stockholders Representative from time to time. Except as provided above, the Escrow Agent shall have no power or duty to invest the Escrow Deposit or to make substitutions therefor or to sell, transfer or otherwise dispose of investments acquired hereunder. 2.4 Right to Vote the Escrowed Shares. The ALP Stockholders Representative, on behalf of and at the direction of the ALP Stockholders, shall have the right to direct the Escrow Agent in a writing signed by the ALP Stockholders Representative to exercise the voting rights pertaining to all or a portion of the Escrowed Shares that remain in the Escrow Account. The Escrow Agent shall comply with any such directions. In the absence of direction from an ALP Stockholder, the Escrowed Shares allocable to such ALP Stockholder shall not be voted. SECTION III RELEASE OF THE ESCROW DEPOSIT 3.1 Distributions for Indemnification. (a) At any time prior to the earlier of (x) the date on which Cardinal's audited financial statements for the first fiscal year ending after the Effective Time are issued and (y) the first anniversary of the Effective Time (the "Escrow Date"), Cardinal may deliver to the Escrow Agent (with a copy to the ALP Stockholders Representative) a certificate (a "Notice of Claim") (i) stating that Cardinal believes that it may be entitled to indemnification pursuant to Article VIII of the Merger Agreement (an "Indemnification Obligation"), (ii) stating the aggregate amount (the "Claim Amount") of such -4- 58 FINAL Indemnification Obligation (or, in the case of an unliquidated or uncertain Indemnification Obligation, a good faith and reasonable estimate thereof), and (iii) specifying in reasonable detail the nature of such Indemnification Obligation. Any Notice of Claim delivered pursuant to this Section 3.1 with respect to any unliquidated Indemnification Obligation may be supplemented by a later Notice of Claim specifying in greater detail the applicable Claim Amount or any other items set forth therein. Upon delivery of any such Notice of Claim, the Escrow Agent shall, within three business days of receipt thereof, deliver a written notice together with a copy of such Notice of Claim to the ALP Stockholders Representative. (b) If the ALP Stockholders Representative shall object on behalf of the ALP Stockholders to the Indemnification Obligation or the Claim Amount specified in such Notice of Claim, the ALP Stockholders Representative shall, within twenty business days after delivery of the written notice containing a copy of any such Notice of Claim, deliver to the Escrow Agent a certificate (a "Reply Certificate") (x) specifying each such objection, and (y) specifying in reasonable detail the nature and basis for such objection. Within three business days after delivery to the Escrow Agent of a Reply Certificate, the Escrow Agent shall deliver a copy of such Reply Certificate to Cardinal. Cardinal and the ALP Stockholders Representative shall negotiate in good faith for a period of 30 business days after delivery of such Reply Certificate to Cardinal to reach a written resolution of any objections raised in a Reply Certificate. (c) If no Reply Certificate is delivered with respect to any Notice of Claim, then the ALP Stockholders Representative shall be deemed to have delivered a Payment Authorization (as defined below) acknowledging Cardinal's right to receive the Claim Amount specified in such Notice of Claim with respect to the applicable Indemnification Obligation and the Escrow Agent shall transfer to Cardinal a portion of the Escrowed Amount in an amount equal to such Claim Amount, all in accordance with the procedures set forth in Section 3.1(e). (d) If the Escrow Agent receives a Reply Certificate in a timely manner with respect to any Notice of Claim, the Claim Amount referred to in such Notice of Claim shall be held by the Escrow Agent and shall not be released to Cardinal except upon Cardinal's delivery to the Escrow Agent of either (i) joint written instructions signed by an authorized officer of Cardinal and by the ALP Stockholders Representative directing the Escrow Agent to release the Claim Amount (or any other amount mutually agreed upon by such parties) or (ii) a final, non-appealable judgment of the arbitrators in the arbitration proceeding referred to in Section 8.5 of the Merger Agreement relating to the Indemnification Obligation referred to in such Notice of Claim demonstrating that Cardinal is entitled to indemnification for such Claim Amount from the ALP Stockholders pursuant to the Merger Agreement (either of (i) or (ii) being a "Payment Authorization"), at which date the portion of the amount due to Cardinal determined pursuant to (i) or (ii) above shall promptly be paid to Cardinal in accordance with the procedures set forth herein. (e) As soon as practicable following receipt by the Escrow Agent of a Payment Authorization, the Escrow Agent shall pay from the Escrowed Amount to Cardinal as follows, in the following order of priority, to the extent required to make such payment: First, the Escrow Agent shall transfer, deliver and assign to Cardinal such number of Escrowed Shares (excluding cash constituting Escrowed Shares -5- 59 FINAL pursuant to Section 2.2(b)) (rounded up or down to the nearest whole share in the case of the Escrowed Shares that are not cash) as shall have a value equal to the amount required to make or complete such payment, it being understood and agreed that such non-cash Escrowed Shares shall be valued for such purpose as set forth in Section 8.7 of the Merger Agreement, together with the Additional Property related thereto; Second, to the extent of any insufficiency, the Escrow Agent shall utilize any cash not part of the Escrowed Shares included in the Escrowed Amount then held in the Escrow Deposit; and Third, to the extent of any insufficiency, the Escrow Agent shall sell securities or investments included in the Escrowed Amount, other than the Escrowed Shares, then held in the Escrow Deposit for cash and utilize such cash to make up such insufficiency. To the extent the Escrowed Shares allocable to any ALP Stockholder consist of Cardinal Common Shares and cash pursuant to Section 2.2(b), any delivery of Escrowed Shares pursuant to this Section 3.1(e) shall consist first of Cardinal Common Shares and then, if necessary, cash valued as provided in Section 2.2(b). To the extent the Escrow Agent is required to transfer, deliver and assign to Cardinal any Escrowed Shares included in the Escrowed Amount, Cardinal shall assist and cooperate in a reasonable manner with the Escrow Agent to facilitate such transfer, delivery and assignment. In the event the Escrowed Amount shall be insufficient to pay the amount expressly set forth in such Payment Authorization, the Escrow Agent shall deliver to Cardinal the entire remaining Escrowed Amount and then deliver to Cardinal and to the ALP Stockholders Representative a written notification setting forth the amount by which such Payment Authorization exceeds the amount of the Escrowed Amount so paid. (f) To the extent that any payment pursuant to Section 3.1(e) hereof shall be made in cash, the Escrow Agent shall pay all such amount to Cardinal by wire transfer to the bank account or accounts designated by Cardinal to the Escrow Agent in writing not less than one business day prior to the date of such payment. (g) Notwithstanding anything to the contrary in this Agreement, in no event shall Cardinal be entitled to receive any amounts from the Escrow Deposit in excess of the amount of the Escrowed Amount. 3.2 Release upon the Escrow Date. (a) On the Escrow Date, the Escrow Agent shall distribute the Escrow Deposit to the ALP Stockholders and shall terminate the Escrow Account, unless (i) the Escrow Agent shall have received a Notice of Claim from Cardinal prior to the Escrow Date with respect to an indemnification claim (an "Unresolved Claim") for which the Escrow Agent has not received a subsequent Payment Authorization or written notification signed by Cardinal and the ALP Stockholder's Representative, informing the Escrow Agent of the termination or other resolution of such claim or claims (each, a "Claim Termination Notice"). If on the Escrow Date there shall exist any Unresolved Claim, then (i) the Escrow Agent shall retain the Escrow Deposit in the Escrow Account in an amount sufficient for the payment of all Claim Amounts with respect to all such Unresolved Claims (but not in excess of the remainder of -6- 60 FINAL the Escrowed Amount), and (ii) the Escrow Agent shall release to the ALP Stockholders the portion of the Escrow Deposit in the Escrow Account not otherwise retained in accordance with clause (i). For all purposes of this Section 3.2(a), the Escrowed Shares (other than the cash which may be a part thereof) shall be valued as set forth in Section 8.7 of the Merger Agreement. (b) Upon the resolution of any Unresolved Claim, the Escrow Agent shall (A) release any portion of the Escrow Deposit retained in respect of such Unresolved Claim (x) to Cardinal in accordance with any Payment Authorization received by the Escrow Agent in respect of such Unresolved Claim or (y) to the ALP Stockholders in accordance with any Claim Termination Notice received by the Escrow Agent in respect of such Unresolved Claim and, if no other Unresolved Claims remain outstanding, (B) release the remainder of the Escrow Deposit to the ALP Stockholders. For purposes of this Section 3.2(b), the Escrowed Shares shall be valued as set forth in Section 8.7 of the Merger Agreement. (c) Any distribution to the ALP Stockholders pursuant to this Section 3.2 shall be made by the Escrow Agent to the ALP Stockholders based on their respective interests in the Escrowed Shares and the cash and other investments constituting the Escrow Deposit (as reflected in the then most recent version of the Ownership Certificate), subject to any written instructions of the ALP Stockholders Representative (including, without limitation, any instructions as to the liquidation of the Escrow Account (including instructions to sell a number of Escrowed Shares necessary to permit the payment of cash in lieu of fractional Cardinal Common Shares) and/or the transfer of the Escrowed Shares to the transfer agent of Cardinal). No certificate for fractional Cardinal Common Shares shall be distributed to ALP Stockholders. The Escrow Agent shall sign such stock powers or other documents of transfer as are necessary to transfer any remaining Escrowed Shares included within the Escrow Deposit in accordance with such instructions (the "Released Shares"). SECTION IV ESCROW AGENT 4.1 Fees. For its services hereunder, the Escrow Agent shall receive (i) $1,250 upon its receipt of the Escrow Deposit at the Closing (which shall constitute the fee for initiating the transaction and the fee for the first year of the Agreement), (ii) commencing on the first anniversary of the date hereof and then annually thereafter, $2,500 for each calendar year until it has delivered all of the Escrow Deposit pursuant to Section III (prorated for partial years), and (iii) the transaction fees set forth on Schedule 1 attached hereto. The Escrow Agent shall be reimbursed for all reasonable out-of-pocket expenses incurred by the Escrow Agent necessary to perform such services (other than taxes imposed in respect of the receipt of the fees referred to in the preceding sentence). The fees, expenses and reimbursements referred to in the foregoing two sentences shall be paid by Cardinal. 4.2 Responsibilities of Escrow Agent. The Escrow Agent's acceptance of its duties under this Agreement is subject to the following terms and conditions, which the parties hereto agree shall govern and control with respect to its rights, duties, liabilities and immunities: -7- 61 (a) Except as to its due execution and delivery of the Agreement, it makes no representation and has no responsibility as to the validity of this Agreement or of any other instrument referred to herein, or as to the correctness of any statement contained herein, and it shall not be required to inquire as to the performance of any obligation under the Merger Agreement. (b) The Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, receipt or other paper or document, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth of any information therein contained, which it in good faith believes to be genuine and what it purports to be. (c) The Escrow Agent shall not be liable for any error of judgment, or for any act done or step taken or omitted by it in good faith, or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection therewith, except its own gross negligence or misconduct. (d) The Escrow Agent may consult with competent and responsible legal counsel selected by it, and it shall not be liable for any action taken or omitted by it in good faith in accordance with the advice of such counsel. (e) The Escrow Agent shall have no discretion whatsoever with respect to the management, disposition or investment of the Escrow Account and is not a trustee or fiduciary to Cardinal or the ALP Stockholders. Cardinal and the ALP Stockholders Representative acknowledge and agree that all investments made pursuant to this section shall be for the account and risk of Cardinal and the ALP Stockholders and any losses associated with investments shall be borne solely by Cardinal and the ALP Stockholders. (f) Cardinal and the ALP Stockholders agree to jointly and severally indemnify and hold the Escrow Agent and its directors, employees, officers, agents, successors and assigns (collectively, the "Indemnified Parties") harmless from and against any and all losses, claims, damages, liabilities and expenses (collectively, "Damages"), including, without limitation, reasonable costs of investigation and counsel fees and expenses which may be imposed on the Escrow Agent or incurred by it in connection with its acceptance of this appointment as the Escrow Agent hereunder or the performance of its duties hereunder. Such indemnity includes, without limitation, Damages incurred in connection with any litigation (whether at the trial or appellate levels) arising from this Escrow Agreement or involving the subject matter hereof. The indemnification provisions contained in this paragraph are in addition to any other rights any of the Indemnified Parties may have by law or otherwise and shall survive the termination of this Agreement or the resignation or removal of the Escrow Agent. Notwithstanding any provision to the contrary in this Escrow Agreement, Cardinal and the ALP Stockholders shall have no liability to the Indemnified Parties with respect to any Damages that result, directly or indirectly, from the gross negligence or misconduct of the Escrow Agent. Any obligation of the ALP Stockholders pursuant to this Section shall be satisfied only by the deduction from the Escrow Deposit by the ALP Stockholders Representative of the amount of such obligations. -8- 62 FINAL (g) The Escrow Agent shall have no duties or responsibilities except those expressly set forth herein, and it shall not be bound by any modification of this Agreement unless in writing and signed by all parties hereto or their respective successors in interest. (h) The Escrow Agent shall have no responsibility in respect of the validity or sufficiency of this Escrow Agreement or of the terms hereof. The recitals of facts in this Escrow Agreement shall be taken as the statements of Cardinal and the ALP Stockholders, and the Escrow Agent assumes no responsibility for the correctness of the same. (i) The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document reasonably believed by it to be genuine and to have been signed and presented by the proper party or parties. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under this Escrow Agreement, such matter may be deemed conclusively proved and established by a certificate signed by Cardinal and the ALP Stockholders Representative (on behalf of the ALP Stockholders), and such certificate shall be full warranty for any action taken or suffered in good faith under the provisions of this Escrow Agreement. (j) In the event of a dispute between the parties hereto sufficient in the discretion of Escrow Agent to justify its doing so, Escrow Agent shall be entitled at the expense of the Escrow Deposit to tender the Escrow Deposit into the registry or custody of any court of competent jurisdiction, to initiate such legal proceedings at the expense of the Escrow Deposit as it deems appropriate, and thereupon to be discharged from all further duties and liabilities under this Agreement. Any such legal action may be brought in any such court as Escrow Agent shall determine to have jurisdiction over the Escrow Deposit. The filing of any such legal proceedings shall not deprive Escrow Agent of its compensation hereunder earned prior to such filing. (k) Except as specifically set forth above, the Escrow Agent does not have any interest in the Escrow Deposit but is serving as escrow agent only and having only possession thereof. This Section 4.2(k) shall survive notwithstanding any termination of this Agreement or the resignation of the Escrow Agent. SECTION V CERTAIN TRANSACTIONS 5.1 Merger and Other Exchange Transactions. In the event of any consolidation or merger of Cardinal with or into any other corporation or in the event of any other transaction upon which the holders of Cardinal Common Shares are entitled to receive cash, shares of stock, securities or other property in exchange for their Cardinal Common Shares, the Escrow Agent, if and to the extent directed to do so by Cardinal, shall present such Escrowed Shares which are Cardinal Common Shares for such exchange, conversion or otherwise. Any such cash, shares of stock, securities or other property received from such exchange, conversion or otherwise shall be deposited in the Escrow Account and shall be disbursed in accordance with the terms of this Escrow Agreement to Cardinal and/or the ALP Stockholders entitled thereto. -9- 63 FINAL 5.2 Merger, etc. of Cardinal. Nothing contained in this Escrow Agreement shall prevent any merger, liquidation or consolidation of Cardinal with or into another corporation or corporations, or successive consolidations or mergers in which Cardinal or its successor or successors shall be a party or parties, or any sale or other conveyance of all or substantially all of the property of Cardinal to another corporation. SECTION VI MISCELLANEOUS 6.1 ALP Stockholders Representative. The ALP Stockholders, by executing this Agreement, hereby irrevocably appoint the ALP Stockholders Representative to act on behalf of the ALP Stockholders with respect to all matters relating to this Agreement and Article VIII of the Merger Agreement, including without limitation, in considering and certifying the amount of any indemnification hereunder, in communicating with the ALP Stockholders, in appointing a successor Escrow Agent hereunder, in considering and acting with respect to any amendment or termination of this Agreement, and generally in performing all acts expressly required or permitted to be performed by the ALP Stockholders Representative pursuant hereto and pursuant to the Merger Agreement. Cardinal and the Escrow Agent shall have the right to deal exclusively with the ALP Stockholders Representative with respect to all matters under this Agreement and neither Cardinal nor the Escrow Agent shall have any liability to any ALP Stockholders for any acts or omissions of the ALP Stockholders Representative, or any acts or omissions taken or not taken by Cardinal or the Escrow Agent at the direction of the ALP Stockholders Representative, including, but not limited to (i) any acts or omissions relating to the voting of any Escrowed Shares or (ii) the transferring of or the failure to transfer any shares or funds released from escrow. Upon any distribution of Escrowed Shares or other funds to the ALP Stockholders Representative (or to one or more of the ALP Stockholders upon written instruction of the ALP Stockholders Representative) in accordance with this Agreement, the Escrow Agent and Cardinal shall be deemed to have fully satisfied any and all obligations to the ALP Stockholders under this Agreement and the Merger Agreement with respect to the amount of such distribution. The ALP Stockholders Representative agrees to vote the Escrowed Shares based on the directions or instructions of the ALP Stockholders based on their respective ownership interests in the Escrowed Shares reflected in the most recent Ownership Certificate. 6.2 Amendment and Termination. This Agreement may be amended or terminated by the written agreement of the parties hereto, or shall terminate automatically at such time as all securities and funds from the Escrow Deposit have been paid or distributed in accordance with the terms of this Agreement and the Escrow Agent has received all fees as described in Section 4.1 hereto. Notwithstanding the foregoing, all provisions concerning the indemnification of the Escrow Agent shall survive any termination of this Agreement. 6.3 Notices. All notices, requests, demands, letters, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) mailed, certified or registered mail with postage prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax, as follows: -10- 64 FINAL To ALP: Automatic Liquid Packaging, Inc. 2200 Lake Shore Drive Woodstock, Illinois 60098 Attention: Gerhard H. Weiler Telecopy No.:________________ With a copy to: Stuart Duhl, Esq. Schwartz & Freeman 401 North Michigan Avenue, Suite 1900 Chicago, Illinois 60611 Telecopy No.: (312) 222-0818 To Cardinal: Cardinal Health, Inc. 7000 Cardinal Place Dublin, Ohio 43017 Attention: General Counsel Telecopy No.: (614) 757-6948 With a copy to: John M. Gherlein, Esq. Baker & Hostetler LLP 3200 National City Center 1900 East Ninth Street Cleveland, Ohio 44114-3485 Telecopy No.: (216) 696-0740 To the Escrow Agent: Bank One Trust Company, NA Corporate Trust Department 100 East Broad Street, OH1-0181 Columbus, Ohio 43271-0181 Attention: Michael Dockman Telecopy No.: (614) 248-5195 -11- 65 FINAL To the ALP Stockholders Representative: ___________________________________ ___________________________________ ___________________________________ Attention:_________________________ Telecopy No.:______________________ or to such other Person or address as any party shall specify by notice in writing to the party entitled to notice. All such notices, requests, demands, letters, waivers and other communications shall be deemed to have been received (w) if by personal delivery on the day after such delivery, (x) if by certified or registered mail, on the fifth Business Day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered or (z) if by fax, on the next day following the day on which such fax was sent, provided that a copy is also sent by certified, registered or overnight mail. 6.4 Governing Law. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of Ohio. 6.5 Miscellaneous. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The headings in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. This Agreement may be executed in several counterparts, each of which is an original but all of which together shall constitute one instrument. -12- 66 [Signature page to Escrow Agreement.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. CARDINAL HEALTH, INC. By: _____________________________________ Name: _______________________________ Title: ______________________________ FLOWER MERGER CORP. By: _____________________________________ Name: _______________________________ Title: ______________________________ AUTOMATIC LIQUID PACKAGING, INC. By: _____________________________________ Name: _______________________________ Title: ______________________________ BANK ONE TRUST COMPANY, NA By: _____________________________________ Name: _______________________________ Title: ______________________________ THE ALP STOCKHOLDERS __________________________________________ Gerhard H. Weiler, as the ALP Stockholders Representative and as Trustee of the Gerhard H. Weiler Dec. of Trust dated 9/3/93 -13- 67 [Signature page to Escrow Agreement.] __________________________________________ Patricia Weiler __________________________________________ Lisa Hoffman __________________________________________ Amy Weiler __________________________________________ Siegfried Weiler __________________________________________ Ruth Weiler __________________________________________ Kurt A. Weiler, individually and as Trustee of the Kurt A. Weiler Gift Trust __________________________________________ Anita W. Reiche, individually and as Trustee of the Anita W. Reiche Gift Trust __________________________________________ Carol J. Zolp __________________________________________ Lori Brockrogge __________________________________________ Frank N. Leo __________________________________________ Stanley Nowak -14- 68 [Signature page to Escrow Agreement.] __________________________________________ Arjun Ramrakhyan -15- 69 SCHEDULE 1 ESCROW AGENT FEES AND EXPENSES Acceptance Fee: $1,250 Administrative Fee: $2,500 per year Transaction Fees: $ 20 per deposit $ 25 per wire transfer $ 10 per check Sub-Account: $ 250 per sub-account (if applicable) Tax Reporting fee: $ 250 per year (if applicable) Extraordinary Fee: $ 150 per hour; minimum increments of one hour. Out-of-Pocket Expenses: Pass-through The fees quoted in this schedule apply to services ordinarily rendered in administering an escrow account and are subject to reasonable adjustment when the Escrow Agent is called upon to undertake unusual duties or as changes in the law, procedures or the cost of doing business demand. The extraordinary fee rate in effect ($150/hour) will apply at the time services are provided. Unless otherwise agreed upon, the Acceptance Fee and the first year Administration Fee are payable upon the execution of the Agreement whether or not the escrow account is funded. In the event the escrow is not funded, the Acceptance Fee and all related expenses will not be refunded. Annual Administration fees cover a full year in advance, or any part thereof, and thus are nor pro-rated in the year of termination. EX-10.03 3 EXHIBIT 10.03 1 Exhibit 10.03 CARDINAL HEALTH, INC. AMENDED AND RESTATED EQUITY INCENTIVE PLAN SECTION 1 | PURPOSE The purpose of the Cardinal Health, Inc. Equity Incentive Plan (the "Plan") is to assist Cardinal Health, Inc. ("CAH") and its subsidiaries (CAH and its subsidiaries, collectively, the "Company") in attracting and retaining capable employees and directors. The Plan provides for long and short term incentives to employees by encouraging and enabling them to participate in the Company's future prosperity and growth. The Plan provides for equity ownership opportunities and appropriate incentives to better match the interests of employees and directors with those of shareholders. These objectives will be promoted through the granting to employees of equity-based awards (the "awards") in consideration for services to be rendered after the grants. The types of awards will include (i) Incentive Stock Options ("ISOs"), which are intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) options which are not intended to so qualify ("NQSOs") (ISOs and NQSOs are referred to together hereinafter as "Stock Options"); (iii) Restricted Shares; (iv) Performance Shares; (v) Performance Share Units and (vi) Incentive Compensation Restricted Shares. Members of CAH's Board of Directors (the "Board") who do not serve as employees of the Company ("Outside Directors") shall receive NQSOs from the Plan only as provided herein. SECTION 2 | ADMINISTRATION The Plan shall be administered by the Compensation and Personnel Committee (the "Committee") of the Board which shall have the power and authority to grant to eligible employees Stock Options, Restricted Shares, Performance Shares, Performance Share Units and Incentive Compensation Restricted Shares. In particular, the Committee shall have the authority to: (i) select employees of the Company as recipients of awards; (ii) determine the number and type of awards to be granted; (iii) determine the terms and conditions, not inconsistent with the terms hereof, of any award; (iv) adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; (v) interpret the terms and provisions of the Plan and any award granted and any agreements relating thereto; and (vi) take any other actions the Committee considers appropriate in connection with, and otherwise supervise the administration of, the Plan. All decisions made by the Committee pursuant to the provisions hereof shall be made in the Committee's sole discretion and shall be final and binding on all persons. The Committee may designate persons other than its members to carry out its responsibilities under such conditions and limitations as it may set, except to the extent that such delegation is prohibited by law or would cause an award intended to be exempt 2 from the limitation on deductibility under Section 162(m) of the Code, or from the short-swing profit recovery rules of Section 16(b) of the Exchange Act, to fail to be so exempt. SECTION 3 | ELIGIBILITY Employees of the Company and its subsidiaries who are responsible for or contribute to the management, growth and/or profitability of the business of the Company and/or subsidiary, in each case as determined by the Committee, are eligible to be granted awards. The participants under the Plan who are not Outside Directors shall be selected from time to time by the Committee, in its sole discretion, from among those eligible. In addition, Outside Directors are eligible to receive NQSOs as set forth in Section 9 ("Outside Director Options"), and may not receive any other awards under this Plan. Members of the Committee are eligible to receive Outside Director Options. SECTION 4 | SHARES SUBJECT TO PLAN The total number of the Company's common shares, without par value ("Shares"), reserved and available for distribution pursuant to awards (including without limitation Outside Director Options) hereunder ("Available Shares") shall be an amount equal to the sum of (a) 1.5% of the total outstanding Shares as of the last day of the Company's immediately preceding fiscal year, plus (b) the number of Shares available for grant under the Plan as of November 23, 1998, plus (c) any Shares related to awards that, in whole or in part, expire or are unexercised, forfeited, terminated, surrendered, canceled, settled in such a manner that all or some of the Shares covered by an award are not issued to a participant, or returned to the Company in payment of the exercise price or tax withholding obligations in connection with outstanding awards, plus (d) any unused portion of the Shares available under section (a) above for the immediately preceding two fiscal years (but not prior to the Company's fiscal year ending June 30, 1999) as a result of not being made subject to a grant or award in such preceding two fiscal years. Notwithstanding the foregoing, for the Company's fiscal year ending June 30, 1999, the number of total outstanding Shares in section (a), above, shall be calculated as of November 23, 1998, rather than June 30, 1998 (the last day of the immediately preceding fiscal year). No more than fifty(50)% of the Available Shares shall be granted in the form of Restricted Shares, Incentive Compensation Restricted Shares, Performance Shares and Performance Share Units. The Available Shares may consist, in whole or in part, of authorized but unissued Shares, treasury Shares, or previously issued Shares re-acquired by the Company, including Shares purchased on the open market. The maximum number of Shares with respect to which Stock Options, Performance Shares and Performance Share Units may be granted to any single participant during any single fiscal year of the Company shall be 375,000 Shares. The number of Shares with respect to which ISOs may be granted shall not exceed 3,000,000. Any of the Shares delivered upon the assumption of or in substitution for outstanding grants made by a company or division acquired by the Company shall not decrease the number of Shares available for grant under the Plan, except to the extent otherwise provided by applicable law or regulation. 2 3 In the event of any stock dividend, stock split, share combination, corporate separation or division (including, but not limited to, split-up, spin-off, split-off or distribution to CAH shareholders other than a normal cash dividend), or partial or complete liquidation, or any other corporate transaction or event having any effect similar to any of the foregoing, then the aggregate number of Shares reserved for issuance under the Plan, the limitation on the number of Shares available under the Plan for issuance of Restricted Shares, Incentive Compensation Restricted Shares, Performance Shares and Performance Share Units, the limitation on the number of Shares subject to ISOs, the limitations on the number of Shares subject to Stock Options or Performance Shares or Performance Share Units granted to any single participant, the number and exercise price of Shares subject to outstanding Stock Options, the purchase price for Restricted Shares, the financial Performance Goals, if any, of the Shares the subject of a Performance Share or Performance Share Unit award, the number of Shares subject to a Performance Share or Performance Share Unit award or granted by a Restricted Share or Incentive Compensation Restricted Share award, and any other characteristics or terms of the awards or Plan limitations as the Committee shall deem necessary or appropriate to reflect equitably the effects of such changes, shall be appropriately substituted for new shares or adjusted, as determined by the Committee in its discretion. Any such adjustments made to NQSOs shall also be made to Outside Director Options. If any recapitalization, reorganization, reclassification, consolidation, merger of CAH or the Company or any sale of all or substantially all of CAH's or the Company's assets to another person or entity or other transaction which is effected in such a way that holders of Shares are entitled to receive (either directly or upon subsequent liquidation) stock, securities, or assets with respect to or in exchange for Shares (each an "Organic Change") shall occur, in lieu of the Shares issuable upon exercise of a Stock Option or Outside Director Option or pursuant to any other award under the Plan, the Stock Option or Outside Director Option shall thereafter be exercisable for and other awards shall be issuable in such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for the number of Shares immediately theretofore acquirable pursuant to such award had such Organic Change not taken place (whether or not such Stock Option or Outside Director Option is then exercisable or other awards are then vested) after giving effect to any adjustments otherwise required or permitted under this Plan. SECTION 5 | STOCK OPTIONS References to Stock Options in this Section 5 shall not apply to Outside Director Options. Stock Options may be granted alone or in addition to other awards granted under the Plan. Any Stock Options granted under the Plan shall be in such form as the Committee may from time to time approve and the provisions of Stock Option awards need not be the same with respect to each optionee. Stock Options granted under the Plan may be either ISOs or NQSOs. The Committee may grant to any optionee ISOs, NQSOs or both types of Stock Options. 3 4 Anything in the Plan to the contrary notwithstanding, without the consent of the optionee(s) affected, no provision of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code or to disqualify any ISO under such Section 422. Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions not inconsistent with the terms of the Plan as the Committee deems appropriate. Each Stock Option grant shall be evidenced by an agreement executed on behalf of the Company by an officer designated by the Committee and accepted by the optionee. Such agreement shall describe the Stock Options and state that such Stock Options are subject to all the terms and provisions of the Plan and shall contain such other terms and provisions, not inconsistent with the Plan, as the Committee may approve. (a) Exercise Price. The exercise price per Share issuable upon exercise of a Stock Option shall be no less than the fair market value per share on the date the Stock Option is granted; provided, that if the optionee, at the time an ISO is granted, owns stock possessing more than ten (10)% of the total combined voting power of all classes of stock of CAH or any subsidiary, the exercise price shall be at least 110% of the fair market value of the Shares subject to the ISO on the date of grant. Fair market value on the date of grant shall be determined by the Committee in good faith. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years after the date such Stock Option is granted. (c) Exercise of Stock Options. Stock Options shall become exercisable at such time or times and subject to such terms and conditions (including, without limitation, installment or cliff exercise provisions) as shall be determined by the Committee. The Committee shall have the authority, in its discretion, to accelerate the time at which a Stock Option shall be exercisable whenever it may determine that such action is appropriate by reason of changes in applicable tax or other law or other changes in circumstances occurring after the award of such Stock Options. (d) Method of Exercise. Stock Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased. Payment in full of the exercise price shall be paid in cash, or such other instrument as may be permitted in accordance with rules or procedures adopted by the Committee. If approved by the Committee, payment in full or in part may also be made: (i) by delivering Shares already owned by the optionee having a total fair market value on the date of such delivery equal to the option exercise price; (ii) by attestation of ownership of such already-owned Shares in such form as the Committee may prescribe; (iii) by the delivery of cash on the extension of credit by a broker-dealer to whom the optionee has submitted a notice of exercise or an irrevocable election to effect such extension of credit; 4 5 or (iv) by any combination of the foregoing. No Shares shall be transferred until full payment therefor has been made. (e) Transferability of Stock Options. Except as otherwise provided hereunder, Stock Options shall be transferable by the optionee only with prior approval of the Committee and only in compliance with the restrictions imposed under Section 422 of the Code, if applicable. Any attempted transfer without Committee approval shall be null and void. Unless Committee approval of the transfer shall have been obtained, all Stock Options shall be exercisable during the optionee's lifetime only by the optionee or the optionee's legal representative. Without limiting the generality of the foregoing, the Committee may, in the manner established by the Committee, provide for the irrevocable transfer, without payment of consideration, of any Stock Option other than any ISO by an optionee to a member of the optionee's family or to a family entity. In such case, the Stock Option shall be exercisable only by such transferee. For purposes of this provision: (i) an optionee's "family" shall include the optionee's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including through adoptive relationships, and any person sharing the optionee's household (other than a tenant or employee); (ii) a "family entity" shall include a trust in which the foregoing persons have more than fifty percent of the beneficial interest, a foundation in which the foregoing persons (or the optionee) control the management of assets, and any other entity in which the foregoing persons (or the optionee) own more than fifty percent of the voting interests; and (iii) neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by family members (or the optionee) in exchange for an interest in that entity shall be considered to be a transfer for consideration. (f) Termination by Death. If an optionee's employment by or service to the Company terminates by reason of death, then, unless otherwise determined by the Committee within sixty days of such death, each Stock Option held by such optionee shall be exercisable in full from and after, and any unvested portion thereof shall vest upon, the sixtieth day after such death. Each Stock Option held by such optionee may thereafter be exercised by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the stated term of such Stock Option, whichever period is shorter. (g) Termination by Reason of Retirement. If an optionee's employment by or service to the Company terminates by reason of retirement, then, unless otherwise determined by the Committee within sixty days of such retirement, any unexercised portion of the Stock Option will vest in accordance with its terms, and may thereafter be exercised until the earlier of (the "Exercise Period") the fifth anniversary of the date of such retirement or the expiration of the stated term of the Stock Option; PROVIDED, that any vesting that would otherwise occur during the sixty-day period beginning immediately after such retirement shall not occur until the end of such sixty-day period; and PROVIDED, further, that if the optionee has at least fifteen years of service with the Company at the time of retirement, 5 6 the Exercise Period shall last until the expiration of the stated term of the Option. Notwithstanding the foregoing, if the optionee dies after retirement but before the expiration of the Exercise Period, unless otherwise determined by the Committee within 60 days of such death, any unexercised portion of the Stock Option shall be exercisable in full, and any unvested portion thereof shall vest upon, and the Stock Option may be exercised from and after, the sixtieth day after such death, for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the Exercise Period, whichever period is shorter. In the event of termination of employment by reason of retirement, if an ISO is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such ISO shall thereafter be treated as an NQSO. For purposes of the Plan, unless otherwise determined by the Committee within the parameters set forth below, retirement shall mean voluntary termination of employment by a participant from the Company after attaining age fifty-five (55) and having (i) at least ten (10) years of service with the Company, including service with a subsidiary of the Company prior to the time that such subsidiary became a subsidiary of the Company, and (ii) at least five years of continuous service with the Company, excluding service with a subsidiary of the Company prior to the time that such subsidiary became a subsidiary of the Company. The Committee discretion described above shall in no event result in a definition of retirement that is more beneficial to the participant than voluntary termination of employment from the Company after attaining age fifty-five (55) and having at least three (3) years of service with the Company. (h) Other Termination of Employment. If an optionee's employment by or service to the Company terminates for any reason other than death or retirement, any Stock Option held by such optionee which has not vested on such date of termination will automatically terminate on the date of such termination. Unless otherwise determined by the Committee at or after grant or termination, the optionee (or a transferee) will have ninety(90) days (or such other period as the Committee may specify at or after grant or termination) from the date of termination to exercise any and all Stock Options that are then exercisable on the date of termination; provided, however, that if the termination was for Cause, any and all Stock Options held by that optionee may be immediately canceled by the Committee. For purposes of the Plan, "Cause" means on account of any act of fraud or intentional misrepresentation or embezzlement, misappropriation or conversion of assets of the Company or any subsidiary, or the intentional and repeated violation of the written policies or procedures of the Company. (i) Effect of Termination of Optionee on Transferee. Except as otherwise permitted by the Committee in its absolute discretion, no Stock Option held by a transferee of an optionee pursuant to the fourth sentence of Section 5(e) shall remain exercisable for any period of time longer than would otherwise be permitted under Sections 5(f), 5(g) or 5(h) without specification of other periods by the Committee as provided in those Sections. (j) ISO Limitations. To the extent required for "incentive stock option" status under Section 422 of the Code, the aggregate fair market value (determined as of the time of grant) of the Shares with respect to which ISOs are exercisable for the first time by the 6 7 optionee during any calendar year under the Plan and any other stock option plan of the Company and its affiliates, shall not exceed $100,000. SECTION 6 | RESTRICTED SHARES Restricted Shares may be granted alone or in addition to other awards granted under the Plan. Any Restricted Shares granted under the Plan shall be subject to the following restrictions and conditions, and shall contain such additional terms and conditions not inconsistent with the terms of the Plan as the Committee deems appropriate. The provisions of Restricted Share awards need not be the same with respect to each recipient. (a) Price. The purchase price for Restricted Shares shall be any price set by the Committee and may be zero. Payment in full of the purchase price, if any, shall be made in cash, or such other instrument as may be permitted in accordance with rules or procedures adopted by the Committee. If approved by the Committee, payment in full or part may also be made: (i) by delivering Shares already owned by the grantee having a total fair market value on the date of such delivery equal to the Restricted Share price; (ii) by the delivery of cash on the extension of credit by a broker-dealer or an irrevocable election to effect such extension of credit; or (iii) by any combination of the foregoing. (b) Restricted Share Award Agreement. Each Restricted Share grant shall be evidenced by an agreement executed on behalf of the Company by an officer designated by the Committee. Such Restricted Share Award Agreement shall describe the Restricted Shares and state that such Restricted Shares are subject to all the terms and provisions of the Plan and shall contain such other terms and provisions, consistent with the Plan, as the Committee may approve. At the time the Restricted Shares are awarded, the Committee may determine that such Shares shall, after vesting, be further restricted as to transferability or be subject to repurchase by the Company upon occurrence of certain events determined by the Committee, in its sole discretion, and specified in the Restricted Share Award Agreement. Awards of Restricted Shares must be accepted by a grantee thereof within a period of thirty(30) days (or such other period as the Committee may specify at grant) after the award date by executing the Restricted Share Award Agreement and paying the price, if any, required under Section 6(a).The prospective recipient of a Restricted Share award shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such award. (c) Share Restrictions. Subject to the provisions of this Plan and the applicable Restricted Share Award Agreement, during a period set by the Committee commencing with the date of such award and ending on such date as determined by the Committee at grant (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber shares of Restricted Shares awarded under the Plan. In no event shall more than ten(10)% of the Shares authorized for issuance under this Plan (as adjusted as provided in Section 4) be granted in the form of Restricted Shares having a restriction period of less than three(3) years. The Committee shall have the authority, in its 7 8 absolute discretion, to accelerate the time at which any or all of the restrictions shall lapse with respect to any Restricted Shares or to remove any or all restrictions after the grant of such Restricted Shares, provided, however, that such discretion shall be exercised subject to the limitations set forth in the preceding sentence, excluding discretion exercised in connection with a Grantee's termination of employment from the Company. Unless otherwise determined by the Committee at or after grant or termination, if a participant's employment by or service to the Company terminates during the Restriction Period, all Restricted Shares held by such participant still subject to restriction shall be forfeited by the participant. (d) Stock Certificate and Legends. Each participant receiving a Restricted Share award shall be issued a stock certificate in respect of such Restricted Shares. Such certificate shall be registered in the name of such participant. The Committee may require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Shares award, the participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such award. (e) Shareholder Rights. Except as provided in this Section 6, the recipient shall have, with respect to the Restricted Shares covered by any award, all of the rights of a shareholder of the Company, including the right to vote the Shares, and the right to receive any dividends or other distributions, with respect to the Shares, but subject, however, to those restrictions placed on such Shares pursuant to this Plan and as specified by the Committee in the Restricted Share Award Agreement. (f) Expiration of Restriction Period. If and when the Restriction Period expires without a prior forfeiture of the Restricted Shares subject to such Restriction Period, unrestricted certificates for such shares shall be delivered to the participant. SECTION 7 | PERFORMANCE SHARES AND PERFORMANCE SHARE UNITS Subject to the terms and conditions described herein, Performance Shares and Performance Share Units may be granted to eligible participants at any time and from time to time as determined by the Committee. (a) Price. The purchase price for Performance Shares and Performance Share Units shall be zero unless otherwise specified by the Committee. (b) Performance Share Agreement. Subject to the provisions of this Plan, all the terms and conditions of an award of Performance Shares or Performance Share Units shall be determined by the Committee in its discretion. Each Performance Share and Performance Share Unit shall be evidenced by an agreement executed by the recipient of the Performance Share or Performance Share Unit and on behalf of the Company by an officer designated by the Committee. Such Performance Share or Performance Share Unit Award Agreement shall describe the Performance Share or Performance Share Unit and state that such Performance Share or Performance Share Unit is subject to all the terms and 9 provisions of the Plan and shall contain such other terms and provisions, not inconsistent with the Plan, as the Committee may approve. Award of Performance Shares and Performance Share Units must be accepted by a grantee thereof within a period of sixty(60) days (or such other period as the Committee may specify at grant) after the award date by executing the Performance Share or Performance Share Unit Award Agreement, and paying the price, if any, as required under Section 7(a). (c) Performance Periods. Any time period (the "Performance Period") relating to a Performance Share or Performance Share Unit award shall be at least one year in length. No more than two Performance Periods may begin in any one fiscal year of the Company. (d) Performance Goals. Performance Shares and Performance Share Units shall be earned based upon the financial performance of the Company or an operating group of the Company during a Performance Period. As to each Performance Period, within such time as established by Section 162(m) of the Code, the Committee will establish in writing targets for one of the following performance measures of the Company (and/or an operating group of the Company, if applicable) over the Performance Period ("Performance Goals"): (i) earnings, (ii) return on capital, or (iii) any Performance Goal approved by the shareholders of the Company in accordance with Section 162(m) of the Code. The Performance Goals, depending on the extent to which they are satisfied, will determine the number of Performance Shares or Performance Share Units, if any, that will be earned by each participant. Attainment of the Performance Goals will be calculated from the consolidated financial statements of the Company but shall exclude (i) the effects of changes in federal income tax rates, (ii) the effects of unusual, non-recurring and extraordinary items as defined by Generally Accepted Accounting Principles ("GAAP"), and (iii) the cumulative effect of changes in accounting principles in accordance with GAAP. The Performance Goals may vary for different Performance Periods and need not be the same for each participant receiving an award for a Performance Period. The Committee may, in its absolute discretion, subject to the limitations of Section 11, vary the terms and conditions of any Performance Share or Performance Share Unit award, including, without limitation, the Performance Period and Performance Goals, without shareholder approval, as applied to any recipient who is not a "covered employee" with respect to the Company as defined in Section 162(m) of the Code. In the event applicable tax or securities laws change to permit the Committee discretion to alter the governing performance measures as they pertain to covered employees without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. (e) Earning of Performance Shares. Performance Shares shall be issued to each recipient thereof on the later of such time as the Performance Goals are established or the first day of the applicable Performance Period. The number of Performance Shares awarded at such time shall be calculated based upon the assumption that the Performance Goals for the applicable Performance Period will be satisfied to the fullest extent. The Company, or its designated agent, shall hold all Performance Shares issued to recipients prior to completion of the Performance Period. Participants shall be entitled to all dividends and other distributions earned in respect of such Performance Shares; PROVIDED, 9 10 that a Participant's right to any dividends paid in the form of Shares and any extraordinary dividends shall be subject to the same Performance Goals as the Performance Shares with respect to which they are paid or distributed. Participants shall also be entitled to vote their Performance Shares during the period from the initial award date to the final adjustment of the Performance Shares. After the applicable Performance Period shall have ended, the Committee shall certify in writing the extent to which the established Performance Goals have been achieved. Subsequently, the number of Performance Shares, if any, earned by the recipient over the Performance Period shall be determined as a function of the extent to which the Performance Goals for such Performance Period were achieved. If the Performance Goals are not satisfied to the fullest extent, a recipient may earn less than the number of Performance Shares originally awarded, or no Performance Shares at all. In addition, whether or not the Performance Goals are satisfied to the fullest extent, the Committee may exercise negative discretion to reduce the number of Performance Shares or Performance Share Units to be issued if, in the Committee's sole judgment, such negative discretion is appropriate in order to act in the best interest of the Company and its shareholders. The factors to be taken into account by the Committee when exercising negative discretion include, but are not limited to, the achievement of measurable individual performance objectives established by the Committee and communicated to the participant no later than the ninetieth day of the Performance Period, and competitive pay practices. Performance Shares shall be paid in the form of Shares. Unrestricted certificates representing such number of Shares as equals the number of Performance Shares earned under the award shall be delivered to the participant as soon as practicable after the end of the applicable Performance Period. (f) Earning of Performance Share Units. An account documenting Performance Share Units awarded shall be established for each recipient thereof on the later of such time as the Performance Goals are established or the first day of the applicable Performance Period. The number of Performance Share Units credited to a recipient's account at such time shall be calculated based upon the assumption that the Performance Goals for the applicable Performance Period will be satisfied to the fullest extent. After the applicable Performance Period shall have ended, the Committee shall certify in writing the extent to which the established Performance Goals have been achieved. Subsequently, the number of Performance Share Units, if any, earned by the recipient over the Performance Period shall be determined as a function of the extent to which the Performance Goals for such Performance Period were achieved, adjusted, if applicable, in accordance with the negative discretion of the Committee. A recipient may earn less than the number of Performance Share Units originally awarded, or no Performance Share Units at all. Performance Share Units shall be paid in the form of Company check, the amount of which shall be calculated by multiplying the fair market value per Share on the last day of the Performance Period by the number of Performance Share Units, as adjusted pursuant to the last paragraph of Section 4. (g) Termination of Employment or Service Due to Death or at the Request of the Company Without Cause. In the event the employment by or service of a participant is terminated by reason of death, or by the Company without Cause during a Performance Period, unless determined otherwise by the Committee, the participant or his legal 10 11 representative, as applicable, shall receive a prorated payout with respect to the Performance Shares and Performance Share Units relating to such Performance Period. The prorated payout shall be based upon the length of time that the participant held the Performance Shares or Performance Share Units during the Performance Period and the progress toward achievement of the established Performance Goals. Distribution of earned Performance Shares and Performance Share Units, if any, shall be made at the same time payments are made to participants who did not terminate employment during the applicable Performance Period. (h) Termination of Employment or Service for Other Reasons. In the event that a participant's employment or service terminates for any reason other than those reasons set forth in paragraph (g) of this Section 7, all Performance Shares and Performance Share Units shall be forfeited by the participant to the Company, except as otherwise determined by the Committee. (i) Nontransferability. Except as otherwise provided herein, no Performance Share or Performance Share Unit may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Further, a participant's rights under the Plan shall be exercisable during the participant's lifetime only by the participant or the participant's legal representative. SECTION 8 | INCENTIVE COMPENSATION RESTRICTED SHARES Each employee participating in this Plan who also participates in the Company's Management Incentive Plan (the "Incentive Compensation Plan") may be eligible, in the Committee's sole discretion, to elect to receive all or a portion of the annual incentive compensation ("Incentive Compensation") payable to the employee under the Incentive Compensation Plan in the form of Incentive Compensation Restricted Shares. To elect the payout of all or a portion of annual Incentive Compensation in Incentive Compensation Restricted Shares, an employee must complete and submit to the Committee an Incentive Compensation Restricted Shares Election Form after the Committee has determined the factor set forth in Section 8(c)(B) and the vesting schedule of the Incentive Compensation Restricted Shares, but in any event, prior to the date established by the Committee for election of such deferral. The Incentive Compensation Restricted Shares shall be evidenced by an Incentive Compensation Restricted Shares Agreement executed on behalf of the Company by an officer designated by the Committee and accepted by the employee. Such agreement shall describe the Incentive Compensation Restricted Shares and state that such Incentive Compensation Restricted Shares are subject to all terms and provisions, not inconsistent with the Plan, as the Committee may approve. Terms and conditions of Incentive Compensation Restricted Shares shall include the following: (a) Deferral Election. Within such limits as the Committee may establish, any portion of annual Incentive Compensation can be elected for payout in Incentive Compensation Restricted Shares, in a dollar amount or as a percentage of total Incentive Compensation, or as a percentage of total Incentive Compensation with a stated maximum dollar amount. 11 12 (b) Issuance of Incentive Compensation Restricted Shares. Incentive Compensation Restricted Shares will be issued on the same date that cash payouts are made under the Incentive Compensation Plan, based on the fair market value of the Shares on the date of the issuance. (c) Number of Shares. The number of Incentive Compensation Restricted Shares granted to an employee will equal the product of (A) that number of Shares as have an aggregate fair market value equal to the dollar amount of the annual Incentive Compensation to be received in the form of Incentive Compensation Restricted Shares multiplied by (B) a factor greater than or equal to 1.00, but less than or equal to 1.30, as determined by the Committee prior to the date established by the Committee for the deferral election to be made. (d) Termination of Employment Due to Death, Disability or Retirement or at the Request of the Company Without Cause. If the employee's employment is terminated by reason of death, disability or retirement or by the Company without Cause, all of the restrictions applicable to unvested Incentive Compensation Restricted Shares shall be waived and all Incentive Compensation Restricted Shares shall be immediately vested. If the employee's employment is terminated for any other reason, the Incentive Compensation Restricted Shares held by that employee will be forfeited as of the date of such termination; provided, however, that the Committee may, in its sole discretion, provide that such Incentive Compensation Restricted Shares will not so terminate. In such event, such Incentive Compensation Restricted Shares will vest in accordance with the vesting schedule set forth in the Incentive Compensation Restricted Shares Agreement or on such accelerated basis as the Committee may determine at or after grant or termination of employment. (e) Application of Section 6. Except to the extent inconsistent with this Section 8, the provisions of Section 6 and all other provisions of the Plan pertaining to Restricted Shares shall be applicable to Incentive Compensation Restricted Shares. SECTION 9 | OUTSIDE DIRECTOR OPTIONS (a) Administration. Outside Directors shall be eligible to participate in the Plan only as expressly set forth in this Section 9. The Committee shall have no power to determine which Outside Directors will receive Outside Director Options, the amount of such Outside Director Options, or the terms of such Outside Director Options to the extent provided in subsections (b) through (i) below. None of the provisions of Section 5 applicable to Stock Options shall be applicable to Outside Director Options. (b) Eligibility and Grant. Outside Director Options shall be NQSOs. All Outside Director Options shall be evidenced by a written agreement, which shall be dated as of the date on which an Outside Director Option is granted, signed by an officer of the Company authorized by the Committee, and signed by the Outside Director. Such agreement shall describe the Outside Director Options and state that such Outside Director Options are subject to all terms and provisions of the Plan. 12 13 (c) Vesting. All Outside Director Options shall be fully vested on the date of grant. (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 forty-five (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. (e) Exercise Price. The exercise price per Share purchasable under an Outside Director Option shall be equal to the fair market value on the day the Outside Director Option is granted. (f) Maximum Term. Each Outside Director Option shall be exercisable for ten (10) years from the date of grant; provided, however, that in the event an Outside Director's service to the Company is terminated for Cause, each Outside Director Option held by that Outside Director on the date of termination shall be canceled effective as of such termination date. (g) Transferability of Outside Director Options. Except as otherwise provided hereunder, Stock Options shall be transferable by the Outside Director only with prior approval of the Committee. Any attempted transfer without Committee approval shall be null and void. Unless Committee approval of the transfer shall have been obtained, all Outside Director Options shall be exercisable during the Outside Director's lifetime only by the Outside Director or the Outside Director's legal representative. Without limiting the generality of the foregoing, the Committee may, in the manner established by the Committee, provide for the irrevocable transfer, without payment of consideration, of any Outside Director Option by an Outside Director to a member of the Outside Director's family or to a family entity. In such case, the Outside Director Option shall be exercisable only by such transferee. For purposes of this provision: (i) an Outside Director's "family" shall include the Outside Director's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, 13 14 son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including through adoptive relationships, and any person sharing the Outside Director's household (other than a tenant or employee); (ii) and a "family entity" shall include a trust in which the foregoing persons have more than fifty percent of the beneficial interest, a foundation in which the foregoing persons (or the Outside Director) control the management of assets, and any other entity in which the foregoing persons (or the Outside Director) own more than fifty percent of the voting interests; and (iii) neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by family members (or the Outside Director) in exchange for an interest in that entity shall be considered to be a transfer for consideration. (h) Method of Exercise. Outside Director Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased. No Shares shall be transferred until full payment therefor has been made. Payment for exercise of an Outside Director Option may be made (i) in cash, (ii) by delivery of Shares already owned by the Outside Director, (iii) by attestation of ownership of such already-owned Shares, (iv) by delivery of cash on the extension of credit by a broker-dealer to whom the Outside Director has submitted a notice of exercise or an irrevocable election to effect such extension of credit, or (v) by any combination of the foregoing. (i) Termination of Option. Except as otherwise provided herein, if an Outside Director ceases to be a member of the Board for any reason, then all Outside Director Options or any unexercised portion of such Outside Director Options which otherwise are exercisable shall remain exercisable until expiration of the original term of such Outside Director Options. (j) Applicability of Other Provisions to Outside Director Options. Except for Section 5 and except to the extent inconsistent with the provisions of this Section 9, all other terms applicable to Stock Options set forth in other sections of this Plan are applicable to Outside Director Options. SECTION 10 | CHANGE OF CONTROL PROVISIONS (a) Impact of Event. In the event of a "Change of Control" as defined in Section 10(b), the following acceleration, exercisability and valuation provisions shall apply: (i) On the date that such Change of Control is determined to have occurred, any or all Stock Options awarded under this Plan not previously exercisable and vested shall become fully exercisable and vested. (ii) In the event that the employment of an optionee is terminated within two years after a Change of Control for any reason other than because of the optionee's death or retirement or by the Company for Cause, then all Options held by the optionee (or a transferee) that have vested as of immediately before such termination shall remain exercisable until the earlier of the third anniversary of such termination or the expiration of their original term. In the event that the 14 15 employment of an optionee is terminated more than two years after a Change of Control, or within two years after a Change of Control for any reason other than because of the optionee's death or retirement or by the Company for Cause, then the provisions of Section 5(f), (g) and (h) shall govern (as applicable). (iii) The restrictions applicable to any or all Restricted Shares, Incentive Compensation Restricted Shares, Performance Shares and Performance Share Units shall lapse and such shares and awards shall be fully vested. (b) Definition of "Change of Control". For purposes of Section 10(a), a "Change of Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five (25)% or more of either (x) the then outstanding common shares of CAH (the "outstanding CAH Common Shares") or (y) the combined voting power of the then outstanding voting securities of CAH entitled to vote generally in the election of directors (the "Outstanding CAH Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from CAH or any corporation controlled by CAH, (B) any acquisition by CAH or any corporation controlled by CAH, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by CAH or any corporation controlled by CAH or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y) and (z) of subsection (iii) of this Section 10(b); or (ii) individuals who, as of the Effective Date of this Plan, constitute the Board of CAH (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of CAH; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by CAH's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) approval by the shareholders of CAH of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding CAH Common Shares and Outstanding CAH 15 16 Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty (50)% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns CAH or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding CAH Common Shares and Outstanding CAH Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five (25)% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination (including any ownership that existed in the Company or the company being acquired, if any) and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of CAH of a complete liquidation or dissolution of CAH. SECTION 11 | AMENDMENTS AND TERMINATION (a) The Board may amend, alter or discontinue the Plan; provided, however, no amendment, alteration or discontinuation shall be made (i) which would impair the rights of an optionee, participant or transferee pursuant to Section 5(e) under any award theretofore granted, without the optionee's, participant's or transferee's consent, except for amendments made to cause the Plan or such award to comply with applicable law, stock exchange rules or accounting rules, or (ii) without the approval of CAH's shareholders to the extent such approval is required by applicable law, regulation or stock exchange rule. The Committee may amend the terms of any award theretofore granted (except an Outside Director Option), prospectively or retroactively; provided no such amendment shall impair the rights of any holder without the holder's consent, unless it is made to cause the Plan or such award to comply with applicable law, stock exchange rules or accounting rules,; provided, further, no Stock Option may be amended so as to decrease the exercise price of such Stock Option to reflect a decrease in the fair market value of the underlying stock. 16 17 Subject to the above provisions, the Board shall have authority to amend the Plan to take into account changes in applicable tax and securities laws and accounting rules, as well as other developments. SECTION 12 | UNFUNDED STATUS OF PLAN The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments or deliveries of Shares not yet made by the Company to a participant, optionee or transferee, nothing contained herein shall give any such participant, optionee or transferee any rights that are greater than those of a general creditor of the Company. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Shares or payments hereunder consistent with the foregoing. SECTION 13 | GENERAL PROVISIONS (a) Share Transfer and Distribution. The Committee may require each person purchasing Shares pursuant to a Stock Option, Outside Director Option, Performance Share, Restricted Share or Incentive Compensation Restricted Share award under the Plan to represent to and agree with the Company in writing that the optionee or participant is acquiring the Shares without a view to the distribution thereof. Any certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All Shares or other securities delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any certificates evidencing such Shares to make appropriate reference to such restrictions. The Company shall not be required to deliver any Shares or other securities under the Plan prior to such registration or other qualification of such Shares or other securities under any state or federal law, rule or regulation as the Committee shall determine to be necessary or advisable. (b) Additional Arrangements. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements for its employees, consultants or Outside Directors. (c) No Right to Award or Employment. No person shall have any claim or right to be granted an award under this Plan and the grant of an award shall not confer upon any participant any right to be retained as an employee or director of CAH or any subsidiary, nor shall it interfere in any way with the right of CAH or any subsidiary to terminate the employment or service as a director of any of the Plan's participants at any time. 17 18 (d) Tax Withholding. The Company shall have the right to require the grantee of Restricted Shares, Incentive Compensation Restricted Shares, Performance Shares or Performance Share Units or other person receiving such Shares to pay the Company the amount of any taxes which the Company is required to withhold with respect to such Shares or, in lieu thereof, to retain, or sell without notice, a sufficient number of Shares held by it to cover the amount required to be withheld. The Company shall have the right to deduct from all dividends paid with respect to Restricted Shares, Incentive Compensation Restricted Shares, and Performance Shares the amount of any taxes which the Company is required to withhold with respect to such dividend payments. The Company shall also have the right to require an optionee to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the receipt by the optionee of Shares pursuant to the exercise of a Stock Option, or, in lieu thereof, to retain, or sell without notice, a number of Shares sufficient to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Shares, the amount withheld shall not exceed the minimum required by applicable law and regulations. (e) Beneficiaries. The Committee shall establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant's death are to be paid. (f) Laws Governing. The Plan and all awards made and action taken thereunder shall be governed by and construed in accordance with the laws of the State of Ohio, except to the extent superseded by federal law. (g) Government Regulation. Notwithstanding any provisions of the Plan or any agreement made pursuant to the Plan, the Company's obligations under the Plan and such agreement shall be subject to all applicable laws, rules and regulations and to such approvals as may be required by any governmental or regulatory agencies. SECTION 14 | EFFECTIVE DATE OF AMENDMENTS TO PLAN The amendments incorporated into the Plan hereby shall apply to grants made hereunder on or after August 11, 1999 (the "Effective Date"). SECTION 15 | TERM OF PLAN No award shall be granted pursuant to the Plan on or after November 14, 2005, but awards granted prior to such date may extend beyond that date. SECTION 16 | INDEMNIFICATION No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any award granted under the Plan. Each 18 19 person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under or in connection with this Plan or any award granted under this Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him, except a judgment based upon a finding of bad faith, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company's Articles of Incorporation or Code of Regulations, contained in any indemnification agreements, as a matter of law, or otherwise, or any power that the Company may have to indemnify him or hold him harmless. SECTION 17 | SAVINGS CLAUSE In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed so as to foster the intent of this Plan. This Plan is intended to comply in all respects with applicable law and regulation, including Code Section 422. In case any one or more of the provisions of this Plan (other than Section 10) shall be held to violate Code Section 422, then to the extent permissible by law, any provision which could be deemed to violate Code Section 422 shall first be construed, interpreted, or revised retroactively to permit the Plan to be in compliance with Code Section 422. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to participants who are subject to Section 16 of the Exchange Act, or covered employees as defined under Code Section 162(m) without so restricting, limiting or conditioning this Plan with respect to other participants. SECTION 18 | AWARDS TO PARTICIPANTS OUTSIDE OF UNITED STATES The Committee may modify the terms of any award under the Plan granted to a participant who, at the time of grant or during the term of the award, is resident or employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order to accommodate differences in local law, regulation, tax policy or custom, or so that the value and other benefits of the award to the participant, as affected by foreign tax laws and other restrictions applicable as a result of the participant's residence or employment abroad, will be comparable to the value of such an award to a participant who is resident or employed in the United States. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, 19 20 this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose, provided that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval of the shareholders of CAH. 20 EX-10.04 4 EXHIBIT 10.04 1 Exhibit 10.04 FORM OF CARDINAL HEALTH, INC. NONQUALIFIED STOCK OPTION AGREEMENT Grant Date: Grant vesting date: Grant expiration date: Grant Price: Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to [employee name] ("Grantee"), an option (the "Option") to purchase [# of shares] (the "Shares") of common stock in the Company for a total purchase price of [# of shares *stock price], (i.e., the equivalent of [stock price] for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan (the "Plan") and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. This option shall be exercisable at any time on or after and prior to . CARDINAL HEALTH, INC. By:__________________ Robert D. Walter Chairman and CEO 1 2 1. Method of Exercise. At any time when the Option is exercisable under the Plan and this agreement, the Option shall be exercisable from time to time by written notice to the Company which shall: (a) state that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and his address and social security number; (b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and (c) contain such representations and agreements with respect to the investment intent of such person or persons in form and substance satisfactory to counsel for the Company. 2. Payment of Price. The full exercise price for the Option shall be paid to the Company as provided in the Plan. 3. Transferability. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), or (c), above, with respect to the original Grantee. The Committee may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within ten days of any transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of termination of employment of the Grantee provided in item 4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and 2 3 for the periods, specified in item 4. The Company shall have no obligation to notify any transferee of the Grantee's termination of employment with the Company for any reason. The conduct prohibited of Grantee in items 6 and 7 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Grantee shall remain subject to the recoupment provisions of items 6 and 7 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. 4. Termination of Relationship. (a) Termination by Death. If the Grantee's employment by the Company and its subsidiaries (collectively, the "Cardinal Group") terminates by reason of death, then, unless otherwise determined by the Committee within sixty days of such death, any unexercised portion of the Option shall be exercisable in full from and after and any unvested portion thereof shall vest upon, the sixtieth day after such death. The Option may thereafter be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) Termination by Reason of Retirement. If the Grantee's employment by the Cardinal Group terminates by reason of retirement (as defined in the Plan), then, unless otherwise determined by the Committee within sixty days of such retirement, any unexercised portion of the Option will vest in accordance with the terms indicated on the first page of this agreement and may thereafter be exercised by the Grantee (or any transferee, if applicable) until the earlier of (the "Exercise Period") the fifth anniversary of the date of such retirement or the expiration of the stated term of the Option; provided, that any vesting that would otherwise occur during the sixty-day period beginning immediately after such retirement shall not occur until the end of such sixty-day period. If the Grantee has at least fifteen years of service with the Cardinal Group at the time of retirement, the Option may thereafter be exercised by the Grantee (or any transferee, if applicable) until the expiration of the stated term of the Option. Notwithstanding the foregoing, if the Grantee dies after retirement but before the expiration of the Exercise Period, unless otherwise determined by the Committee within 60 days of such death, any unexercised portion of the Option shall be exercisable in full, and any unvested portion thereof shall vest upon, and the Option may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee from and after, the sixtieth day after such death for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the Exercise Period, whichever period is shorter. 3 4 (c) Other Termination of Employment. If the Grantee's employment by the Cardinal Group terminates for any reason other than death or retirement (subject to Section 10 of the Plan regarding acceleration of the vesting of the Option upon a Change of Control), any unexercised portion of the Option which has not vested on such date of termination will automatically terminate on the date of such termination. Unless otherwise determined by the Committee at or after grant or termination, the Grantee (or any transferee, if applicable) will have ninety days (or such other period as the Committee may specify at or after grant or termination) from the date of termination or until the expiration of the stated term of the Option, whichever period is shorter, to exercise any portion of the Option that is then exercisable on the date of termination; provided, however, that if the termination was for Cause, the Option may be immediately canceled by the Committee (whether then held by Grantee or any transferee). 5. Restrictions on Exercise. The Option is subject to all restrictions in this agreement or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make any representation and warranty to comply with any applicable law or regulation or to confirm any factual matters (including Grantee's compliance with the terms of items 6 and 7 of this agreement or any employment or severance agreement between any member of the Cardinal Group and the Grantee) reasonably requested by the Company. 6. Triggering Conduct/Competitor Triggering Conduct. As used in this agreement, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties assigned by the Cardinal Group any confidential information or material concerning the Cardinal Group; violation of Company policies, including conduct which would constitute a breach of the then-most recent version of the Certificate of Compliance with Company Policies signed by the Grantee; directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the previous twelve months an employee, representative, officer, or director of the Cardinal Group; and breaching any provision of any employment or severance agreement with a member of the Cardinal Group. As used herein, "Competitor Triggering Conduct" shall include accepting employment with or serving as a consultant, advisor, or in any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor") either during or within one year following Grantee's termination of employment with the Cardinal Group ("Competitor Triggering Conduct"). The Committee shall resolve in good faith any disputes concerning whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, and any such determination by the Committee shall be conclusive and binding on all interested persons. 7. Special Forfeiture/Repayment Rules. For so long as Grantee continues as an employee with the Cardinal Group and for three years following Grantee's termination of employment with the Cardinal Group, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in such Triggering conduct or in Competitor Triggering 4 5 Conduct during such time, then: (a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and (b) the Grantee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of employment with the Cardinal Group. The Grantee may be released from Grantee's obligations under this item 7 only if the Committee (or its duly appointed agent) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this item 7 constitutes a so-called "noncompete" covenant. However, this item 7 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this item 7 and the Grantee's continuing obligations contained herein. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. Grantee acknowledges and agrees that the provisions contained in this item 7 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of employment, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this item 7. 8. Right of Set-Off. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as wages, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. 9. Governing Law/Venue. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal 5 6 jurisdiction of such courts. Grantee acknowledges that the covenants contained in items 6 and 7 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of item 6 or 7 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Company hereunder or by law. In the event that it becomes necessary for the Company to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. 10. Prompt Acceptance of Agreement. The Option grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by the Grantee and returned to the Company within sixty days of the Grant Date set forth on the first page of this agreement. 6 7 ACCEPTANCE OF AGREEMENT The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is provided with this agreement, and represents that he is familiar with all provisions of the Plan; and (b) accepts this agreement and the Option granted to him under this agreement subject to all provisions of the Plan and this agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated August 11, 1999 pertaining to the Plan. -------------------------------- Signature -------------------------------- Print Name -------------------------------- Grantee's Social Security Number -------------------------------- Date 7 EX-10.05 5 EXHIBIT 10.05 1 Exhibit 10.05 FORM OF RESTRICTED SHARES AGREEMENT Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to _________________ (the "Grantee"), ______ Common Shares in the Company (the "Restricted Shares"). The Restricted Shares have been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan (the "Plan") and shall be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. 1. Vesting. The Restricted Shares shall vest in accordance with the following schedule (which dates shall be "Vesting Date(s)"): Vesting Date % of Restricted Shares ------------ ---------------------- % % % ---- Total 100% 2. Purchase Price. The purchase price of the Restricted Shares shall be $-0-. 3. Transferability. Prior to the applicable Vesting Date(s) (the "Restriction Period"), the Grantee shall not be permitted to sell, transfer, pledge, assign or otherwise encumber the Restricted Shares, except as otherwise provided in Section 4 of this agreement. The Restricted Shares will be held by the Company; provided, however, that the Company will deliver certificates representing these Restricted Shares which have fully vested to the Grantee within a reasonable time after being requested in writing to do so. 4. Termination of Service. Unless otherwise determined by the Committee at or after grant or termination, and except as set forth below, if the Grantee's Continuous Service to the Company and its subsidiaries (collectively, the "Cardinal Group") terminates during the Restriction Period, all of the Restricted Shares that have not vested shall be forfeited by the Grantee. If the Grantee's Continuous Service terminates prior to the vesting of all of the Restricted Shares by reason of the Grantee's death or total or partial disability, then the restrictions with respect to a ratable portion of the Restricted Shares shall lapse and such shares shall not be forfeited. Such ratable portion shall be determined with respect to each separate award of Restricted Shares and shall be an amount equal to (i) the number of Restricted Shares awarded to the Grantee multiplied by the portion of the Restriction Period that has expired at the date of the Grantee's death or total or partial disability, reduced by (ii) the number of Restricted Shares awarded with respect to which the restrictions had lapsed as of the date of the death or total or partial disability of the Grantee. For purposes of this agreement, the term "Continuous Service" shall mean the absence of any interruption or termination of service as an employee or director of any entity within the Cardinal Group. 5. Triggering Conduct/Competitor Triggering Conduct. As used in this agreement, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties assigned by the Cardinal Group any confidential information or material concerning the Cardinal Group; violation of Company policies, including conduct which would constitute a breach of the then-most recent version of the Certificate of Compliance with Company Policies signed by the Grantee; directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any 2 person who was or is at any time during the previous twelve months an employee, representative, officer, or director of the Cardinal Group; and breaching any provision of any employment or severance agreement with a member of the Cardinal Group. As used herein, "Competitor Triggering Conduct" shall include accepting employment with or serving as a consultant, advisor, or in any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor") either during or within one year following Grantee's termination of employment with the Cardinal Group ("Competitor Triggering Conduct"). The Committee shall resolve in good faith any disputes concerning whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, and any such determination by the Committee shall be conclusive and binding on all interested persons. 6. Special Forfeiture/Repayment Rules. For so long as Grantee continues as an employee with the Cardinal Group and for three years following Grantee's termination of employment with the Cardinal Group, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in such Triggering conduct or in Competitor Triggering Conduct during such time, then: (a) the Restricted Shares (or any part thereof that have not vested) shall immediately and automatically terminate, be forfeited, and shall cease to vest at any time; and (b) the Grantee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to the gross gain realized or obtained by the Grantee resulting from the vesting of such Restricted Shares, measured at the date of vesting (i.e., the market value of the Restricted Shares on the vesting date), with respect to any portion of the Restricted Shares that has already vested at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of employment with the Cardinal Group. The Grantee may be released from Grantee's obligations under this item 6 only if the Committee (or its duly appointed agent) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this item 6 constitutes a so-called "noncompete" covenant. However, this item 6 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this item 6 and the Grantee's continuing obligations contained herein. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. Grantee acknowledges and agrees that the provisions contained in this item 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Restricted Shares, in consideration of employment, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Restricted Shares and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Restricted Shares to Grantee without including this item 6. 7. Right of Set-Off. By accepting these Restricted Shares, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as wages, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. 8. Shareholder Rights and Restrictions. Except with regard to the disposition of Restricted Shares, the Grantee shall generally have all rights of a shareholder with respect to the Restricted Shares 2 3 from the date of grant, including, without limitation, the right to receive dividends with respect to such Restricted Shares and the right to vote such Restricted Shares, but subject, however, to those restrictions in this agreement or in the Plan. 9. Withholding Tax. The Company shall have the right to require the Grantee to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Shares (including the amount of any taxes which the Company is required to withhold with respect to dividends on the Restricted Shares) or, in lieu thereof, to retain, or sell without notice, a sufficient number of Restricted Shares to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Restricted Shares, the amount withheld shall not exceed the minimum required by applicable law and regulations. 10. Governing Law/Venue. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in items 5 and 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of item 5 or 6 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Company hereunder or by law. In the event that it becomes necessary for the Company to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. 11. Prompt Acceptance of Agreement. The Restricted Shares grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by the Grantee and returned to the Company within sixty days of the Grant Date set forth below. CARDINAL HEALTH, INC. DATE OF GRANT: _________________ By:________________________________ Steven Alan Bennett Executive Vice President 3 4 ACCEPTANCE OF AGREEMENT The Grantee hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 11, 1999, pertaining to the Plan; (b) accepts this Agreement and the Restricted Shares granted to him under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Shares for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Shares either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Restricted Shares shall be made unless the Restricted Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration: ________________________________ Grantee's Signature ________________________________ Grantee's Social Security Number ________________________________ Date 4 EX-10.06 6 EXHIBIT 10.06 1 Exhibit 10.06 DIRECTORS' STOCK OPTION AGREEMENT Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to [[Board_Member]] (the "Grantee"), an option (the "Option") to purchase 1,440 Common Shares, without par value (the "Shares"), of the Company for a total purchase price (the "Option Price") of $_______________ (i.e., the equivalent of $__.__ for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan (the "Plan") and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. Section 1. Method of Exercise. At any time when the Option is exercisable under the Plan, the Option shall be exercisable from time to time by written notice to the Company (the date such notice is received by the Company, the "Exercise Date") which shall: (a) state that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and his or her address and social security number; (b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and (c) contain such representations, warranties and agreements with respect to the investment intent of such person or persons in form and substance satisfactory to counsel for the Company. Section 2. Payment of Exercise Price. The full exercise price for the Option shall be paid to the Company: (i) in cash, (ii) by delivery of Shares with a fair market value equal to the total exercise price at the time of exercise, (iii) by attestation of ownership of such already-owned Shares, (iv) by delivery of cash on the extension of credit by a broker-dealer to whom the Grantee (or other person authorized to exercise the Option) has submitted a notice of exercise or an irrevocable election to effect such extension of credit, or (v) by a combination of the preceding methods. Any Shares delivered or attested to in payment of an exercise price shall be valued as of the Exercise Date. Section 3. Transferability. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, 1 2 stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), or (c), above, with respect to the original Grantee. The Committee may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Upon transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of Grantee's termination from the Board of Directors of the Company (the "Board") provided in Section 4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in Section 4. The conduct prohibited of Grantee in Section 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Company shall have no obligation to notify any transferee of the Option of the Grantee's termination as a member of the Board for any reason. The Grantee shall remain subject to the recoupment provisions of Section 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. Section 4. Termination of Relationship. If a Grantee ceases to be a member of the Board for any reason, then all Options or any unexercised portion of such Options which otherwise are exercisable by such Grantee (or any transferee) shall remain exercisable until expiration of the original term of such Option. Section 5. Termination for Cause. Notwithstanding any provision to the contrary in the Plan or in this agreement, upon the discharge of the Grantee as a director of the Company for Cause, (as defined in the Plan), all unexercised Options awarded to such Grantee (whether then held by Grantee or any transferee) shall immediately lapse and be of no further force or effect. Section 6. Special Forfeiture/Repayment Rules. If Grantee engages in certain "Triggering Conduct" (defined below), then: (a) the Option (or any part thereof that has not been exercised) shall immediately terminate, be forfeited, and shall cease to be exercisable; and (b) the Grantee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., 2 3 the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"). If the only Triggering Conduct is Competitor Triggering Conduct (as defined below), then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of service as a Director of the Company. As used herein, "Triggering Conduct" shall include activity in competition with or inimical, contrary, or harmful to the interests of the Company, including, but not limited to the following: disclosing or misusing any confidential information or material concerning the Company; violation of Company policies, including conduct which would constitute a breach of the then-most recent version of the Certificate of Compliance with Company Policies signed by the Grantee; accepting employment with or serving as a consultant, advisor, or any other capacity to an entity that is in competition (a "Competitor") with the business conducted by the Company or any of its subsidiaries (collectively, the "Cardinal Group") either during or within one year following Grantee's termination of service as a Director of the Company ("Competitor Triggering Conduct"); directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the previous twelve months an employee, representative, officer, or director of the Cardinal Group; and breaching any provision of any benefit or severance agreement with a member of the Cardinal Group. The Committee shall resolve in good faith any disputes concerning whether particular conduct constitutes Triggering Conduct, and any such determination by the Committee shall be conclusive and binding on all interested persons. The Grantee may be released from Grantee's obligations under this Section 6 only if the Committee (or its duly appointed agent) determines, in its sole discretion, that such action is in the best interests of the Company. Nothing in this Section 6 constitutes a so-called "noncompete" covenant. However, this Section 6 does prohibit certain conduct while Grantee is associated with the Company and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this Section 6 and of the Grantee's continuing obligations contained herein. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. Grantee acknowledges and agrees that the provisions contained in this Section 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this Section 6. Section 7. Right of Set-Off. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the 3 4 Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as Director fees, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. Section 8. Restrictions on Exercise. The Option is subject to all restrictions in this agreement or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make such representation and warranties and to enter into such agreements as are necessary to comply with any applicable law or regulation or to confirm any factual matters reasonably requested by counsel for the Company. Section 9. Governing Law/Venue. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. Section 10. Prompt Acceptance of Agreement. The Option grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by the Grantee and returned to the Company within forty-five days of the Grant Date set forth below. CARDINAL HEALTH, INC. DATE OF GRANT:____________________ By: _________________________________ 4 5 ACCEPTANCE OF AGREEMENT The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is attached to this Agreement, and represents that he/she is familiar with all provisions of the Plan; and (b) accepts this Agreement and the Option granted to him/her under this Agreement subject to all provisions of the Plan and this Agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report to Shareholders and communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated August 11, 1999, pertaining to the Plan. _____________________________________ Grantee _____________________________________ Social Security Number 5 EX-10.18 7 EXHIBIT 10.18 1 Exhibit 10.18 RESIGNATION AND RELEASE AGREEMENT AGREEMENT (the "Agreement"), dated as of June 30, 1999, by and between Cardinal Health, Inc., an Ohio corporation (the "Company"), Allegiance Corporation, a Delaware corporation ("Allegiance"), and Lester B. Knight (the "Executive"). WHEREAS, the Executive has been employed as Vice-Chairman of the Company and has been serving as a member of the board of directors of the Company; and WHEREAS, the Executive and Allegiance are parties to the Agreement under Allegiance Change in Control Plan dated as of October 1, 1996 (the "Initial Agreement"), as amended by the Amendment to Change in Control Severance Agreement (the "Amendment Agreement") among Executive, Allegiance and the Company dated as of October 8, 1998 (the Initial Agreement, as amended by the Amendment Agreement, the "Amended Severance Agreement"); WHEREAS, by mutual agreement between the Company and the Executive, the Executive shall hereby resign, effective as of June 30, 1999, his positions as Vice-Chairman of the Company, as a member of the board of directors of the Company and as an officer and director of any subsidiary or affiliate of the Company for which HE is serving in such positions. NOW, THEREFORE, BE IT RESOLVED, that the Company and the Executive, in consideration of the covenants herein set forth, hereby agree as follows: 1 2 1. DEFINITIONS Capitalized terms not defined herein shall have the meaning set forth in the Amended Severance Agreement. 2. RESIGNATION FROM POSITIONS; CONTINUED EMPLOYMENT AND COMPENSATION (a) By mutual agreement with the Company, the Executive hereby resigns, effective as of June 30, 1999, from his positions as Vice-Chairman of the Company and a member of the Board of Directors of the Company, and from all other positions the Executive may currently hold as an officer or member of the board of directors of any of the Company's subsidiaries or affiliates. The Executive shall sign and deliver to the Company such other documents as may be necessary to effect or reflect such resignations. (b) The Company shall pay the Executive his current base salary through June 30, 1999, and shall pay the Executive, on or before September 15, 1999, a bonus of $400,000 under the terms of the Company's Management Incentive Plan for the Company's fiscal year ended in June, 1999. (c) From July 1, 1999 through February 2, 2000 (the "Termination Date"), the Executive shall be employed as an Executive Vice President of Allegiance. During such period of employment, the Executive shall continue to advise and assist in connection with transition issues with respect to the Company and Allegiance merger, and will perform such other duties reasonably assigned to him by the Company's chief executive officer. The Executive's position will not carry any executive authority or policy making responsibility, and will not be an "executive officer" position with respect to the Company or Allegiance. On the Termination Date, the Executive will cease to be an employee of the Company, Allegiance or any of their subsidiaries and will not hold any offices with any such entities. From July 1, 1999 through the 2 3 Termination Date, the Executive's base salary shall be at the rate of $30,000 per month, payable bi-weekly and pro rated for partial months. On or before the Termination Date, the Executive will be paid a bonus of $400,000 for the Company's fiscal year ending in June, 2000. The Executive will not be provided with office space subsequent to June 30, 1999, but shall be provided with secretarial assistance during his continued employment through February 2, 2000. During the Executive's continued employment from July 1, 1999, through February 2, 2000, the Company shall, upon reasonable notice from the Executive, make available to the Executive for his reasonable use a corporate aircraft of the Company (or one of its subsidiaries), or a comparable equivalent. The Executive's use of such aircraft shall not exceed more than seventy hours in the aggregate, and shall be subject to availability. If, prior to the Termination Date, the Executive terminates his employment without the Company's consent or if the Executive's employment is terminated by the Company for "Cause" (as defined in the Amended Severance Agreement), the Executive will no longer be entitled to receive the payments or benefits described in this Section 2(c), but shall remain entitled to the severance benefits set forth in Section 3 of this Agreement. 3. SEVERANCE PAYMENTS, BENEFITS AND OBLIGATIONS (a) The Executive will not be entitled to any additional compensation or benefits from the Company, or its subsidiaries or affiliates, except as provided in this Agreement. (b) In satisfaction of the severance payment obligations to the Executive under Sections 2(c)(ii) and 2(c)(v) of the Amended Severance Agreement, commencing upon the Company's first regular payroll date after February 2, 2000, and upon each regular payroll date thereafter for one hundred and fifty-six consecutive weeks, the Company shall pay the Executive a weekly installment of $22,025.58 (the "Severance Payments"). In the event of the Executive's 3 4 death prior to the payment of all of the Severance Payments, the Company shall pay to the Executive's estate (or his beneficiary, as provided in writing to the Company), a lump sum amount equal to the remaining unpaid Severance Payments. (c) Following the Termination Date, the Company will cause the Executive's benefits under the Allegiance Excess Benefit Plan and the Allegiance Retirement Savings Plan to be paid in accordance with the terms of such plans. (d) The Executive acknowledges and agrees that PriceWaterhouseCoopers LLP shall be the accounting firm for purposes of Sections 3 and 4 of the Amended Severance Agreement. The Company and the Executive agree to honor the provisions of Sections 3 and 4 of the Amended Severance Agreement with respect to the Gross-Up Payments. (e) The Company and its subsidiaries will continue to honor, pursuant to their terms, the director and officer indemnification provisions maintained by such entities with respect to the Executive, with respect to actions of the Executive as an officer or director of Allegiance or the Company (or any of its subsidiaries) prior to the Termination Date, including but not limited with respect to actions prior to the Cardinal Merger. (f) The Company will reimburse the Executive for any unreimbursed reasonable business expenses incurred by the Executive prior to the Termination Date, pursuant to the Company's reimbursement policies, following the Executive's presentation of an expense report to the Company. (g) The Executive agrees that the payment of the amounts set forth in this Section 3 is conditioned upon his satisfaction of the terms of Section 5 of the Amended Severance Agreement and, that, without limiting any other remedies available to the Company, the Company 4 5 shall not be obligated to pay to the Executive any unpaid portion of such payments or perform its obligations under this Section 3 if the Executive fails to comply with the provisions of such Section. (h) This Agreement is intended to clarify and satisfy the obligations of the parties arising under the Amended Severance Agreement, and the Amended Severance Agreement shall be deemed superseded and terminated from and after the date of this Agreement, without any remaining obligation of any party under such agreement, except to the extent otherwise specifically referred to in this Agreement. 4. DISPARAGING COMMENTS (a) In accordance with normal ethical and professional standards, prior to and following the Termination Date, the Executive will refrain from taking actions or making statements, written or oral, which denigrate, disparage or defame the goodwill or reputation of the Company and any of its subsidiaries and affiliates (the "Company Entities") and their trustees, officers, security holders, partners, agents and former and current employees and directors or which are intended to, or may be reasonably expected to, adversely affect the morale of the employees of any of the Company Entities. The Executive further agrees not to make any negative statements to third parties relating to his employment or any aspect of the business of the Company Entities and not to make any statements to third parties about the circumstances of the termination of his employment, or the Company Entities and their trustees, officers, security holders, partners, agents and former and current employees and directors, except as permitted pursuant to Section 10 of this Agreement or as may be required by a court or governmental body. (b) The Company and Allegiance agree that they, in their official capacities, shall refrain from, and will instruct their directors and executive officers to refrain 5 6 from, taking actions or making statements, written or oral, which denigrate, disparage or defame the goodwill or reputation of the Executive. 5. CONFIDENTIALITY OF THIS AGREEMENT Except as required by law or regulation, none of the parties hereto will disclose the terms of this Agreement, provided that the Executive may disclose such terms to his financial and legal advisors and his spouse and the Company may disclose such terms to selected employees, advisors and affiliates on a "need to know" basis, each of whom shall be instructed by the Executive and the Company, as the case may be, to maintain the terms of this Agreement in strict confidence. 6. RESTRICTIVE COVENANTS (a) The Executive has returned or will promptly (and in any case not more than 60 days following the date hereof without the consent of the Company) return to the Company all Company Information (as defined below), including client lists, files, software, records, computer access codes and instruction manuals which he has in his possession, and agrees not to keep any copies of Company Information. The Executive affirms his obligation to keep all Company Information confidential and not to disclose it to any third party in the future. The term "Company Information" means: (i) confidential information with respect to the Company and its subsidiaries, including information received from third parties under confidential conditions, and (ii) other technical, marketing, business or financial information, or information relating to personnel or former personnel of the Company and its subsidiaries, the use or disclosure of which might reasonably be construed to be contrary to the interest of the Company; provided, however, that the term "Company Information" shall not include any information that is or became generally known or available to the public other than as a direct result of a breach of this paragraph by the Executive or any action by the Executive prior to the Termination Date which would have been a breach of 6 7 the Executive's obligations to the Company in effect at such time. The Executive shall have the right to remove from the offices of the Company any of his personal belongings which do not constitute Company Information. (b) The Executive agrees that he will remain subject to, and hereby agrees to abide by, the terms of Section 5 of the Amended Severance Agreement. Accordingly, the provisions of Section 5(a) of the Amended Severance Agreement will continue through the end of February 2001, and the provisions of Section 5(b) of the Amended Severance Agreement will continue through February 2, 2002. 7. WAIVER OF OTHER PAYMENTS AND BENEFITS; STOCK OPTIONS; RESTRICTED STOCK (a) The compensation and benefits arrangements set forth in this Agreement are in lieu of any rights or claims that the Executive may have with respect to severance or other benefits, or any other form of remuneration from the Company Entities, other than benefits under any tax-qualified employee pension benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended, and without limiting the generality of the foregoing, the Executive hereby expressly waives any right or claim that he may have or could assert to payment for salary, bonuses, medical, dental or hospitalization benefits, payments under supplemental retirement plans and incentive plans, life insurance benefits, expenses and attorneys' fees, except as otherwise provided in this Agreement or as mandated under applicable law; provided, however, that the Executive shall continue to participate in his normal employee benefits through the Termination Date. (b) The Executive and the Company acknowledge that (i) upon June 30, 1999, all of the Executive's unvested stock options and unvested restricted stock awards 7 8 outstanding as of such date shall immediately be cancelled and forfeited; and (ii) following the Termination Date (or the Executive's earlier termination of employment), all of the Executive's vested options outstanding as of the Termination Date (or such earlier termination of employment) shall remain exercisable for three months following the Termination Date (or such earlier termination of employment), and shall then be immediately cancelled. 8. INFORMATION REQUESTS/COOPERATION The Executive agrees to make himself reasonably available to the Company to respond to requests by the Company for information concerning matters involving facts or events relating to the Company or any other Company Entity that may be within the Executive's knowledge, and to assist the Company and the Company Entities as reasonably requested with respect to pending and future litigations, arbitrations or other dispute resolutions. The Company will reimburse the Executive for his reasonable travel expenses and costs incurred as a result of his assistance under this Section 8. 9. NO ADMISSION OF WRONGDOING Nothing contained in this Agreement shall be construed in any way as an admission by any of the parties of any act, practice or policy of discrimination or breach of contract either in violation of applicable law or otherwise. 10. WAIVER AND RELEASE. (a) In consideration of the payments and benefits set forth in this Agreement, the Executive, for himself, his heirs, administrators, representatives, executors, successors and assigns (collectively "Releasors") does hereby irrevocably and unconditionally release, acquit and forever discharge the Company Entities and their trustees, officers, security holders, partners, agents, and former and current employees and directors, including without 8 9 limitation all persons acting by, through, under or in concert with any of them (collectively, "Releasees"), from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967) (the "ADEA Release"), national origin, religion, disability, or any other unlawful criterion or circumstance, which the Releasors had, now have, or may have in the future, against each or any of the Releasees from the beginning of the world until the date of the execution of this Agreement. Notwithstanding the foregoing, the Releasors do not waive any rights which Executive may be entitled to seek to enforce this Agreement, including to obtain the payments and benefits expressly provided herein and any claim based upon fraudulent and illegal activity that was not disclosed until subsequent to the date of execution of this Agreement. The Executive acknowledges and agrees that if he or any other Releasor should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the Releasees with respect to any cause, matter or thing which is the subject of the release in this Section 10(a), this Agreement may be raised as a complete bar to any such action, claim or proceeding, and the applicable Releasee may recover from the Executive all costs incurred in connection with such action, claim or proceeding, including attorneys' fees. (b) In consideration of the Executive's agreements and covenants set forth in this Agreement, the Company and its subsidiaries (the "Company Releasors") hereby irrevocably and unconditionally release, acquit and forever discharge the Executive from any and 9 10 all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law, which the Company Releasors now have, or may have in the future, against the Executive with respect to the Executive from the beginning of the world until the date of the execution of this Agreement, other than any claim arising with respect to this Agreement, any claim based upon fraudulent or illegal activity that was not discovered by the Company Releasors until subsequent to the date of execution of this Agreement, or any claim that may be brought derivatively. The Company Releasors acknowledge and agree that if they should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the Executive with respect to any cause, matter or thing which is the subject of this Section 10(b), this Agreement may be raised as a complete bar to any such action, claim or proceeding, and the Executive may recover from the Company Releasors all costs incurred in connection with such action, claim or proceeding, including attorneys' fees. (c) The Executive affirms that prior to the execution of this Agreement and the waiver and release in Section 10(a), the Executive was advised by the Company to consult with an attorney of the Executive's choice concerning the terms and conditions set forth herein, and that the Executive was given up to 21 days to consider executing this Agreement, including the ADEA Release in Section 10(a). The Executive has 7 days following his execution of this Agreement (the "Revocation Period") to revoke the ADEA Release. In the event the Executive revokes the ADEA Release, the Company may cease making the payments set forth in Section 3 of this Agreement. 10 11 11. PUBLIC STATEMENT The parties agree that the Executive's termination of employment will be announced at such time as the Company may, in its discretion, determine by the statement attached hereto as Exhibit A, which in no case shall be later than September 1, 1999 without the consent of the Executive, and no subsequent comments shall be made to the media or through other public statements by any party hereto regarding the Executive's termination of employment that are inconsistent with such statement, except as may be required by applicable law or regulation. 12. NO RELIANCE The Executive represents and acknowledges that, in executing this Agreement, he has not relied upon any representation or statement made by the Company or Allegiance, not set forth herein. 13. GOVERNING LAW; LEGAL FEES (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the principles of conflicts of law thereof, to the extent not superseded by applicable federal law. THE PARTIES HERETO HEREBY AGREE THAT ANY DISPUTE CONCERNING FORMATION, MEANING, APPLICABILITY OR INTERPRETATION OF THIS AGREEMENT SHALL BE RESOLVED BY ARBITRATION IN FRANKLIN COUNTY, OHIO, IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND JUDGMENT ON THE AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. (b) The Company shall pay all reasonable legal fees and related expenses (including the reasonable costs of experts, evidence and counsel), when and as incurred by the 11 12 Executive, as a result of contesting or disputing the Executive's termination of employment or any provision of this Agreement, whether or not such contest or dispute is resolved in the Executive's favor but only if the Executive was seeking in good faith to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits. 14. WARRANTY The parties hereto represent and warrant that there exists no impediment or restraint, contractual or otherwise on their power, right or ability to enter into this Agreement and to perform their duties and obligations hereunder or as contemplated hereby. 15. TAXES All payments made to the Executive under this Agreement will be reduced by, or the Executive will otherwise pay, all income, employment and Medicare taxes required to be withheld on such payments. 16. NO COERCION The parties hereto represent and acknowledge that they have decided to enter into this Agreement voluntarily, knowingly and without coercion of any kind. 17. ENFORCEABILITY The parties hereto affirmatively acknowledge that this Agreement, and each of its provisions, is enforceable, and expressly agree not to challenge nor raise any defense against the enforceability of this Agreement or any of its provisions in the future. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 12 13 18. NOTICES All notices, requests, demands and other communication which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted by telecopy, electronic or digital transmission method upon receipt of telephonic or electronic confirmation; that day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express) and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: If to the Executive, addressed to: Lester Knight 155 Thorn Tree Lane Winnetka, Illinois 60093 If to the Company (or Allegiance), addressed to: Cardinal Health, Inc. 7000 Cardinal Place Dublin, Ohio 43017 Attention: General Counsel or to such other place and with such other copies as any party may designate as to itself or himself by written notice to the others. 19. AMENDMENTS; WAIVERS This Agreement may not be amended, modified or terminated, except by a written instrument signed by the parties hereto. Any provision of this Agreement may be waived by a written instrument signed by the party to be charged with such waiver. 13 14 20. SUCCESSORS This Agreement shall be binding on the Executive, the Company, Allegiance and their respective heirs, successors and assigns, including without limitation any corporation or other entity into which the Company or Allegiance may be merged, reorganized or liquidated, or by which may be acquired. The obligations of the Company or Allegiance may be assigned only to a wholly-owned subsidiary of the Company; provided, that such assignment shall not relieve the Company of liability hereunder; but, as the obligations to be performed by the Executive hereunder are unique based upon his skills and qualifications, the Executive's obligations under this Agreement may not be assigned. 21. ENTIRE AGREEMENT Except as specified herein, this Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 22. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 14 15 IN WITNESS WHEREOF, the parties have executed this Agreement, as of the date and year first written above. CARDINAL HEALTH, INC. By: /s/ Robert D. Walter --------------------------------------- Robert D. Walter Its Chairman and Chief Executive Officer ALLEGIANCE CORPORATION By: /s/ Robert D. Walter --------------------------------------- Robert D. Walter Its Chairman /s/ Lester B. Knight --------------------------------------- Lester B. Knight 15 EX-10.22 8 EXHIBIT 10.22 1 Exhibit 10.22 CARDINAL HEALTH, INC. 364-DAY CREDIT AGREEMENT DATED AS OF MARCH 31, 1999 THE SUBSIDIARY BORROWERS PARTY HERETO, THE LENDERS PARTY HERETO AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT BANK OF AMERICA NT & SA, AS SYNDICATION AGENT CITIBANK, N.A., AS CO-DOCUMENTATION AGENT CREDIT SUISSE FIRST BOSTON, AS CO-DOCUMENTATION AGENT FIRST CHICAGO CAPITAL MARKETS, INC., AS LEAD ARRANGER AND BOOK MANAGER 2 364-DAY CREDIT AGREEMENT This Agreement, dated as of March 31, 1999, is among Cardinal Health, Inc. (the "Company"), certain Subsidiaries of the Company (the "Subsidiary Borrowers", and together with the Company, the "Borrowers"), the lenders party hereto from time to time (the "Lenders"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"). The parties hereto agree as follows: ARTICLE I. DEFINITIONS As used in this Agreement: "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Company or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Adjusted Tangible Net Worth" means, as of any date, (i) the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of the Company and its consolidated Subsidiaries, but excluding the amount of any foreign currency translation adjustment account shown as a capital account, less (ii) the net book value of all items of the following character which are included in the assets of the Company and its consolidated Subsidiaries: (a) goodwill, including, without limitation, the excess of cost over book value of any asset, (b) organization or experimental expenses, (c) unamortized debt discount and expense, (d) patents, trademarks, trade names and copyrights, (e) treasury stock, (f) franchises, licenses and permits, and (g) other assets which are deemed intangible assets under Agreement Accounting Principles. "Administrative Agent" means The First National Bank of Chicago in its capacity as contractual representative of the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. "Advance" means a borrowing hereunder, (i) made by the Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or 3 continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. As of the date of this Agreement, the original Aggregate Commitment was $250,000,000. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles in the United States of America in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4; provided, however, that if any change in Agreement Accounting Principles from those applied in preparing such financial statements affects the calculation of any financial covenant contained in this Agreement, the Borrowers and the Administrative Agent hereby agree to negotiate in good faith towards making appropriate amendments acceptable to the Required Lenders to the provisions of this Agreement to reflect as nearly as possible the effect of the financial covenants as in effect on the date hereof. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Applicable Fee Rate" means, at any time, the percentage rate per annum at which Facility Fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to any Eurodollar Loan, Floating Rate Loan or the Facility Fee, as the case may be at any time, the applicable percentage which is applicable at such time set forth in the Pricing Schedule provided that upon the occurrence and during the continuation of a Default, the Applicable Margin shall be the highest Applicable Margin set forth in the Pricing Schedule. "Article" means an article of this Agreement unless another document is specifically referenced. 2 4 "Authorized Officer" means any of the Chairman, Chief Executive Officer, President, Vice Chairman, Chief Financial Officer, Controller, or Treasurer of a Borrower, or their equivalent, acting singly. "Borrowers" means the Company and the Subsidiary Borrowers, and "Borrower" means any of them, as the context may require. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.8. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, Detroit and New York for the conduct of substantially all of their commercial lending activities and on which dealings in Eurodollars are carried on in the London interbank market, and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Detroit for the conduct of substantially all of their commercial lending activities. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means (i) short-term obligations of, or fully guaranteed by, the United States of America, (ii) commercial paper rated A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts maintained in the ordinary course of business, (iv) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000, (v) banker's acceptances, (vi) money-market funds, provided that such funds invest solely in securities otherwise described in this definition, (vii) variable rate demand notes, (viii) municipal preferred stock, (ix) cash market preferred stock, and (x) short term municipal notes; provided in each case that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Company, provided, however, that the acquisitions by or on behalf of a Plan, an employee stock purchase plan of the Company, or by Persons who before such acquisition were officers, directors, employees or who held in the aggregate not less than 5% of the outstanding shares of voting stock of the Company shall not be included in determining whether a Change in Control shall have occurred. 3 5 "Closing Date" shall mean March 31, 1999. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Co-Documentation Agents" means Citibank, N.A. and Credit Suisse First Boston. "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Company" means Cardinal Health, Inc., an Ohio corporation, and it successors and assigns. "Consolidated or "consolidated" means, when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated basis in accordance with Agreement Accounting Principles. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person for Indebtedness, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership, provided, however, that any assumption, guaranty, endorsement or undertaking with respect to any liability of any of its Subsidiaries to any other of its Subsidiaries shall not be a Contingent Obligation of the Company. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.9. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Default" means an event described in Article VII. "Defaulting Lender" means any Lender that (a) on any Borrowing Date fails to make available to the Administrative Agent such Lender's Loans required to be made to a Borrower on 4 6 such Borrowing Date or (b) shall not have made available to the Administrative Agent its proportionate share of the Unpaid Amount as required pursuant to Section 2.19(b). Once a Lender becomes a Defaulting Lender, such Lender shall continue as a Defaulting Lender until such time as such Defaulting Lender makes available to the Administrative Agent the amount of such Defaulting Lender's Loans together with all other amounts required to be paid to the Administrative Agent or any other Lender pursuant to this Agreement. "Dollars" and "$" shall mean the lawful currency of the United States of America. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which, except as otherwise provided in Section 2.12, bears interest at the applicable Eurodollar Rate. "Eurodollar Payment Office" of the Administrative Agent shall mean the office, branch, affiliate or correspondent bank of the Administrative Agent specified as the "Eurodollar Payment Office" in Schedule 3 hereto or such other office, branch, affiliate or correspondent bank of the Administrative Agent as it may from time to time specify to the Borrowers and each Lender as its Eurodollar Payment Office. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Reference Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Eurodollar Reference Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period the rate determined by the Administrative Agent to be the rate at which First Chicago offers to place deposits in Dollars with first-class banks in the London interbank market at 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period in the approximate amount of the relevant Eurodollar Loan of First Chicago and having a maturity equal to such Interest Period. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes (and any interest, fees or penalties for late payment thereof) imposed on it by (i) the jurisdiction under 5 7 the laws of which such Lender or the Administrative Agent is incorporated or organized or (ii) the jurisdiction in which the Administrative Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. "Facility Termination Date" means March 29, 2000, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for such day, the average of the quotations at approximately 10:00 a.m. (Detroit time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financial Contract" of a Person means (a) any exchange-traded or over the counter futures, forward, swap or option contract or other financial instrument with similar characteristics or (b) any Rate Hedging Agreement. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Five Year Credit Agreement" means the Five Year Credit Agreement dated the date hereof among the Company, the Subsidiary Borrowers party thereto, the Lenders and the Administrative Agent, as Administrative Agent, as such agreement may be amended, restated or extended from time to time. "Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate for such day in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which, except as otherwise provided in Section 2.12, bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which, except as otherwise provided in Section 2.12, bears interest at the Floating Rate. "Guarantor" means the Company, and its successors and assigns. "Guaranty" means that certain Guaranty dated the date hereof executed by the Guarantor in favor of the Administrative Agent, for the ratable benefit of the Lenders, as it may be amended or modified and in effect from time to time. 6 8 "Indebtedness" of a Person means, as of any date, such Person's (i) obligations for borrowed money or evidenced by bonds, notes, acceptances, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv)obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (v) Capitalized Lease Obligations, (vi) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person, (vii) any Rate Hedging Obligations of such Person, and (viii) all Contingent Liabilities of such Person with respect to or relating to the indebtedness, obligations and liabilities of others similar in character to those described in clauses (i) through (viii) of this definition. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; any certificate of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person. "Lead Arranger" means First Chicago Capital Markets, Inc., a Delaware corporation, and its successors. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. 7 9 "Lending Installation" means, with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or Affiliate of such Lender or the Administrative Agent selected by such Lender and the Administrative Agent pursuant to Section 2.18. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's loan made pursuant to Article II (or any conversion or continuation thereof). "Loan Documents" means this Agreement, the Notes, the Guaranty and any other instrument or document executed in connection with any of the foregoing at any time. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company to perform its obligations under the Loan Documents to which it is a party, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Company is a party to which more than one employer is obligated to make contributions. "Net Worth" means at any time the consolidated stockholder's equity of the Company and its Subsidiaries calculated on a consolidated basis as of such time in accordance with Agreement Accounting Principles. "Non-U.S. Borrower" is defined in Section 3.1(b). "Non-U.S. Lender" is defined in Section 3.5(iv). "Note" means any promissory note issued at the request of a Lender pursuant to Section 2.14 in the form of Exhibit E. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrowers to the Lenders or to any Lender, the Administrative Agent or any indemnified party arising under the Loan Documents. 8 10 "Other Taxes" is defined in Section 3.5(ii). "Overdue Rate" means a per annum rate that is equal to the sum of two percent (2%) plus the Alternate Base Rate, changing as and when the Alternate Base Rate changes. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each calendar quarter, commencing June 30, 1999. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and as to which the Company or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule attached hereto identified as such. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned or leased by such Person. "Purchasers" is defined in Section 12.3.1. "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the 9 11 purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 51% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 51% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurodollar liabilities. "Significant Subsidiary" means any Subsidiary of the Company that would be a "significant subsidiary" within the meaning of Rule 1-02 of the Securities and Exchange Commission's Regulation S-X if 5% were substituted for 10% wherever it occurs in such Rule. "S&P" means Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Single Employer Plan" means a Plan maintained by the Company or any member of the Controlled Group for employees of the Company or any member of the Controlled Group. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Company. "Subsidiary Borrower" means each Subsidiary of the Company listed as a Subsidiary Borrower on Schedule 1 as amended from time to time in accordance with Section 5.8. 10 12 "Substantial Portion" means, with respect to the Property of the Company and its Subsidiaries, Property which (i) represents more than 20% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 20% of the consolidated net sales or of the consolidated net income of the Company and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "Syndication Agent" means Bank of America NT & SA. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. "Year 2000 Issues" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications of the Company and its Subsidiaries, and of the Company's and its Subsidiaries' material customers, suppliers and vendors, to function on and after January 1, 2000 as they do on the date hereof, including handling applications involving dates, as such inability affects the business, operations and financial condition of the Company and its Subsidiaries. "Year 2000 Program" is defined in Section 5.18. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. 11 13 ARTICLE II. THE CREDITS 2.1 Commitments of the Lenders; Revolving Credit Advances. From and including the date of this Agreement and prior to the Facility Termination Date, each Lender agrees, for itself only, subject to the terms and conditions set forth in this Agreement, to make Loans to the Borrowers from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitments to lend hereunder shall expire on the Facility Termination Date. 2.2 Termination. Any outstanding Advances together with any other unpaid Obligations then due and payable shall be paid in full by the Borrowers on the Facility Termination Date. 2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.4 Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the relevant Borrowers in accordance with Sections 2.8 and 2.9. 2.5 Facility Fee; Reductions in Aggregate Commitment; Utilization Fee. The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee, determined in accordance with the Pricing Schedule, calculated on the Aggregate Commitment, whether used or unused, payable quarterly in arrears for the ratable benefit of the Lenders from the date of this Agreement until the Facility Termination Date. The Aggregate Commitment may be reduced by the Company in multiples of $10,000,000 upon three Business Days' prior written notice. For each day on which the aggregate principal amount of outstanding Advances exceeds 33% of the Aggregate Commitment, a utilization fee at the per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of outstanding Advances for the ratable benefit of the Lenders, payable in arrears on each Payment Date until the Facility Termination Date. 2.6 Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 in excess thereof, and each Floating Rate Advance shall be in the 12 14 minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.7 Prepayments. The Borrowers may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon one Business Days' prior notice to the Administrative Agent. The Borrowers may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Administrative Agent. 2.8 Method of Selecting Types and Interest Periods for New Advances. The Company or the relevant Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Company or the relevant Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Detroit time) on the Borrowing Date of each Floating Rate Advance and not later than 11:00 a.m. (Detroit time) three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrower, (ii) the Borrowing Date, which shall be a Business Day, of such Advance, (iii) the aggregate amount of such Advance, (iv) the Type of Advance selected, and (v) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Detroit time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available to the Administrative Agent at its address specified pursuant to Article XIII. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 2.9 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time 13 15 each such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.6, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances, provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Detroit time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying: i. the requested date, which shall be a Business Day, of such conversion or continuation, and ii. the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. 2.10 Method of Borrowing. On each Borrowing Date, each Lender shall make available its Loan or Loans, not later than noon, Detroit time, in Federal or other funds immediately available to the Administrative Agent, in Detroit, Michigan at its address specified in or pursuant to Article XIII. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the relevant Borrower at the Administrative Agent's aforesaid address. Notwithstanding the foregoing provisions of this Section 2.10, to the extent that a Loan made by a Lender matures on the Borrowing Date of a requested Loan, such Lender shall apply the proceeds of the Loan it is then making to the repayment of principal of the maturing Loan. 2.11 Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date it becomes due or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate 14 16 determined by the Administrative Agent as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.12 Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Administrative Agent or any Lender. 2.13 Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds by wire transfer to the Administrative Agent at (except as set forth in the next sentence) the Administrative Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Administrative Agent among the Lenders. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. 2.14 Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and, if applicable, the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and 15 17 (c) the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note (a "Note"). In such event, the relevant Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender in a form supplied by the Administrative Agent and reasonably acceptable to the Company. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by a Note payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. 2.15 Telephonic Notices. The Borrowers hereby authorize the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices given to the Administrative Agent by any person or persons listed on Schedule 8, as such Schedule may be revised by the Company from time to time in accordance with Section 13.1, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrowers agree to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent regarding the telephonic notice shall govern absent manifest error. 2.16 Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest on Floating Rate Loans shall be calculated for actual days elapsed on the basis of a 365 or 366-day year, as appropriate. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable in arrears on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than 16 18 three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender, the Company and the relevant Borrower of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender and the Company prompt notice of each change in the Alternate Base Rate. 2.18 Lending Installations. Each Lender will book its Loans at the appropriate Lending Installation listed on Schedule 4 or such other Lending Installation designated by such Lender in accordance with the final sentence of this Section 2.18. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by not less than one days' prior written notice to the Administrative Agent and the Borrowers in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.19 Non-Receipt of Funds by the Administrative Agent. (a) Unless the relevant Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of such Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of 17 19 payment by a Lender, the Federal Funds Effective Rate for such day, or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. (b) The failure of any Lender to make the Loan to be made by it as part of any Advance shall not relieve any other Lender of its obligation hereunder to make its Loan on the date of such Advance, but no Lender, except as otherwise provided in the next sentence of this Section 2.19(b), shall be responsible for the failure of a Defaulting Lender to make the Loan to be made by such Defaulting Lender on the date of any Advance. Notwithstanding the foregoing sentence, but otherwise subject to the terms and conditions of this Agreement, the Administrative Agent shall notify each Lender of the failure by a Defaulting Lender to make a Loan required to be made by it hereunder (the "Unpaid Amount"), and each Lender shall immediately transfer to the Administrative Agent on such date the lesser of such Lender's proportionate share (based on its Commitment divided by the Commitments of all Lenders that have not so failed to fund their Loans) of the Unpaid Amount and its unused Commitment. Any such transfer shall be deemed to be a Floating Rate Loan by such Lender. Each Defaulting Lender shall pay on demand to each other Lender that makes a payment under this Section 2.19(b) the amount paid by such other Lender to cover such failure, together with interest thereon, for each day from the date such payment was made until the date such other Lender has been paid such amount in full, at a rate per annum equal to the Federal Funds Effective Rate plus two percent (2%). 2.20 Judgment Currency. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due from any Borrower hereunder in the currency expressed to be payable herein (the "specified currency") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the specified currency with such other currency at the Administrative Agent's main Chicago office on the Business Day preceding that on which final, non-appealable judgment is given. The obligations of the Borrowers in respect of any sum due to any Lender or the Administrative Agent hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Administrative Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Administrative Agent, as the case may be, in the specified currency, the Borrowers agree, to the fullest extent that they may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Administrative Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Lender or the Administrative Agent, as the case may be, in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 12.2, such Lender or the Administrative Agent, as the case may be, agrees to remit such excess to the relevant Borrower. 18 20 2.21 Replacement of Lender. If any Borrower is required pursuant to Section 3.1, 3.2 or 3.5 to make any additional payment to any Lender or if any Lender's obligation to make or continue, or to convert Floating Rate Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.3, or if any Lender shall become a Defaulting Lender (any Lender so affected an "Affected Lender"), the Company may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Lender as a Lender party to this Agreement, provided that no Default or Unmatured Default shall have occurred and be continuing at the time of such replacement, and provided further that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Company and the Administrative Agent shall agree, as of such date, to purchase for cash the Advances and other Obligations due to the Affected Lender pursuant to an assignment substantially in the form of Exhibit C and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 12.3 applicable to assignments, and (ii) the Borrowers shall pay to such Affected Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrowers hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5. Nothing herein shall release any Defaulting Lender from any obligation it may have to any Borrower, the Administrative Agent or any other Lender. ARTICLE III. YIELD PROTECTION; TAXES 3.1 Yield Protection. (a) If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or 19 21 (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of maintaining its Commitment or making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to its Commitment or the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within 30 days of demand by such Lender, the relevant Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. (b) Non-U.S. Reserve Costs or Fees With Respect to Loans to Non-U.S. Borrowers. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive of any jurisdiction outside of the United States of America or any subdivision thereof (whether or not having the force of law) imposes or deems applicable any reserve requirement against or fee with respect to assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation, and the result of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans to any Borrower that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Borrower") or its Commitment to any Non-U.S. Borrower or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans to any Non-U.S. Borrower or Commitment to any Non-U.S. Borrower, then, within 30 days of demand by such Lender, such Non-U.S. Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received, provided that such Non-U.S. Borrower shall not be required to compensate any Lender for such non-U.S. reserve costs or fees to the extent that an amount equal to such reserve costs or fees is received by such Lender as a result of the calculation of the interest rate applicable to Eurodollar Advances pursuant to clause (i)(b) of the definition of "Eurodollar Rate." 3.2 Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change (as defined below), then, within 15 days of demand by such Lender, the Company shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) 20 22 after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3 Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type, currency and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Administrative Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances at the end of the then current Interest Period for the affected Eurodollar Advance. 3.4 Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by a Borrower for any reason other than default by the Lenders, the Borrowers will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. 3.5 Taxes. (i) All payments by the Borrowers to or for the account of any Lender or the Administrative Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrowers hereby agree to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies 21 23 which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrowers hereby agree to indemnify the Administrative Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Administrative Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Administrative Agent or such Lender makes demand therefor pursuant to Section 3.6. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of the Company and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement from the Company and any other Borrower that is not a Non-U.S. Borrower without deduction or withholding of any United States federal income taxes, or (ii) deliver to each of the Company and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Company and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Company or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Company and the Administrative Agent that it is not capable of receiving payments from the Company and any other Borrower that is not a Non-U.S. Borrower without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Company with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Company shall take such 22 24 steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this Section 3.5(vii) shall survive the payment of the Obligations and termination of this Agreement. 3.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrowers to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrowers (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrowers in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type, currency and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrowers of such written statement. The obligations of the Borrowers under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. 23 25 ARTICLE IV. CONDITIONS PRECEDENT 4.1 Initial Advance. The Lenders shall not be required to make the initial Advance hereunder unless the Borrowers have satisfied the following conditions: (a) Each Borrower has furnished to the Administrative Agent with sufficient copies for the Lenders: (i) Copies of the articles or certificate of incorporation of such Borrower, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of such Borrower, of its by-laws or code of regulations and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which such Borrower is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of such Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of such Borrower authorized to sign the Loan Documents to which such Borrower is a party, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Borrower. (iv) A certificate, signed by the Chief Financial Officer or Treasurer of such Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of such Borrower's counsel, addressed to the Lenders in substantially the form of Exhibit A. (vi) Any Notes requested by a Lender pursuant to Section 2.14 payable to the order of each such requesting Lender. (vii) Written money transfer instructions, in substantially the form of Exhibit D, addressed to the Administrative Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested. (viii) Information reasonably satisfactory to the Administrative Agent regarding the Company's Year 2000 Program. 24 26 (ix) A pro forma covenant compliance certificate in form and substance reasonably satisfactory to the Administrative Agent from the Chief Financial Officer or Treasurer of the Company. (x) The Guaranty, duly executed by the Company. (xi) Such other documents as any Lender or its counsel may have reasonably requested. (b) The presentation of evidence satisfactory to the Administrative Agent that the Amended and Restated Credit Agreement dated as of March 30, 1994 among R.P. Scherer Corporation and the lenders party thereto and the agent named therein shall have been terminated and all indebtedness, liabilities, and obligations outstanding thereunder shall be paid in full not later than April 9, 1999. (c) The presentation of evidence satisfactory to the Administrative Agent that the Credit Agreement Facility A dated September 23, 1996, as amended, among Allegiance Corporation and the lenders party thereto and the agent named therein shall have been terminated and all indebtedness, liabilities, and obligations outstanding thereunder shall have been paid in full or will be paid from the proceeds of the initial Advance. (d) The presentation of evidence satisfactory to the Administrative Agent that revolving credits facilities of the Company totaling not less than $95,000,000 have been terminated and all indebtedness, liabilities and obligations outstanding thereunder shall have been paid in full or will be paid from the proceeds of the initial Advance. 4.2 Each Advance The Lenders shall not be required to make, continue or convert any Advance unless on the applicable Borrowing Date or date of conversion or continuation: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V (other than Section 5.5, 5.7 and 5.15) are true and correct in all material respects as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel. (iv) Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. 25 27 ARTICLE V. REPRESENTATIONS AND WARRANTIES The Company and each of the Borrowers represents and warrants to the Lenders that: 5.1 Existence and Standing. Each of the Company and its Significant Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.2 Authorization and Validity. Each Borrower has the power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by each Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate or other proceedings, and the Loan Documents to which such Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrowers of the Loan Documents to which they are a party, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on any Borrower or (ii) any Borrower's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, code or regulations, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which any Borrower is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of any Borrower pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by a Borrower, is required to be obtained by any Borrower in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by such Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 26 28 5.4 Financial Statements. The following consolidated financial statements heretofore delivered to the Lenders were prepared in accordance with Agreement Accounting Principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Company and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject, in the case of such interim statements, to routine year-end audit adjustments: (i) June 30, 1998 audited consolidated financial statements of the Company and its Subsidiaries; December 31, 1997 audited consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries; (ii) December 31, 1998 unaudited interim consolidated financial statements of the Company and its Subsidiaries; and (iii) December 31, 1998 unaudited interim consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries. 5.5 Material Adverse Change. Since June 30, 1998 there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6 Taxes. The Company and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. No tax liens have been filed and no claims are being asserted with respect to any such taxes which could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7 Litigation and Contingent Obligations. Except as set forth on Schedule 7, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Loans. As of the date of this Agreement, other than any liability incident to any litigation, arbitration or proceeding which (i) could not reasonably be expected to have a Material Adverse Effect or (ii) is set forth on Schedule 7, the Company has no material Contingent Obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 27 29 5.8 Subsidiaries. Schedule 1 contains an accurate list of all Subsidiaries of the Company (other than immaterial or inactive Subsidiaries) and each Subsidiary Borrower as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Company or other Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable, except to the extent that the lack of such status could not reasonably be expected to have a Material Adverse Effect. The Company may amend Schedule 1 from time to time by delivering to the Administrative Agent an updated list of Subsidiaries, and the Company may designate any Subsidiary thereon which is directly or indirectly 80% (or, in the case of R.P. Scherer S.A., 75%) or more owned by the Company as a Subsidiary Borrower hereunder so long as (a) the Company guarantees the obligations of such new Subsidiary Borrower pursuant to the terms of the Guaranty, (b) such new Subsidiary Borrower delivers all corporate or organizational documents and authorizing resolutions and legal opinions reasonably requested by the Administrative Agent and (c) such new Subsidiary Borrower agrees to the terms and conditions of this Agreement and the Borrowers and the new Subsidiary Borrower execute all agreements and take such other action reasonably requested by Administrative Agent. Schedule 1 may be amended to remove any Subsidiary as a Subsidiary Borrower upon (i) written notice by the Company to the Administrative Agent to such effect and (ii) repayment in full of all outstanding Loans of such Subsidiary Borrower. 5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $75,000,000. Each Single Employer Plan complies in all material respects with all applicable requirements of law and regulations where the failure to so comply could reasonably be expected to have a Material Adverse Effect. No Reportable Event has occurred with respect to any Plan where such occurrence could reasonably be expected to have a Material Adverse Effect. Neither the Company or any of its Significant Subsidiaries has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Single Employer Plan where in either instance a liability in excess of $75,000,000 could reasonably be expected to result. 5.10 Accuracy of Information. No information, exhibit or report furnished by the Company or any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading; provided, however, that to the extent any such information, exhibits or reports include or incorporate by reference any forward-looking statement (each, a "Forward-Looking Statement") which reflects the Company's current view (as of the date such Forward-Looking Statement is made) with respect to future events, prospects, projections or financial performance, such 28 30 Forward-Looking Statement is subject to uncertainties and other factors which could cause actual results to differ materially from such Forward-Looking Statement. 5.11 Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Company and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12 Material Agreements. Neither the Company nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 5.13 Compliance With Laws. The Company and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14 Plan Assets; Prohibited Transactions. The Company is not an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.15 Environmental Matters. In the ordinary course of its business, the officers of the Company consider the effect of Environmental Laws on the business of the Company and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Company due to Environmental Laws. On the basis of this consideration, the Company has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 29 31 5.16 Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17 Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.18 Year 2000. The Company has substantially completed an assessment of the Year 2000 Issues and has a realistic and achievable program for addressing the remediation of Year 2000 Issues on a timely basis to avoid any impact on the Company and its Subsidiaries which would reasonably be expected to have a Material Adverse Effect (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program the Company does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 5.19 Default. There exists no Default or Unmatured Default under Article VII of this Agreement. ARTICLE VI. COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1 Financial Reporting. The Company will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with Agreement Accounting Principles, and furnish to the Lenders: (i) Within 120 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in Agreement Accounting Principles and required or approved by the Company's independent certified public accountants) audit report certified by independent certified public accountants reasonably acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss statements, and a statement of cash flows, accompanied by a certificate of said 30 32 accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. (ii) Within 60 days after the close of each of the first three quarterly periods of each fiscal year, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated unaudited profit and loss statements and a consolidated unaudited statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer, Controller, or Treasurer. (iii) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of Exhibit B signed by its Chief Financial Officer, Controller, or Treasurer and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within 10 Business Days after the Company knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Financial Officer, Controller, or Treasurer of the Company, describing said Reportable Event and the action which the Company proposes to take with respect thereto. (v) As soon as possible and in any event within 10 Business Days after receipt by the Company, a copy of (a) any notice or claim to the effect that the Company or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Company, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Company or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Such other information (including non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request. 6.2 Use of Proceeds. The Company will, and will cause each Subsidiary to, use the proceeds of the Advances for general corporate purposes, including Acquisitions. The Company will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U). 6.3 Notice of Default. The Company will, and will cause each Borrower and Significant Subsidiary to, give prompt notice in writing to the Administrative Agent of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise (including, without 31 33 limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect. 6.4 Conduct of Business. The Company will, and will cause each Significant Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted or fields related thereto (except that the Company and its Significant Subsidiaries shall have no duty to renew or extend contracts which expire by their terms) and do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.5 Taxes. The Company will, and will cause each Significant Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6 Insurance. The Company will, and will cause each Significant Subsidiary to, maintain as part of a self-insurance program or with financially sound and reputable insurance companies insurance on all their Property in such amounts (with such customary deductibles, exclusions and self-insurance) and covering such risks as is consistent with sound business practice. 6.7 Compliance with Laws. The Company will, and will cause each Significant Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.8 Inspection. The Company will, and will cause each Significant Subsidiary to, permit the Administrative Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Company and each Significant Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Significant Subsidiary with, and to be advised as to the same by, their 32 34 respective officers upon reasonable prior notice at such reasonable times and intervals as the Administrative Agent or any Lender may designate, provided that neither the Company nor any of its Subsidiaries shall be responsible for the costs and expenses incurred by the Administrative Agent, any Lender, or their representatives in connection with such inspection prior to the occurrence and continuation of a Default. 6.9 Merger. The Company will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into any other Person, except that, provided that no Default or Unmatured Default shall have occurred and be continuing or would result therefrom on a pro forma basis reasonably acceptable to the Administrative Agent, the Company may merge or consolidate with any other U.S. corporation and each Significant Subsidiary may merge or consolidate with any other Person, provided, further, that (i) in the case of any such merger or consolidation involving the Company, the Company is the surviving corporation and (ii) in the case of any such merger or consolidation involving a Significant Subsidiary which is a Subsidiary Borrower, the surviving corporation assumes all of such Borrower's obligations under this Agreement and remains or becomes a Subsidiary Borrower. 6.10 Sale of Assets. The Company will not, nor will it permit any Significant Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person (other than the Company or another Subsidiary), except: (i) Sales of inventory in the ordinary course of business. (ii) Sales or other dispositions in the ordinary course of business of fixed assets for the purpose of replacing such fixed assets, provided that such fixed assets are replaced within 360 days of such sale or other disposition with other fixed assets which have a fair market value not materially less than the fixed assets sold or otherwise disposed of. (iii) Sales or other dispositions outside the ordinary course of business of accounts receivable, lease receivables, leases or equipment which had been leased by the Company or such Significant Subsidiary, provided that any such sale or other disposition is for reasonably equivalent value and could not reasonably be expected to have a Material Adverse Effect. (iv) Other leases, sales (including sale-leasebacks) or other dispositions of its Property that, together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i), (ii) and (iii) above) as permitted by this Section during the twelve-month period ending with the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Company and its Subsidiaries, or together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i) and (ii) above) as permitted by this Section during the period from the date of this Agreement to the end of the month 33 35 prior to the month in which any such lease, sale or other disposition occurs, do not constitute 35% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the fiscal year in which any such lease, sale or other disposition occurs. Notwithstanding anything in this Section 6.10 to the contrary, (a) no such leases, sales or other dispositions of property may be made (other than pursuant to clause (i) above) if any Default or Unmatured Default has occurred and is continuing, and (b) all leases, sales and other dispositions of Property at any time shall be for not less than the fair market value of such Property as determined in good faith by the Company. 6.11 Investments. The Company will not, nor will it permit any Significant Subsidiary to, make or suffer to exist any Investments, or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, except: (i) Cash Equivalent Investments. (ii) Investments in Subsidiaries. (iii) other Investments in existence on the date hereof. (iv) Other Investments provided that the aggregate amount of such Investments made in any fiscal year does not exceed 25% of Adjusted Tangible Net Worth as of the beginning of such fiscal year. 6.12 Liens. The Company will not, nor will it permit any Significant Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Company or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as landlord's, carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation (other than Liens in favor of the PGBC). 34 36 (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Company or its Subsidiaries. (v) Liens existing on the date hereof. (vi) Liens on any assets which exist at the time of acquisition of such assets by the Company or any of its Subsidiaries, or liens to secure the payment of all of any part of the purchase price of such assets upon the acquisition of such assets by the Company or any of its Subsidiaries or to secure any Indebtedness incurred or guaranteed by the Company or any of its Subsidiaries prior to, at the time, of or within 360 days after, such acquisition (or, in the case of real property, the completion of construction (including any improvements on an existing asset) or commencement of full operation of such asset, whichever is later), which Indebtedness is incurred or guaranteed for the purpose of financing all or any part of the purchase price thereof or, in the case of real property, construction or improvements thereon, provided, however, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to such assets theretofore owned by the Company or any of its Subsidiaries other than, in the case of any such construction or improvement, any real property on which the property so constructed, or the improvement, is located, provided further, however, that the aggregate outstanding principal amount of Indebtedness secured by Liens permitted by this Section 6.12(vi) shall not at any time exceed $250,000,000. (vii) Liens in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction), of the assets subject to such liens (including without limitation liens incurred in connection with pollution control, industrial revenue or similar financings). (viii) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses, provided, however, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured prior to such extension, renewal or replacement and that such extension, renewal or replacement Lien shall be limited to all or a part of the assets which secured the Lien so extended, renewed or replaced (plus improvements and construction on such real property). (ix) So long as no Default under Section 7.9 would occur in connection therewith, Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company or any of its Subsidiaries with respect to which the Company or such Subsidiary is in good faith prosecuting an appeal or 35 37 proceeding for review or for which the time to make an appeal has not yet expired; or final unappealable judgment Liens which are satisfied within 15 days of the date of judgment; or Liens incurred by the Company or any of its Subsidiaries for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company or such Subsidiary is a party. (x) Liens securing Indebtedness described in Section 6.17(iv) and (v). (xi) Liens securing Indebtedness and not otherwise permitted by the foregoing provisions of this Section 6.12, provided that the aggregate outstanding principal amount of the Indebtedness secured by all such Liens shall not at any time exceed 25% of Adjusted Tangible Net Worth. 6.13 Year 2000. The Company will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Administrative Agent, the Company will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. 6.14 Subsidiary Indebtedness. The Company will not permit any Subsidiary to create, incur or suffer to exist any Indebtedness, except: (i) The Loans. (ii) Indebtedness outstanding on the date of this Agreement or incurred pursuant to commitments in existence on the date of this Agreement. (iii) Indebtedness of any Subsidiary to the Company or any other Subsidiary. (iv) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that such Indebtedness existed at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary. (v) Any refunding or refinancing of any Indebtedness referred to in clauses (i) through (iv) above, provided that any such refunding or refinancing of Indebtedness referred to in clause (ii), (iii) or (iv) does not increase the principal amount thereof. (vi) Indebtedness arising from (a) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, or (b) the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business. (vii) Indebtedness arising from guarantees of loans and advances by third parties to employees and officers of a Subsidiary in the ordinary course of business for 36 38 bona fide business purposes, provided that the aggregate outstanding principal amount of such Indebtedness does not at any time exceed $100,000,000. (viii) Indebtedness of a Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations or from guarantees, letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries incurred or assumed in connection with the disposition of any business, property or Subsidiary. (ix) Indebtedness arising from Rate Hedging Obligations. (x) Contingent Obligations. (xi) Indebtedness outstanding under investment grade commercial paper programs. (xii) Other Indebtedness; provided that, at the time of the creation, incurrence or assumption of such other Indebtedness and after giving effect thereto, the aggregate amount of all such other Indebtedness of the Subsidiaries does not exceed an amount equal to 25% of Adjusted Tangible Net Worth at such time. 6.15 Limitation on Restrictions on Significant Subsidiary Distributions. The Company will not, and will not permit any Significant Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Significant Subsidiary of the Company to (i) pay dividends or make any other distributions in respect of any capital stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (ii) make loans or advances to the Company or any other Subsidiary of the Company or (iii) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (a) any restrictions existing under the Loan Documents, (b) any restrictions with respect to a Significant Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of all or substantially all of the capital stock or assets of such Subsidiary, and (c) any restrictions with respect to assets encumbered by a Lien permitted by Section 6.12 so long as such restriction applies only to the asset encumbered by such permitted Lien. 6.16 Contingent Obligations. The Company will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (i) by endorsement of instruments for deposit or collection in the ordinary course of business, (ii) the Guaranty, (iii) Contingent Obligations of special-purpose finance Subsidiaries, provided that no Person has recourse against the Company or any Significant Subsidiary for such Contingent Obligations, (iv) Contingent Obligations arising from the sale by Pyxis Corporation of lease receivables, leases or equipment, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 10% of Adjusted Tangible Net Worth, (v) Contingent Obligations arising out of operating or synthetic 37 39 leases entered into by Subsidiaries of the Company, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 25% of Adjusted Tangible Net Worth, and (vi) Contingent Obligations in addition to those described in (i)-(v) above, provided that the aggregate amount of such additional Contingent Obligations (without duplication) do not at any time exceed 25% of Adjusted Tangible Net Worth. 6.17 Minimum Net Worth. The Company shall not permit its Net Worth to be less than $2,550,000,000 at any time. ARTICLE VII. DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of the Company or any of its Subsidiaries to the Lenders or the Administrative Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Loan within one day after the same becomes due, or nonpayment of interest upon any Loan or of any commitment fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Company of Sections 6.3, 6.9, 6.10, 6.14, 6.16, or 6.17. 7.4. The breach by any Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within thirty days after written notice from the Administrative Agent or any Lender. 7.5. Failure of the Company or any of its Significant Subsidiaries to pay when due any principal, interest or other amounts, subject to any applicable grace period, or the default by the Company or any of its Significant Subsidiaries in the performance beyond the applicable grace period with respect thereto, if any, of any term, provision or condition contained in the Five Year Credit Agreement or any agreement or agreements under which any Indebtedness in excess of 2% of Adjusted Tangible Net Worth was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Company or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Company or any of its Significant Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 38 40 7.6. The Company or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Company or any of its Significant Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Company or any of its Significant Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Company or any of its Significant Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Company and its Subsidiaries which, when taken together with all other Property of the Company and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9. The Company or any of its Significant Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge one or more (i) judgments or orders for the payment of money (not covered by insurance)in excess of 2% of Adjusted Tangible Net Worth (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in either such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. Any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $75,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Single Employer Plan with Unfunded Liabilities in excess of $20,000,000 (a "Material Plan") shall be filed under Section 4041(c) of ERISA by any member of the Controlled Group, any plan administrator or any combination of the foregoing; or PBGC shall institute proceedings under which it is likely to prevail under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect 39 41 to, one or more Multiemployer Plans which causes one or more members of the Controlled Group to incur a current payment obligation in excess of $75,000,000. 7.11. Any Change in Control shall occur. 7.12. The Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or the Company shall fail to comply with any of the terms or provisions of the Guaranty, or the Company shall deny that it has any further liability under the Guaranty, or shall give notice to such effect. ARTICLE VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Company or any of its Significant Subsidiaries, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs and is continuing, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Company hereby expressly waives. If, within 60 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Company) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Company, rescind and annul such acceleration and/or termination. 8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrowers may enter into written agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or waiving any Default hereunder; provided, however, that no such supplemental written agreement shall, without the consent of all of the Lenders: (i) Extend the final maturity of any Loan or postpone any regularly scheduled payment of principal of any Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. 40 42 (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Facility Termination Date or reduce the amount or extend the payment date for, the mandatory payments required under Section 2.2, or increase the amount of the Aggregate Commitment or of the Commitment of any Lender hereunder, or permit any Borrower to assign its rights under this Agreement (other than as may be permitted pursuant to Section 6.9). (iv) Amend this Section 8.2. (v) Release the Company as guarantor of any Advance. No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent. The Administrative Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. Notwithstanding anything herein to the contrary, no Defaulting Lender shall be entitled to vote (whether to consent or to withhold its consent) with respect to any amendment, modification, termination or waiver requiring the consent of the Required Lenders, and, for purposes of determining the Required Lenders, the Commitments and the Loans of each Defaulting Lender shall be disregarded. 8.3 Preservation of Rights. No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of a Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX. GENERAL PROVISIONS 9.1 Survival of Representations. All representations and warranties of the Borrowers contained in this Agreement shall survive the making of the Loans herein contemplated. 41 43 9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrowers in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrowers, the Administrative Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Administrative Agent and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. 9.5 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Lead Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6 Expenses; Indemnification. (i) The Borrowers shall reimburse the Administrative Agent and the Lead Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent but subject to any limitations contained in the letter from Dickinson Wright PLLC to First Chicago dated February 19, 1999) paid or incurred by the Administrative Agent or the Lead Arranger in connection with the preparation, investigation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents, whether incurred prior to or subsequent to closing. The Borrowers also agree to reimburse the Administrative Agent, the Lead Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, the Lead Arranger and the Lenders, which attorneys may be employees of the Administrative Agent, the Lead Arranger or the Lenders) paid or incurred by the Administrative Agent, the Lead 42 44 Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Company hereby further agrees to indemnify the Administrative Agent, the Lead Arranger and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Administrative Agent, the Lead Arranger or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Company under this Section 9.6 shall survive the termination of this Agreement. 9.7 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 9.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles except that any calculation or determination which is to be made on a consolidated basis shall be made for the Company and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Company's audited financial statements. 9.9 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10 Nonliability of Lenders. The relationship between the Company on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower and lender. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any fiduciary responsibilities to the Company solely by reason of being a party to this Agreement. Neither the Administrative Agent, the Lead Arranger nor any Lender undertakes any responsibility to the Company to review or inform the Company of any matter in connection with any phase of the Company's business or operations. The Company agrees that neither the Administrative Agent, the Lead 43 45 Arranger nor any Lender shall have liability to the Company (whether sounding in tort, contract or otherwise) for losses suffered by the Company in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any liability with respect to, and the Company hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages suffered by the Company in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11 Confidentiality. Each of the Administrative Agent and each Lender agrees to hold any confidential information which it may receive from the Company pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or the Administrative Agent or, subject to Section 12.4, to a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender's contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, (vii) permitted by Section 12.4, and (viii) to rating agencies if requested or required by such agencies in connection with a rating relating to the Advances hereunder, provided that reasonable advance written notice is given to the Company. 9.12 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. ARTICLE X. THE AGENT 10.1 Appointment; Nature of Relationship. The First National Bank of Chicago is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the "Administrative Agent") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Administrative 44 46 Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Administrative Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2 Powers. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent. 10.3 General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Company, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. 10.4 No Responsibility for Loans, Recitals, etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Administrative Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Company or any guarantor of any of the Obligations or of any of the Company's or any such guarantor's respective Subsidiaries. The Administrative Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Company to the Administrative Agent at such time, but is voluntarily furnished by the Company to the Administrative Agent (either in its capacity as Administrative Agent or in its individual capacity). 45 47 10.5 Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6 Employment of Agents and Counsel. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document. 10.7 Reliance on Documents; Counsel. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. 10.8 Administrative Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Company for which the Administrative Agent is entitled to reimbursement by the Company under the Loan Documents (other than the fee payable pursuant to Section 10.13), (ii) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent 46 48 in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Administrative Agent and (ii) any indemnification required pursuant to Section 3.5(vii) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Administrative Agent has received written notice from a Lender or the Company referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. 10.10 Rights as a Lender. In the event the Administrative Agent is a Lender, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, at any time when the Administrative Agent is a Lender, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Subsidiaries in which the Company or such Subsidiary is not restricted hereby from engaging with any other Person. The Administrative Agent, in its individual capacity, is not obligated to remain a Lender. 10.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on the financial statements prepared by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 47 49 10.12 Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Company, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, forty-five days after the retiring Administrative Agent gives notice of its intention to resign. The Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Company and the Lenders, a successor Administrative Agent, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If no successor Administrative Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Administrative Agent may appoint, on behalf of the Company and the Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, without the consent of any Lender but upon thirty days prior written notice to the Lenders and the Company, the Administrative Agent may appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If the Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, the Lenders may perform all the duties of the Administrative Agent hereunder and the Company shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $5,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of the Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article X shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Administrative Agent by merger, or the Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent. 48 50 10.13 Administrative Agent's Fee. The Company agrees to pay to the Administrative Agent, for its own account, the fees agreed to by the Company and the Administrative Agent pursuant to that certain letter agreement dated February 15, 1999 or as otherwise agreed from time to time. 10.14 Delegation to Affiliates. The Company and the Lenders agree that the Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Administrative Agent is entitled under Articles IX and X. 10.15 Administrative Agent, Syndication Agent, Co-Documentation Agents, Lead Arranger, etc. Neither the Syndication Agent, the Co-Documentation Agents nor the Lead Arranger shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders or the Administrative Agent shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Administrative Agent in Section 10.11. ARTICLE XI. SETOFF; RATABLE PAYMENTS 11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Borrower becomes insolvent, however evidenced, or any Default occurs and is continuing, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of any Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon 49 51 demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of the Company to a Lender other than Indebtedness comprised of Loans made by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness comprised of such Loans. ARTICLE XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns, except that (i) the Borrowers shall not have the right to assign their rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrowers or the Administrative Agent, assign all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of the rights to any Loan or any Note agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Loan. 12.2 Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in its sole discretion, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in 50 52 evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrowers under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, extends the Facility Termination Date, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases the Company as guarantor of any such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. 12.2.3. Benefit of Setoff. The Company agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3 Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more financial institutions, mutual funds, insurance companies or other entities engaged in the business of extending credit for borrowed money ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in such other form as may be agreed to by the parties thereto. The consent of the Company and the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Company shall not be required. Such consent shall not be unreasonably withheld or delayed. The assignor shall give prompt written notice to the Company of any assignment becoming effective without the consent of the Company. Each such assignment with respect to a Purchaser which is not a Lender or an Affiliate thereof shall (unless each of the Company and the Administrative Agent otherwise consents) be in an amount not less than the lesser of (i) 51 53 $5,000,000 and in multiples of $1,000,000 or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or outstanding Loans (if the applicable Commitment has been terminated). 12.3.2. Effect; Effective Date. Upon (i) delivery to the Administrative Agent of an assignment, together with any consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Administrative Agent for processing such assignment (unless such fee is waived by the Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Company, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Administrative Agent and the Borrowers shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4 Dissemination of Information. The Company authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Company and its Subsidiaries, provided that each Transferee and prospective Transferee agrees in writing to be bound by Section 9.11 of this Agreement. 12.5 Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv). 52 54 12.6 Transfer to an SPC. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Company, the option to provide to the Borrowers all or any part of any Loan (other than an Alternate Currency Loan) that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary in this Section 12.6, any SPC may (i) with notice to, but without the prior written consent of, the Company and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. As this Section applies to any particular SPC, this section may not be amended without the written consent of such SPC. ARTICLE XIII. NOTICES 13.1 Notices. Except as otherwise permitted by Section 2.15 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrowers or the Administrative Agent, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrowers in accordance with the provisions of this Section 13.1. 53 55 Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. 13.2 Change of Address. The Borrowers, the Administrative Agent and any Lender may each change the address for service of notice upon it by 5 days' prior written notice to the other parties hereto. ARTICLE XIV. COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrowers, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by facsimile transmission or telephone that it has taken such action. ARTICLE XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 15.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2 CONSENT TO JURISDICTION. EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY 54 56 OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3 WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 55 57 IN WITNESS WHEREOF, the Borrowers, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written. CARDINAL HEALTH, INC. By: /s/ Stephanie A. Wagoner ------------------------------ Title: Vice President & Treasurer --------------------------- 7000 Cardinal Place Dublin, Ohio 43017 Attention: Suzanne L. Stoddard Telephone: (614) 717-7542 FAX: (614) 717-8542 56 58 Commitment: $21,875,000 THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Administrative Agent By: /s/ Daniel J. Pienta ------------------------------------- Title: Vice President ---------------------------------- 611 Woodward Avenue Detroit, Michigan 48226 Attention: Daniel J. Pienta Telephone: (313) 225-1525 FAX: (313) 225-1671 57 59 Commitment: $20,625,000 BANK OF AMERICA NT & SA By: /s/ Scott Singhoff ------------------------ Title: SVP --------------------- 700 Louisiana Street Houston, TX 77002 Attention: Scott Singhoff Telephone: (713) 247-6961 FAX: (713) 247-6719 58 60 Commitment: $20,625,000 CITICORP USA, INC. By: /s/ Mark Stanfield Packard ---------------------------- Title: Vice President ------------------------- 399 Park Avenue New York, NY 10043 Attention:_________________ Telephone:_________________ FAX:_______________________ 59 61 Commitment: $20,625,000 CREDIT SUISSE FIRST BOSTON By: /s/ Robert N. Finney ------------------------- Title: Managing Director ---------------------- By: /s/ Todd C. Morgan ------------------------- Title: Director ---------------------- 11 Madison Avenue New York, NY 10010 Attention:_________________ Telephone:_________________ FAX:_______________________ 60 62 Commitment: $15,625,000 FIRST UNION NATIONAL BANK By: /s/ John E. Reid --------------------------------- Title: Vice President ------------------------------ 301 South College Street, 10th Floor Charlotte, NC 28288-0745 Attention: John Reid Telephone: (704) 383-1385 FAX: (704) 383-7236 61 63 Commitment: $15,625,000 PNC BANK, NATIONAL ASSOCIATION By: /s/ C. J. Richardson --------------------------- Title: Senior Vice President ------------------------ 201 East Fifth Street Cincinnati, OH 45202 Attention: C. Joseph Richardson Telephone: (513) 651-8984 FAX: (513) 651-8951 62 64 Commitment: $15,625,000 WACHOVIA BANK, NA By: /s/ Bradford Watkins --------------------------- Title: Vice President ------------------------ 191 Peachtree Street, NE Atlanta, GA 30303 Attention: Bradford L. Watkins Telephone: (404) 332-1093 FAX: (404) 332-6898 63 65 Commitment: $13,125,000 BARCLAYS BANK PLC By: /s/ Matthew Tuck ------------------------ Title: Associate Director & Vice President --------------------- 222 Broadway, 8th Floor New York, NY 10038 Attention: Matthew Tuck Telephone: (212) 412-1131 FAX: (212) 412-1075 64 66 Commitment: $13,125,000 FLEET BANK, NATIONAL ASSOCIATION By /s/ Magda Hayden ------------------------------- Title: Senior Vice President --------------------------- 300 Broad Hollow Road Melville, NY 11747 Attention: Magda Hayden Telephone: (516) 547-7726 FAX: (516) 447-7815 65 67 Commitment: $13,125,000 DEUTSCHE BANK AG - NEW YORK BRANCH A/O CAYMAN ISLANDS BRANCH By /s/ Susan L. Pearson ------------------------------- Title: Director --------------------------- By /s/ Stephan A. Wiedermann ------------------------------- Title: Director --------------------------- 31 W. 52nd Street New York, NY 10019 Attention: Sue Pearson Telephone: (212) 469-7140 FAX: (212) 469-8701 66 68 Commitment: $8,000,000 BANCA COMMERCIALE ITALIANA - CHICAGO BRANCH By: /s/ By: /s/ -------------------------- -------------------------- Title: Vice President Title: Vice President ----------------------- ----------------------- 150 N. Michigan Avenue Chicago, Illinois 60601 Attention: Diana R. Lamb Telephone: (312) 346-1112 FAX: (312) 346-5758 67 69 Commitment: $8,000,000 BANK OF MONTREAL By: /s/ Patrice Wetzel ------------------------ Title: Director --------------------- 115 S. LaSalle Street Chicago, Illinois 60603 Attention: Patrice Wetzel Telephone: (312) 750-3472 FAX: (312) 750-6057 68 70 Commitment: $8,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Hisashi Miyashiro ------------------------------- Title: Deputy General Manager --------------------------- 227 W. Monroe Street, Suite 2300 Chicago, Illinois 60606 Attention: William Murray Telephone: (312) 696-4500 FAX: (312) 696-4535 69 71 Commitment: $8,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Robert Bottamedi ------------------------------- Title: Vice President --------------------------- 60 Wall Street, 5th Floor New York, NY 10271 Attention: Dave Stone ----------------------- Telephone: 212-648-1291 ----------------------- FAX: 212-648-5018 ----------------------------- 70 72 Commitment: $8,000,000 NATIONAL CITY BANK By /s/ Patricia Jackson ------------------------------- Title: Vice President --------------------------- 155 East Broad Street Columbus, OH 43251 Attention: Patricia Jackson Telephone: (614) 463-8065 FAX: (614) 463-6770 71 73 Commitment: $8,000,000 THE NORTHERN TRUST COMPANY By /s/ M. M. Teteak ------------------------------- Title: VP --------------------------- 50 S. LaSalle Street Chicago, Illinois 60675 Attention: Michelle M. Teteak Telephone: (312) 444-3506 FAX: (312) 444-5055 72 74 Commitment: $8,000,000 SUNTRUST BANK, ATLANTA By: /s/ Linda L. Dash ---------------------------------- Title: Vice President ------------------------------- 303 Peachtree Street, N.E., 3rd Floor Mail Code 1928 Atlanta, Georgia 30308 Attention: Linda L. Dash Telephone: (404) 658-4923 FAX: (404) 658-4905 73 75 Commitment: $8,000,000 STANDARD CHARTERED BANK By /s/ David D. Cutting ------------------------------- Title: Senior Vice President --------------------------- By /s/ Kristina McDavid ------------------------------- Title: Vice President --------------------------- Seven World Trade Center New York, NY 10048 Attention: David Cutting Telephone: (212) 667-0213 FAX: (212) 667-0225 74 76 Commitment: $8,000,000 THE BANK OF NEW YORK By /s/ Edward J. Dougherty III ------------------------------- Title: Vice President US Commercial Banking --------------------------- One Wall Street New York, NY 10286 Attention: Edward Dougherty Telephone: (212) 635-1330 FAX: (212) 635-6434 75 77 Commitment: $8,000,000 WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Brad Hardy -------------------------- Title: Vice President ----------------------- 222 W. Adams Street, Suite 2180 Chicago, Illinois 60606 Attention: Karen DeSantes Telephone: (312) 845-8602 FAX: (312) 553-2353 76 78 PRICING SCHEDULE The Applicable Margin shall be as determined by the matrix below:
- ----------------------------------------------------------------------------------------------------------------------------- Level I Level II Level III Level IV Level V Level VI Status Status Status Status Status Status - ----------------------------------------------------------------------------------------------------------------------------- Reference Rating A+ or A1 A or A2 A- or A3 BBB+ or BBB or (Less Than or Equal to) (Greater Than or Equal to) Baa1 Baa2 BBB- or Baa3 - ----------------------------------------------------------------------------------------------------------------------------- Facility Fee 5.0 6.0 7.0 8.0 10.0 12.5 - ----------------------------------------------------------------------------------------------------------------------------- Eurodollar Rate Applicable Margin 15.0 19.0 23.0 27.0 30.0 37.5 - ----------------------------------------------------------------------------------------------------------------------------- Utilization fee (Greater Than) 33% 2.5 2.5 5.0 5.0 10.0 15.0 - ----------------------------------------------------------------------------------------------------------------------------- Utilization fee (Greater Than) 67% 5.0 5.0 10.0 15.0 20.0 20.0 - -----------------------------------------------------------------------------------------------------------------------------
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Company's Moody's Rating is A1 or better or the Company's S&P Rating is A+ or better. "Level II Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status and (ii) the Company's Moody's Rating is A2 or better or the Company's S&P Rating is A or better. "Level III Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status or Level II Status and (ii) the Company's Moody's Rating is A3 or better or the Company's S&P Rating is A- or better. "Level IV Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Company's Moody's Rating is Baa1 or better or the Company's S&P rating is BBB+ or better. "Level V Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Company's Moody's rating is Baa2 or better or the Company's S&P rating is BBB or better. "Level VI Status" exists at any date if, on such date, the Company has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status. 77 79 "Moody's Rating" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "S&P Rating" means, at any time, the rating issued by Standard and Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means either Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status. The Applicable Margin shall be determined in accordance with the foregoing table based on the Company's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Company has no Moody's Rating or no S&P Rating, Level VI Status shall exist. 78 80 EXHIBIT A FORM OF OPINION 462-2685 May 7, 1999 The Administrative Agent and the Lenders who are the parties to the Credit Agreement described below. SUBJECT: CARDINAL HEALTH, INC. - FIVE-YEAR CREDIT AGREEMENT Gentlemen/Ladies: We are counsel for Cardinal Health, Inc., an Ohio corporation (the "COMPANY"), and have represented the Company in connection with its execution and delivery of a Five-Year Credit Agreement dated as of March ___, 1999 (the "AGREEMENT"), among the Company, the Subsidiary Borrowers, the Lenders named therein, and The First National Bank of Chicago, as Administrative Agent, providing for Advances in an aggregate principal amount not exceeding $750,000,000 at any one time outstanding. All capitalized terms used in this opinion and not otherwise defined herein shall have the meanings attributed to them in the Agreement. This opinion is being delivered to you pursuant to Section 4.1(a)(v) of the Agreement. In connection with the issuance of this opinion letter, we have examined the following documents: (a) An executed copy of the Agreement dated as of March ___, 1999, among the Company, the Subsidiary Borrowers, the Lenders named therein, and The First National Bank of Chicago, as Administrative Agent; (b) The Company's Articles of Incorporation as certified by the Ohio Secretary of State; (c) The Company's Code of Regulations as certified by the Company's assistant secretary; (d) A certificate of good standing of the Company issued by the Ohio Secretary of State; (e) Resolutions of the executive committee of the Company's board of directors as certified by the Company's assistant secretary; 79 81 (f) [INSERT DESCRIPTION OF NOTE(S) TO BE EXECUTED AT CLOSING]; (g) An executed copy of the Guaranty of the Company dated as of March ___, 1999; (h) A certificate of certain officers of the Company as to certain factual matters; and (i) Such other documents and matters of law as we deemed necessary or advisable in order to render the opinions set forth in this letter. The documents referenced in items (a), (f), and (g) are sometimes referred to hereinafter as the "LOAN DOCUMENTS". In our review and in rendering the opinions expressed herein, we have assumed, without independent verification, the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, facsimile, or photostatic copies, the completeness and correctness of any representations and certifications made to us by officers of the Company, the completeness and correctness of any representations and certificates of public officials and public filing records, and that the Loan Documents have been duly and validly authorized, executed, and delivered by all parties thereto other than the Company, and that the Loan Documents are binding and legally enforceable against all of the parties thereto, including without limitation the Subsidiary Borrowers, other than the Company. Based upon the foregoing, and subject to the qualifications set forth below, we are of the opinion that: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Ohio. 2. The execution and delivery by the Company of the Loan Documents to which it is a party and the performance by the Company of its obligations thereunder have been duly authorized by proper corporate proceedings on the part of the Company and will not: (a) Require any consent of the Company's shareholders; (b) (i) Violate (A) any order, judgment, or decree of any court or governmental agency binding on the Company and known to us, (B) any statute of the State of Ohio or the United States, or any written regulation thereunder, (C) the Company's articles of incorporation or code of regulations, or (D) the provisions of any indenture, instrument, or agreement to which the Company is a party or is subject, or by which it, or its Property, is bound, and which is filed or incorporated by reference as an exhibit to the Company's periodic reports under the Securities Exchange Act of 1934, pursuant to item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission, or (ii) conflict with or constitute a default under any such indenture, instrument, or agreement; or 80 82 (c) Result in, or require, the creation or imposition of any Lien in or on the Property of the Company pursuant to the terms of any indenture, instrument or agreement binding upon the Company, and which is filed or incorporated by reference as an exhibit to the Company's periodic reports under the Securities Exchange Act of 1934, pursuant to item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission. 3. The Loan Documents to which the Company is a party have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 4. To the best of our knowledge, there is no litigation, arbitration, governmental investigation, proceeding, or inquiry pending or threatened against the Company which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 5. No authorization or approval of, or filing with, any governmental agency of the United States or of the State of Ohio which has not been obtained or made is necessary for the execution and delivery of, and performance of the Company's obligations under the Agreement. In addition to any other qualification set forth herein, our opinions are qualified as follows: (A) We wish to advise you that we do not express any opinion with respect to: (1) the power or authority of the Lenders to make the loans contemplated by the Agreement; (2) compliance by the Lenders with any federal or state banking law, rule, regulation, or restriction; or (3) compliance by the Lenders with any federal, state, or foreign law, rule, regulation, or restriction which is or was required to be complied with by the Lenders (as opposed to compliance therewith by the Company) in order to enforce any rights or remedies of the Lenders under the Loan Documents. Accordingly, all of the foregoing opinions expressed by us are qualified to the extent set forth in the preceding sentence. (B) To the extent that the foregoing opinions are stated to be to the best of our knowledge, or relate to matters which are known to us, we have, with your consent, relied on one or more certificates of officers of the Company as to factual matters, and the absence of any contrary knowledge of those attorneys of our firm familiar with the affairs of the Company, and we have neither independently investigated nor attempted to verify any of such matters. (C) We have made no examination of and express no opinion as to: (1) the right, title, or interest of any person to any property; (2) the accuracy or sufficiency of the description in the Loan Documents of any real or personal property; or (3) the existence of or freedom of any property from any liens, security interests, or other encumbrances. (D) Our opinions are subject to and affected by: (1) any bankruptcy, insolvency, avoidance, fraudulent conveyance, reorganization, moratorium, or similar 81 83 laws affecting the rights and remedies of creditors generally; and (2) general principles of equity (whether considered in a proceeding in equity or at law). (E) We express no opinion as to whether a court would limit the exercise or enforcement of rights or remedies by the Lenders under the Loan Documents: (1) in the event of any default by the Company, if it is determined that such default is not material or if such exercise or enforcement is not reasonably necessary for the protection of the Lenders; or (2) if the exercise or enforcement thereof under the circumstances would violate an implied covenant of good faith and fair dealing. (F) Certain waivers and exculpatory clauses contained in the Loan Documents may be limited or unenforceable. (G) No opinion is expressed with respect to the validity or enforceability of those provisions of the Loan Documents which purport by their terms to relieve any party of, or to indemnify such party against, any liability for such party's own negligence, gross negligence, or willful misconduct, or to obligate the Company to bear the legal and other expenses of any other party. (H) All parties to the Loan Documents other than the Company have received adequate consideration for their execution and delivery of, and performance of their respective obligations under, the Loan Documents to which each of them is a party. (I) All conditions and other transactions contemplated by the Agreement to have occurred at or prior to the funding of [the initial Loans] have occurred or have been waived by the appropriate parties and Loans in the amount of the Aggregate Commitment will be fully available pursuant to the terms of the Agreement. (F) [Insert reasoned choice of law opinion] (G) We are authorized to practice law in Ohio, and no opinion is expressed herein other than as to the laws of the State of Ohio and federal law. With your permission, for purposes of the opinion set forth in paragraph ___, we have assumed that the substantive laws of the State of Ohio, except for conflicts of laws principles, would govern the Loan Documents. The opinions set forth herein are given as of the date hereof, and we disclaim any obligation to notify you or any other person or entity if any change in fact or law, or both (whether statutory, regulatory, regulatory interpretation or judicial interpretation), should change our opinion with respect to any matter set forth herein. This opinion may be relied upon and is solely for the benefit of the Addressees at the beginning of this opinion, but not any of their successors or assigns, and it is not to be made available to or relied upon by any party or communicated or disclosed to any other person without our prior written consent. Very truly yours, 82 84 BAKER & HOSTETLER LLP 83 85 EXHIBIT B COMPLIANCE CERTIFICATE Date:___________________________ _______________ The First National Bank of Chicago _______________ _______________ Dear __________: This notice serves to confirm that, to the best of my knowledge, Cardinal Health, Inc. (the "Company") has observed or performed in all material respects all of the covenants, conditions and agreements contained in the Five-Year Credit Agreement and the 364-Day Credit Agreement, each dated March __, 1999 and each among the Company, certain subsidiaries of the Company named therein, The First National Bank of Chicago, as Administrative Agent, and the lenders named therein. Detailed calculations are attached. In addition, please find enclosed a copy of our most recently filed Form 10-Q. Sincerely, ______________________________________________ [Chief Financial Officer/Controller/Treasurer] 84 86 Section 6.17, Minimum Net Worth. [INSERT CALCULATION] 85 87 EXHIBIT C ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between (the "Assignor") and (the "Assignee") is dated as of __________, 19__. The parties hereto agree as follows: 1) PRELIMINARY STATEMENT. The Assignor is a party to a 364-Day Credit Agreement dated as of March ___, 1999 (the "Agreement") among the Company, the Subsidiary Borrowers, the Lenders named therein, and The First National Bank of Chicago, as Administrative Agent (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2) ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents, such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents relating to the facilities listed in Item 3 of Schedule 1. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3) EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Administrative Agent) after this Assignment Agreement, together with any consents required under the Credit Agreement, are delivered to the Administrative Agent. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date are not made on the proposed Effective Date. 4) PAYMENT OBLIGATIONS. In consideration for the sale and assignment of Loans hereunder, the Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. On and after the Effective Date, the Assignee shall be entitled to receive from the Administrative Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee will promptly remit to the Assignor any interest on Loans and fees received from the Administrative Agent which relate 86 88 to the portion of the Commitment or Loans assigned to the Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee to the Assignor. In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 5) RECORDATION FEE. The Assignor and Assignee each agree to pay one-half of the recordation fee required to be paid to the Administrative Agent in connection with this Assignment Agreement unless otherwise specified in Item 6 of Schedule 1. 6) REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder, (ii) such interest is free and clear of any adverse claim created by the Assignor and (iii) the execution and delivery of this Assignment Agreement by the Assignor is duly authorized. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Company or any guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Company or any guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the property, books or records of the Company, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7) REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) confirms that the execution and delivery of this Assignment Agreement by the Assignee is duly authorized, (v) agrees that it will perform in accordance with their terms all of the obligations 87 89 which by the terms of the Loan Documents are required to be performed by it as a Lender, (vi) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vii) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement, and (ix) if applicable, attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes. 8) GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Illinois. 9) NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. 10) COUNTERPARTS; DELIVERY BY FACSIMILE. This Assignment Agreement may be executed in counterparts. Transmission by facsimile of an executed counterpart of this Assignment Agreement shall be deemed to constitute due and sufficient delivery of such counterpart and such facsimile shall be deemed to be an original counterpart of this Assignment Agreement. IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have executed this Assignment Agreement by executing Schedule 1 hereto as of the date first above written. 88 90 SCHEDULE 1 TO ASSIGNMENT AGREEMENT 1) Description and Date of Credit Agreement: 2) Date of Assignment Agreement: , 19 3) Amounts (As of Date of Item 2 above):
Facility Facility Facility Facility 1* 2* 3* 4* -------- -------- -------- -------- a. Assignee's ____% ____% ____% _____% percentage of each Facility purchased under the Assignment Agreement ***, **** b. Amount of each $____ $____ $____ $ Facility purchased under the Assignment Agreement ***, **** - ------------------------------------------------------------------------------------------------------------------------ 4) Assignee's Commitment $_________________________________ (or Loans with respect to terminated Commitments) purchased hereunder: - ------------------------------------------------------------------------------------------------------------------------ 5) Proposed Effective Date: ______________________________ - ------------------------------------------------------------------------------------------------------------------------ 6) Non-standard Recordation Fee Arrangement N/A [Assignor/Assignee to pay 100% of fee] [Fee waived by Administrative Agent]
89 91 Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By:_________________________ By:________________________ Title:______________________ Title:_____________________ ACCEPTED AND CONSENTED TO BY ACCEPTED AND CONSENTED TO BY [NAME OF COMPANY] [NAME OF AGENT] By:_________________________ By:________________________ Title:______________________ Title:_____________________ *Insert specific facility names per Credit Agreement **Percentage taken to 10 decimal places ***If fee is split 50-50, pick N/A as option ****Assignments must be pro rata 90 92 Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT ADMINISTRATIVE INFORMATION SHEET Attach Assignor's Administrative Information Sheet, which must include notice addresses for the Assignor and the Assignee (Sample form shown below) ASSIGNOR INFORMATION CONTACT: Name:_________________________________ Telephone No.:__________________ Fax No.:______________________________ Telex No.:______________________ Answerback:______________________ PAYMENT INFORMATION: Name & ABA # of Destination Bank:______________________________________ _________________________________ Account Name & Number for Wire Transfer:_______________________________ _______________________________ Other Instructions:____________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Address for Notices for Assignor:______________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ASSIGNEE INFORMATION CREDIT CONTACT: Name:_________________________________ Telephone No.:__________________ 91 93 Fax No.:______________________________ Telex No.:______________________ Answerback:______________________ KEY OPERATIONS CONTACTS: Booking Installation:______________ Booking Installation:______________ Name:______________________________ Name:______________________________ Telephone No.:_____________________ Telephone No.:_____________________ Fax No.:___________________________ Fax No.:___________________________ Telex No.:_________________________ Telex No.:_________________________ Answerback:________________________ Answerback:________________________ PAYMENT INFORMATION: Name & ABA # of Destination Bank:______________________________________ __________________________________________ Account Name & Number for Wire Transfer:_______________________________ ________________________________________________________________________________ Other Instructions:____________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Address for Notices for Assignee:______________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 92 94 EXHIBIT D LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent") under the Credit Agreement Described Below. Re: Credit Agreement, dated March __, 1999 (as the same may be amended or modified, the "Credit Agreement"), among Cardinal Health, Inc. (the "Company"), the Lenders named therein and the Administrative Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. The Administrative Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Administrative Agent of a specific written revocation of such instructions by the Company, provided, however, that the Administrative Agent may otherwise transfer funds as hereafter directed in writing by the Company in accordance with Section 13.1 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.14 of the Credit Agreement. Facility Identification Number(s)______________________________________ Customer/Account Name__________________________________________________ Transfer Funds To______________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ For Account No.________________________________________________________ Reference/Attention To_________________________________________________ Authorized Officer (Customer Representative) Date ____________________________________________ _______________ (Please Print) Signature Bank Officer Name Date ____________________________________________ _______________ 93 95 (Please Print) Signature EXHIBIT E NOTE [Date] Cardinal Health, Inc., an Ohio corporation (the "Borrower"), promises to pay to the order of ____________________________________ (the "Lender") the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Agreement (as hereinafter defined), in immediately available funds at the place specified pursuant to Article II of the Agreement together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the 364-Day Credit Agreement dated as of March 31, 1999 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the Subsidiary Borrowers and the lenders party thereto, including the Lender, and The First National Bank of Chicago, as Administrative Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is guaranteed pursuant to the Guaranty, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. By:_________________________________________ Print Name:_________________________________ Title:______________________________________ 94 96 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF ______________, DATED ______________,
Date Principal Amount of Maturity of Interest Principal Amount Unpaid Balance Loan Period Paid - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
95 97 SCHEDULE 1 SUBSIDIARIES AND OTHER INVESTMENTS (SEE SECTIONS 5.8 AND 6.12)
- ----------------------------------------------------------------- ---------------------------------------------------- NAME 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 - ----------------------------------------------------------------- ----------------------------------------------------
96 98
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- 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 - ----------------------------------------------------------------- ----------------------------------------------------
97 99
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- 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 - ----------------------------------------------------------------- ---------------------------------------------------- Managed Pharmacy Benefits, Inc. Missouri - ----------------------------------------------------------------- ---------------------------------------------------- Pharmacy Service Corporation Missouri - ----------------------------------------------------------------- ---------------------------------------------------- MediQual Systems, Inc. Delaware - ----------------------------------------------------------------- ---------------------------------------------------- National Pharmpak Services, Inc. Ohio - ----------------------------------------------------------------- ---------------------------------------------------- National Specialty Services, Inc. Tennessee - ----------------------------------------------------------------- ----------------------------------------------------
98 100
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- 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 - ----------------------------------------------------------------- ----------------------------------------------------
99 101
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- 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 Canada - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer Corporation Delaware - ----------------------------------------------------------------- ---------------------------------------------------- F & F Holding GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer GmbH Germany - ----------------------------------------------------------------- ----------------------------------------------------
100 102
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- Allcaps Weichgelatinekapseln GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- Gelatine 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 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 - ----------------------------------------------------------------- ----------------------------------------------------
101 103
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer K.K. Japan - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer Korea Limited Korea - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer Production S.A. France - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer S.A. France - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer S.p.A. Italy - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer DDS BV Holland - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer Pharmaceutical, Inc. New Jersey - ----------------------------------------------------------------- ---------------------------------------------------- RPS Technical Services, Inc. Delaware - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer Verwaltungs GmgH Germany - ----------------------------------------------------------------- ---------------------------------------------------- Allcaps Wichgelatinekapseln Verwaltungs GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer International (FSC), Ltd. Barbados - ----------------------------------------------------------------- ---------------------------------------------------- R.P. Scherer (Spain) SA Spain - ----------------------------------------------------------------- ---------------------------------------------------- The LVC Corporation Missouri - ----------------------------------------------------------------- ----------------------------------------------------
102 104
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- RedKey, Inc. Ohio - ----------------------------------------------------------------- ---------------------------------------------------- Solomons Company Georgia - ----------------------------------------------------------------- ---------------------------------------------------- Whitmire Distribution Corporation Delaware - ----------------------------------------------------------------- ---------------------------------------------------- Williams Drug Distributors, Inc. Delaware - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Corporation Delaware - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Corporation Delaware - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Foreign Sales Corporation Barbados - ----------------------------------------------------------------- ---------------------------------------------------- West Hudson, Inc. Nevada - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare International, Inc. Delaware - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Canada Inc. Canada - ----------------------------------------------------------------- ---------------------------------------------------- Source Medical, Inc. Canada - ----------------------------------------------------------------- ---------------------------------------------------- Cirmex de Chihuahua S.A. de C.V. Mexico - ----------------------------------------------------------------- ----------------------------------------------------
103 105
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- Cirpro de Delicias S.A. de C.V. Mexico - ----------------------------------------------------------------- ---------------------------------------------------- Convertors de Mexico S.A. de C.V. Mexico - ----------------------------------------------------------------- ---------------------------------------------------- Productos Urologos de Mexico S.A. de C.V. Mexico - ----------------------------------------------------------------- ---------------------------------------------------- Quiroproductos de Cuauhtemoc S.A. de C.V. Mexico - ----------------------------------------------------------------- ---------------------------------------------------- Dutch American Manufacturers (D.A.M.) B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Holding B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Deutschland Holding GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Deutschland GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- International Medical Produces (Deutschland) GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- Surgi-Tech Deutschland GmbH Germany - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare GmbH Switzerland - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Limited United Kingdom - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Industries Sdn. Bhd. New Synthetics Company Malaysia - ----------------------------------------------------------------- ----------------------------------------------------
104 106
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance International Manufacturing B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Medica S.R.L. Italy - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance S.L. Spain - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance S.P.R.L. Belgium - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Sante S.A. France - ----------------------------------------------------------------- ---------------------------------------------------- International Medical Products Group B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- International Medical Products Holding B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- International Medical Products, B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Medpro Medische Produkten B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- SOHO Disposables B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Surgical Technologies Europa B.V. Netherlands - ----------------------------------------------------------------- ---------------------------------------------------- Surgi-Tech Europa Divisione Surgi-Tech Italia S.R.L. Italy - ----------------------------------------------------------------- ----------------------------------------------------
105 107
- ----------------------------------------------------------------- ---------------------------------------------------- NAME JURISDICTION OF INCORPORATION ---- ----------------------------- - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare (Thailand) Ltd. Thailand - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance Healthcare Sdn. Bhd. Malaysia - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance International GmbH Austria - ----------------------------------------------------------------- ---------------------------------------------------- Allegiance International Manufacturing (Bermuda) Ltd. Bermuda - ----------------------------------------------------------------- ---------------------------------------------------- Bauer Branch Dominican Republic - ----------------------------------------------------------------- ---------------------------------------------------- Converters Branch Dominican Republic - ----------------------------------------------------------------- ---------------------------------------------------- Eurovac Limited Malta - ----------------------------------------------------------------- ----------------------------------------------------
106 108 SCHEDULE 3 EURODOLLAR PAYMENT OFFICES OF THE AGENT Eurodollar Payment Office ------------------------- The First National Bank of Chicago Detroit, Michigan 107 109 SCHEDULE 4 LENDING INSTALLATIONS
Lender Floating Rate Loans Eurodollar Loans (list all) ------ ------------------- --------------------------- The First National Bank of Chicago The First National Bank of Chicago, The First National Bank of Chicago, Detroit, Michigan London Branch
108 110 SCHEDULE 7 LITIGATION AND CONTINGENT OBLIGATIONS 109 111 TABLE OF CONTENTS Article I. DEFINITIONS............................................................................................1 Article II. THE CREDITS..........................................................................................12 2.1 Commitments of the Lenders; Revolving Credit Advances..........................................12 2.2 Termination....................................................................................12 2.3 Ratable Loans..................................................................................12 2.4 Types of Advances..............................................................................12 2.5 Facility Fee; Reductions in Aggregate Commitment; Utilization Fee..............................12 2.6 Minimum Amount of Each Advance.................................................................12 2.7 Prepayments....................................................................................13 2.8 Method of Selecting Types and Interest Periods for New Advances................................13 2.9 Conversion and Continuation of Outstanding Advances............................................13 2.10 Method of Borrowing............................................................................14 2.11 Changes in Interest Rate, etc..................................................................14 2.12 Rates Applicable After Default.................................................................15 2.13 Method of Payment..............................................................................15 2.14 Noteless Agreement; Evidence of Indebtedness...................................................15 2.15 Telephonic Notices.............................................................................16 2.16 Interest Payment Dates; Interest and Fee Basis.................................................16 2.17 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................17 2.18 Lending Installations..........................................................................17 2.19 Non-Receipt of Funds by the Administrative Agent...............................................17 2.20 Judgment Currency..............................................................................18 2.21 Replacement of Lender..........................................................................19 Article III. YIELD PROTECTION; TAXES.............................................................................19 3.1 Yield Protection...............................................................................19
110 112 3.2 Changes in Capital Adequacy Regulations........................................................20 3.3 Availability of Types of Advances..............................................................21 3.4 Funding Indemnification........................................................................21 3.5 Taxes..........................................................................................21 3.6 Lender Statements; Survival of Indemnity.......................................................23 Article IV. CONDITIONS PRECEDENT.................................................................................24 4.1 Initial Advance................................................................................24 4.2 Each Advance...................................................................................25 Article V. REPRESENTATIONS AND WARRANTIES........................................................................26 5.1 Existence and Standing.........................................................................26 5.2 Authorization and Validity.....................................................................26 5.3 No Conflict; Government Consent................................................................26 5.4 Financial Statements...........................................................................27 5.5 Material Adverse Change........................................................................27 5.6 Taxes..........................................................................................27 5.7 Litigation and Contingent Obligations..........................................................27 5.8 Subsidiaries...................................................................................28 5.9 ERISA..........................................................................................28 5.10 Accuracy of Information........................................................................28 5.11 Regulation U...................................................................................29 5.12 Material Agreements............................................................................29 5.13 Compliance With Laws...........................................................................29 5.14 Plan Assets; Prohibited Transactions...........................................................29 5.15 Environmental Matters..........................................................................29 5.16 Investment Company Act.........................................................................30 5.17 Public Utility Holding Company Act.............................................................30 5.18 Year 2000......................................................................................30 5.19 Default........................................................................................30 Article VI. COVENANTS............................................................................................30
111 113 6.1 Financial Reporting............................................................................30 6.2 Use of Proceeds................................................................................31 6.3 Notice of Default..............................................................................31 6.4 Conduct of Business............................................................................32 6.5 Taxes..........................................................................................32 6.6 Insurance......................................................................................32 6.7 Compliance with Laws...........................................................................32 6.8 Inspection.....................................................................................32 6.9 Merger.........................................................................................33 6.10 Sale of Assets.................................................................................33 6.11 Investments....................................................................................34 6.12 Liens..........................................................................................34 6.13 Year 2000......................................................................................36 6.14 Subsidiary Indebtedness. ......................................................................36 6.15 Limitation on Restrictions on Significant Subsidiary Distributions. ...........................37 6.16 Contingent Obligations.........................................................................37 6.17 Minimum Net Worth..............................................................................38 Article VII. DEFAULTS............................................................................................38 Article VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.....................................................40 8.1 Acceleration...................................................................................40 8.2 Amendments.....................................................................................40 8.3 Preservation of Rights.........................................................................41 Article IX. GENERAL PROVISIONS...................................................................................41 9.1 Survival of Representations....................................................................41 9.2 Governmental Regulation........................................................................42 9.3 Headings.......................................................................................42 9.4 Entire Agreement...............................................................................42 9.5 Several Obligations; Benefits of this Agreement................................................42 9.6 Expenses; Indemnification......................................................................42
112 114 9.7 Numbers of Documents...........................................................................43 9.8 Accounting.....................................................................................43 9.9 Severability of Provisions.....................................................................43 9.10 Nonliability of Lenders........................................................................43 9.11 Confidentiality................................................................................44 9.12 Nonreliance....................................................................................44 Article X. THE AGENT.............................................................................................44 10.1 Appointment; Nature of Relationship............................................................44 10.2 Powers.........................................................................................45 10.3 General Immunity...............................................................................45 10.4 No Responsibility for Loans, Recitals, etc.....................................................45 10.5 Action on Instructions of Lenders..............................................................46 10.6 Employment of Agents and Counsel...............................................................46 10.7 Reliance on Documents; Counsel.................................................................46 10.8 Administrative Agent's Reimbursement and Indemnification.......................................46 10.9 Notice of Default..............................................................................47 10.10 Rights as a Lender.............................................................................47 10.11 Lender Credit Decision.........................................................................47 10.12 Successor Administrative Agent.................................................................48 10.13 Administrative Agent's Fee.....................................................................49 10.14 Delegation to Affiliates.......................................................................49 10.15 Administrative Agent, Syndication Agent, Co-Documentation Agents, Lead Arranger, etc...........49 Article XI. SETOFF; RATABLE PAYMENTS.............................................................................49 11.1 Setoff.........................................................................................49 11.2 Ratable Payments...............................................................................49 Article XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS...................................................50 12.1 Successors and Assigns.........................................................................50 12.2 Participations.................................................................................50
113 115 12.3 Assignments....................................................................................51 12.4 Dissemination of Information...................................................................52 12.5 Tax Treatment..................................................................................52 Article XIII. NOTICES............................................................................................53 13.1 Notices........................................................................................53 13.2 Change of Address..............................................................................54 Article XIV. COUNTERPARTS........................................................................................54 Article XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.........................................54 15.1 CHOICE OF LAW..................................................................................54 15.2 CONSENT TO JURISDICTION........................................................................54 15.3 WAIVER OF JURY TRIAL...........................................................................55
114 EX-10.23 9 EXHIBIT 10.23 1 Exhibit 10.23 OMNIBUS AMENDMENT This OMNIBUS AMENDMENT, dated as of May 25, 1999 (this "AMENDMENT"), is among CARDINAL SOUTHEAST, INC. (formerly known as Cardinal Mississippi, Inc. and successor by merger with Cardinal Florida, Inc.), a Mississippi corporation, WHITMIRE DISTRIBUTION CORPORATION, a Delaware corporation, RENLAR SYSTEMS, INC., a Kentucky corporation, and PYXIS CORPORATION, a Delaware corporation (each a "LESSEE" and, collectively, "Lessees"), CARDINAL HEALTH INC., an Ohio corporation ("Guarantor"), the financial institutions parties hereto as lenders (the "LENDERS"),SUNTRUST BANKS, INC., a Georgia corporation ("LESSOR"), and SUNTRUST BANK, ATLANTA, a Georgia banking corporation, as agent for the Lenders (in such capacity, the "AGENT"). BACKGROUND 1. Certain of the Lessees, Guarantor, Lessor, certain of the Lenders and the Agent are parties to that certain Master Agreement, dated as of July 16, 1996 (as amended, the "MASTER AGREEMENT") as amended by an Amendment to MASTER AGREEMENT, dated as of May 19, 1998 (the "1998 AMENDMENT"). 2. The parties hereto desire to further amend the Master Agreement and certain other Operative Documents (as defined below) in certain respects as set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Master Agreement. Section 2. AGREEMENT TO ACQUIRE LAND; AGGREGATE LIMIT ON FUNDED AMOUNTS. (a) SECTION 2.1(b) of the Master Agreement is hereby amended by adding the following phrase at the end of such Section: "; PROVIDED, HOWEVER, that no Closing Date with respect to any parcel of Land that does not have a completed Building at the time of acquisition by the Lessor shall occur after May 25, 2002". (b) SECTION 2.2(c) of the Master Agreement is hereby amended by deleting the number "$75,000,000" where it appears in CLAUSE (y) of the first sentence thereof and substituting therefor the number "$160,000,000". Section 3. COMMITMENTS. (a) SCHEDULE 2.2 to the Master Agreement is hereby amended by deleting it in its entirety and substituting therefor SCHEDULE 2.2 to this Amendment. Each of Wachovia Bank, N.A., The Fifth Third Bank and Firstar Bank, N.A. (the "NEW LENDERS") 2 is hereby made a party to the Master Agreement and the Loan Agreement, and shall have all the rights and obligations of a "Lender" under the Master Agreement, the Loan Agreement and the other Operative Documents as if it were an original signatory thereto to the extent of its Commitment. Each of the New Lenders agrees to be bound by the terms and conditions applicable to a "Lender" set forth in the Master Agreement, the Loan Agreement and the other Operative Documents as if it were an original signatory thereto. Each of the New Lenders hereby acknowledges and confirms that it has received a copy of each of the Operative Documents and that in becoming a Lender and in making its Commitment and Loans under the Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by, the Agent, any other Lender or the Lessor. The Lessees and the Agent hereby consent to the addition of the New Lenders. On the date hereof, certain of the Lenders, including the New Lenders, shall make payments to the Agent, who shall distribute such payments to the other Lenders, such that, after giving effect to such payment and distributions, each Lender's outstanding Loans shall be equal to the product of (i) the aggregate outstanding Funded Amounts on such date TIMES (ii) such Lender's Commitment Percentage. Such payment shall be made in immediately available funds to such account as the Agent shall specify to the Lenders. (b) SECTION 2.3(a) is hereby amended by deleting the phrase "0.44475" per annum" where it appears in CLAUSE (x) thereof and substituting therefor the phrase "the Applicable Margin." (c) SECTION 2.3(d) is hereby amended by deleting the percentage "0.125%" where it appears in CLAUSE (x) thereof and substituting therefor the phrase "the Applicable Fee Rate". Section 4. PRICING SCHEDULE. The Pricing Schedule attached to this Agreement is hereby made the Pricing Schedule to the Master Agreement. Section 5. BASE TERM; FUNDING TERMINATION DATE; REQUIRED LENDERS; REQUIRED FUNDING PARTIES. (a) The definition of "A Percentage" that appears in APPENDIX A is hereby amended by deleting the percentage "84%" where it appears therein and substituting therefore the percentage "85%". (b) The definition of "B Percentage" that appears in APPENDIX A is hereby amended by deleting the percentage "16%" where it appears therein and substituting therefore the percentage "15%". (c) The definition of "Base Term" that appears in APPENDIX A is hereby amended by deleting the phrase "the sixth (6th) anniversary of such Closing Date" where it appears therein and substituting therefore the date "May 25, 2004." (d) The definition of "Funding Termination Date" that appears in APPENDIX A is hereby amended by deleting the date "July 16, 2002" where it appears therein and substituting therefor the date "May 25, 2004". 3 (e) The definition of "Required Lenders" that appears in APPENDIX A is hereby amended by deleting the percentage "66-2/3%" where it appears therein and substituting therefor the percentage "51%". (f) The definition of "Required Funding Parties" that appears in APPENDIX A is hereby amended by deleting the percentage "66-2/3%" where it appears therein and substituting therefor the percentage "51%". Section 6. CERTAIN DEFINITIONS. (a) APPENDIX A is hereby amended by deleting the definitions of "Change in Control", "Indebtedness", "Material Adverse Effect" and "Subsidiary" as they appear therein. (b) APPENDIX A is hereby amended by adding the following definitions thereto in appropriate alphabetical order: As used in this Agreement: "364-DAY CREDIT AGREEMENT" means the 364-Day Credit Agreement dated March 31, 1999 between the Guarantor, the Subsidiaries of the Guarantor listed as "Subsidiary Borrowers" on Schedule 1 thereto, the lenders party thereto and The First National Bank of Chicago, as administrative agent, as such agreement may be amended, restated or extended from time to time. "ADJUSTED TANGIBLE NET WORTH" means, as of any date, (i) the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of the Guarantor and its consolidated Subsidiaries, but excluding the amount of any foreign currency translation adjustment account shown as a capital account, less (ii) the net book value of all items of the following character which are included in the assets of the Guarantor and its consolidated Subsidiaries: (a) goodwill, including, without limitation, the excess of cost over book value of any asset, (b) organization or experimental expenses, (c) unamortized debt discount and expense, (d) patents, trademarks, trade names and copyrights, (e) treasury stock, (f) franchises, licenses and permits, and (g) other assets which are deemed intangible assets under Agreement Accounting Principles. "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting principles in the United States of America in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in SECTION 6.11 of the Guaranty; PROVIDED, HOWEVER, that if any change in Agreement Accounting Principles from those applied in preparing such financial statements affects the calculation of any financial covenant contained in the Guaranty or any other Operative Document, the Guarantor, the Lessees and the Agent hereby agree to negotiate in good faith towards making appropriate amendments acceptable to the 4 Required Lenders to the provisions of this Agreement to reflect as nearly as possible the effect of the financial covenants as in effect on the date hereof. "APPLICABLE FEE RATE" means, at any time, the percentage rate per annum at which the Commitment Fee is accruing at such time as set forth in the Pricing Schedule. "APPLICABLE MARGIN" means, at any time, the percentage rate per annum which is applicable at such time as set forth in the Pricing Schedule; provided that, upon the occurrence and during the continuation of an Event of Default, the Applicable Margin shall be the highest Applicable Margin set forth in the Pricing Schedule. "CAPITALIZED LEASE" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CASH EQUIVALENT INVESTMENTS" means (i) short-term obligations of, or fully guaranteed by, the United States of America, (ii) commercial paper rated A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts maintained in the ordinary course of business, (iv) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000, (v) banker's acceptances, (vi) money-market funds, PROVIDED that such funds invest solely in securities otherwise described in this definition, (vii) variable rate demand notes, (viii) municipal preferred stock, (ix) cash market preferred stock, and (x) short term municipal notes; PROVIDED in each case that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest. "CHANGE IN CONTROL" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Guarantor, provided, however, that the acquisitions by or on behalf of a Plan, an employee stock purchase plan of the Guarantor, or by Persons who before such acquisition were officers, directors, employees or who held in the aggregate not less than 5% of the outstanding shares of voting stock of the Guarantor shall not be included in determining whether a Change in Control shall have occurred. "CONSOLIDATED OR "consolidated" means, when used with reference to any financial term in the Master Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated basis in accordance with Agreement Accounting Principles. 5 "CONSTRUCTION BUDGET" is defined in Section 2.4 of the Construction Agency Agreement. "CONSTRUCTION FAILURE PAYMENT" with respect to any Second Group Property means the amount equal to the sum of (i) 89.9% of the acquisition cost of the related Land, if the cost of the related Land is less than 25% of the total expected cost of such Second Group Property or 100% of the acquisition cost of the related Land, if the cost of the related Land is equal to or more than 25% of the total expected cost of such Second Group Property, PLUS (ii) 89.9% of the Construction costs (including development and transaction costs) related to such Second Group Property that have been incurred through the date of payment, PLUS (iii) any amounts owed with respect to such Second Group Property pursuant to Section 3.4 of the Construction Agency Agreement or Section 7.2 of the Master Agreement, PLUS (iv) the cost of tenant improvements not paid by a Construction Agent that were not part of the Construction Budget for such Second Group Property. "CONTINGENT OBLIGATION" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person for Indebtedness, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor or such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership, PROVIDED, HOWEVER, that any assumption, guaranty, endorsement or undertaking with respect to any liability of any of its Subsidiaries to any other of its Subsidiaries shall not be a Contingent Obligation of the Guarantor. "CONTROLLED GROUP" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Guarantor or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "INDEBTEDNESS" of a Person means, as of any date, such Person's (i) obligations for borrowed money or evidenced by bonds, notes, acceptances, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv) obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (v) Capitalized Lease Obligations, (vi) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person, (vii) any Rate Hedging Obligations of such Person, 6 and (viii) all Contingent Obligations of such Person with respect to or relating to the indebtedness, obligations and liabilities of others similar in character to those described in CLAUSES (i) through (vii) of this definition. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations or prospects of the Guarantor and its subsidiaries taken as a whole, (ii) the ability of the Guarantor or any Lessee to perform in any material respect under the Operative Documents, (iii) the value, utility or useful life of any Leased Property, (iv) the validity, enforceability or legality of any of the Operative Documents, or (v) the priority, perfection or status of the Funding Party's interest in any Leased Property. "NET WORTH" means at any time the consolidated stockholder's equity of the Guarantor and its Subsidiaries calculated on a consolidated basis as of such time in accordance with Agreement Accounting Principles. "PRICING SCHEDULE" means the schedule attached to the Master Agreement identified as such. "PROPERTY" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned or leased by such Person. "RATE HEDGING AGREEMENT" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "RATE HEDGING OBLIGATIONS" of any Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, PROVIDED, HOWEVER, that a failure to 7 meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "SECOND GROUP PROPERTY" means each Leased Property with respect to which the related Land was acquired by the Lessor after May 21, 1998. "SIGNIFICANT SUBSIDIARY" means any Subsidiary of the Guarantor that would be a "significant subsidiary" within the meaning of Rule 1-02 of the Securities and Exchange Commission's Regulation S-X if 5% were substituted for 10% wherever it occurs in such Rule. "SINGLE EMPLOYER PLAN" means a Plan maintained by the Guarantor or any member of the Controlled Group for employees of the Guarantor or any member of the Controlled Group. "SUBSIDIARY" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Guarantor. "SUBSTANTIAL PORTION" means, with respect to the Property of the Guarantor and its Subsidiaries, Property which (i) represents more than 20% of the consolidated assets of the Guarantor and its Subsidiaries as would be shown in the consolidated financial statements of the Guarantor and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made or (ii) is responsible for more than 20% of the consolidated net sales or of the consolidated net income of the Guarantor and its Subsidiaries as reflected in the financial statements referred to in CLAUSE (i) above. "UNFUNDED LIABILITIES" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations. "YEAR 2000 ISSUES" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications of the Guarantor and its Subsidiaries, and of the Guarantor's and its Subsidiaries' material customers, suppliers and vendors, to function on and after January 1, 2000 as they do on the date hereof, including handling of applications involving dates, as such inability affects the business, operations and financial condition of the Guarantor and its Subsidiaries. "YEAR 2000 PROGRAM" is defined in SECTION 6.17 of the Guaranty. 8 Section 7. FUNDINGS. SECTION 2.2(e) of the Master Agreement is hereby amended by deleting the phrase "the Lessee reasonably believes will be due in the 90 days following such Funding from the Lessee" where it appears in the first sentence thereof and substituting therefor the phrase "are then due". Section 8. APPRAISALS. (a) SECTION 3.1(a)(vii) is hereby amended by adding the following phrase at the end of the last sentence thereof: "; PROVIDED, HOWEVER, that no Appraisal shall be required pursuant to this SECTION 3.1(a)(vii) for any Land or any Building if (i) the initial Funding therefor shall have occurred on or after May 25, 1999, and (ii) such Land or such Building shall be reasonably consistent, in the reasonable judgment of the Agent, with the Land and Buildings for which Fundings have been made pursuant to SECTION 2.2 hereof prior to such date". (b) SECTION 3.5(d) is hereby amended by adding the following phrase at the end of the first sentence thereof: "; PROVIDED, HOWEVER, that no Completion Date Appraisal shall be required pursuant to this SECTION 3.5(d) for any Land and any Building thereon if the first Funding with respect to such Land occurs after May 25, 1999". Section 9. INDEMNITY. SECTION 7.1 of the Master Agreement is hereby amended by adding the following phrase at the end of the first sentence thereof: "; and, PROVIDED, FURTHER, that with respect to each Construction Land Interest that is also a Second Group Property, the Lessee's indemnity obligations with respect to such Second Group Property shall be governed by Section 3.4 of the Construction Agency Agreement during the Construction Term therefor." SECTION 7.2 of the Master Agreement is hereby amended by adding the phrase "or Section 3.4 of the Construction Agency Agreement" after the phrase "without limitation of SECTION 7.1" where it appears in the second line thereof. Section 10. THE LEASE. (a) ARTICLE XII of the Lease is hereby amended as follows: (i) PARAGRAPH (e) and (f) thereof are hereby amended by deleting such paragraphs in their entirety and substituting therefor the following: (e) (i) the occurrence of any breach under SECTION 7 of the Guaranty (other than those Sections listed in CLAUSE (ii) below) and the continuance thereof for a period of thirty (30) days after the earlier of(x) written notice thereof from Lessor and (y) knowledge of such breach by a Responsible Officer of Cardinal, or (ii) the occurrence of any breach of SECTION 7.3, 7.9, 7.10, 7.14, 7.16 or 7.17 of the Guaranty. (f) the failure of any Lessee, the Guarantor or any of its Significant Subsidiaries to pay when due any principal, interest or other amounts, subject to any applicable grace period, or the default by any Lessee, the Guarantor or any of its Significant Subsidiaries in the performance beyond the applicable grace period with 9 respect thereto, if any of any term, provision or condition contained in the 364-Day Credit Agreement or any agreement or agreements under which any Indebtedness in excess of 2% of Adjusted Tangible Net Worth was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders, of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of any Lessee, the Guarantor or any of its Significant Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof, or any Lessee, the Guarantor or any of its Significant Subsidiaries shall not pay, or admit in writing its inability to pay, it debts generally as they become due; (ii) PARAGRAPH (g) thereof is hereby amended by inserting the phrase "or any of its Significant Subsidiaries" after the phrase "Lessee or Guarantor" where such phrase appears in the first line of such paragraph. (iii) PARAGRAPH (h) thereof is hereby amended by inserting the phrase "or any of its Significant Subsidiaries" after the phrase "Lessee or Guarantor" where such phrase appears in the first line of such paragraph. (iv) PARAGRAPH (j) thereof is hereby amended (i) by deleting the word "or" where it appears in the second line thereof, and (ii) by inserting the following at the end of such paragraph: "or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty." (v) PARAGRAPHS (m) and (n) thereof are hereby amended by deleting such paragraphs in their entirety and substituting therefor the following: (m) Any Lessee, the Guarantor or any of its Significant Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge one or more (i) judgements or orders for the payment of money (not covered by insurance) in excess of 2% of Adjusted Tangible Net Worth (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or(ii) nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments(s), in either such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith; (n) Any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $75,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Single Employer Plan with Unfunded Liabilities in excess of $20,000,000 (a "Material Plan") shall be filed under Section 4041(c) of ERISA by any member of the Controlled Group, any plan administrator or any combination of the foregoing; or PBGC shall institute proceedings under which it is likely to prevail under Title IV of ERISA to terminate, to impose liability 10 (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which causes one or more members of the Controlled Group to incur a current payment obligation in excess of $75,000,000; (vi) PARAGRAPH (o) is hereby amended by deleting the period at the end of such paragraph and substituting therefor ", and". (b) The following is inserted at the end of ARTICLE XII: (p) Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Guarantor and its Subsidiaries which, when taken together with all other Property of the Guarantor and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. (c) SECTION 14.1(b) of the Lease is hereby amended by deleting the word "two" where it appears in the fifth line thereof and substituting therefor the word "three". Section 11. THE GUARANTY. (a) SECTION 6 of the Guaranty is hereby amended as follows: (i) SECTION 6.10 is hereby amended by deleting such Section in its entirety and substituting therefor the following: Section 6.10 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $75,000,000. Each Single Employer Plan complies in all material respects with all applicable requirements of law and regulations where the failure to so comply could reasonably be expected to have a Material Adverse Effect. No Reportable Event has occurred with respect to any Plan where such occurrence could reasonably be expected to have a Material Adverse Effect. Neither any Lessee, the Guarantor nor any of its Significant Subsidiaries has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Single Employer Plan where in either instance a liability in excess of $75,000,000 could reasonably be expected to result. (ii) SECTION 6.11 is hereby amended by deleting such Section in its entirety and substituting therefor the following: 11 Section 6.11 FINANCIAL STATEMENTS. The following consolidated financial statements heretofore delivered to the Agent and the Lenders were prepared in accordance with Agreement Accounting Principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Guarantor and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject, in the case of such interim statements, to routine year-end audit adjustments: (i) June 30, 1998 audited consolidated financial statements of the Guarantor and its Subsidiaries; December 31, 1997 audited consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries; (ii) December 31, 1998 unaudited interim consolidated financial statements of the Guarantor and its Subsidiaries; and (iii) December 31, 1998 unaudited interim consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries. (iii) The following is inserted at the end of SECTION 6: Section 6.13 MATERIAL AGREEMENTS. Neither the Guarantor nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Guarantor nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. Section 6.14 COMPLIANCE WITH LAWS. The Guarantor and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. Section 6.15 PLAN ASSETS; PROHIBITED TRANSACTIONS. The Guarantor is not an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of 12 the Code), and neither the execution of this Guaranty nor the making of Fundings under the Master Agreement gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. Section 6.16 ENVIRONMENTAL MATTERS. In the ordinary course of its business, the officers of the Guarantor consider the effect of Environmental Laws on the business of the Guarantor and its Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Guarantor due to Environmental Laws. On the basis of this consideration, the Guarantor has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Guarantor nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. Section 6.17 YEAR 2000. The Guarantor has substantially completed an assessment of the Year 2000 Issues and has a realistic and achievable program for addressing the remediation of Year 2000 Issues on a timely basis to avoid any impact on the Guarantor and its Subsidiaries which would reasonably be expected to have a Material Adverse Effect (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program the Guarantor does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. (b) SECTIONS 7.1 through 7.15 are hereby amended by deleting such sections in their entirety and substituting the following therefor: Section 7.1 FINANCIAL REPORTING. The Guarantor will maintain, for itself and each Subsidiary, a system of accounting established and administrated in accordance with Agreement Accounting Principles, and furnish to the Agent: (i) Within 120 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in Agreement Accounting Principles and required or approved by the Guarantor's independent certified public accountants) audit report certified by independent certified public accountants reasonably acceptable to the Agent, prepared in accordance with Agreement Accounting Principles on a consolidated basis 13 for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss statements, and a statement of cash flows. (ii) Within 60 days after the close of each of the first three quarterly periods of each fiscal year, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated unaudited profit and loss statements and a consolidated unaudited statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer, Controller or Treasurer. (iii) Together with the financial statements required under Section 7.1(i) and (ii), a compliance certificate in substantially the form of EXHIBIT A signed by its Chief Financial Officer, Controller, or Treasurer and stating that no Event of Default or Potential Event of Default exists, or if any Event of Default or Potential Event of Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within 10 Business Days after the Guarantor knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Financial Officer, Controller, or Treasurer of the Guarantor, describing said Reportable Event and the action which the Guarantor proposes to take with respect thereto. (v) As soon as possible and in any event within 10 Business Days after receipt by the Guarantor, a copy of (a) any notice or claim to the effect that any Lessee, the Guarantor or any of its Subsidiaries is or may be liable to any Person as a result of the release by any Lessee, the Guarantor, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by any Lessee, the Guarantor or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 14 Section 7.2 USE OF PROCEEDS. The proceeds of the Fundings will be used to purchase and/or construct Land and Buildings which shall constitute Leased Property. The Guarantor will not, nor will it permit any Subsidiary to, use any of the proceeds of the Fundings to purchase or carry any "margin stock" (as defined in Regulation U). Section 7.3 NOTICE OF DEFAULT. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, give prompt notice in writing to the Agent of the occurrence of (i) any Event of Default or Potential Event of Default and (ii) any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues) which could reasonably be expected to have a Material Adverse Effect. Section 7.4 CONDUCT OF BUSINESS. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted or fields related thereto (except that the Guarantor, its Significant Subsidiaries and each Lessee shall have no duty to renew or extend contracts which expire by their terms) and, subject to the rights set forth in SECTION 7.9 hereof, do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect. Section 7.5 TAXES. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 15 Section 7.6 INSURANCE. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, maintain as part of a self-insurance program or with financially sound and reputable insurance companies insurance on all their Property in such amounts (with such customary deductibles, exclusions and self-insurance) and covering such risks as is consistent with sound business practice. Section 7.7 COMPLIANCE WITH LAWS. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Section 7.8 INSPECTION. The Guarantor will, and will cause each Significant Subsidiary and each Lessee to, permit the Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Guarantor, each Lessee and each Significant Subsidiary, to examine and make copies of the books of accounts and other financial records of the Guarantor, each Lessee and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Guarantor, each Lessee and each Significant Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable prior notice at such reasonable times and intervals as the Agent or any Funding Party may designate, PROVIDED that neither the Guarantor, any Lessee nor any of its Significant Subsidiaries shall be responsible for the costs and expenses incurred by the Agent, any Funding Party, or their representatives in connection with such inspection prior to the occurrence and continuation of an Event of Default. Section 7.9 MERGER. The Guarantor will not, nor will it permit any Significant Subsidiary or any Lessee to, merge or consolidate with or into any other Person, except that, PROVIDED that no Event of Default or Potential Event of Default shall have occurred and be continuing or would result therefrom on a pro forma basis reasonably acceptable to the Agent, the Guarantor or any Lessee may merge or consolidate with any other U.S. corporation and each Significant Subsidiary may merge or consolidate with any other Person, PROVIDED, FURTHER, that (i) in the case of any such merger or consolidation involving the Guarantor, the Guarantor is the surviving corporation and (ii) in the case of any such merger or consolidation 16 involving a Lessee, the surviving corporation assumes all of such Lessee's obligations under this Master Agreement and the other Operative Documents and remains or becomes a Lessee. Section 7.10 SALE OF ASSETS. The Guarantor will not, nor will it permit any Significant Subsidiary or any Lessee to, lease, sell or otherwise dispose of its Property, to any other Person (other than the Guarantor, any Lessee or another Subsidiary), except: (i) Sales of inventory in the ordinary course of business. (ii) Sales or other dispositions in the ordinary course of business of fixed assets for the purpose of replacing such fixed assets, PROVIDED that such fixed assets are replaced within 360 days of such sale or other disposition with other fixed assets which have a fair market value not materially less than the fixed assets sold or otherwise disposed of. (iii) Sales or other dispositions outside the ordinary course of business of accounts receivable, lease receivables, leases or equipment which had been leased by the Guarantor, such Lessee or such Significant Subsidiary, PROVIDED that any such sale or other disposition is for reasonably equivalent value and could not reasonably be expected to have a Material Adverse Effect. (iv) Other leases, sales (including sale-leasebacks) or other dispositions of its Property that, together with all other Property of the Guarantor and its Subsidiaries previously leased, sold or disposed of (other than as provided in CLAUSES (i), (ii), and (iii) above) as permitted by this Section during the twelve-month period ending with the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Guarantor and its Subsidiaries, or together with all other Property of the Guarantor and its Subsidiaries previously leased, sold or disposed of (other than as provided in CLAUSES (i) and (ii) above) as permitted by this Section during the period from the date of this Master Agreement to the end of the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute 35% of the consolidated assets of the Guarantor and its Subsidiaries as would be shown in the consolidated financial statements of the Guarantor and its Subsidiaries as at the beginning of the fiscal year in which any such lease, sale or other disposition occurs. 17 Notwithstanding anything in this SECTION 7.10 to the contrary, (a) no such leases, sales or other dispositions of property may be made (other than pursuant to CLAUSE (i) above) if any Event of Default or Potential Event of Default has occurred and is continuing, and (b) all leases, sales and other dispositions of Property at any time shall be for not less than the fair market value of such Property as determined in good faith by the Guarantor. Section 7.11 INVESTMENTS. The Guarantor will not, nor will it permit any Significant Subsidiary or any Lessee to, make or suffer to exist any Investments, or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, except: (i) Cash Equivalent Investments. (ii) Investments in Subsidiaries. (iii) Other Investments in existence on the date hereof. (iv) Other Investments PROVIDED that the aggregate amount of such Investments made in any fiscal year does not exceed 25% of the Adjusted Tangible Net Worth as of the beginning of such fiscal year. Section 7.12 LIENS. The Guarantor will not, nor will it permit any Significant Subsidiary or any Lessee to, create, incur, or suffer to exist any Lien in, of or on the Property of any Lessee, the Guarantor or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as landlord's, carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance 18 with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation (other than Liens in favor of the PBGC). (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in a material way affect the marketability of the same or interfere with the use thereof in the business of the Guarantor or its Subsidiaries. (v) Liens existing on the date hereof. (vi) Liens on any assets which exist at the time of acquisition of such assets by any Lessee, the Guarantor, or any of its Subsidiaries, or liens to secure the payment of all of any part of the purchase price of such assets upon the acquisition of such assets by any Lessee, the Guarantor or any of its Subsidiaries or to secure any Indebtedness incurred or guaranteed by any Lessee, the Guarantor or any of its Subsidiaries prior to, at the time, of or within 360 days after, such acquisition (or, in the case of real property, the completion of construction (including any improvements on an existing asset) or commencement of full operation of such asset, whichever is later), which Indebtedness is incurred or guaranteed for the purpose of financing all or any part of the purchase price thereof or, in the case of real property, construction or improvements thereon, PROVIDED, HOWEVER, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to such assets theretofore owned by any Lessee, the Guarantor or any of its Subsidiaries other than, in the case of any such construction or improvement, any real property on which the property so constructed, or the improvement, is located, PROVIDED FURTHER, however, that the aggregate outstanding principal amount of Indebtedness secured by Liens permitted by this SECTION 7.12(vi) shall not at any time exceed $250,000,000. (vii) Liens in favor of the United States of America of any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction), of the assets subject to such liens 19 (including without limitation liens incurred in connection with pollution control, industrial revenue or similar financings). (viii) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses, PROVIDED, HOWEVER, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured prior to such extension, renewal or replacement and that such extension, renewal or replacement Lien shall be limited to all or a part of the assets which secured the Lien so extended, renewed or replaced (plus improvements and construction of such real property). (ix) So long as no Event of Default under paragraph (m) of Article XII of the Lease would occur in connection therewith, Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against any Lessee, the Guarantor or any of its Subsidiaries with respect to which such Lessee, the Guarantor or such Subsidiary is in good faith prosecuting an appeal or proceeding for review or for which the time to make an appeal has not yet expired; or final unappealable judgment Liens which are satisfied within 15 days of the date of judgment; or Liens incurred by any Lessee, the Guarantor or any of its Subsidiaries for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which such Lessee, the Guarantor or such Subsidiary is a party. (x) Liens securing Indebtedness described in SECTION 7.16(iv) and (v). (xi) Liens securing Indebtedness and not otherwise permitted by the foregoing provisions of this SECTION 7.12, PROVIDED that the aggregate outstanding principal amount of the Indebtedness secured by all such Liens shall not at any time exceed 25% of Adjusted Tangible Net Worth. Section 7.13 YEAR 2000. The Guarantor will take and will cause each of its Subsidiaries and each Lessee to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Agent, the Guarantor will 20 provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. Section 7.14 SUBSIDIARY INDEBTEDNESS. The Guarantor will not permit any Subsidiary to create, incur or suffer to exist any Indebtedness, except: (i) The Fundings. (ii) Indebtedness outstanding on May 25, 1999, or incurred pursuant to commitments in existence on May 25, 1999. (iii) Indebtedness of any Subsidiary to the Guarantor or any other Subsidiary. (iv) Indebtedness of any Person that becomes a Subsidiary after the date hereof; PROVIDED that such Indebtedness existed at the time such person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary. (v) Any refunding or refinancing of any Indebtedness referred to in CLAUSE (i) through (iv) above, PROVIDED that any such refunding or refinancing of Indebtedness referred to in CLAUSE (ii), (iii) and (iv) does not increase the principal amount thereof. (vi) Indebtedness arising from (a) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business or (b) the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business. (vii) Indebtedness arising from guarantees of loans and advances by third parties to employees and officers of a Subsidiary in the ordinary course of business for bona fide business purposes, PROVIDED that the aggregate outstanding principal amount of such Indebtedness does not at any time exceed $100,000,000. (viii) Indebtedness of a Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations or from guarantees, letters of credit, surety bonds or performance bonds securing any obligations of the Guarantor or any of its 21 Subsidiaries incurred or assumed in connection with the disposition of any business, property or Subsidiary. (ix) Indebtedness arising from Rate Hedging Obligations. (x) Contingent Obligations. (xi) Indebtedness outstanding under investment grade commercial paper programs. (xii) Other Indebtedness; PROVIDED that, at the time of the creation, incurrence or assumption of such other Indebtedness and after giving effect thereto, the aggregate amount of all such other Indebtedness of the Subsidiaries does not exceed an amount equal to 25% of Adjusted Tangible Net Worth at such time. Section 7.15 LIMITATION ON RESTRICTIONS ON SIGNIFICANT SUBSIDIARY DISTRIBUTIONS. The Guarantor will not, and will not permit any Significant Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Significant Subsidiary of the Guarantor to (i) pay dividends or make any other distributions in respect of any capital stock of such Subsidiary held by, or pay any Indebtedness owed to, the Guarantor or any other Subsidiary of the Guarantor, (ii) make loans or advances to the Guarantor or any other Subsidiary of the Guarantor or (iii) transfer any of its assets to the Guarantor or any other Subsidiary of the Guarantor, except for such encumbrances or restrictions existing under or by reason of (a) any restrictions existing under the Operative Documents, (b) any restrictions with respect to a Significant Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of all or substantially all of the capital stock or assets of such Significant Subsidiary, and (c) any restrictions with respect to assets encumbered by a Lien permitted by SECTION 7.12 so long as such restriction applies only to the asset encumbered by such permitted Lien. Section 7.16 CONTINGENT OBLIGATIONS. The Guarantor will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (i) by endorsement of instruments for deposit or collection in the ordinary course of business, (ii) the Guaranty, (iii) Contingent Obligations of special-purpose finance Subsidiaries, PROVIDED that no Person has recourse against the Guarantor or any Significant Subsidiary for such Contingent Obligations, (iv) Contingent Obligations 22 arising from the sale by Pyxis Corporation of lease receivables, leases or equipment, PROVIDED that the aggregate amount of such Contingent Obligations do not at any time exceed 10% of Adjusted Tangible Net Worth, (v) Contingent Obligations arising out of operating or synthetic leases entered into by Subsidiaries of the Guarantor, PROVIDED that the aggregate amount of such Contingent Obligations do not at any time exceed 25% of Adjusted Tangible Net Worth, and (vi) Contingent Obligations in addition to those described in CLAUSES (i) through (v) above, PROVIDED that the aggregate amount of such additional Contingent Obligations (without duplication) do not at any time exceed 25% of Adjusted Tangible Net Worth. Section 7.17 MINIMUM NET WORTH. The Guarantor shall not permit its Net Worth to be less than $2,550,000,000 at any time. (c) EXHIBIT A to this Agreement is hereby made EXHIBIT A to the Guaranty. Section 12. CONSTRUCTION AGENCY AGREEMENT. The Construction Agency Agreement is hereby amended as follows: (1) SECTION 2.4 is hereby amended by adding a new sentence at the end thereof as follows: "On or prior to the Funding Date of the first Funding for Construction of a Building on each parcel of Land related to a Second Group Property, the Construction Agent shall prepare and deliver to the Lessor and the Agent a construction budget (the "CONSTRUCTION BUDGET") for the related Second Group Property, setting forth in reasonable detail the reasonably anticipated budget for the Construction of the proposed Building on such Land in accordance with the Plans and Specifications therefor, and all related costs including the capitalized interest and Yield expected to accrue during the related Construction Term."; (2) SECTION 2.5 is hereby amended by (i) deleting the word "and" at the end of clause (b) thereof, (ii) deleting the period at the end of clause (c) thereof and substituting therefor a semicolon and (iii) adding the following at the end hereof: "(d) the Completion Date for such Leased Property; and (e) the payment by the Construction Agent of the Leased Property Balance or, if such Leased Property is a Second Group Property, the Construction Failure Payment with respect to such Leased Property pursuant to this Agreement."; (3) SECTION 2.6 is hereby amended by adding the following sentence at the end thereof: "Each construction contract for a Second Group Property with a general contractor shall be with 23 a reputable general contractor with experience in constructing projects that are similar in scope and type to the proposed Building, and shall provide for a guarantee maximum project cost and a commercially reasonable amount of retainage, which shall in no case be less than 5% retainage."; (4) SECTION 2.8(a) is hereby amended by inserting after the phrase "Plans and Specifications for such Land" where it appears therein the phrase ", in accordance with the Construction Budget for such Leased Property(if such Leased Property is a Second Group Property), subject to CLAUSE (y) of SECTION 3.2,"; (5) SECTION 3.2 is hereby amended by inserting the phrase "or, in the case of a Second Group Property increase the Construction Budget therefor by more than 10% in the aggregate" after the phrase "then remaining Commitments" where it appears in CLAUSE (y) of the proviso therein; (6) A new SECTION 3.4 shall be added at the end of ARTICLE III as follows: 3.4 INDEMNITY. During the Construction Term for each Leased Property, the Construction Agent agrees to assume liability for, and to indemnify, protect, defend, save and hold harmless the Lessor on an After-Tax Basis, from and against, any and all Claims that may be imposed on, incurred by or asserted or threatened to be asserted, against the Lessor, whether or not the Lessor shall also be indemnified as to any such Claim by any other Person, in any way relating to or arising out of (i) the Construction Agent's (or any subcontractor's) own actions or failures to act while in possession or control of any Leased Property, (ii) fraud, misapplication of funds, illegal acts or willful misconduct on the part of the Construction Agent, (iii) any event described in paragraph (g) or (h) of Article XII of the Lease with respect to the Construction Agent or (iv) the inaccuracy of any representation or warranty made by the Construction Agent. The foregoing indemnities are in addition to, and not in limitation of, the indemnities with respect to environmental claims set forth in Section 7.2 of the Master Agreement. The provisions of Section 7.3 of the Master Agreement shall apply to any amounts that the Construction Agent is requested to pay pursuant to this SECTION 3.4. (7) SECTION 5.1 is hereby amended by adding the phrase "PROVIDED, HOWEVER, that this sentence shall not apply to any Second Group Property" at the end of the last sentence in such section; and 24 (8) SECTION 5.3(a) is hereby amended by adding the following at the end thereof: "In the event that the Construction Agent does not exercise its option to purchase such Leased Property or Properties, if such Leased Property is a Second Group Property, the Construction Agent shall pay to the Lessor the Construction Failure Payment(s) therefor within five (5) Business Days of the demand therefor by the Lessor, and shall surrender and return such Leased Property or Properties to the Lessor or its designee in accordance with the terms of Section 14.8 of the Lease. In the event that the Construction Agent returns any Leased Property to the Lessor pursuant to the previous sentence, the Construction Agent shall take such action as the Lessor may reasonably request in order to transfer to the Lessor (or its designee) all of the Construction Agent's rights and claims in, to and under the related Construction Contract(s), Architect's Agreement(s), all agreements, security deposits, guaranties and surety bonds related thereto and all governmental permits related to such Construction, and the Construction Agent shall provide to the Lessor copies of all books, records and documentation with respect to the foregoing." SECTION 13. LOAN AGREEMENT. The Loan Agreement is hereby amended as follows: (1) SECTION 2.4(a) is hereby amended by deleting the phrase "0.44475% per annum" where it appears in CLAUSE (ii) thereof and substituting therefor the phrase "the Applicable Margin". (2) SECTION 3.2(a) is hereby amended by adding the phrase "or the Lessee exercise of its option to purchase such Leased Property under Section 5.3 of the Construction Agency Agreement" at the end of such paragraph; (3) SECTION 3.3 is hereby amended by adding the following sentence at the end thereof: "With respect to any Second Group Property, the payment by the Construction Agent of the Construction Failure Payment with respect thereto pursuant to the Construction Agency Agreement shall be applied by the Agent first, to the accrued and unpaid interest on, and the outstanding principal of, the A Loans in respect of such Second Group Property, second, to the accrued and unpaid interest on, and outstanding principal of, the B Loans related to such Second Group Property and third, to the accrued and unpaid Yield on, and outstanding Lessor Invested Amount related to such Second Group Property."; (4) SECTION 3.4 is hereby amended by inserting the phrase "or sold after a return to the Lessor pursuant to the Construction Agency Agreement," after the phrase "Section 14.6 or 14.7 of the related Lease," where it appears in the sixth line thereof; (5) SECTION 4.2 is hereby amended by adding the phrase ", the Construction Agency Agreement" after the phrase "received under the Leases" where it appears in the first and third sentences thereof; and 25 (6) SECTION 4 is hereby amended by adding a new Section at the end thereof as follows: SECTION 4.4 INDEMNITY BY LESSOR. During the Construction Term for any Second Group Property, Lessor hereby indemnifies each Lender and its Affiliates, successors, permitted assigns, permitted transferees, employees, officers, directors and agents from and against any and all Claims that may be imposed on, incurred by or asserted or threatened to be asserted against, any such Person, arising out of or related to such Second Group Property, or the leasing or financing thereof; IT BEING UNDERSTOOD that the foregoing provision is subject to SECTION 4.2. SECTION 14. LEASE PARTICIPATION AGREEMENT. The Lease Participation Agreement is hereby amended as follows: (i) SECTION 2.1 is hereby amended by deleting "58.33%" where it appears therein and substituting thereof "44.375%"; (ii) SECTION 2.2 is hereby amended by deleting "$43,750,000" where it appears therein and substituting therefor "$71,000,000": (iii) SECTION 3(a)(iv) is hereby amended by inserting the phrase "or sold after a return to the Lessor pursuant to the Construction Agency Agreement," after the phrase "Section 14.6 or 14.7 of the related Lease" where it appears therein; (iv) SECTION 4.2 is hereby amended by adding the phrase ",the Construction Agency Agreement" after the phrase "received under the Leases" where it appears in the first and third sentences thereof; and (v) SECTION 4 is hereby amended by adding a new Section at the end thereof as follows: SECTION 4.4 INDEMNITY BY LESSOR. During the Construction Term for any Second Group Property, Lessor hereby indemnifies the Lease Participant and its Affiliates, successors, permitted assigns, permitted transferees, employees, officers, directors and agents from and against any and all Claims that may be imposed on, incurred by or asserted or threatened to be asserted against, any such Person, arising out of or related to such Second Group Property, or the leasing or financing thereof; IT BEING UNDERSTOOD that the foregoing provision is subject to SECTION 4.2. SECTION 15. NOTES. The Notes issued by the Lessor in connection with the 1998 Amendment shall be replaced with an A Note and a B Note issued by the Lessor to the Agent, for the ratable benefit of the Lenders, in substantially the form of EXHIBITS B and C hereto, 26 respectively; upon such replacement, such original Notes shall be deemed to be canceled. Any reference to the Notes in the Operative Documents shall be deemed to refer to such replacement Notes. SECTION 16. GUARANTY; REPRESENTATIONS. The Guarantor hereby affirms its obligations under the Guaranty Agreement after giving effect to this Amendment. Each of the Guarantor and each Lessee hereby represents and warrants that, after giving effect to this Amendment, (i) no Event of Default or Potential Event Default has occurred and is continuing or will result from this Amendment, (ii) there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect since July 16, 1996 and (iii) each representation and warranty of each Lessee and the Guarantor contained in the Master Agreement and the other Operative Documents as amended by this Agreement is true and correct in all material respects on the date hereof as though made on and as of the date hereof, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. SECTION 17. CONDITIONS. The effectiveness of this Amendment shall be conditioned upon the receipt by the Agent of the following documents, each of which shall be satisfactory in form and substance to the Agent: (i) the replacement Notes referred to in SECTION 15 of this Amendment executed by the Lessor; (ii) a certificate of the Secretary or an Assistant Secretary of each Lessee and the Guarantor attaching to it and certifying as to (A) the Board of Directors' (or appropriate committee's) resolution duly authorizing the execution, delivery and performance by it of this Amendment,(B) the incumbency and signatures of persons authorized to execute and deliver this Amendment on its behalf and (C) the continued accuracy and completeness of its articles of incorporation and bylaws previously delivered on the Initial Closing Date; and (iii) the opinion of Baker & Hostetler, substantial in the form set forth in EXHIBIT D hereto. SECTION 18. FUNDING. On the date that this Amendment shall become effective, pursuant to and in accordance with SECTION 2.2 of the Master Agreement, each Lender shall make available to the Lessor a Loan in an amount equal to the product of such Lender's Commitment Percentage times the transaction costs incurred by the Lessees in connection with this Amendment, which funds the Lessor shall use, together with Lessor funds in an amount equal to the product of the Lessor's Commitment Percentage times the transaction costs incurred by such Lessees in connection with this Amendment, to pay to the related Lessee the amount of such transaction costs. SECTION 19. MISCELLANEOUS. This Amendment shall be governed by, and construed in accordance with, the laws of the state of Georgia. This Amendment may be executed by the parties hereto and separate counterparts, (including by facsimile), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one in the same agreement. The Operative Documents, as amended hereby, remain in full force and effect. Any reference to any Operative Document from and after the date hereof shall be deemed or referred to such Operative Documents and amended hereby, unless otherwise expressly stated. 27 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized officers as of the year first above written. CARDINAL SOUTHEAST, INC. By: /s/ Leonard G. Kuhr --------------------------------------- Title: Corporate Vice President, Treasurer WHITMIRE DISTRIBUTION CORPORATION By: /s/ Leonard G. Kuhr --------------------------------------- Title: Corporate Vice President, Treasurer RENLAR SYSTEMS, INC. By: /s/ Leonard G. Kuhr --------------------------------------- Title: Corporate Vice President, Treasurer PYXIS CORPORATION By: /s/ Leonard G. Kuhr --------------------------------------- Title: Corporate Vice President, Treasurer CARDINAL HEALTH, INC. By: /s/ Leonard G. Kuhr --------------------------------------- Title: Corporate Vice President, Treasurer 28 SUNTRUST BANKS, INC. By: /s/ Linda L. Dash --------------------------------------- Title: Vice President SUNTRUST BANK, ATLANTA, as the Agent By: /s/ Linda L. Dash --------------------------------------- Title: Vice President PNC LEASING CORP., as a Lender By: /s/ David J. Keener --------------------------------------- Title: Vice President WACHOVIA BANK, N.A., as a Lender By: /s/ Bradfor L. Watkins --------------------------------------- Title: Vice President THE FIFTH THIRD BANK, as a Lender By: /s/ Ted Lape --------------------------------------- Title: V.P. FIRSTAR BANK, N.A., as a Lender By: /s/ James C. Blythe --------------------------------------- Title: Vice President 29 SCHEDULE 2.2 AMOUNT OF EACH FUNDING PARTY'S COMMITMENT Lessor Commitment Percentage: 44.375% Lessor Commitment: $71,000,000 Lender Commitment Percentages: PNC Leasing Corp. 18.750% Wachovia Bank, N.A. 15.00% The Fifth Third Bank 12.50% Firstar Bank, N.A. 9.375% Lender Commitments: A LOANS B LOANS PNC Leasing Corp. $25,500,000 $4,500,000 Wachovia Bank, N.A. 20,400,000 3,600,000 The Fifth Third Bank 17,000,000 3,000,000 Firstar Bank, N.A. 12,750,000 2,250,000 Total $75,650,000 $13,350,000 ----------- =========== 30 PRICING SCHEDULE The Applicable Fee Rate and the Applicable Margin shall be as determined by the matrix below:
- ------------------------------------------------------------------------------------------------------------------------------------ Level 1 Level II Level III Level IV Level V Level VI Status Status Status Status Status Status - ------------------------------------------------------------------------------------------------------------------------------------ Reference Rating greater A+ or A1 A or A2 A- or A3 BBB+ or BBB or less than or than or equal to Baa1 Baa2 equal to BBB- or Baa3 - ------------------------------------------------------------------------------------------------------------------------------------ Applicable Margin 0.44475% 0.44475% .50% 0.60% 0.70% 0.80% - ------------------------------------------------------------------------------------------------------------------------------------ Applicable Fee Rate 0.07% 0.08% 0.09% 0.10% 0.12% 0.15% - ------------------------------------------------------------------------------------------------------------------------------------
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Guarantor's Moody's Rate is A1 or better or the Guarantor's S&P is A+ or better. "Level II Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status and (ii) the Guarantor's Moody's Rating is A2 or better or the Guarantor's S&P Rating is A or better. "Level III Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status or Level II Status and (ii) the Guarantor's Moody's Rating is A3 or better or the Guarantor's S&P Rating is A- or better. "Level IV Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status, Level II Status, or Level III Status and (ii) the Guarantor's Moody's Rating is Baa1 or better or the Guarantor's S&P rating is BBB+ or better. "Level V Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Guarantor's Moody's Rating is Baa2 or better or the Guarantor's S&P rating is BBB or better. "Level VI Status" exists at any date if, on such date, the Guarantor has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status. "Moody's Rating" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Guarantor's senior unsecured long-term debt securities without third-party credit enhancement. 31 "S&P Rating" means, at any time, the rating issued by Standard & Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and then in effect with respect to the Guarantor's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means either Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status. The Applicable Margin shall be determined in accordance with the foregoing table based on the Guarantor's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Guarantor has no Moody's Rating or no S&P Rating, Level VI Status shall exist. EX-10.24 10 EXHIBIT 10.24 1 Exhibit 10.24 AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT Dated as of October 16, 1997 (amending the Participation Agreement, dated as of June 23, 1997) among CARDINAL HEALTH, INC., as a Lessee, as the Construction Agent and as Guarantor, CHAPMAN DRUG COMPANY and WHITMIRE DISTRIBUTION CORPORATION, as Lessees, BMO LEASING (U.S.), INC., as Lessor, BANK OF MONTREAL and VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED HEREIN, as Lenders, and BANK OF MONTREAL, as Administrative Agent for the Lenders AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT 2 THIS AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT (this "Amendment"), dated as of October 16, 1997, among CARDINAL HEALTH, INC., an Ohio corporation, as the Guarantor (together with its permitted successors and assigns, the "Company" or the "Guarantor") and as the Construction Agent (together with its permitted successors and assigns, in its capacity as Construction Agent, the "Construction Agent"); CHAPMAN DRUG COMPANY, a Tennessee corporation ("Chapman") and WHITMIRE DISTRIBUTION CORPORATION, a Delaware corporation ("Whitmire") (Chapman, Whitmire and the Company are collectively referred to herein as the "Lessees"); BMO LEASING (U.S.), INC., a Delaware corporation, as Lessor (the "Lessor"); BANK OF MONTREAL and the various other financial institutions as are or may from time to time become Lenders under the Loan Agreement referred to in the Participation Agreement (together with their respective permitted successors and assigns, the "Lenders"); and BANK OF MONTREAL, as Administrative Agent for the Lenders (together with its successors in such capacity, the "Administrative Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, the Lessees, the Lessor, the Lenders and the Administrative Agent have heretofore entered into a certain Participation Agreement, dated as of June 23, 1997 (the "Participation Agreement"); and WHEREAS, pursuant to certain Adoption Agreements dated as of September 30, 1997 and October 10, 1997, Chapman and Whitmire, respectively, became parties to the Participation Agreement as Lessees; and WHEREAS, the Company, the Lessees, the Lessor, the Lenders and the Administrative Agent now desire to amend the Participation Agreement in certain respects, as hereinafter provided; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. The following terms (whether or not underscored) when used in this Amendment, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Amendment" is defined in the preamble. "Company" is defined in the preamble. "Construction Agent" is defined in the preamble. 3 "Effective Date" is defined in Section 5.3(b). "Guarantor" is defined in the preamble. "Lenders" is defined in the preamble. "Lessees" is defined in the preamble. "Lessor" is defined in the preamble. "Participation Agreement" is defined in the first recital. SECTION 1.2. Other Defined Terms; Construction. For purposes of this Amendment, capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A to the Participation Agreement (such definitions to be equally applicable to both the singular and plural forms of the terms defined). Any terms defined by reference to an agreement, instrument or other documents shall have the meanings so assigned to it whether or not such document is in effect. Unless otherwise indicated, references in this Amendment to sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in or attached to this Amendment and the definition of any Person herein shall include permitted successors and assigns. ARTICLE II AMENDMENTS SECTION 2.1. Amendment to Section 3.1. The last paragraph of Section 3.1 of the Participation Agreement is hereby deleted in its entirety and replaced with the following: Notwithstanding any other provision hereof, the Lessor shall not be obligated to make any Advance with respect to any Property, if, after giving effect thereto, (i) the aggregate outstanding amounts of the Loans and Equity Amounts would exceed the aggregate Loan Commitments or the Lessor Commitment, respectively, (ii) the Land Acquisition Costs and Existing Improvement Costs for such Property would exceed 117.6% of the Fair Market Sales Value of such Property as set forth in the Acquisition Date Appraisal therefor delivered pursuant to Section 6.3(i) or (iii) the sum of the Land Acquisition Costs, Existing Improvement Costs, and Property Improvement Costs for such Property would exceed 117.6% of the Fair Market Sales Value of the Property as set forth in the As-Built Appraisal of such Property delivered pursuant to Section 6.2(c) or, if the Lessee has delivered or caused to be delivered a subsequent Appraisal of such Property to the Administrative Agent and the Lessor, the sum of the Land Acquisition Costs, Existing Improvement Costs and Property Improvement Costs for such Property would exceed 117.6% of the Fair Market Sales Value of such Property set forth in such subsequent Appraisal. Lessor shall not be obligated to make any Advance with respect to any Property not meeting the requirements 4 set forth under this Section 3.1 regardless of whether Lessor previously waived such requirements with regard to any Property on any previous occasion. SECTION 2.2. Amendments to Article VI. (a) Section 6.2(c) of the Participation Agreement is hereby deleted in its entirety and replaced with the following. (c) As-Built Appraisal. With respect to the first Construction Advance for each Property, each of the Administrative Agent and the Lessor shall have received, at least five (5) Business Days prior to such Construction Advance, an As-Built Appraisal of the applicable Property, in form and substance satisfactory to the Administrative Agent and the Lessor, which As-Built Appraisal shall show that (i) in the case of Property to be acquired by the Lessor in fee simple, as of the Completion Date and as of the last day of the Basic Term, with respect to such Property, the Fair Market Sales Value of such Property, including all Improvements thereon and to be constructed thereon in accordance with the Plans and Specifications for such Property (excluding material handling equipment), shall not be less than 85% of the sum of the Land Acquisition Cost, Existing Improvement Costs, and Estimated Improvement Costs (excluding material handling equipment) for such Property and (ii) in the case of Property covered by a Ground Lease, as of the Completion Date and as of the last day of the Basic Term with respect to such Property, the Fair Market Sales Value of the Improvements to be constructed thereon in accordance with the Plans and Specifications for such Property (excluding material handling equipment) shall not be less than 85% of the Estimated Improvement Costs (excluding material handling equipment) for such Property. With respect to the As-Built Appraisal, it is agreed that the value of any material handling equipment will not be included therein. (b) Section 6.3(i) of the Participation Agreement is hereby deleted in its entirety and replaced with the following. (i) Acquisition Date Appraisal. At least five (5) Business Days prior to such Acquisition Date, the Administrative Agent and the Lessor shall have received an Acquisition Date Appraisal of the applicable Property in form and substance satisfactory to the Administrative Agent and the Lessor (which may be in the form of a summary report with comparables if such Acquisition Date Appraisal is for Land only), which Acquisition Date Appraisal shall show that, as of such Acquisition Date, the Fair Market Sales Value of such Property is not less than 85% of the sum of (i) the Land Acquisition Cost for such Property and (ii) all Existing Improvement Costs. (c) Section 6.2 of the Participation Agreement is hereby amended to include the following Section 6.2(o) after Section 6.2(n): (o) Subsequent Appraisal. With respect to any Advance relating to the purchase of material handling equipment for each Property, each of the Administrative Agent and the Lessor shall have received, at least five (5) Business Days prior to such Advance, an Appraisal of the applicable Property, in form and substance satisfactory to the Administrative Agent and the Lessor, which Subsequent Appraisal shall show that (i) in the case of Property acquired by the Lessor in fee simple, as of the Completion Date and as of the last day of the Basic Term, with respect to such Property, the Fair Market 5 Sales Value of such Property, including all Improvements thereon and to be constructed thereon in accordance with the Plans and Specifications for such Property, shall not be less than 85% of the sum of the Land Acquisition Cost, Existing Improvement Costs, and Estimated Improvement Costs for such Property and (ii) in the case of Property covered by a Ground Lease, as of the Completion Date and as of the last day of the Basic Term with respect to such Property, the Fair Market Sales Value of the Improvements to be constructed thereon in accordance with the Plans and Specifications for such Property shall not be less than 85% of the Estimated Improvement Costs for such Property. With respect to the Subsequent Appraisal, it is agreed that material handling equipment will be valued definitively at its installed cost, based upon purchase orders, contracts or other similar documentation, as opposed to its salvage value and such valuation shall not be based upon samples of such Equipment. SECTION 2.3. Amendment to Exhibit A of the Participation Agreement. Exhibit A to the Participation Agreement is hereby amended and restated as described on Exhibit A hereto. SECTION 2.4. Amendment to Exhibit B of the Participation Agreement. Section 3 of Exhibit B to the Participation Agreement is hereby deleted in its entirety and replaced with the following: 3. With respect to each Subject Property, after giving effect to the making of the Current Advance and the allocation thereof among the Subject Properties, the sum of the Land Acquisition Costs, Existing Improvement Costs and Property Improvement Costs for such Subject Property will not exceed 117.6% of the Fair Market Sales Value of such Property as of the Completion Date set forth in the Appraisal delivered pursuant to Section 6.2(c) of the Participation Agreement, or, if the Lessee has delivered or caused to be delivered a subsequent Appraisal of such Subject Property to the Administrative Agent and the Lessor, the sum of the Land Acquisition Costs, Existing Improvement Costs and Property Improvement Costs for such Subject Property will not exceed 117.6% of the Fair Market Sales Value of such Property set forth in such subsequent Appraisal. SECTION 2.5. Amendment to Appendix A of the Participation Agreement. (a) The definition of "Estimated Improvement Costs" in Appendix A to the Participation Agreement is hereby deleted in its entirety and replaced with the following: "Estimated Improvement Costs" means, with respect to any Property as of the date of the first Construction Advance therefor, an amount equal to the aggregate amount which the Construction Agent for such Property in good faith expects to be expended in order to achieve Completion with respect to Improvements for such Property; provided, however, that in no event shall the sum of the Land Acquisition Costs, Existing Improvement Costs and Estimated Improvement Costs for any Property exceed 117.6% of the Fair Market Sales Value of such Property indicated on the As-Built Appraisal of such Property delivered pursuant to Section 6.2(c) of the Participation Agreement or, if the Lessee has delivered or caused to be delivered a subsequent Appraisal of such Property to the Administrative Agent and the Lessor, the sum of the Land Acquisition Costs, Existing Improvement Costs and Estimated Improvement Costs for such Subject Property will not exceed 117.6% of the Fair Market Sales Value of such Property set forth in such subsequent Appraisal. 6 (b) The definition of "As-Built Appraisal" in Appendix A to the Participation Agreement is hereby deleted in its entirety and replaced with the following: "As-Built Appraisal" means, with respect to any Property, an Appraisal of such Property appraising the Fair Market Sales Value of such Property as built in accordance with the Plans and Specifications therefor, as such As-Built Appraisal is described in Section 6.2(c) of the Participation Agreement. (c) Appendix A to the Participation Agreement shall be amended to include therein in alphabetical order the following definition: "Subsequent Appraisal" means, with respect to any Property, an Appraisal of such Property appraising the Fair Market Sales Value of such Property as built in accordance with the Plans and Specifications therefor, as such Subsequent Appraisal is described in Section 6.2(o) of the Participation Agreement. SECTION 2.6. Amendment to Schedule I to the Participation Agreement. Schedule I to the Participation Agreement is hereby amended and restated in its entirety as set forth on Exhibit B hereto and shall be effective retroactive to the Documentation Date. ARTICLE III CONDITIONS PRECEDENT SECTION 3.1. Conditions to Effectiveness. The effectiveness of this Amendment shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article III. SECTION 3.1.1. The Company hereby represents and warrants that the execution, delivery and performance of this Amendment and each other document, if any, to be executed on behalf of the Company in connection with this Amendment, is duly authorized, valid and binding, and the Lenders, the Lessor and the Administrative Agent may conclusively rely on such representation and warranty. SECTION 3.1.2. Compliance with Warranties, No Default, etc. Both before and after giving effect to this Amendment the following statements shall be true and correct: (a) to the best knowledge of a Responsible Officer of the Company, no Default shall have occurred and be continuing as of the date hereof; (b) no Applicable Law shall exist that would (i) make it illegal for the Company to (x) execute and deliver this Amendment and each other document, if any, to be executed by it in connection with this Amendment, (y) perform any obligation under this Amendment and each other document, if any, to be executed by it in connection with this Amendment or any of the other Operative Documents, or (ii) subject the Company, the Lessees, the Lessor, the Administrative Agent or any Lender to any penalty or to other liability under or pursuant to any Applicable Law in connection with any of the foregoing, subject, however, in the case of (i)(x) and (y) and (ii), to Section 11.5(b) of the Participation Agreement; 7 (c) no actions or proceedings shall have been instituted or threatened by or before any Governmental Authority nor shall any Applicable Law have been issued or proposed to be issued by any Governmental Authority to set aside, restrain, enjoin or prevent the consummation of the transactions contemplated by any of the Operative Documents, this Amendment and each other document, if any, to be executed by it in connection with this Amendment; (d) each representation and warranty made by the Company in this Amendment or any of the Operative Documents that is (i) qualified as to materiality shall be true and correct (to the extent of such qualification) on and as of the date hereof (unless such representation and warranty specifically relates only to an earlier date set forth therein, in which case such representation and warranty shall be true and correct (to the extent of such qualification) on and as of such earlier date) in all respects and (ii) not qualified as to materiality shall be true and correct on and as of the date hereof (unless such representation and warranty specifically relates only to an earlier date set forth therein, in which case such representation and warranty shall be true and correct on and as of such earlier date) in all material respects; and (e) since June 30, 1997, no material adverse change shall have occurred with respect to the Company. SECTION 3.1.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Company shall be satisfactory in form and substance to the Lessor, each Lender, the Administrative Agent and their respective counsel. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lessor, each Lender and the Administrative Agent to enter into this Amendment, the Company hereby reaffirms, as of the date hereof, its representations and warranties contained in Section 7.2, 7.3 and 7.4 of the Participation Agreement and additionally represents and warrants unto the Lessor, each Lender and the Administrative Agent as set forth in this Article IV. SECTION 4.1. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Company of this Amendment and each other document, if any, executed or to be executed by it in connection with this Amendment, are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Company's charter or bylaws; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Company; or (c) result in, or require the creation or imposition of, any Lien on any of the Company's properties except as expressly contemplated by the Operative Documents. 8 SECTION 4.2. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Company of this Amendment or any other document, if any, to be executed by it in connection with this Amendment. SECTION 4.3. Validity, etc. This Amendment constitutes, and each other document executed by the Company in connection with this Amendment, if any, will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms. ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Ratification of and References to the Participation Agreement. This Amendment shall be deemed to be an amendment to the Participation Agreement, and the Participation Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Participation Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Participation Agreement as amended hereby. SECTION 5.2. Headings. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof. SECTION 5.3. Execution in Counterparts, Effectiveness, etc. (a) This Amendment may be executed by the parties hereto in any number of counterparts and on separate counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. (b) This Amendment shall become effective as of October 16, 1997 (the "Effective Date") upon satisfaction of each of the conditions precedent set forth in Article III. SECTION 5.4. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CARDINAL HEALTH, INC., as Lessee, Construction Agent and Guarantor By /s/ Dave Bearman -------------------------------- Name: Dave Bearman Title: Chief Financial Officer CHAPMAN DRUG COMPANY, as Lessee By /s/ Dave Bearman -------------------------------- Name: Dave Bearman Title: Executive Vice President - Finance WHITMIRE DISTRIBUTION COMPANY, as Lessee By /s/ Dave Bearman -------------------------------- Name: Dave Bearman Title: Executive Vice President - Finance BMO LEASING (U.S.), INC., as Lessor By /s/ -------------------------------- Name: Title: BANK OF MONTREAL, as Administrative Agent for Lenders By /s/ -------------------------------- Name: Title: BANK OF MONTREAL, as Lender By /s/ -------------------------------- Name: Title: 10 EXHIBIT A --------- EXHIBIT A TO PARTICIPATION AGREEMENT FORM OF FUNDING REQUEST TO: Bank of Montreal, as Administrative Agent for the Lenders BMO Leasing (U.S.), Inc., as Lessor This Funding Request is delivered to you pursuant to Section 6.2(a) of the Participation Agreement dated as of June 23, 1997 (the "Participation Agreement"), entered into by and among Cardinal Health, Inc., a corporation organized under the laws of the State of Ohio (together with its permitted successors and assigns, the "Company"), as a Lessee, as Construction Agent and as the Guarantor; the Subsidiaries of the Company that may from time to time become parties thereto, as Lessees; BMO LEASING (U.S.), INC., a Delaware corporation, as Lessor under the Master Lease (the "Lessor"); the various financial institutions as are or may from time to time become Lenders under the Loan Agreement (together with their respective permitted successors and assigns, the "Lenders"); and BANK OF MONTREAL, as Administrative Agent for the Lenders. Capitalized terms used but not otherwise defined herein have the respective meanings specified in Appendix A to the Participation Agreement, and the rules of interpretation set forth in Appendix A to the Participation Agreement shall apply to this Funding Request. [NAME OF APPLICABLE LESSEE] (the "Lessee") hereby notifies you that: (i) The Lessee requests the making of an Advance in the amount of $_____________ on [INSERT REQUESTED FUNDING DATE] (the "Proposed Funding Date"); (ii) The Proposed Funding Date [will] [will not] also be an Acquisition Date [and will relate to the first Construction Advance for such Property]; 11 (iii) the Advance will be allocated among the Subject Properties and their respective costs as set forth on Schedule A hereto (and pro rata portions of the related Equity Amounts and Loans shall likewise be deemed to be so allocated); (iv) after giving effect to the Advance requested hereby, the Property Cost for each Property in respect of which the Advance is being drawn is set forth on Schedule A hereto; (v) with respect to each acquisition of Property, the following information is set forth on Schedule B hereto: (A) a description of the Subject Property, (B) the Seller of the Subject Property (or, in the case of the Headquarters Building, the ground lessor of such Subject Property), (C) the Land Acquisition Cost and Existing Improvement Costs, if any, for the Subject Property, (D) the Transaction Expenses relating to Subject Property that are to be paid with such Advance, and (E) the Estimated Improvement Costs for the Subject Property; (vi) the aggregate amount of Transaction Expenses relating to the Subject Property that is to be paid with this Advance is set forth on Schedule A hereto; (vii) the Proposed Funding Date [will] [will not] relate to the funding of material handling equipment for such Property; and (viii) with respect to the acquisition of material handling equipment, the following information is set forth on Schedule C hereto: (A) a description of the Subject Property, (B) the cost of the material handling equipment and (C) the Estimated Improvement Costs for the Subject Property. In connection with such requested Advance, the Lessee hereby represents and warrants to you as follows: (a) On the Proposed Funding Date, both immediately before and after giving effect to the making of the requested Advance and the application of the proceeds thereof, the statements made by the Company and the Lessee in Section 7.4 of the Participation Agreement are true and correct in all material respects. (b) After giving effect to the Advance requested hereby (i) the aggregate outstanding amounts of each of the Loans and the Equity Amounts would not exceed the aggregate Loan Commitments or the Lessor Commitment, respectively, (ii) the Land Acquisition Costs and Existing Improvement Costs for such Property will not exceed 117.6% of the Fair Market Sales Value of such Property as set forth in the Acquisition Date Appraisal therefor delivered pursuant to Section 6.3(i) of the Participation Agreement and (iii) the sum of the Land Acquisition Costs, Existing Improvement Costs, and Property Improvement Costs for such Property would not exceed 117.6% of the Fair Market Sales Value of the Property as set forth in the As-Built Appraisal of such Property delivered pursuant to Section 6.2(c) of the Participation Agreement or, if the Lessee has delivered or caused to be delivered a subsequent Appraisal of such Property to the Administrative Agent and the Lessor, the sum of the Land Acquisition Costs, Existing Improvement Costs and Property Improvement Costs for such Property will not exceed 117.6% of the Fair Market Sales Value of such Property set forth in such subsequent Appraisal. 12 (c) All of the conditions precedent set forth in Article VI of the Participation Agreement applicable to the Advance requested hereby have been satisfied or waived. Please wire transfer the proceeds of the Advance to the accounts specified by the Lessee in written notice to the Administrative Agent. The Lessee has caused this Funding Request to be executed and delivered by its duly authorized Responsible Employee as of this _____ day of _________, 199_*/. [Name of Lessee By ----------------------------- Name: Title: SCHEDULE A TO FUNDING REQUEST ALLOCATION OF ADVANCES ----------------------
================================================================================================================================== Land Acquisition Costs (excluding Property Aggregate Transaction Improvement Cost of Property Cost Transaction Expenses) and Costs (excluding Material (all Advances Transaction Expenses Estimated Existing Material Handling to date, Expenses (all Advances Equipment Property Improvement Handling Equipment) including (Current to date, Cost of Description Lease Supp. Cost (Current (Current Advance (Current Current Advance including Property at (City, State) No. Advance Only) Only) Advance Only) Advance) Only) Current Advance) Completion - ---------------------------------------------------------------------------------------------------------------------------------- 1.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 2.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 3.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 4.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 5.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ----------------------------------------------------------------------------------------------------------------------------------
- ------------------------ */ The Funding Request is required to be delivered not later than 12:00 noon, New York City time, three (3) Business Days prior to the proposed Funding Date. 13 SCHEDULE B TO FUNDING REQUEST INFORMATION REQUIRED -------------------- FOR FUNDING ACQUISITION OF LAND ------------------------------- 1. Description of the Subject Property: ______________________. 2. The Subject Property consists of [Land only] [Land and Improvements].. 3. Seller of the Subject Property: ____________________. 4. Land Acquisition Cost and Existing Improvement Cost, if any, for the Subject Property: Indicated on Schedule A. 5. Aggregate amount of Transaction Expenses relating to the Subject Property that is to be paid with this Advance: $_______________. 6. Estimated Improvement Costs for the Subject Property: $_________________. SCHEDULE C TO FUNDING REQUEST INFORMATION REQUIRED -------------------- FOR FUNDING MATERIAL HANDLING EQUIPMENT --------------------------------------- 1. Description of the Subject Property: ______________________________. 2. Cost of material handling equipment: $_____________. 3. Estimated Improvement Costs for the Subject Property: $____________. 14 EXHIBIT B --------- SCHEDULE I TO PARTICIPATION AGREEMENT COMMITMENTS
============================================================================== PARTICIPANT COMMITMENT COMMITMENT PERCENTAGE Lenders ------- Bank of Montreal $66,400,000 83.00% Total Lender Commitments $66,400,000 83.00% Lessor ------ BMO Leasing (U.S.), Inc. $13,600,000 17.00% ====== TOTAL: $80,000,000 100.00% ==============================================================================
15 ================================================================================ AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT Dated as of June ___, 1999 (amending the Participation Agreement, dated as of June 23, 1997, as amended by Amendment No. 1 to Participation Agreement, dated as of October 16, 1997) among CARDINAL HEALTH, INC., as a Lessee, as the Construction Agent and as Guarantor, CARDINAL SOUTHEAST, INC. (successor by merger with CHAPMAN DRUG COMPANY) and WHITMIRE DISTRIBUTION CORPORATION, as Lessees, BMO GLOBAL CAPITAL SOLUTIONS, INC. (successor in interest to BMO LEASING (U.S.), INC.), as Lessor, BANK OF MONTREAL and VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED HEREIN, as Lenders, and BANK OF MONTREAL, 16 as Administrative Agent for the Lenders ================================================================================ AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT THIS AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT (this "AMENDMENT"), dated as of June ___, 1999, among CARDINAL HEALTH, INC., an Ohio corporation, as the Guarantor (together with its permitted successors and assigns, the "COMPANY" or the "GUARANTOR") and as the Construction Agent (together with its permitted successors and assigns, in its capacity as Construction Agent, the "CONSTRUCTION AGENT"); CARDINAL SOUTHEAST, INC. (successor by merger with CHAPMAN DRUG COMPANY), a Mississippi corporation ("CARDINAL SOUTHEAST") and WHITMIRE DISTRIBUTION CORPORATION, a Delaware corporation ("WHITMIRE") (Cardinal Southeast, Whitmire and the Company are collectively referred to herein as the "Lessees"); BMO GLOBAL CAPITAL SOLUTIONS, INC. (successor in interest to BMO LEASING (U.S.), INC.), a Delaware corporation, as Lessor (the "LESSOR"); BANK OF MONTREAL and the various other financial institutions as are or may from time to time become Lenders under the Loan Agreement referred to in the Participation Agreement (together with their respective permitted successors and assigns, the "LENDERS"); and BANK OF MONTREAL, as Administrative Agent for the Lenders (together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, the Lessees, the Lessor, the Lenders and the Administrative Agent have heretofore entered into a certain Participation Agreement, dated as of June 23, 1997, as amended by Amendment No. 1 to Participation Agreement, dated as of October 16, 1997 (collectively, the "PARTICIPATION AGREEMENT"); and WHEREAS, pursuant to certain Adoption Agreements dated as of September 30, 1997 and October 10, 1997, Cardinal Southeast and Whitmire, respectively, became parties to the Participation Agreement as Lessees; and WHEREAS, the Company, the Lessees, the Lessor, the Lenders and the Administrative Agent now desire to amend the Participation Agreement in certain respects, as hereinafter provided; NOW, THEREFORE, the parties hereto agree as follows: 17 ARTICLE I DEFINITIONS SECTION I.1. CERTAIN DEFINED TERMS. The following terms (whether or not underscored) when used in this Amendment, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "ADMINISTRATIVE AGENT" is defined in the PREAMBLE. "AMENDMENT" is defined in the PREAMBLE. "COMPANY" is defined in the PREAMBLE. "CONSTRUCTION AGENT" is defined in the PREAMBLE. "EFFECTIVE DATE" is defined in SECTION 5.3(b). "GUARANTOR" is defined in the PREAMBLE. "LENDERS" is defined in the PREAMBLE. "LESSEES" is defined in the PREAMBLE. "LESSOR" is defined in the PREAMBLE. "PARTICIPATION AGREEMENT" is defined in the FIRST RECITAL. SECTION I.2. OTHER DEFINED TERMS; CONSTRUCTION. For purposes of this Amendment, capitalized terms used but not defined herein shall have the meanings assigned to them in Appendix A to the Participation Agreement (such definitions to be equally applicable to both the singular and plural forms of the terms defined). Any terms defined by reference to an agreement, instrument or other documents shall have the meanings so assigned to it whether or not such document is in effect. Unless otherwise indicated, references in this Amendment to sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in or attached to this Amendment and the definition of any Person herein shall include permitted successors and assigns. -3- 18 ARTICLE II AMENDMENTS SECTION II.1. AMENDMENT TO SECTION 3.1. The last paragraph of SECTION 3.1 of the Participation Agreement is hereby deleted in its entirety and replaced with the following: Notwithstanding any other provision hereof, the Lessor shall not be obligated to make any Advance with respect to any Property, if, after giving effect thereto, the aggregate outstanding amounts of the Loans and Equity Amounts would exceed the aggregate Loan Commitments or the Lessor Commitment, respectively. SECTION II.2. AMENDMENTS TO ARTICLE VI. SECTION 6.2 of the Participation Agreement is hereby amended to delete Section 6.2(o). SECTION 2.3. AMENDMENT TO EXHIBIT A OF THE PARTICIPATION AGREEMENT. EXHIBIT A to the Participation Agreement is hereby amended and restated as described on EXHIBIT A hereto. SECTION 2.4. AMENDMENT TO EXHIBIT B OF THE PARTICIPATION AGREEMENT. SECTION 3 of EXHIBIT B to the Participation Agreement is hereby deleted in its entirety. SECTION 2.5. AMENDMENT TO APPENDIX A OF THE PARTICIPATION AGREEMENT. (a) The definition of "ESTIMATED IMPROVEMENT COSTS" in APPENDIX A to the Participation Agreement is hereby deleted in its entirety and replaced with the following: "ESTIMATED IMPROVEMENT COSTS" means, with respect to any Property as of the date of the first Construction Advance therefor, an amount equal to the aggregate amount which the Construction Agent for such Property in good faith expects to be expended in order to achieve Completion with respect to Improvements for such Property. (b) The definition of "Outside Completion Date" in Appendix A to the Participation Agreement is hereby deleted in its entirety and replaced with the following:
------------------------------------------------ ----------------------------------------------- Project Outside Completion Date ------------------------------------------------ ----------------------------------------------- 1. Corporate Headquarters September 30, 1999 ------------------------------------------------ -----------------------------------------------
-4- 19
------------------------------------------------ ----------------------------------------------- Project Outside Completion Date ------------------------------------------------ ----------------------------------------------- 2. Knoxville, Tennessee September 30, 1999 ------------------------------------------------ ----------------------------------------------- 3. Auburn, Washington September 30, 1999 ------------------------------------------------ ----------------------------------------------- 4. Hudson, Wisconsin October 30, 1999 ------------------------------------------------ ----------------------------------------------- 5. Greensboro, North Carolina December 26, 1999 ------------------------------------------------ -----------------------------------------------
(c) Appendix A to the Participation Agreement shall be amended to delete the definition of SUBSEQUENT APPRAISAL. SECTION 2.6. GREENSBORO FACILITY. The Lessees, the Construction Agent and the Guarantor acknowledge and agree that there shall be no further Funding Requests with respect to the Property located in Greensboro, North Carolina, and that the applicable Lessee or its designee shall, in accordance with Section 18.1 of the Lease, purchase the Property located in Greensboro, North Carolina on or before June 30, 1999. Lessor and the Administrative Agent waive the requirement for delivery of a Purchase Notice required in Section 18.1 of the Lease and the restriction governing the purchase of less than all of the Properties. SECTION 2.7. ACCURACY OF INFORMATION. The Lessee, the Construction Agent and the Guarantor acknowledge and agree that (i) the information set forth on Schedule 1 attached hereto provided by the Cardinal Health, Inc. Corporate Treasury Department is true and correct in all respects, and is intended to replace and supersede the financial information previously provided to the Lessor and the Lenders with respect only to those specific categories delineated on SCHEDULE 1 and (ii) the amounts referenced on SCHEDULE 1 with respect to each Property represent, in each case, the current good faith estimate of the total amounts required to be expended after the date hereof to achieve Completion of each such Property. In the event that during the Construction of the Properties on or after the date hereof, any funds in excess of the aggregate of the Loan Commitments and Lessor Commitment shall be required to Complete the Properties, then immediately upon becoming aware of the need for such additional funds, the Lessees and the Guarantor shall provide such additional funds, and all obligations of the Lessor and the Lenders to make additional Advances shall be suspended until the Lessees and the Guarantor shall have provided such additional funds. The Lessees shall, within twenty (20) Business Days of the date hereof, increase the insured amount of each title policy insuring the Lessor and Lenders for each Property (other than the Greensboro Property) to the amounts reflected on SCHEDULE 1 as Total Estimated Cost, which increase shall be evidenced by an -5- 20 endorsement to each title policy, satisfactory in form and substance to the Lessor and the Lenders. SECTION 2.8. MECHANIC'S LIENS. The Lessor and the Lenders agree that, provided no other Event of Default shall have occurred, the Lessor and the Lenders shall not exercise any remedies under the Operative Documents solely as a result of the mechanic's liens described on SCHEDULE 2 (the "MECHANIC'S LIENS") until such time as (i) a legal or other proceeding shall have been commenced against the Lessor, any Lender or the Dublin, Ohio Property or any interest therein in connection with or in any way arising from any such Mechanic's Lien or (ii) in the good faith determination of the Lessor or any Lender, any such Mechanic's Lien shall cease to be subordinate in all respects to, or may impair, the liens of any of the Operative Documents. The Lessees and the Guarantor agree that they shall (x) immediately upon notice from the Lessor or any Lender of the occurrence of, and immediately upon any Lessee or the Guarantor obtaining knowledge of, any event described in CLAUSE (i) or (ii) above, cause all of the Mechanic's Liens to be bonded and released in a manner satisfactory to the Lessor and the Lenders and (y) provide the Lessor and the Lenders with copies of all notices, correspondence, proceedings and other documents and information relating to such Mechanic's Liens within three (3) Business Days of receipt thereof. SECTION 2.9. FUNDING RESTRICTIONS. Any restrictions on Fundings in any of the Operative Documents based on the Fair Market Sales Value of any Property are hereby deleted in their entirety. ARTICLE III CONDITIONS PRECEDENT SECTION III.1. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this ARTICLE III. SECTION III.1.1. The Company hereby represents and warrants that the execution, delivery and performance of this Amendment and each other document, if any, to be executed on behalf of the Company in connection with this Amendment, is duly authorized, valid and binding, and the Lenders, the Lessor and the Administrative Agent may conclusively rely on such representation and warranty. SECTION III.1.2. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before (other than with respect to statement (a)) and -6- 21 after giving effect to this Amendment the following statements shall be true and correct: (a) to the best knowledge of a Responsible Officer of the Company, no Default shall have occurred and be continuing as of the date hereof; (b) no Applicable Law shall exist that would (i) make it illegal for the Company to (x) execute and deliver this Amendment and each other document, if any, to be executed by it in connection with this Amendment, (y) perform any obligation under this Amendment and each other document, if any, to be executed by it in connection with this Amendment or any of the other Operative Documents, or (ii) subject the Company, the Lessees, the Lessor, the Administrative Agent or any Lender to any penalty or to other liability under or pursuant to any Applicable Law in connection with any of the foregoing. (c) no actions or proceedings shall have been instituted or threatened by or before any Governmental Authority nor shall any Applicable Law have been issued or proposed to be issued by any Governmental Authority to set aside, restrain, enjoin or prevent the consummation of the transactions contemplated by any of the Operative Documents, this Amendment and each other document, if any, to be executed by it in connection with this Amendment; (d) each representation and warranty made by the Company in this Amendment or any of the Operative Documents that is (i) qualified as to materiality shall be true and correct (to the extent of such qualification) on and as of the date hereof (unless such representation and warranty specifically relates only to an earlier date set forth therein, in which case such representation and warranty shall be true and correct (to the extent of such qualification) on and as of such earlier date) in all respects and (ii) not qualified as to materiality shall be true and correct on and as of the date hereof (unless such representation and warranty specifically relates only to an earlier date set forth therein, in which case such representation and warranty shall be true and correct on and as of such earlier date) in all material respects; and (e) since March 31, 1999, no material adverse change shall have occurred with respect to the Company. SECTION III.1.3. SATISFACTORY LEGAL FORM. All documents executed or submitted pursuant hereto by or on behalf of the Company shall be satisfactory in form and substance to the -7- 22 Lessor, each Lender, the Administrative Agent and their respective counsel. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lessor, each Lender and the Administrative Agent to enter into this Amendment, the Company hereby reaffirms, as of the date hereof, its representations and warranties contained in Section 7.2, 7.3 and 7.4 of the Participation Agreement and additionally represents and warrants unto the Lessor, each Lender and the Administrative Agent as set forth in this ARTICLE IV. SECTION IV.1. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery and performance by the Company of this Amendment and each other document, if any, executed or to be executed by it in connection with this Amendment, are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Company's charter or bylaws; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Company; or (c) result in, or require the creation or imposition of, any Lien on any of the Company's properties except as expressly contemplated by the Operative Documents. SECTION IV.2. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Company of this Amendment or any other document, if any, to be executed by it in connection with this Amendment. SECTION IV.3. VALIDITY, ETC. This Amendment constitutes, and each other document executed by the Company in connection with this Amendment, if any, will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms. -8- 23 ARTICLE V MISCELLANEOUS PROVISIONS SECTION V.1. RATIFICATION OF AND REFERENCES TO THE PARTICIPATION AGREEMENT. This Amendment shall be deemed to be an amendment to the Participation Agreement, and the Participation Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Participation Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Participation Agreement as amended hereby. SECTION V.2. HEADINGS. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof. SECTION V.3. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. (a) This Amendment may be executed by the parties hereto in any number of counterparts and on separate counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. (b) This Amendment shall become effective (the "EFFECTIVE DATE") upon satisfaction of each of the conditions precedent set forth in ARTICLE III. SECTION V.4. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. -9- 24 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CARDINAL HEALTH, INC., as Lessee, Construction Agent and Guarantor By /s/ Leonard Kuhr ------------------------------- Name: Leonard Kuhr Title: Corporate Vice-President and Treasurer S-1 25 CARDINAL SOUTHEAST, INC. (successor by merger with Chapman Drug Company), as Lessee By /s/ Leonard Kuhr ------------------------------- Name: Leonard Kuhr Title: Corporate Vice-President and Treasurer S-2 26 WHITMIRE DISTRIBUTION COMPANY, as Lessee By /s/ Leonard Kuhr ------------------------------- Name: Leonard Kuhr Title: Corporate Vice-President and Treasurer S-3 27 BMO GLOBAL CAPITAL SOLUTIONS, INC. (successor in interest to BMO LEASING (U.S.), INC.), as Lessor By /s/ Joseph A. Bliss ------------------------------- Name: Joseph A. Bliss Title: Vice President S-4 28 BANK OF MONTREAL, as Administrative Agent for Lenders By /s/ Leon H. Sinclair ------------------------------- Name: Leon H. Sinclair Title: Director S-5 29 BANK OF MONTREAL, as Lender By /s/ Leon H. Sinclair ------------------------------- Name: Leon H. Sinclair Title: Director S-6 30 EXHIBIT A --------- EXHIBIT A TO PARTICIPATION AGREEMENT FORM OF FUNDING REQUEST TO: Bank of Montreal, as Administrative Agent for the Lenders BMO Global Capital Solutions, Inc. (successor in interest to BMO Leasing (U.S.), Inc.), as Lessor This Funding Request is delivered to you pursuant to Section 6.2(a) of the Participation Agreement dated as of June 23, 1997 (the "Participation Agreement"), entered into by and among Cardinal Health, Inc., a corporation organized under the laws of the State of Ohio (together with its permitted successors and assigns, the "Company"), as a Lessee, as Construction Agent and as the Guarantor; the Subsidiaries of the Company that may from time to time become parties thereto, as Lessees; BMO GLOBAL CAPITAL SOLUTIONS, INC. (successor in interest to BMO LEASING (U.S.), INC.), a Delaware corporation, as Lessor under the Master Lease (the "Lessor"); the various financial institutions as are or may from time to time become Lenders under the Loan Agreement (together with their respective permitted successors and assigns, the "Lenders"); and BANK OF MONTREAL, as Administrative Agent for the Lenders. Capitalized terms used but not otherwise defined herein have the respective meanings specified in Appendix A to the Participation Agreement, and the rules of interpretation set forth in Appendix A to the Participation Agreement shall apply to this Funding Request. [NAME OF APPLICABLE LESSEE] (the "Lessee") hereby notifies you that: (i) The Lessee requests the making of an Advance in the amount of $_____________ on [INSERT REQUESTED FUNDING DATE] (the "Proposed Funding Date"); (ii) The Proposed Funding Date [will] [will not] also be an Acquisition Date [and will relate to the first Construction Advance for such Property]; (iii) the Advance will be allocated among the Subject Properties and their respective costs as set forth on Schedule A hereto (and pro rata portions of 31 the related Equity Amounts and Loans shall likewise be deemed to be so allocated); (iv) after giving effect to the Advance requested hereby, the Property Cost for each Property in respect of which the Advance is being drawn is set forth on Schedule A hereto; (v) with respect to each acquisition of Property, the following information is set forth on Schedule B hereto: (A) a description of the Subject Property, (B) the Seller of the Subject Property (or, in the case of the Headquarters Building, the ground lessor of such Subject Property), (C) the Land Acquisition Cost and Existing Improvement Costs, if any, for the Subject Property, (D) the Transaction Expenses relating to Subject Property that are to be paid with such Advance, and (E) the Estimated Improvement Costs for the Subject Property; (vi) the aggregate amount of Transaction Expenses relating to the Subject Property that is to be paid with this Advance is set forth on Schedule A hereto; (vii) the Proposed Funding Date [will] [will not] relate to the funding of material handling equipment for such Property; and (viii) with respect to the acquisition of material handling equipment, the following information is set forth on Schedule C hereto: (A) a description of the Subject Property, (B) the cost of the material handling equipment and (C) the Estimated Improvement Costs for the Subject Property. In connection with such requested Advance, the Lessee hereby represents and warrants to you as follows: (a) On the Proposed Funding Date, both immediately before and after giving effect to the making of the requested Advance and the application of the proceeds thereof, the statements made by the Company and the Lessee in Section 7.4 of the Participation Agreement are true and correct in all material respects. (b) After giving effect to the Advance requested hereby the aggregate outstanding amounts of each of the Loans and the Equity Amounts would not exceed the aggregate Loan Commitments or the Lessor Commitment, respectively. (c) All of the conditions precedent set forth in Article VI of the Participation Agreement applicable to the Advance requested hereby have been satisfied or waived. 32 Please wire transfer the proceeds of the Advance to the accounts specified by the Lessee in written notice to the Administrative Agent. The Lessee has caused this Funding Request to be executed and delivered by its duly authorized Responsible Employee as of this _____ day of _________, 199_*/. [Name of Lessee] By ----------------------------- Name: Title: SCHEDULE A TO FUNDING REQUEST ALLOCATION OF ADVANCES ----------------------
================================================================================================================================== Current Aggregate Advance: Transaction Property Aggregate Expenses Improvement Aggregate Property (all advances Costs Current Property Cost (all to date, (excluding Advance: Cost (all Property advances to excluding Material Material advances to Remaining Total Description Lease date, excluding current Handling Handling date, including Costs to Project (City, State) Supp. No. current advance) advance) Equipment) Equipment current advance) be Funded Cost - ---------------------------------------------------------------------------------------------------------------------------------- 1.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 2.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 3.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 4.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ - ---------------------------------------------------------------------------------------------------------------------------------- 5.__________ No. __ $___________ $___________ $________ $________ $________ $________ $________ ==================================================================================================================================
General Transaction Expenses: Transaction Expenses With Respect to the first two Fundings after execution of this Amendment: - ----------- */ The Funding Request is required to be delivered not later than 12:00 noon, New York City time, three (3) Business Days prior to the proposed Funding Date. 33 SYNTHETIC LEASE TRANSACTIONS BREAKDOWN OF FUNDINGS BANK OF MONTREAL
DUBLIN, CORPORATE HQ - COMPLETION ESTIMATE OF SEPTEMBER 30, 1999 Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 0 44,564,553 0 53,500 0 44,618,053 Estimated Costs to Complete 0 3,400,000 0 0 0 3,400,000 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 0 47,964,553 0 53,500 0 48,018,053 Amount Funded 0 (38,231,836) 0 (53,500) 0 (38,285,336) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 9,732,717 0 0 0 9,732,717 =========== =========== ========= ======== ======== =========== KNOXVILLE - COMPLETION ESTIMATE OF SEPTEMBER 30, 1999 Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 655,793 5,829,005 1,819,419 19,168 0 8,323,385 Estimated Costs to Complete 0 0 0 0 0 0 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 655,793 5,829,005 1,819,419 19,168 0 8,323,385 Amount Funded (655,793) (6,028,649) (712,916) (19,168) 0 (7,416,526) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 (199,644)(a) 1,106,503 (0) 0 906,859 =========== =========== ========= ======== ======== =========== AUBURN - COMPLETION ESTIMATE OF SEPTEMBER 30, 1999 Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 9,271,791 1,796,597 1,810,437 30,402 0 12,909,227 Estimated Costs to Complete 0 1,450,000 515,000 0 0 1,965,000 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 9,271,791 3,246,597 2,325,437 30,402 0 14,874,227 Amount Funded (9,271,791) (1,762,334) 0 (30,402) 0 (11,064,527) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 1,484,263 2,325,437 (0) 0 3,809,699 =========== =========== ========= ======== ======== ===========
34
HUDSON - COMPLETION ESTIMATE OF OCTOBER 30, 1999 Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 500,000 5,604,342 1,625,857 43,364 0 7,773,563 Estimated Costs to Complete 0 100,000 0 0 0 100,000 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 500,000 5,704,342 1,625,857 43,364 0 7,873,563 Amount Funded (500,000) (5,578,674) (124,315) (43,364) 0 (6,246,353) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 125,668 1,501,542 0 0 1,627,210 =========== =========== ========= ======== ======== =========== GREENSBORO - COMPLETION ESTIMATE OF DECEMBER 26, 1999 Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 5,770,000 2,352,690 2,505,111 60,626 0 10,688,427 Estimated Costs to Complete 0 320,000 0 0 0 320,000 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 5,770,000 2,672,690 2,505,111 60,626 0 11,008,427 Amount Funded (5,770,000) (1,923,552) (1,006) (60,626) 0 (7,755,184) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 749,138 2,504,105 0 0 3,253,243 =========== =========== ========= ======== ======== =========== GENERAL Land Prop Improv MHE Transaction General Total ----------- ----------- --------- ----------- -------- ----------- Amount Expended 0 0 0 0 453,263 453,263 Estimated Costs to Complete 0 0 0 0 0 0 ----------- ----------- --------- -------- -------- ----------- Total Estimated Costs 0 0 0 0 453,263 453,263 Amount Funded 0 0 0 0 (453,263) (453,263) ----------- ----------- --------- -------- -------- ----------- Total Not Yet Funded 0 0 0 0 0 0 =========== =========== ========= ======== ======== =========== GRAND TOTALS After Removing Land Prop Improv MHE Transaction General Total Greensboro ----------- ----------- --------- ----------- -------- ----------- -------------- Amount Expended 16,197,584 60,147,187 7,760,824 207,060 453,263 84,765,918 74,077,491 Estimated Costs to Complete 0 5,270,000 515,000 0 0 5,785,000 5,465,000 ----------- ----------- --------- -------- -------- ----------- ----------- Total Estimated Costs 16,197,584 65,417,187 8,275,824 207,060 453,263 90,550,918 79,542,491 Amount Funded (16,197,584) (53,525,045) (838,237) (207,060) (453,263) (71,221,189) (63,466,005) ----------- ----------- --------- -------- -------- ----------- ----------- Total Not Yet Funded 0 11,892,142 7,437,587 0 0 19,329,728 16,076,485 =========== =========== ========= ======== ======== =========== ===========
NOTE: (a) - Amount due to classification of expenditures for purposes of funding request. 35 SCHEDULE 2 TO AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT Description of Mechanic's Liens ------------------------------- 1. Affidavit for Mechanic's Lien in the amount of $691,000.00 filed by Spectrum Interiors of Ohio, Inc. and recorded as Instrument Number 199904230101687 in the Recorder's Office of Franklin County, Ohio. 2. Affidavit for Mechanic's Lien in the amount of $353,916.00 filed by Accurate Fabrication, Inc. and recorded as Instrument Number 199906030109859 in the Recorder's Office of Franklin County, Ohio. EX-10.26 11 EXHIBIT 10.26 1 Exhibit 10.26 ADDENDUM NO. 1 TO ----------------- PHARMACEUTICAL SERVICES AGREEMENT --------------------------------- This Addendum No. 1 to Pharmaceutical Services Agreement is made as of April __, 1999 (the "Execution Date"), between Kmart Corporation, whose principal address is 3100 West Big Beaver Road, Troy, Michigan 48084 (hereinafter, "Kmart") and Cardinal Health* (consisting of those corporate entities defined as such on the signature page), whose principal business address is 7000 Cardinal Place, Dublin, Ohio 43017 (collectively, "Cardinal Health"). BACKGROUND INFORMATION ---------------------- 1. Kmart and Cardinal Health are parties to that certain Pharmaceutical Services Agreement (the "Original Agreement") dated as of August 1, 1996. 2. Kmart and Cardinal Health each desire to amend the Original Agreement as set forth in this addendum to the Original Agreement (this "Addendum No. 1" and, together with the Original Agreement, the "Agreement"). STATEMENT OF AGREEMENT ---------------------- Cardinal Health and Kmart (the "Parties") acknowledge the accuracy of the above Background Information and hereby agree as follows: 1. Subsection (b) of Section 2, Supplemental Advertising Support, and the portions of the Section 2 Disclosure Schedule pertaining to subsection (b) of Section 2, will be deleted in their entirety. Subsection (b) of Section 2 will be replaced by the following: (b) SUBSEQUENT ADVERTISING PROGRAM FUNDS. Cardinal Health will deliver payment to Kmart in the dollar amount ("Subsequent Advertising Program Funds") set forth in the Addendum to Section 2 Disclosure Schedule within fifteen business days of the Execution Date of this Agreement. The Subsequent Advertising Program Funds will be used by Kmart for continuation of an advertising campaign to promote Kmart's pharmacy program. If this Agreement is terminated prior to the eighth anniversary of the Commencement Date other than (i) termination by Kmart for cause pursuant to the procedures outlined in Section 20 or (ii) as a result of Kmart having purchased from Cardinal Health consigned Rx Products, Owen Brockway vials, glucose monitors, glucose test strips, insulin, syringes, and lancets from and after August 1, 1998 having a total aggregate purchase price of $13 billion, then Kmart will promptly refund to Cardinal Health a portion of the Subsequent Advertising Program Funds on the terms and subject to the conditions described in the Addendum to Section 2 Disclosure Schedule. 2. Subsection (b) of Section 5 will be deleted in its entirety and replaced by the following: AFTER CONSIGNMENT EFFECTIVE DATE. After the Consignment Effective Date and prior to such time as the Parties have implemented the Central Inventory Management Program (defined below), replenishment orders for the Rx Products will continue to be initiated by the Stores, consistent with the procedures described in Section 5(a) and subject to the review of Cardinal Health. It is understood and agreed between the Parties that the inventory of Rx Products held at the Stores will be managed at a level designed to achieve an average number of inventory 2 "turns" as set forth below (the "Inventory Turns Target") during each of the contract years of this Agreement. CONTRACT YEAR INVENTORY BONUS ------------- --------- ----- TURNS TARGET INVENTORY ------------ --------- WITHOUT TURNS TARGET ------- ------------ CIMP ---- Year 1 11 N/A Year 2 11 N/A Year 3 9.2 10.5 Year 4 9.2 11.5 Year 5 9.2 12 Year 6 9.2 12 Year 7 9.2 12 Year 8 9.2 12 For purposes of this Agreement, inventory turns will be calculated on an aggregate basis each contract year based upon the average weekly consigned inventory during such year (taking into account inflation recognition as described in Paragraph 3 of Subsection (b) of Section 8) compared against dispensing of consigned inventory during the same period. If for any of the contract years prior to the implementation of the Central Inventory Management Program, the actual inventory turns achieved is less than the Inventory Turns Target, then Kmart will pay Cardinal Health a service charge (the "Inventory Turns Service Charge") of 10% on such excess inventory within 5 business days of Cardinal Health's invoice for same. In the event that the actual inventory turns achieved for any contract year equal or exceed the Bonus Inventory Turns Target set forth above, then Cardinal Health will pay Kmart a bonus equal to that number of basis points as set forth in the following chart times the sales of consigned inventory during the contract year for which the Bonus Inventory Turns Target was achieved. Beginning with Contract Year 5 ---------------------------------------------------------- Actual inventory turns Inventory turns bonus achieved ----------------------- -------------------------- 12 0.10% (10 basis points) -------------------------------------------------------- 12.5 0.13% (13 basis points) -------------------------------------------------------- 13 0.17% (17 basis points) -------------------------------------------------------- 13.5 0.19% (19 basis points) -------------------------------------------------------- 14 0.22% (22 basis points) -------------------------------------------------------- 14.5 0.23% (23 basis points) -------------------------------------------------------- 15 0.245% (24.5 basis points) -------------------------------------------------------- 15.5 0.25% (25 basis points) -------------------------------------------------------- 16 0.26% (26 basis points) -------------------------------------------------------- 16.5 0.265% (26.5 basis points) -------------------------------------------------------- 17 0.27% (27 basis points) -------------------------------------------------------- The inventory turns bonus for contract year 3 shall be as set forth above, provided, however, that for contract year 3, the inventory turns bonus shall equal 0.10% (10 basis points) for actual inventory turns achieved of at least 10.5; 0.13% (13 basis points) for actual inventory turns achieved of at least 11.5; and 0.17% (17 basis points) for actual inventory turns achieved of at least 12.5. 2 3 The inventory turns bonus for contract year 4 shall be as set forth above, provided, however, that for contract year 4, the inventory turns bonus shall equal 0.10% for actual inventory turns achieved of at least 11.5 and 0.13% (13 basis points) for actual inventory turns achieved of at least 12.5. In calculating the inventory turns for purposes of this Section, the book value of inventory will not be included for up to 100 new Stores each year for six months following the opening of each such new Store. A newly opened Store is a "new Store" if it is opening without previously existing Kmart pharmacy files. The Parties acknowledge that the actual inventory turns achieved for the second contract year was less than the Inventory Turns Target for that contract year. The Parties agree that the book inventory balance for the second contract year is equal to $177,024,894, subject by both Parties to physical verification and inclusion of the physical inventory results/adjustments through the second contract year. However, Cardinal Health has agreed to waive the service charge payable by Kmart in connection with the second contract year in consideration of the agreements set forth in this Addendum. The Parties agree that the value of such waiver is $4,489,733 (the "Inventory Turns Relief"). Cardinal Health will develop a central inventory management program (the "Central Inventory Management Program"), pursuant to which Cardinal Health will assume responsibility for managing the ordering process for the consigned Rx Product inventories for the Stores. Kmart will reimburse Cardinal Health one half of the cost of such development for the Central Inventory Management Program (including without limitation costs associated with labor, consulting fees, and development costs) up to an amount not to exceed $350,000, which amount shall be payable to Cardinal Health one-half upon the conclusion of the first beta test conducted in connection with the Central Inventory Management Program and one-half upon the first installation of the Central Inventory Management Program in a Kmart Store, within fifteen (15) days of the date of Cardinal Health's invoice to Kmart therefor. The Central Inventory Management Program will be designed by Cardinal Health, which will exercise reasonable efforts to provide each Kmart Store with an average monthly Service Level per Store as described in Section 1 of the Original Agreement. In connection with development and implementation of the Central Inventory Management Program, Kmart agrees to install ScriptLINE as to third party transactions in all Kmart Stores no later than May 1, 1999. On or before March 1, 2000, the Parties will implement the Central Inventory Management Program developed by Cardinal Health in the Stores; provided, however, the Central Inventory Management Program will only be implemented in the Stores after successful beta testing, such that the parties agree that the Central Inventory Management Program processes the ordering and replenishment of Rx Products for the Stores to provide an average monthly Service Level per Store as described in Section 1 of the Original Agreement. If the Central Inventory Management Program is implemented in all Stores by March 1, 2000 and Kmart is operating the Central Inventory Management Program in accordance with the Accuracy Procedures as described below, the Inventory Turns Service Charge will be discontinued for the fourth contract year, provided that Kmart's actual inventory turns equal or exceed 9.2 for the period of the fourth contract year prior to implementation of the Central Inventory Management Program. The Inventory Turns Service Charge will be reinstated in the event that the Accuracy Procedures cease to be complied with. If the Central Inventory Management Program is not implemented by March 1, 2000, for any reason, then the Inventory Turns Service Charge will apply to the fourth contract year and will continue for each contract 3 4 year thereafter as described above for each full contract year during which the Central Inventory Management Program is not implemented for such full year. The Parties acknowledge that the Central Inventory Management Program will only work effectively if the Kmart pharmacists use the Central Inventory Management Program in a consistent and accurate manner. Therefore, Kmart agrees that inventory control objectives will be included as a major initiative for Kmart's Regional and District pharmacy managers. In addition, Kmart agrees that the Kmart pharmacists will use all reasonable efforts to use the Central Inventory Management Program properly (based on a mutually agreeable operating plan that is jointly developed by both Parties), including without limitation adhering to the following "Accuracy Procedures": (1) not overriding the system with telxon or manual orders except for customer service needs or in the event the Central Inventory Management Program is not functioning properly, (2) conducting annual physical inventory counts for each Store which will include a physical inventory at each Store by Kmart prior to the implementation of the Central Inventory Management Program, (3) conducting quarterly cycle counts (as detailed below), (4) submitting to Cardinal Health accurate Store transfer data, and (5) submitting to Cardinal Health all Unmerchantable third-party returns as they are sent from the Stores to the Designated Processor. Cardinal Health will use all reasonable efforts to manage the inventory records in connection with the Central Inventory Management Program and maintain the viability of the system. In the event that the system becomes inoperable, then the affected Stores may order via telxon units until such time as the system becomes operable again. Upon the system again becoming operable, then the Stores will resume ordering pursuant to the Central Inventory Management Program. In addition to the inventories described in Section 8(b), in order to establish and maintain accurate on-hand inventory records for the Central Inventory Management Program, Kmart agrees to provide Cardinal Health on a daily basis with all dispensing activity at Kmart's expense, including without limitation third party and cash transactions, and to perform an annual physical inventory in all Kmart Stores with consigned Rx Products. Inasmuch as the initial dispensing activity information supplied by Kmart to Cardinal Health may be in batch format and will be supplied the day following the dispensing activity, and inasmuch as such a delay will limit but not eliminate the auditability and control of accurate on-hand inventory quantities information, Kmart agrees to use reasonable efforts to pursue a method of supplying real-time dispensing activity information to Cardinal Health. In the event that Kmart is able to provide real-time dispensing activity information to Cardinal Health and ScriptLINE becomes the mechanism to feed real-time cash dispensing activity information to Cardinal Health for the Central Inventory Management Program, then for all cash transaction claims processed through ScriptLINE, Kmart will pay Cardinal Health an annual fee equal to the lesser of (i) $0.01 per cash transaction claim processed (the "Cash Claim Charge") or (ii) $250,000 per contract year. In the event that the total Cash Claim Charges for a contract year exceed $250,000, then Cardinal Health will not charge Kmart the amount by which the total Cash Claim Charges for that contract year exceed $250,000. Kmart will pay Cardinal Health the appropriate Cash Claim Charge within thirty (30) days following the end of each contract year. Kmart shall in all events be responsible to pay any and all switching fees and the ScriptLINE Claim Transaction Fees, if any, associated with all cash transactions. In the event that Kmart is unable to provide all real-time dispensing activity information to Cardinal Health for the Central Inventory Management Program, then any Inventory Turns Target Bonus earned by Kmart will be shared with Cardinal on an 80/20 basis (80% Kmart/20% Cardinal Health), up to a maximum allocation to Cardinal Health of $250,000 for each contract year, to help support the ongoing cost of maintaining the Central Inventory Management Program. Cardinal Health's allocation 4 5 of the Inventory Turns Target Bonus will be deducted from payment of the Inventory Turns Target Bonus to Kmart. Each Kmart Store will perform a monthly physical inventory cycle count ("ICC") in metric unit detail. Each ICC will be performed for not more than 50 Rx Products randomly selected by Cardinal Health for each ICC (the "ICC Selected Products") to track the compliance of Kmart Stores with respect to accurate on-hand quantities. Each ICC will be performed in metric units and submitted to Cardinal Health in a mutually agreeable format within 5 days of the end of each designated month. During the beta testing of the Central Inventory Management Program, the parties will mutually develop procedures for dealing with discrepancies in the ICC physical count as compared to the records of the Central Inventory Management Program. All Non Rx Products will continue to be ordered and delivered as set forth in Section 5(a) of the Original Agreement, both before and after the Consignment Effective Date, but nothing contained in this Agreement will require Kmart to purchase Non Rx Products from Cardinal Health. 3. Section 11 of the Original Agreement is hereby deleted in its entirety and replaced by the following: Cardinal Health will provide item catalog and pricing information to Kmart in a mutually agreed upon electronic data interchange format. This item catalog will serve as the source for product cost information used to determine the payment amounts due to Cardinal Health. Kmart will make available to Cardinal Health information necessary to reconcile dispensing activity with the payment made to Cardinal Health. This information will be made available in mutually agreed upon electronic data interchange format. During the implementation period and up to sixty (60) days following the full implementation of the Central Inventory Management Program in all of the Kmart Stores (the "no termination period"), in the event that the automated ordering process of the Central Inventory Management Program is preventing the Central Inventory Management Program from satisfying the Service Levels set forth in Section 1 of the Original Agreement, then the Parties reserve the right to mutually decide to temporarily cease using the automated ordering process in order to cure any material issues preventing the Central Inventory Management Program from satisfying such Service Level targets. During the no termination period, Kmart shall have the right to order product via telxon as in effect prior to implementation of the Central Inventory Management Program with no additional charge. In the event that the Central Inventory Management Program is not satisfying the Service Level targets during the no termination period and the Parties decide to temporarily cease using the automated ordering process of the Central Inventory Management Program for a third time, then either Party may terminate the Cardinal Health designed Central Inventory Management Program and Kmart can order via telxon as in effect prior to implementation of the Central Inventory Management Program at no additional charge. Following the no termination period, in the event that the automated ordering process of the Central Inventory Management Program prevents the Central Inventory Management Program from satisfying the Service Levels set forth in Section 1 of the Original Agreement for three (3) consecutive months, then either Party may terminate the Cardinal Health designed Central Inventory Management Program and Kmart can order via telxon as in effect prior to the implementation of the Central Inventory Management Program at no additional charge. If the Cardinal Health designed Central Inventory Management Program is terminated for any reason, then Kmart shall have the right to select an alternative auto-replenishment system. In 5 6 the event that Kmart selects an alternative auto replenishment system, which system must be agreeable to Cardinal Health, then Cardinal Health will credit up to $350,000 of the development fees paid by Kmart towards this new system once installed. If Kmart chooses not to pursue (it being understood that Kmart has no obligation to pursue) an alternative auto replenishment system, then Cardinal Health reserves the right to pursue alternative auto replenishment solutions agreeable to Kmart at Cardinal Health's expense and will not refund any portion of the development cost to Kmart. 4. The Section 7 Disclosure Schedule is hereby deleted in its entirety and replaced by the Addendum to Section 7 Disclosure Schedule. 5. (a) The first paragraph in Section 8(b) is hereby deleted and replaced with the following: After Consignment Effective Date. From and after the date of this Addendum No. 1, payment by Kmart for Rx Products will be made in good and usable funds on the third banking day following the sale or dispensing of Rx Products by the Stores based on the dispensing data received at Kmart's Headquarters from the Stores (such third banking day, the "Consigned Merchandise Prompt Payment Date", and, together with the Non Consigned Merchandise Prompt Payment Date, the "Prompt Payment Date"). In consideration for the change in Consignment Merchandise Prompt Payment Date contained in this Addendum, Kmart will pay Cardinal an additional day of "float" within 15 days of the Execution Date of this Addendum No. 1. The amount of such additional float for each contract year will be determined on the first day of each contract year by calculating 1 day of average sales and dispensing of Rx Products by the Stores for the immediately preceding contract year, and subtracting the amount held by Cardinal as float as of the date of such calculation. The average sales and dispensing of Rx Products by the Stores for any contract year will be calculated by dividing the aggregate dollar volume of sales and dispensing of Rx Products for all Stores during the applicable contract year by 360. The amount of additional float will be adjusted up or down each contract year based upon 1 day of average sales and dispensing of Rx Products by the Stores for the immediately preceding contract year and will be paid or refunded by the 15th of the month immediately following the end of the contract year. Both Parties acknowledge that Cardinal Health withheld $3 million at the signing of the Original Agreement and that these funds are considered "float" for purposes of this calculation. Both Parties agree that the additional amount of float resulting from purchases in the second contract year for the third contract year is equal to $1,016,000 and Kmart agrees to pay Cardinal Health such amount no later than 15 days following the Execution Date of this Addendum. In order to facilitate proper accounting and record-keeping, the Parties will establish procedures to document the product movement at the time of delivery. (b) The following language is hereby inserted after the third sentence of the third paragraph of Section 8(b): As the Central Inventory Management Program is implemented by both Parties in the Kmart Stores, the inflation factor will be calculated, based upon the perpetual inventory level for each Store, by multiplying any change in price of any Rx Product by the number of units of consigned inventory of that Rx Product on-hand on the day the price changes. The total amount of the calculated daily changes for each month will be added or subtracted from book inventory for that month and included in the calculation of book inventory for that contract year. Cardinal will calculate and forward the amount of such change to Kmart by Store. The inflation factor calculation methodology utilized prior to implementation of the Central Inventory Management Program will be discontinued for each Store as the Central Inventory 6 7 Management Program is implemented for that Store; provided, however, that reconciliation of the inflation factor for that period prior to each Store implementing the Central Inventory Management Program shall be conducted based upon the inflation factor calculation methodology prior to such implementation, notwithstanding the fact that such reconciliation may occur after such implementation. 6. (a) As of the effective date of this Addendum No. 1, the first sentence of the last paragraph of the Section 9 Disclosure Schedule is hereby deleted in its entirety and replaced with the language set forth in subsection (a) of the Addendum to Section 9 Disclosure Schedule. (b) The fifth sentence of the last paragraph of the Section 9 Disclosure Schedule is hereby deleted in its entirety and replaced by the language set forth in subsection (b) of the Addendum to Section 9 Disclosure Schedule. 7. (a) The language set forth in subsection (a) of the Addendum to Section 14 Disclosure Schedule is hereby inserted in the Section 14 Disclosure Schedule immediately prior to the introductory language for the Examples which begin with the Calculation of Non-Alliance Chain Weighted Average Price. (b) The language set forth in subsection (b) of the Addendum to Section 14 Disclosure Schedule is hereby inserted in the Section 14 Disclosure Schedule immediately prior to the General Terms section. (c) The second paragraph under the General Terms section of the Section 14 Disclosure Schedule is hereby deleted in its entirety and replaced with the language set forth in subsection (c) of the Addendum to Section 14 Disclosure Schedule. (d) The language set forth in subsection (d) of the Addendum to Section 14 Disclosure Schedule is hereby inserted in the Section 14 Disclosure Schedule immediately following the second paragraph under the General Terms section. (e) The fourth-to-last paragraph of the Section 14 Disclosure Schedule under the General Terms section is hereby deleted in its entirety and replaced by the language set forth under subsection (e) of the Addendum to Section 14 Disclosure Schedule. 8. (a) Section 16 of the Original Agreement is hereby deleted in its entirety and replaced by the following: SECTION 16. RETURNS OF MERCHANTABLE AND UNMERCHANTABLE RX PRODUCTS AND NON RX PRODUCTS. (a) NON RX PRODUCTS. The Parties recognize and acknowledge that the arrangements described in this Agreement could result in products ordered in error, mispicks, shortages, etc., and that Non Rx Products may need to be returned to Cardinal Health. Therefore, both prior to and after the implementation of the Central Inventory Management Program, Cardinal Health will accept Merchantable Non Rx Products (defined below) for return from Kmart Stores in accordance with the Cardinal Health Return Goods Policy for Non-Consigned Inventory set forth in the Section 16 Disclosure Schedule. Notwithstanding anything to the contrary contained elsewhere in this Agreement, Cardinal Health will not be required to and will not accept for return any Unmerchantable Non Rx Products back through its distribution centers. Kmart will return all Unmerchantable Non Rx Products through a third party return goods processor (the "Designated Processor") as described in subsection 16(c) below. "Merchantable Non Rx Products" will be determined by Cardinal Health based upon its ability to return the item to its inventory for resale in the normal course of its business 7 8 without special preparation, testing, handling, or expense and excludes without limitation the specific items set forth in the definition of Unmerchantable Non Rx Products set forth below. "Unmerchantable Non Rx Products" shall mean as to Non Rx Products items which Cardinal Health is unable to return to its inventory for resale in the normal course of its business without special preparation, testing, handling, or expense and includes without limitation the following: (i) any item which has been used or opened, is only partially complete, or is without all original packaging, labeling, inserts, or operating manuals; (ii) short-dated (defined as less than 180 days from expiration), outdated, or seasonal product (including without limitation sun protection products, back-to-school supplies, and cough and cold displays); (iii) product that is stickered, marked, damaged, defaced, or otherwise cannot readily be resold by Cardinal Health for any reason; (iv) any item purchased on a "special order" basis, including non-stock orders and drop shipments; (v) any sterile or refrigerated merchandise, unless Cardinal Health is specially assured that such merchandise was properly stored and protected at all times and such merchandise is returned separately in a package marked as such and accompanied by a separate credit request form; (vi) any low stability product or other products which are usually sensitive to temperature and handling conditions; and (vii) any product not intended for return to a wholesaler in accordance with the return policies of the applicable manufacturer. (b) RX PRODUCTS. Both prior to and after the implementation of the Central Inventory Management Program, Cardinal Health will accept Merchantable Rx Products (defined below) for return from Kmart Stores in accordance with the Cardinal Health Return Goods Policy for Consigned Inventory set forth in the Section 16 Disclosure Schedule. Notwithstanding anything to the contrary contained elsewhere in this Agreement, both prior to and following implementation of the Central Inventory Management Program, Cardinal Health will not be required to and will not accept for return any Unmerchantable Rx Products back through its distribution centers. Kmart will return all Unmerchantable Rx Products through the Designated Processor as described in subsection 16(c) below. "Merchantable Rx Products" will be determined by Cardinal Health based upon its ability to return the item to its inventory for resale in the normal course of its business without special preparation, testing, handling, or expense and excludes without limitation the specific items set forth in the definition of Unmerchantable Rx Products set forth below. "Unmerchantable Rx Products" shall mean as to Rx Products items which Cardinal Health is unable to return to its inventory for resale in the normal course of its business without special preparation, testing, handling, or expense and includes without limitation the following: (i) any item which has been used or opened, is only partially complete, or is without all original packaging, labeling, inserts, or operating manuals; (ii) short-dated (defined as less than 270 days from expiration), outdated, or seasonal product (including without limitation flu vaccines); (iii) product that is stickered, marked, damaged, defaced, or otherwise cannot readily be resold by Cardinal Health for any reason; (iv) any item purchased on a "special order" basis, including non-stock orders and drop shipments; (v) any sterile or refrigerated merchandise, unless Cardinal Health is specially assured that such merchandise was properly stored and protected at all times and such merchandise is returned separately in a package marked as such and accompanied by a separate credit request form; (vi) any low stability product, including Epogen, Eminase, or other products which are usually sensitive to temperature and handling conditions; and (vii) any product not intended for return to a wholesaler in accordance with the return policies of the applicable manufacturer. On a contract quarterly basis, Kmart Stores will inspect Rx Products on site and remove and return to Cardinal Health those unopened packages of Merchantable Rx Products which are not anticipated to be used within 3 months (based on previous demand history) and have dating greater than 270 days (9 months). Such returns will be made in accordance with the Section 16 Disclosure Schedule. 8 9 All Unmerchantable Rx Products processed through the Designated Processor will be treated as having been sold or dispensed by Kmart. The aggregate purchase price for all Unmerchantable Rx Products processed through the Designated Processor will be calculated as of the last day of the month in which the return is processed by the Designated Processor (the "Stock Rotation Amount"), subject to verification by both Parties. Each Party will adjust book inventory to reflect the Stock Rotation Amount as soon as it is verified by both Parties. The Designated Processor will establish an estimated returnable value ("ERV") for the Unmerchantable Rx Products and Kmart will pay Cardinal Health an amount equal to the difference between the ERV and the Stock Rotation Amount, in good and usable funds on or before the 10th business day immediately following completion of the reconciliation process for each month. On a monthly basis, the Parties will reconcile the aggregate credit received from manufacturers against the ERV. Such reconciliation will include all applicable credit memoranda and other credits received, as well as all other deductions taken by Cardinal Health on behalf of Kmart or reversed by the manufacturers. A final reconciliation of the aggregate credit received from manufacturers against the ERV will be performed and completed within 90 days of the termination date of this Agreement. The Party owing the other Party as a result of the final reconciliation will pay the non-owing Party within 15 days following completion of such final reconciliation. Credit (evidenced by credit memoranda or otherwise) for manufacturers who are in bankruptcy will not be credited for purposes of calculating the Stock Rotation Amount. Cardinal Health will use all reasonable efforts to work with any manufacturer in bankruptcy to recognize value on behalf of Kmart from such manufacturer for returned Rx Product. Following termination of this Agreement, both Parties will continue to process any Unmerchantable Rx Products for which processing began prior to termination of the Agreement and Kmart will remit to Cardinal Health any portion of the Stock Rotation Amount which has not previously been recovered by Cardinal Health, including without limitation any shortfall of the ERV compared to recovered credits during the term of this Agreement. (c) THIRD PARTY RETURN GOODS PROCESSOR. Kmart will notify Cardinal Health of Kmart's choice of Designated Processor. Kmart will forward all Unmerchantable Non Rx Products and Unmerchantable Rx Products (collectively, "Unmerchantable Products") directly to the Designated Processor and not to Cardinal Health. Cardinal Health will return to Kmart any Unmerchantable Products forwarded to Cardinal Health from Kmart. (b) The "General Policy" section of the Non-Consigned Inventory section of the Section 16 Disclosure Schedule is hereby deleted and replaced in its entirety by the language set forth in Non-Consigned portion of the Addendum to Section 16 Disclosure Schedule. (c) A new Consigned Inventory section will be added to the end of the Section 16 Disclosure Schedule, which will read as set forth in the Consigned Portion of the Addendum to Section 16 Disclosure Schedule. 9. The following is hereby added as an additional paragraph at the end of Section 17: Neither Kmart nor Cardinal Health will distribute Rx Products from Kmart Store locations to third parties, other than the dispensing of Rx Products by licensed Kmart pharmacists pursuant to valid prescriptions in accordance with its customary business practice or as otherwise permitted by applicable laws and regulations. 9 10 10. Section 20 of the Original Agreement will be amended as follows: (a) The first sentence of Section 20 will be deleted and replaced by the following: The term of this Agreement will commence as of August 1, 1996 (the "Commencement Date") and will continue thereafter until the earlier of: (a) the eighth anniversary of the Commencement Date or (b) such time as Kmart has purchased from Cardinal Health consigned Rx Products, Owen Brockway vials, glucose monitors, glucose test strips, insulin, syringes, and lancets from and after August 1, 1998 having an aggregate purchase price of $13 billion, with the option to extend the term for successive additional periods of one year each upon the mutual written consent of the Parties. (b) The last paragraph of Section 20 will be deleted in its entirety and replaced by the following: No termination of this Agreement (including at the end of the term as stated above) will be effective until such time as Kmart has paid all amounts owed to Cardinal Health upon such termination, including (if applicable) the Early Termination Fee, the reimbursement of any unamortized portion of the Initial Advertising Program Funds and the Subsequent Advertising Program Funds, payment of the unamortized portion of the $1,300,000 COGS Relief, the unamortized portion of the $4,489,733 Inventory Turns Relief, and the payment for all Merchandise previously purchased by Kmart and the payment for, or delivery back to Cardinal Health of, all Merchandise delivered to or held by Kmart on consignment as described in the Purchase and Consignment Agreement, which amounts will automatically become due and payable on or before the effective date of the termination (unless previously due and payable), whether with or without cause. For purposes of this Section 20, the unamortized portion of the COGS Relief for all contract quarters prior to the 21st contract quarter shall equal $1,300,000 and for all quarters starting with the 21st contract quarter and thereafter shall equal $1,300,000 times a fraction (the "Fraction") the numerator of which shall equal $13 billion minus the aggregate purchase price of consigned Rx Products, Owen Brockway vials, glucose monitors, glucose test strips, insulin, syringes, and lancets purchased by Kmart from Cardinal Health from and after August 1, 1998 and the denominator of which shall equal $13 billion. For purposes of this Section 20, the unamortized portion of the Inventory Turns Relief for all contract quarters prior to the 21st contract quarter shall equal $4,489,733 and for all quarters starting with the 21st contract quarter and thereafter shall equal $4,489,733 times the Fraction. For purposes of this Section 20, the unamortized portion of the Initial Advertising Program Funds and the Subsequent Advertising Program Funds shall be as described in the Addendum to Section 2 Disclosure Schedule. 11. A new Section 36 is hereby added to the Agreement which reads as follows: After the execution of this Addendum No. 1 but before March 1, 2000, Cardinal Health will employ an employee who will serve as the Supply Inventory Control Supervisor (the "Inventory Control Supervisor") who will serve as a liaison between Cardinal Health and Kmart and whose duties will include but not be limited to assistance in managing Kmart's inventory levels in the Stores. The Inventory Control Supervisor's office will be located at the corporate offices of Kmart in Troy, Michigan. Kmart agrees to give the Inventory Control Supervisor access to Kmart records and systems pertinent to the control of consigned inventory. Notwithstanding such fact, the Inventory Control Supervisor's salary and benefits will be paid by Cardinal Health and the Inventory Control Supervisor shall be an employee of Cardinal Health and subject to Cardinal Health's employment policies. During the term of this 10 11 Agreement and for a period of two years thereafter, Kmart agrees not to directly or indirectly employ, or solicit the employment of, (whether as an employee, officer, director, agent, consultant or independent contractor) the Inventory Control Supervisor. The Inventory Control Supervisor will sign a similar agreement prior to beginning duties under this Agreement. 12. A new Section 37 is hereby added to the Agreement which reads as follows: All Kmart Stores will subscribe to ScriptLINE for data collection and the reporting of dispensing data. The parameters of Kmart's participation in ScriptLINE are as set forth in the Section 37 Disclosure Schedule. 13. All capitalized terms contained in this Addendum No. 1 but not defined herein shall have the same meaning as that set forth in the Original Agreement. 14. Except to the extent otherwise set forth in this Addendum No. 1, the terms, conditions and provisions of the Original Agreement are unchanged and remain in full force and effect. Kmart Cardinal Health* By: /s/ Andrew Giancamilli By: /s/ Michael C. Kaufmann ----------------------------- ------------------------------------ Print Name: Andrew Giancamilli Print Name: Michael C. Kaufmann -------------------- ---------------------------- Title: President Title: SVP Retail Sales & Marketing -------------------- ---------------------------- *The term "Cardinal Health" shall include the following affiliated companies: RedKey, Inc., an Ohio corporation (Dublin, Ohio); Cardinal Syracuse, Inc., a New York corporation (Syracuse, New York); Marmac Distributors, Inc., a Connecticut corporation (Hartford, Connecticut); James W. Daly, Inc., a Massachusetts corporation, (Peabody, Massachusetts); Ohio Valley-Clarksburg, Inc., a Delaware corporation (Wheeling, West Virginia); Cardinal Southeast, Inc., a Mississippi corporation (Madison, Mississippi); Whitmire Distribution Corporation, a Delaware corporation (Folsom, California); Humiston-Keeling, Inc., an Illinois corporation (Calumet City, Illinois); Behrens Inc., a Texas corporation (Waco, Texas); National PharmPak Services, Inc., an Ohio corporation (Zanesville, Ohio); Renlar Systems, Inc., a Kentucky corporation (Lexington, Kentucky); Medical Strategies, Inc., a Massachusetts corporation (Dublin, Ohio); Cardinal Health Systems, Inc., an Ohio corporation (Dublin, Ohio) and any other subsidiary of Cardinal Health, Inc., an Ohio corporation ("Cardinal Health, Inc."), as may be designated by Cardinal Health, Inc. 11 EX-10.27 12 EXHIBIT 10.27 1 Exhibit 10.27 FORM OF COMMERCIAL PAPER DEALER AGREEMENT 4(2) PROGRAM BETWEEN CARDINAL HEALTH, INC., AS ISSUER AND ______________________________, AS DEALER CONCERNING NOTES TO BE ISSUED PURSUANT TO AN ISSUING AND PAYING AGENCY AGREEMENT DATED AS OF JUNE 28, 1999 BETWEEN THE ISSUER AND THE FIRST NATIONAL BANK OF CHICAGO, AS ISSUING AND PAYING AGENT DATED AS OF AUGUST 26, 1999 2 COMMERCIAL PAPER DEALER AGREEMENT 4(2) PROGRAM This agreement (as amended, supplemented or otherwise modified and in effect from time to time this "Agreement") sets forth the understandings between the Issuer and the Dealer, each named on the cover page hereof, in connection with the issuance and sale by the Issuer of its short-term promissory notes (the "Notes") through the Dealer pursuant to the Issuing and Paying Agency Agreement named on the cover page hereof. Certain terms used in this Agreement are defined in Section 6 hereof. The Addendum to this Agreement, and any Annexes or Exhibits described in this Agreement or such Addendum, are hereby incorporated into this Agreement and made fully a part hereof. Section 1. OFFERS, SALES AND RESALES OF NOTES. 1.1 While (a) the Issuer has and shall have no obligation to sell the Notes to the Dealer or to permit the Dealer to arrange any sale of the Notes for the account of the Issuer, and (b) the Dealer has and shall have no obligation to purchase the Notes from the Issuer or to arrange any sale of the Notes for the account of the Issuer, the parties hereto agree that in any case where the Dealer purchases Notes from the Issuer, or arranges for the sale of Notes by the Issuer, such Notes will be purchased or sold by the Dealer in reliance on the representations, warranties, covenants and agreements of the Issuer contained herein or made pursuant hereto and on the terms and conditions and in the manner provided herein. 1.2 So long as this Agreement shall remain in effect, and in addition to the limitations contained in Section 1.7 hereof, the Issuer shall not, without the consent of the Dealer, offer, solicit or accept offers to purchase, or sell, any Notes except (a) in transactions with one or more dealers which may from time to time after the date hereof become dealers with respect to the Notes by executing with the Issuer one or more agreements which contain provisions substantially identical to those contained in Section 1 of this Agreement, of which the Issuer hereby undertakes to provide the Dealer prompt notice or (b) in transactions with the other dealers listed on the Addendum hereto, which are executing agreements with the Issuer which contain provisions substantially identical to Section 1 of this Agreement contemporaneously herewith. In no event shall the Issuer offer, solicit or accept offers to purchase, or sell, any Notes directly on its own behalf in transactions with persons other than broker-dealers as specifically permitted in this Section 1.2. 1.3 The Notes shall be in a minimum denomination of $250,000 or integral multiples of $1,000 in excess thereof, will bear such interest rates, if interest bearing, or will be sold at such discount from their face amounts, as shall be agreed upon by the Dealer and the Issuer, shall have -1- 3 a maturity not exceeding 270 days from the date of issuance (exclusive of days of grace) and shall not contain any provision for extension, renewal or automatic "rollover." 1.4 The authentication and issuance of, and payment for, the Notes shall be effected in accordance with the Issuing and Paying Agency Agreement, and the Notes shall be either individual physical certificates or book-entry notes evidenced by a Master Note registered in the name of DTC or its nominee, in the form or forms annexed to the Issuing and Paying Agency Agreement. 1.5 If the Issuer and the Dealer shall agree on the terms of the purchase of any Note by the Dealer or the sale of any Note arranged by the Dealer (including, but not limited to, agreement with respect to the date of issue, purchase price, principal amount, maturity and interest rate (in the case of interest-bearing Notes) or discount thereof (in the case of Notes issued on a discount basis), and appropriate compensation for the Dealer's services hereunder) pursuant to this Agreement, the Issuer shall cause such Note to be issued and delivered in accordance with the terms of the Issuing and Paying Agency Agreement and payment for such Note shall be made by the purchaser thereof, either directly or through the Dealer (pursuant to telephonic instructions received from the Dealer), to the Issuing and Paying Agent, for the account of the Issuer. All Notes that the Issuer causes to be issued and delivered through the Dealer shall be accomplished in accordance with the following procedures: (a) the Issuer shall deliver telephonic instructions to the Dealer; (b) once the Issuer and the Dealer have agreed upon the terms, the Dealer shall deliver telephonic instructions to the Issuing and Paying Agent; and (c) the Dealer shall deliver written confirmation of such telephonic instructions to the Issuing and Paying Agent (with a copy to the Issuer) within 24 hours of the time such telephonic instructions were received by the Issuing and Paying Agent. Except as otherwise agreed, in the event that the Dealer is acting as an agent and a purchaser shall either fail to accept delivery of or make payment for a Note on the date fixed for settlement, the Dealer shall promptly notify the Issuer, and if the Dealer has theretofore paid the Issuer for the Note, the Issuer will promptly return such funds to the Dealer against its return of the Note to the Issuer, in the case of a certificated Note, and upon written notice of such failure in the case of a book-entry Note. If such failure occurred for any reason other than default by the Dealer, the Issuer shall reimburse the Dealer on an equitable basis for the Dealer's loss of the use of such funds for the period such funds were credited to the Issuer's account. 1.6 The Dealer and the Issuer hereby establish and agree to observe the following procedures in connection with offers, sales and subsequent resales or other transfers of the Notes: (a) Offers and sales of the Notes by or through the Dealer shall be made only to: (i) investors reasonably believed by the Dealer to be Qualified Institutional Buyers or Institutional Accredited Investors and (ii) non-bank fiduciaries or agents that will be purchasing Notes for one or more accounts, each of which is reasonably believed by the Dealer to be an Institutional Accredited Investor. Dealer shall utilize reasonable efforts and procedures to assure and document that offers and sales of the Notes by or through the Dealer are made only to purchasers of the type described in this Section 1.6(a). -2- 4 (b) Resales and other transfers of the Notes by the holders thereof shall be made only in accordance with the restrictions in the legend described in clause (e) below. (c) No general solicitation or general advertising by either party shall be used in connection with the offering of the Notes. Without limiting the generality of the foregoing, without the prior written approval of the Dealer, the Issuer shall not issue any press release or place or publish any "tombstone" or other advertisement relating to the Notes. (d) No sale of Notes to any one purchaser shall be for less than $250,000 principal or face amount, and no Note shall be issued in a smaller principal or face amount. If the purchaser is a non-bank fiduciary acting on behalf of others, each person for whom such purchaser is acting must purchase at least $250,000 principal or face amount of Notes. (e) Offers and sales of the Notes by the Issuer through the Dealer acting as agent for the Issuer shall be made in accordance with Rule 506 under the Securities Act, and shall be subject to the restrictions described in the legend appearing on Exhibit A hereto. A legend substantially to the effect of such Exhibit A shall appear as part of the Private Placement Memorandum used in connection with offers and sales of Notes hereunder, as well as on each individual certificate representing a Note and each Master Note representing book-entry Notes offered and sold pursuant to this Agreement. (f) The Dealer shall furnish or shall have furnished to each purchaser of Notes for which it has acted as the Dealer a copy of the then-current Private Placement Memorandum unless such purchaser has previously received a copy of the Private Placement Memorandum as then in effect. The Private Placement Memorandum shall expressly state that any person to whom Notes are offered shall have an opportunity to ask questions of, and receive information from, the Issuer and the Dealer and shall provide the names, addresses and telephone numbers of the persons from whom information regarding the Issuer may be obtained. (g) The Issuer agrees, for the benefit of the Dealer and each of the holders and prospective purchasers from time to time of the Notes that, if at any time the Issuer shall not be subject to Section 13 or 15(d) of the Exchange Act, the Issuer will furnish, upon request and at its expense, to the Dealer and to holders and prospective purchasers of Notes information required by Rule 144A(d)(4)(i) in compliance with Rule 144A(d). (h) In the event that any Note offered or to be offered by the Dealer would be ineligible for resale under Rule 144A, the Issuer shall immediately notify the Dealer (by telephone, confirmed in writing) of such fact and shall promptly prepare and deliver to the Dealer an amendment or supplement to the Private Placement Memorandum describing the Notes that are ineligible, the reason for such ineligibility and any other relevant information relating thereto. -3- 5 (i) The Issuer hereby agrees that, not later than 15 days after the first sale of Notes as contemplated by this Agreement, it will file with the SEC a notice on Form D in accordance with Rule 503 under the Securities Act and that it will thereafter file such amendments to such notice as Rule 503 may require. (j) The Dealer hereby agrees with the Issuer not to offer or sell any Notes in a manner that might call into question the availability of the private offering exemption contained in Section 4(2) of the Securities Act and Rule 506 thereunder. 1.7 The Issuer hereby represents and warrants to the Dealer, in connection with offers, sales and resales of Notes, as follows: (a) Except as set forth in the second paragraph of this Section 1.7(a), Issuer hereby confirms to the Dealer that within the preceding six months neither the Issuer nor any person other than the Dealer or the other dealers referred to in Section 1.2 hereof acting on behalf of the Issuer has offered or sold any Notes, or any substantially similar security of the Issuer (including, without limitation, medium-term notes issued by the Issuer), to, or solicited offers to buy any such security from, any person other than the Dealer or the other dealers referred to in Section 1.2 hereof. The Issuer also agrees that, as long as the Notes are being offered for sale by the Dealer and the other dealers referred to in Section 1.2 hereof as contemplated hereby and until at least six months after the offer of Notes hereunder has been terminated, neither the Issuer nor any person other than the Dealer or the other dealers referred to in Section 1.2 hereof (except as contemplated by Section 1.2 hereof) will offer the Notes or any substantially similar security of the Issuer for sale to, or solicit offers to buy any such security from, any person other than the Dealer or the other dealers referred to in Section 1.2 hereof, it being understood that such agreement is made with a view to bringing the offer and sale of the Notes within the exemption provided by Section 4(2) of the Securities Act and Rule 506 thereunder and shall survive any termination of this Agreement. The Issuer hereby represents and warrants that it has not taken or omitted to take, and will not take or omit to take, any action that would cause the offering and sale of Notes hereunder to be integrated with any other offering of securities, whether such offering is made by the Issuer or some other party or parties, and that would make unavailable the private offering exemption contained in Section 4(2) of the Securities Act and Rule 506 thereunder, with respect to the offer and sale of Notes hereunder. Dealer acknowledges that it has been informed by the Issuer that Allegiance Corporation, a wholly-owned subsidiary of the Issuer and a Delaware corporation ("Allegiance") has made offers and sales of notes (the "Allegiance Notes"), which are substantially similar to the Notes, during the six-month period prior to the date of this Agreement. The offer and sale of the Allegiance Notes were made pursuant to a commercial paper program established by Allegiance on or about June 8, 1998. The Issuer hereby represents and warrants that the Allegiance Notes have been offered and sold in accordance with the procedures set forth in Section 1.6 of this Agreement. -4- 6 (b) The Issuer represents and agrees that the proceeds of the sale of the Notes are not currently contemplated to be used for the purpose of buying, carrying or trading securities within the meaning of Regulation T and the interpretations thereunder by the Board of Governors of the Federal Reserve System. In the event that the Issuer determines to use such proceeds for the purpose of buying, carrying or trading securities, whether in connection with an acquisition of another company or otherwise, the Issuer shall give the Dealer at least five business days' prior written notice to that effect. The Issuer shall also give the Dealer prompt notice of the actual date that it commences to purchase securities with the proceeds of the Notes. Thereafter, in the event that the Dealer purchases Notes as principal and does not resell such Notes on the day of such purchase, to the extent necessary to comply with Regulation T and the interpretations thereunder, the Dealer will sell such Notes either (i) only to offerees it reasonably believes to be QIBs or to QIBs it reasonably believes are acting for other QIBs, in each case in accordance with Rule 144A or (ii) in a manner which would not cause a violation of Regulation T and the interpretations thereunder. Section 2. REPRESENTATIONS AND WARRANTIES OF ISSUER. The Issuer represents and warrants that: 2.1 The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all the requisite power and authority to execute, deliver and perform its obligations under the Notes, this Agreement and the Issuing and Paying Agency Agreement. 2.2 This Agreement and the Issuing and Paying Agency Agreement have been duly authorized, executed and delivered by the Issuer and constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), and subject, as to enforceability, to the qualifications set forth in the Opinion Letter referred to in Section 3.6(a) below. 2.3 The Notes have been duly authorized, and when issued as provided in the Issuing and Paying Agency Agreement, will be duly and validly issued and will constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), and subject, as to enforceability, to the qualifications set forth in the Opinion Letter referred to in Section 3.6(a) below. 2.4 The issuance and sale of Notes under the circumstances contemplated by this Agreement and the Issuing and Paying Agency Agreement do not require registration of the Notes under the Securities Act, pursuant to the exemption from registration contained in -5- 7 Section 4(2) thereof, and do not require compliance with any provision of the Trust Indenture Act of 1939, as amended. 2.5 The Notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness of the Issuer. 2.6 No consent or action of, or filing or registration with, any governmental or public regulatory body or authority, including the SEC, is required to authorize, or is otherwise required in connection with the Issuer's execution, delivery or performance of, this Agreement, the Notes or the Issuing and Paying Agency Agreement, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes. 2.7 The Issuer's execution and delivery of this Agreement and the Issuing and Paying Agency Agreement, the Issuer's issuance and delivery of the Notes, and the Issuer's fulfillment of or compliance with the terms and provisions of such instruments and agreements, (a) will not violate or result in an event of default under (i) the Issuer's articles of incorporation or code of regulations, (ii) any agreement or instrument to which the Issuer is a party or by which its property is bound and which is filed or incorporated by reference as an exhibit to the Issuer's periodic reports under the Securities Exchange Act of 1934, as amended pursuant to item 601(b)(10) of Regulation S-K of the SEC (or any successor provision thereto) (the "Material Agreements"), or (iii) any order, writ, injunction or decree of any court or government instrumentality to which the Issuer is subject or by which it or its property is bound, and (b) will not result in the creation or imposition of any mortgage, lien, charge, or other encumbrance of any nature whatsoever upon any of the properties or assets of the Issuer pursuant to a Material Agreement. 2.8 Except as described in the Company Information, there is no litigation or governmental proceeding pending, or to the knowledge of the Issuer threatened, against or affecting the Issuer or any of its subsidiaries which would reasonably be expected to result in a material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and its subsidiaries, taken as a whole, or the ability of the Issuer to perform its obligations under the Agreement, the Notes, or the Issuing and Paying Agency Agreement. 2.9 The Issuer is not required to register as an "investment company" under the Investment Company Act of 1940, as amended. 2.10 Neither the Private Placement Memorandum (excluding the Dealer Information) nor the Company Information contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.11 Each (a) issuance of Notes by the Issuer hereunder and (b) amendment or supplement of the Private Placement Memorandum shall be deemed a representation and warranty by the Issuer to the Dealer, as of the date thereof, that, both before and after giving effect to such issuance and after giving effect to such amendment or supplement, (i) the representations and -6- 8 warranties given by the Issuer set forth above in this Section 2 remain true and correct on and as of such date as if made on and as of such date, (ii) in the case of an issuance of Notes, the Notes being issued on such date have been duly and validly issued and constitute legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and subject, as to enforceability, to the qualifications set forth in the Opinion Letter referred to in Section 3.6(a) below, and (iii) in the case of an issuance of Notes, since the date of the most recent Private Placement Memorandum, there has been no material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and its subsidiaries, taken as a whole, which has not been disclosed to the Dealer in writing. Section 3. COVENANTS AND AGREEMENTS OF ISSUER. The Issuer covenants and agrees that: 3.1 The Issuer will give the Dealer prompt notice (but in any event prior to any subsequent issuance of Notes hereunder) of any amendment to, modification of or waiver with respect to, the Notes or the Issuing and Paying Agency Agreement, including a complete copy of any such amendment, modification or waiver. 3.2 The Issuer shall, whenever there shall occur any change in the condition (financial or otherwise), operations or business prospects of the Issuer and its subsidiaries, taken as a whole, or any development or occurrence in relation to the Issuer that would have a material adverse effect on holders of the Notes or potential holders of the Notes (including any downgrading or placement on CreditWatch or under review for potential negative change in the rating accorded any of the Issuer's securities by any nationally recognized statistical rating organization which has published a rating of the Notes (in each case, as publicly released)), promptly, and in any event prior to any subsequent issuance of Notes hereunder, notify the Dealer of such change, development or occurrence. 3.3 The Issuer shall from time to time upon the reasonable request by the Dealer furnish to the Dealer any press releases or any other publicly available information regarding (a) the Issuer's operations and financial condition, (b) the due authorization and execution of the Notes, and (c) the Issuer's ability to pay the Notes as they mature. 3.4 The Issuer will take all such action as the Dealer may reasonably request to ensure that each offer and each sale of the Notes will comply with any applicable state Blue Sky laws; provided, however, that the Issuer shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. -7- 9 3.5 The Issuer will not be in default in any material respect of any of its obligations hereunder, under the Notes or under the Issuing and Paying Agency Agreement, at any time that any of the Notes are outstanding. 3.6 The Issuer shall not issue Notes hereunder until the Dealer shall have received (a) an opinion of counsel to the Issuer, addressed to the Dealer, reasonably satisfactory in form and substance to the Dealer (the "Opinion Letter"), (b) a copy of the executed Issuing and Paying Agency Agreement as then in effect, (c) a copy of resolutions adopted by the Executive Committee of the Board of Directors of the Issuer, satisfactory in form and substance to the Dealer and certified by the Secretary or similar officer of the Issuer, authorizing execution and delivery by the Issuer of this Agreement, the Issuing and Paying Agency Agreement and the Notes and consummation by the Issuer of the transactions contemplated hereby and thereby, (d) prior to the issuance of any Notes represented by a book-entry note registered in the name of DTC or its nominee, a copy of the executed Letter of Representations among the Issuer, the Issuing and Paying Agent and DTC, and (e) such other certificates, opinions, letters and documents as the Dealer shall have reasonably requested. Section 4. DISCLOSURE. 4.1 The Private Placement Memorandum and its contents (other than the Dealer Information) shall be the sole responsibility of the Issuer. The Private Placement Memorandum shall contain a statement expressly offering an opportunity for each prospective purchaser to ask questions of, and receive answers from, the Issuer concerning the offering of Notes and to obtain relevant additional information which the Issuer possesses or can acquire without unreasonable effort or expense. 4.2 The Issuer agrees to promptly furnish the Dealer the Company Information as it becomes available. 4.3 (a) The Issuer further agrees to notify the Dealer promptly upon the occurrence of any event relating to or affecting the Issuer that would cause the Company Information then in existence to include an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading. The Dealer agrees that upon such notification, all solicitations and sales of Notes shall be suspended. (b) In the event that the Issuer gives the Dealer notice pursuant to Section 4.3(a) and the Dealer notifies the Issuer that it then has Notes it is holding in inventory, the Issuer agrees promptly to supplement or amend the Private Placement Memorandum so that the Private Placement Memorandum, as amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Issuer shall make such supplement or amendment available to the Dealer. -8- 10 (c) In the event that (i) the Issuer gives the Dealer notice pursuant to Section 4.3(a), (ii) the Dealer does not notify the Issuer that it is then holding Notes in inventory and (iii) the Issuer chooses not to promptly amend or supplement the Private Placement Memorandum in the manner described in clause (b) above, then all solicitations and sales of Notes shall be suspended until such time as the Issuer has so amended or supplemented the Private Placement Memorandum, and made such amendment or supplement available to the Dealer. Section 5. INDEMNIFICATION AND CONTRIBUTION. 5.1 The Issuer will indemnify and hold harmless the Dealer, each individual, corporation, partnership, trust, association or other entity controlling the Dealer, any affiliate of the Dealer or any such controlling entity and their respective directors, officers, employees, partners, incorporators, shareholders, servants, trustees and agents (hereinafter the "Indemnitees") against any and all liabilities, penalties, suits, causes of action, losses, damages, claims, costs and expenses (including, without limitation, fees and disbursements of counsel) or judgments of whatever kind or nature (each a "Claim"), imposed upon, incurred by or asserted against the Indemnitees arising out of or based upon (a) any allegation that the Private Placement Memorandum, the Company Information or any written information provided by the Issuer to the Dealer included (as of any relevant time) or includes an untrue statement of a material fact or omitted (as of any relevant time) or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (b) arising out of or based upon the breach by the Issuer of any agreement, covenant or representation made in or pursuant to this Agreement which has a material adverse effect on the Dealer or the holders of the Notes. This indemnification shall not apply to the extent that the Claim arises out of or is based upon Dealer Information or the gross negligence or willful misconduct of the Dealer in the performance or failure to perform its obligations under this Agreement. 5.2 Provisions relating to claims made for indemnification under this Section 5 are set forth on Exhibit B to this Agreement. 5.3 In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 5 is held to be unavailable or insufficient to hold harmless the Indemnitees, although applicable in accordance with the terms of this Section 5, the indemnifying party shall contribute to the aggregate costs incurred by the indemnified party in connection with any Claim in the proportion of the respective economic interests of the Issuer and the Dealer. The respective economic interests shall be calculated by reference to the aggregate proceeds to the Issuer of the Notes issued hereunder and the aggregate commissions and fees earned by the Dealer hereunder. -9- 11 Section 6. DEFINITIONS. 6.1 "Claim" shall have the meaning set forth in Section 5.1. 6.2 "Company Information" at any given time shall mean the Private Placement Memorandum together with, to the extent applicable, (a) the Issuer's most recent report on Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (b) the Issuer's most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (a) above, (c) the Issuer's and its affiliates' other publicly available recent reports, including, but not limited to, any publicly available filings or reports provided to their respective shareholders, (d) any other information or disclosure prepared pursuant to Section 4.3 hereof, and (e) any information prepared or approved by the Issuer for dissemination to investors or potential investors in the Notes. 6.3 "Dealer Information" shall mean information and other material concerning the Dealer provided by the Dealer in writing expressly for inclusion in the Private Placement Memorandum. 6.4 "DTC" shall mean The Depository Trust Company. 6.5 "Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as amended. 6.6 "Indemnitee" shall have the meaning set forth in Section 5.1. 6.7 "Institutional Accredited Investor" shall mean an institutional investor that is an accredited investor within the meaning of Rule 501 under the Securities Act and that has such knowledge and experience in financial and business matters that it is capable of evaluating and bearing the economic risk of an investment in the Notes, including, but not limited to, a bank, as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity. 6.8 "Issuing and Paying Agency Agreement" shall mean the issuing and paying agency agreement described on the cover page of this Agreement, as such agreement may be amended or supplemented from time to time. 6.9 "Issuing and Paying Agent" shall mean the party designated as such on the cover page of this Agreement, as issuing and paying agent under the Issuing and Paying Agency Agreement, or any successor thereto in accordance with the Issuing and Paying Agency Agreement. -10- 12 6.10 "Non-bank fiduciary or agent" shall mean a fiduciary or agent other than (a) a bank, as defined in Section 3(a)(2) of the Securities Act, or (b) a savings and loan association, as defined in Section 3(a)(5)(A) of the Securities Act. 6.11 "Private Placement Memorandum" shall mean offering materials prepared in accordance with Section 4 (including materials referred to therein or incorporated by reference therein) provided to purchasers and prospective purchasers of the Notes, and shall include amendments and supplements thereto which may be prepared from time to time in accordance with this Agreement (other than any amendment or supplement that has been completely superseded by a later amendment or supplement). 6.12 "Qualified Institutional Buyer" or "QIB" shall have the meaning assigned to that term in Rule 144A under the Securities Act. 6.13 "Regulation D" shall mean Regulation D (Rules 501 et seq.) under the Securities Act. 6.14 "Rule 144A" shall mean Rule 144A under the Securities Act. 6.15 "SEC" shall mean the U.S. Securities and Exchange Commission. 6.16 "Securities Act" shall mean the U.S. Securities Act of 1933, as amended. Section 7. GENERAL 7.1 Unless otherwise expressly provided herein, all notices under this Agreement to parties hereto shall be in writing and shall be effective when received at the address of the respective party set forth in the Addendum to this Agreement. 7.2 This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 7.3 The Issuer agrees that any suit, action or proceeding brought by the Issuer against the Dealer in connection with or arising out of this Agreement or the Notes or the offer and sale of the Notes shall be brought solely in the United States federal courts located in the Borough of Manhattan or the courts of the State of New York located in the Borough of Manhattan. EACH OF THE DEALER AND THE ISSUER WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7.4 This Agreement may be terminated, at any time, by the Issuer, upon one business day's prior notice to such effect to the Dealer, or by the Dealer upon one business day's prior notice to such effect to the Issuer. Any such termination, however, shall not affect the obligations of the Issuer or the Dealer under Sections 5 and 7.3 hereof or the respective representations, -11- 13 warranties, agreements, covenants, rights or responsibilities of the parties made or arising prior to the termination of this Agreement. 7.5 This Agreement is not assignable by either party hereto without the written consent of the other party; provided, however, that the Dealer may assign its rights and obligations under this Agreement to any affiliate of the Dealer engaged in the business of acting as a dealer or placement agent for commercial paper. The Dealer will notify the Issuer of any such assignment at least 30 days before it becomes effective. 7.6 This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 7.7 This Agreement is for the exclusive benefit of the parties hereto, and their respective permitted successors and assigns hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written. CARDINAL HEALTH, INC., AS ISSUER By: /s/ Richard J. Miller --------------------------------------------- Name: Richard J. Miller Title: Corporate V.P. and CFO By: /s/ Leonard G. Kuhr --------------------------------------------- Name: Leonard G. Kuhr Title: Corporate V.P. and Treasurer DEALER By: /s/ Autorized Signature of Applicable Dealer --------------------------------------------- Name: Title: -12- 14 ADDENDUM The following additional clauses shall apply to the Agreement and be deemed a part thereof when the respective parties have placed their initials in the left margin beside the respective paragraph number. 1. The other dealers referred to in clause (b) of Section 1.2 of the Agreement are Merrill Lynch Money Markets, Inc. and Credit Suisse First Boston. 2. The addresses of the respective parties for purposes of notices under Section 7.1 are as follows: For the Issuer: Cardinal Health, Inc. Address: 7000 Cardinal Place Dublin, OH 43017 Attention: Telephone number: (614) 757-5000 Fax number: (614) 757-8919 For the Dealer: Banc of America Securities LLC Address: 1455 Market Street, 13th Floor San Francisco, CA 94103 Attention: Money Market Finance Telephone number: (415) 953-7881 Fax number: (415) 622-3429 15 EXHIBIT A FORM OF LEGEND FOR PRIVATE PLACEMENT MEMORANDUM AND NOTES THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW, AND OFFERS AND SALES THEREOF MAY BE MADE ONLY IN COMPLIANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER WILL BE DEEMED TO REPRESENT THAT IT HAS BEEN AFFORDED AN OPPORTUNITY TO INVESTIGATE MATTERS RELATING TO THE ISSUER AND THE NOTES, THAT IT IS NOT ACQUIRING SUCH NOTE WITH A VIEW TO ANY DISTRIBUTION THEREOF AND THAT IT IS EITHER (A) AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a) UNDER THE ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") AND THAT EITHER IS PURCHASING NOTES FOR ITS OWN ACCOUNT, IS A U.S. BANK (AS DEFINED IN SECTION 3(a)(2) OF THE ACT) OR A SAVINGS AND LOAN ASSOCIATION OR OTHER INSTITUTION (AS DEFINED IN SECTION 3(a)(5)(A) OF THE ACT) ACTING IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY OR IS A FIDUCIARY OR AGENT (OTHER THAN A U.S. BANK OR SAVINGS AND LOAN) PURCHASING NOTES FOR ONE OR MORE ACCOUNTS EACH OF WHICH IS SUCH AN INSTITUTIONAL ACCREDITED INVESTOR (i) WHICH ITSELF POSSESSES SUCH KNOWLEDGE AND EXPERIENCE OR (ii) WITH RESPECT TO WHICH SUCH PURCHASER HAS SOLE INVESTMENT DISCRETION; OR (B) A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING OF RULE 144A UNDER THE ACT WHICH IS ACQUIRING NOTES FOR ITS OWN ACCOUNT OR FOR ONE OR MORE ACCOUNTS, EACH OF WHICH IS A QIB AND WITH RESPECT TO EACH OF WHICH THE PURCHASER HAS SOLE INVESTMENT DISCRETION; AND THE PURCHASER ACKNOWLEDGES THAT IT IS AWARE THAT THE SELLER MAY RELY UPON THE EXEMPTION FROM THE REGISTRATION PROVISIONS OF SECTION 5 OF THE ACT PROVIDED BY RULE 144A. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER THEREOF SHALL ALSO BE DEEMED TO AGREE THAT ANY RESALE OR OTHER TRANSFER THEREOF WILL BE MADE ONLY (A) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT, EITHER (1) TO THE ISSUER OR TO BANC OF AMERICA SECURITIES LLC OR ANOTHER PERSON DESIGNATED BY THE ISSUER AS A PLACEMENT AGENT FOR THE NOTES (COLLECTIVELY, THE "PLACEMENT AGENTS"), NONE OF WHICH SHALL HAVE ANY OBLIGATION TO ACQUIRE SUCH NOTE, (2) THROUGH A PLACEMENT AGENT TO AN INSTITUTIONAL ACCREDITED INVESTOR OR A QIB, OR (3) TO A QIB IN A TRANSACTION THAT MEETS THE REQUIREMENTS OF RULE 144A AND (B) IN MINIMUM AMOUNTS OF $250,000. 16 EXHIBIT B FURTHER PROVISIONS RELATING TO INDEMNIFICATION (a) The Issuer agrees to reimburse each Indemnitee for all expenses (including reasonable fees and disbursements of internal and external counsel) as they are incurred by it in connection with investigating or defending any Claim in respect of which indemnification may be sought under Section 5 of the Agreement (whether or not it is a party to any such proceedings) ; provided, however, that if it is found in any such action, proceeding or investigation that any loss, claim, damage or liability of an Indemnitee has resulted from the Dealer Information or the gross negligence or bad faith of the Indemnitee in performing the services that are the subject of this Agreement, the Indemnitee shall repay such portion of the reimbursed amounts that is attributable to expenses incurred in relation to the act or omission of the Indemnitee which is the subject of such finding. (b) Promptly after receipt by an Indemnitee of notice of the existence of a Claim, such Indemnitee will, if a claim in respect thereof is to be made against the indemnifying party, promptly notify the indemnifying party in writing of the existence thereof; provided that (i) the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have hereunder unless and except to the extent it did not otherwise learn of such Claim and such failure results in the forfeiture by the indemnifying party of rights and defenses, and (ii) the omission so to notify the indemnifying party will not relieve it from liability which it may have to an Indemnitee otherwise than on account of this indemnity agreement. In case any such Claim is made against any Indemnitee and it notifies the indemnifying party of the existence thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the Indemnitee, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnitee; provided that if the defendants in any such Claim include both the Indemnitee and the indemnifying party, and the Indemnitee shall have concluded that there may be legal defenses available to it which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such Claim on behalf of such Indemnitee, and the Indemnitee shall have the right to select separate counsel to assert such legal defenses on behalf of such Indemnitee. Upon receipt of notice from the indemnifying party to such Indemnitee of the indemnifying party's election so to assume the defense of such Claim and approval by the Indemnitee of counsel, the indemnifying party will not be liable to such Indemnitee for expenses incurred thereafter by the Indemnitee in connection with the defense thereof (other than reasonable costs of investigation) unless (i) the Indemnitee shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel in the jurisdiction in which any Claim is brought), -1- 17 approved by the indemnifying party, representing the Indemnitee who is party to such Claim) or (ii) the indemnifying party has authorized in writing the employment of counsel for the Indemnitee. The indemnity, reimbursement and contribution obligations of the indemnifying party hereunder shall be in addition to any other liability the indemnifying party may otherwise have to an Indemnitee and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the indemnifying party and any Indemnitee. -2- EX-10.29 13 EXHIBIT 10.29 1 Exhibit 10.29 CARDINAL HEALTH, INC. FIVE-YEAR CREDIT AGREEMENT DATED AS OF MARCH 31, 1999 THE SUBSIDIARY BORROWERS PARTY HERETO, THE LENDERS PARTY HERETO AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT BANK OF AMERICA NT & SA, AS SYNDICATION AGENT CITIBANK, N.A., AS CO-DOCUMENTATION AGENT CREDIT SUISSE FIRST BOSTON, AS CO-DOCUMENTATION AGENT FIRST CHICAGO CAPITAL MARKETS, INC., AS LEAD ARRANGER AND BOOK MANAGER 2 TABLE OF CONTENTS Article I. DEFINITIONS............................................................................................2 Article II. THE CREDITS..........................................................................................19 2.1 Commitments of the Lenders and Swing Line Facility.............................................19 2.2 Determination of Dollar Amounts; Required Payments; Termination................................23 2.3 Ratable Loans..................................................................................24 2.4 Types of Advances..............................................................................24 2.5 Facility Fee; Reductions in Aggregate Commitment; Utilization Fee..............................24 2.6 Minimum Amount of Each Advance.................................................................24 2.7 Prepayments....................................................................................25 2.8 Method of Selecting Types and Interest Periods for New Advances................................25 2.9 Conversion and Continuation of Outstanding Advances............................................26 2.10 Method of Borrowing............................................................................27 2.11 Changes in Interest Rate, etc..................................................................27 2.12 Rates Applicable After Default.................................................................28 2.13 Method of Payment..............................................................................28 2.14 Noteless Agreement; Evidence of Indebtedness...................................................29 2.15 Telephonic Notices.............................................................................30 2.16 Interest Payment Dates; Interest and Fee Basis.................................................30 2.17 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................31 2.18 Lending Installations..........................................................................31 2.19 Non-Receipt of Funds by the Administrative Agent...............................................31 2.20 Market Disruption..............................................................................32 2.21 Judgment Currency..............................................................................33 2.22 Payment Provisions Relating to the euro........................................................33 2.23 Redenomination and Alternative Currencies......................................................34 2.24 Replacement of Lender..........................................................................34
3 2.25 Application of Payments with Respect to Defaulting Lenders.....................................34 Article III. YIELD PROTECTION; TAXES.............................................................................35 3.1 Yield Protection...............................................................................35 3.2 Changes in Capital Adequacy Regulations........................................................36 3.3 Availability of Types of Advances..............................................................37 3.4 Funding Indemnification........................................................................37 3.5 Taxes..........................................................................................37 3.6 Lender Statements; Survival of Indemnity.......................................................39 Article IV. CONDITIONS PRECEDENT.................................................................................40 4.1 Initial Advance................................................................................40 4.2 Each Advance...................................................................................41 Article V. REPRESENTATIONS AND WARRANTIES........................................................................42 5.1 Existence and Standing.........................................................................42 5.2 Authorization and Validity.....................................................................42 5.3 No Conflict; Government Consent................................................................42 5.4 Financial Statements...........................................................................43 5.5 Material Adverse Change........................................................................43 5.6 Taxes..........................................................................................43 5.7 Litigation and Contingent Obligations..........................................................44 5.8 Subsidiaries...................................................................................44 5.9 ERISA..........................................................................................44 5.10 Accuracy of Information........................................................................45 5.11 Regulation U...................................................................................45 5.12 Material Agreements............................................................................45 5.13 Compliance With Laws...........................................................................45 5.14 Plan Assets; Prohibited Transactions...........................................................45 5.15 Environmental Matters..........................................................................45 5.16 Investment Company Act.........................................................................46 5.17 Public Utility Holding Company Act.............................................................46 5.18 Year 2000......................................................................................46
4 5.19 Default........................................................................................46 Article VI. COVENANTS............................................................................................46 6.1 Financial Reporting............................................................................46 6.2 Use of Proceeds................................................................................48 6.3 Notice of Default..............................................................................48 6.4 Conduct of Business............................................................................48 6.5 Taxes..........................................................................................48 6.6 Insurance......................................................................................48 6.7 Compliance with Laws...........................................................................48 6.8 Inspection.....................................................................................49 6.9 Merger.........................................................................................49 6.10 Sale of Assets.................................................................................49 6.11 Investments....................................................................................50 6.12 Liens..........................................................................................50 6.13 Year 2000......................................................................................52 6.14 Subsidiary Indebtedness. ......................................................................52 6.15 Limitation on Restrictions on Significant Subsidiary Distributions. ...........................53 6.16 Contingent Obligations.........................................................................54 6.17 Minimum Net Worth..............................................................................54 Article VII. DEFAULTS............................................................................................54 Article VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.....................................................56 8.1 Acceleration...................................................................................56 8.2 Amendments.....................................................................................57 8.3 Preservation of Rights.........................................................................57 Article IX. GENERAL PROVISIONS...................................................................................58 9.1 Survival of Representations....................................................................58 9.2 Governmental Regulation........................................................................58 9.3 Headings.......................................................................................58 9.4 Entire Agreement...............................................................................58 9.5 Several Obligations; Benefits of this Agreement................................................58
5 9.6 Expenses; Indemnification......................................................................58 9.7 Numbers of Documents...........................................................................59 9.8 Accounting.....................................................................................59 9.9 Severability of Provisions.....................................................................59 9.10 Nonliability of Lenders........................................................................60 9.11 Confidentiality................................................................................60 9.12 Nonreliance....................................................................................60 Article X. THE AGENT.............................................................................................61 10.1 Appointment; Nature of Relationship............................................................61 10.2 Powers.........................................................................................61 10.3 General Immunity...............................................................................61 10.4 No Responsibility for Loans, Recitals, etc.....................................................61 10.5 Action on Instructions of Lenders..............................................................62 10.6 Employment of Agents and Counsel...............................................................62 10.7 Reliance on Documents; Counsel.................................................................62 10.8 Administrative Agent's Reimbursement and Indemnification.......................................63 10.9 Notice of Default..............................................................................63 10.10 Rights as a Lender.............................................................................63 10.11 Lender Credit Decision.........................................................................64 10.12 Successor Administrative Agent.................................................................64 10.13 Administrative Agent's Fee.....................................................................65 10.14 Delegation to Affiliates.......................................................................65 10.15 Administrative Agent, Syndication Agent, Co-Documentation Agents, Lead Arranger, etc...........65 Article XI. SETOFF; RATABLE PAYMENTS.............................................................................65 11.1 Setoff.........................................................................................65 11.2 Ratable Payments...............................................................................66 Article XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS...................................................66 12.1 Successors and Assigns.........................................................................66 12.2 Participations.................................................................................66
6 12.3 Assignments....................................................................................67 12.4 Dissemination of Information...................................................................69 12.5 Tax Treatment..................................................................................69 12.6 Transfer to an SPC.............................................................................69 Article XIII. NOTICES............................................................................................70 13.1 Notices........................................................................................70 13.2 Change of Address..............................................................................70 Article XIV. COUNTERPARTS........................................................................................70 Article XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.........................................71 15.1 CHOICE OF LAW..................................................................................71 15.2 CONSENT TO JURISDICTION........................................................................71 15.3 WAIVER OF JURY TRIAL...........................................................................71
7 FIVE-YEAR CREDIT AGREEMENT This Agreement, dated as of March 31, 1999, is among Cardinal Health, Inc. (the "Company"), certain Subsidiaries of the Company (the "Subsidiary Borrowers", and together with the Company, the "Borrowers"), the lenders party hereto from time to time (the "Lenders"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"). The parties hereto agree as follows: ARTICLE I. DEFINITIONS As used in this Agreement: "364-Day Credit Agreement" means the 364-Day Credit Agreement dated the date hereof between the Company, the Subsidiary Borrowers party thereto, the Lenders and the Administrative Agent, as Administrative Agent, as such agreement may be amended, restated or extended from time to time. "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Company or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Adjusted Tangible Net Worth" means, as of any date, (i) the amount of any capital stock, paid in capital and similar equity accounts plus (or minus in the case of a deficit) the capital surplus and retained earnings of the Company and its consolidated Subsidiaries, but excluding the amount of any foreign currency translation adjustment account shown as a capital account, less (ii) the net book value of all items of the following character which are included in the assets of the Company and its consolidated Subsidiaries: (a) goodwill, including, without limitation, the excess of cost over book value of any asset, (b) organization or experimental expenses, (c) unamortized debt discount and expense, (d) patents, trademarks, trade names and copyrights, (e) treasury stock, (f) franchises, licenses and permits, and (g) other assets which are deemed intangible assets under Agreement Accounting Principles. "Administrative Agent" means The First National Bank of Chicago in its capacity as contractual representative of the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. 2 8 "Advance" means a borrowing hereunder, (i) made by one or more Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurocurrency Loans, in the same Agreed Currency and for the same Interest Period. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. As of the date of this Agreement, the original Aggregate Commitment was $750,000,000. "Aggregate Dollar Outstandings" means as at any date of determination with respect to any Lender, the aggregate unpaid principal amount of such Lender's Dollar Loans on such date. "Aggregate Multicurrency Commitments" means at any date of determination with respect to all Multicurrency Lenders, an amount equal to the Multicurrency Commitments of all Multicurrency Lenders on such date. "Aggregate Multicurrency Outstandings" means as at any date of determination with respect to any Lender, the Equivalent Amount of the aggregate unpaid principal amount of such Lender's Multicurrency Loans and Alternate Currency Loans on such date. "Aggregate Outstandings" means as at any date of determination with respect to any Lender, the sum of such Lender's Aggregate Dollar Outstandings and Aggregate Multicurrency Outstandings on such date. "Agreed Currencies" means (i) Dollars, (ii) so long as such currencies remain Eligible Currencies, such freely traded currencies to be agreed upon, including without limitation, the euro and British Pounds Sterling, and (iii) any Alternate Currency. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles in the United States of America in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4; provided, however, that if any change in Agreement Accounting Principles from those applied in preparing such financial statements affects the calculation of any financial covenant contained in this Agreement, the Borrowers and the Administrative Agent hereby agree to negotiate in good faith towards making appropriate amendments acceptable to the Required Lenders to the provisions of this Agreement to reflect as nearly as possible the effect of the financial covenants as in effect on the date hereof. 3 9 "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Alternate Currency" means (i) so long as such currencies remain Eligible Currencies, the euro, Italian Lira, Canadian Dollars and Australian Dollars, and (ii) any other Eligible Currency which the Company requests the Administrative Agent to include as an Alternate Currency hereunder and which is acceptable to one or more of the applicable Alternate Currency Lenders, and with respect to which an Alternate Currency Addendum has been executed among the Company, a Subsidiary Borrower, one or more Alternate Currency Lenders and the Administrative Agent in connection therewith. "Alternate Currency Addendum" means a schedule and addendum entered into among the Company, a Subsidiary Borrower, one or more Alternate Currency Lenders and the Administrative Agent, in form and substance satisfactory to the Administrative Agent, the Company, such Subsidiary Borrower and such Alternate Currency Lenders party thereto. "Alternate Currency Commitment" means a portion of the Multicurrency Commitment equal to, for each Alternate Currency Lender and for each Alternate Currency, the obligation of such Alternate Currency Lender to make Alternate Currency Loans not exceeding the Equivalent Amount set forth in Schedule 5 or the applicable Alternate Currency Addendum, as such amount may be modified from time to time pursuant to the terms of this Agreement and the applicable Alternate Currency Addendum. "Alternate Currency Lender" means any Lender (including any Lending Installation) party to an Alternate Currency Addendum. "Alternate Currency Loan" means any Loan denominated in an Alternate Currency made by the Administrative Agent or one or more of the Alternate Currency Lenders to a Borrower pursuant to this Agreement and the applicable Alternate Currency Addendum. "Alternate Currency Rate" means, with respect to any Alternate Currency Loan, such publicly announced interbank rate as is customary for prime bank deposits or loans in the currency of such Alternate Currency Loan and in the financial center where the Alternate Currency Lenders would fund such Loan, or such other rate as may be set forth in the applicable Alternate Currency Addendum. "Alternate Currency Share" means, with respect to any Alternate Currency Lender for any particular Alternate Currency, the percentage obtained by dividing (a) such Alternate Currency Lender's Alternate Currency Commitment at such time as set forth in the applicable Alternate Currency Addendum by (b) the aggregate of the Alternate Currency Commitments at such time of all Alternate Currency Lenders with respect to such Alternate Currency as set forth in the applicable Alternate Currency Addendum. "Applicable Fee Rate" means, at any time, the percentage rate per annum at which Facility Fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. 4 10 "Applicable Margin" means, with respect to any Eurocurrency Loan, Floating Rate Loan or the Facility Fee, as the case may be at any time, the applicable percentage which is applicable at such time set forth in the Pricing Schedule provided that upon the occurrence and during the continuation of a Default, the Applicable Margin shall be the highest Applicable Margin set forth in the Pricing Schedule. "Article" means an article of this Agreement unless another document is specifically referenced. "Australian Dollars" or "AUS$" shall mean the lawful currency of the Commonwealth of Australia. "Authorized Officer" means any of the Chairman, Chief Executive Officer, President, Vice Chairman, Chief Financial Officer, Controller, or Treasurer of a Borrower, or their equivalent, acting singly. "Available Dollar Commitment" means at any date of determination with respect to any Lender, the amount of such Lender's Dollar Commitment in effect on such date reduced by the sum of (i) such Lender's Commitment Percentage of the Equivalent Amount of any Swingline Loans outstanding on such date, and (ii) the Aggregate Dollar Outstandings of such Lender on such date. "Available Multicurrency Commitment" means at any date of determination with respect to any Multicurrency Lender, the amount of such Multicurrency Lender's Multicurrency Commitment in effect on such date reduced by the sum of (i) the Equivalent Amount of any unused Alternate Currency Commitment of such Multicurrency Lender on such date, and (ii) the Aggregate Multicurrency Outstandings of such Multicurrency Lender on such date. "Borrowers" means the Company and the Subsidiary Borrowers, and "Borrower" means any of them, as the context may require. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.8. "British Pounds Sterling" or "(pound)" means the lawful currency of the United Kingdom of Great Britain and Northern Ireland. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurocurrency Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, Detroit and New York for the conduct of substantially all of their commercial lending activities and on which dealings in the Agreed Currencies of the relevant Eurocurrency Advances are carried on in the London interbank market and (and, if the Advances which are the subject of such borrowing, payment or rate selection are denominated in euros, a day upon which a clearing system as determined by the Administrative Agent to be suitable for clearing or settlement of the euro is open for business), and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Detroit for the conduct of substantially all of their commercial lending activities. 5 11 "Canadian Dollars" or "C$" shall mean the lawful currency of the Dominion of Canada. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means (i) short-term obligations of, or fully guaranteed by, the United States of America, (ii) commercial paper rated A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts maintained in the ordinary course of business, (iv) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000, (v) banker's acceptances, (vi) money-market funds, provided that such funds invest solely in securities otherwise described in this definition, (vii) variable rate demand notes, (viii) municipal preferred stock, (ix) cash market preferred stock, and (x) short term municipal notes; provided in each case that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Company, provided, however, that the acquisitions by or on behalf of a Plan, an employee stock purchase plan of the Company, or by Persons who before such acquisition were officers, directors, employees or who held in the aggregate not less than 5% of the outstanding shares of voting stock of the Company shall not be included in determining whether a Change in Control shall have occurred. "Closing Date" shall mean March 31, 1999. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Co-Documentation Agents" means Citibank, N.A. and Credit Suisse First Boston. "Commitment" means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its signature below or as set forth in any assignment that has become effective pursuant to Section 12.3.2, as such amount may be modified from time to time pursuant to the terms hereof. "Commitment Percentage" means as to any Lender, the percentage which such Lender's Commitment then constitutes of the Aggregate Commitment (or, if the Commitments have terminated or expired, the percentage which (a) the Aggregate Outstandings of such Lender at such time constitutes of (b) the Aggregate Outstandings of all Lenders at such time). 6 12 "Company" means Cardinal Health, Inc., an Ohio corporation, and it successors and assigns. "Computation Date" is defined in Section 2.2. "Consolidated or "consolidated" means, when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated basis in accordance with Agreement Accounting Principles. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person for Indebtedness, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership, provided, however, that any assumption, guaranty, endorsement or undertaking with respect to any liability of any of its Subsidiaries to any other of its Subsidiaries shall not be a Contingent Obligation of the Company. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.9. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Cost Rate" means 1. The cost of compliance with existing requirements of the Bank of England and/or the Financial Services Authority (or any authority which replaces all or any of their functions) in respect of Advances denominated in British Pounds Sterling will be calculated by the Administrative Agent in relation to each Advance on the basis of rates supplied by the Administrative Agent by reference to the circumstances existing on the first day of each Interest Period in respect of such Advance and, if any such Interest Period exceeds three months, at three calendar monthly intervals from the first day of such Interest Period during its duration in accordance with the following formula: AB +C(B-D) + E x 0.01 per cent per annum 100 - (A+C) Where: 7 13 A. is the percentage of eligible liabilities (assuming these to be in excess of any stated minimum) which the Administrative Agent is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements. B. is the percentage rate per annum at which British Pounds Sterling deposits are offered by the Administrative Agent in accordance with its normal practice, for a period equal to (a) the relevant Interest Period (or, as the case may be, remainder of such Interest Period) in respect of the relevant Advance of (b) three months, whichever is the shorter, to a leading bank in the London Interbank Market at or about 11:00 a.m. in a sum approximately equal to the amount of such Advance. C. is the percentage of eligible liabilities which the Administrative Agent is required from time to time to maintain as interest bearing special deposits with the Bank of England. D. is the percentage rate per annum payable by the Bank of England to the Administrative Agent on interest bearing special deposits. E. is the rate payable by the Administrative Agent to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, the figure at paragraph [2.02b]/[2.03b] of the Fees Regulations shall be deemed to be zero) and expressed in pounds per (pound)1,000,000 of the Fee Base of the Administrative Agent. 2. For the purposes of this definition: (a) "eligible liabilities" and "special deposits" shall bear the meanings ascribed to them from time to time under or pursuant to the Bank of England Act 1998 or (as appropriate) by the Bank of England; (b) "Fees Regulations" shall mean the Banking Supervision (Fees) Regulations 1998 or such other regulations as may be in force from time to time in respect of the payment of fees for banking supervision; and (c) "Fee Base" shall bear the meaning ascribed to it, and shall be calculated in accordance with, the Fees Regulations. 3. The percentages used in A and C above shall be those required to be maintained on the first day of the relevant period as determined in accordance with B above. 4. In application of the above formula, A, B, C and D will be included in the formula as figures and not as percentages e.g. if A is 0.5 per cent and B is 12 per cent, AB will be calculated as 0.5 x 12 and not as 0.5 per cent x 12 per cent. 5. Calculations will be made on the basis of a 365 day year (or, if market practice differs, in accordance with market practice). 6. A negative result obtained by subtracting D from B shall be taken as zero. 8 14 7. The resulting figures shall be rounded upwards, if not already such a multiple, to the nearest whole multiple of one-thirty second of one percent per annum. 8. Additional amounts calculated in accordance with this definition are payable at the same time that accrued interest is payable for the Interest Period to which they relate. 9. The determination of the Cost Rate by the Administrative Agent in relation to any period shall, in the absence of manifest error, be conclusive and binding on all of the parties hereto. 10. The Administrative Agent may from time to time, after consultation with the Company and the Lenders, determine and notify to all parties any amendments or variations which are required to be made to the formula set out above in order to comply with any requirements from time to time imposed by the Bank of England or the Financial Services Authority (or any other authority which replaces all or any of their functions) in relation to Advances denominated in British Pounds Sterling (including any requirements relating to sterling primary liquidity) and, any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties hereto. "Default" means an event described in Article VII. "Defaulting Lender" means any Lender that (a) on any Borrowing Date fails to make available to the Administrative Agent such Lender's Loans required to be made to a Borrower on such Borrowing Date or any payment required to be made pursuant to Section 2.1(a)(iv), (b) shall not have made a payment to the Swingline Lender pursuant to Section 2.1(b)(iii), or (c) shall not have made available to the Administrative Agent its proportionate share of the Unpaid Amount as required pursuant to Section 2.19(b). Once a Lender becomes a Defaulting Lender, such Lender shall continue as a Defaulting Lender until such time as such Defaulting Lender makes available to the Administrative Agent the amount of such Defaulting Lender's Loans together with all other amounts required to be paid to the Administrative Agent, the Swingline Lender or any other Lender pursuant to this Agreement. "Dollar Advance" means a borrowing hereunder (or continuation or a conversion thereof) consisting of the several Dollar Loans made on the same Borrowing Date (or date of conversion or continuation) by the Lenders to a Borrower of the same Type and for the same Interest Period. "Dollar Amount" of any currency at any date shall mean (i) the amount of such currency if such currency is Dollars or (ii) the Equivalent Amount of Dollars if such currency is any currency other than Dollars, calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Administrative Agent for such currency on the London market at 11:00 a.m., London time, on or as of the most recent Computation Date provided for in Section 2.2. "Dollar Commitment" means for each Lender the aggregate amount set forth opposite its name on Schedule 6, provided, however that the Aggregate Dollar Commitments of the Lenders shall not exceed $600,000,000. 9 15 "Dollar Commitment Percentage" means as to any Lender, the percentage which such Lender's Dollar Commitment then constitutes of the aggregate Dollar Commitments of all Lenders (or, if the Commitments have terminated or expired, the percentage which (a) the Aggregate Dollar Outstandings of such Lender at such time constitutes of (b) the Aggregate Dollar Outstandings of all Lenders at such time). "Dollar Loans" means, with respect to a Lender, such Lender's Loans made pursuant to Section 2.1(a)(i). "Dollars" and "$" shall mean the lawful currency of the United States of America. "Eligible Currency" means any currency other than Dollars (i) that is readily available, (ii) that is freely traded, (iii) in which deposits are customarily offered to banks in the London interbank market, (iv) which is convertible into Dollars in the international interbank market and (v) as to which an Equivalent Amount may be readily calculated. If, after the designation by the Lenders of any currency as an Agreed Currency, (x) currency control or other exchange regulations are imposed in the country in which such currency is issued with the result that different types of such currency are introduced, (y) such currency is, in the determination of the Administrative Agent, no longer readily available or freely traded or (z) in the determination of the Administrative Agent, an Equivalent Amount of such currency is not readily calculable, the Administrative Agent shall promptly notify the Lenders and the Borrowers, and such currency shall no longer be an Agreed Currency until such time as all of the Lenders agree to reinstate such currency as an Agreed Currency and promptly, but in any event within five Business Days of receipt of such notice from the Administrative Agent, the Borrowers shall repay all Loans in such affected currency or convert such Loans into Loans in Dollars or another Agreed Currency, subject to the other terms set forth in Article II. "EMU" means Economic and Monetary Union as contemplated in the Treaty on European Union. "EMU Legislation" means legislative measures of the European Union for the introduction of, changeover to or operation of the euro in one or more member states. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "Equivalent Amount" of any currency with respect to any amount of Dollars at any date shall mean the equivalent in such currency of such amount of Dollars, calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Administrative Agent for such other currency at 11:00 a.m., London time, on the date on or as of which such amount is to be determined. 10 16 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "euro" means the single currency of the European Union as constituted by the Treaty on European Union and as referred to in EMU Legislation. "euro unit" means the currency unit of the euro as defined in the EMU Legislation. "Eurocurrency" means any Agreed Currency. "Eurocurrency Advance" means an Advance comprised of Eurocurrency Loans. "Eurocurrency Loan" means a Loan which, except as otherwise provided in Section 2.12, bears interest at the applicable Eurocurrency Rate. "Eurocurrency Payment Office" of the Administrative Agent shall mean, for each of the Agreed Currencies, the office, branch, affiliate or correspondent bank of the Administrative Agent specified as the "Eurocurrency Payment Office" for such currency in Schedule 3 hereto or such other office, branch, affiliate or correspondent bank of the Administrative Agent as it may from time to time specify to the Borrowers and each Lender as its Eurocurrency Payment Office. "Eurocurrency Rate" means, with respect to a Eurocurrency Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurocurrency Reference Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. The Eurocurrency Rate shall be expressed as a percentage rounded to four decimal places. "Eurocurrency Reference Rate" means, with respect to each Interest Period for a Multicurrency Advance : (a) the rate per annum quoted at or about 11:00 a.m. (London time) on the Quotation Date for such period on that page of the Telerate Screen, Reuters or Bloombergs which displays British Bankers Association Interest Settlement Rates for deposits in the relevant Agreed Currency for such period or, if such page or service shall cease to be available, such other page or such other service (as the case may be) for the purpose of displaying British Bankers Association Interest Settlement Rates for such currency as the Administrative Agent, in its discretion, shall select. (b) If no such rate is displayed for the relevant currency and the relevant period and there is no alternative service on which two or more such quotations for the Agreed Currency are displayed, "Eurocurrency Reference Rate" will be the rate at which deposits in the Agreed Currency of that amount are offered by the Administrative Agent for that period to prime banks in the London interbank market at or about 11:00 a.m. (London time) on the Quotation Date for such period. Plus, in each case, the Cost Rate; and with respect to a Dollar Advance for the relevant Interest Period, the rate determined by the Administrative Agent to be the rate at which First Chicago offers to place Eurodollar deposits with first-class banks in the London interbank 11 17 market at 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period in the approximate amount of the relevant Dollar Loan of First Chicago and having a maturity equal to such Interest Period. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes (and any interest, fees or penalties for late payment thereof) imposed on it by (i) the jurisdiction under the laws of which such Lender or the Administrative Agent is incorporated or organized or (ii) the jurisdiction in which the Administrative Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. "Facility Termination Date" means March 31, 2004, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for such day, the average of the quotations at approximately 10:00 a.m. (Detroit time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financial Contract" of a Person means (a) any exchange-traded or over the counter futures, forward, swap or option contract or other financial instrument with similar characteristics or (b) any Rate Hedging Agreement. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate for such day in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance comprised of Floating Rate Loans. "Floating Rate Loan" means a Dollar Loan which, except as otherwise provided in Section 2.12, bears interest at the Floating Rate. "Guarantor" means the Company, and its successors and assigns. "Guaranty" means that certain Guaranty dated the date hereof executed by the Guarantor in favor of the Administrative Agent, for the ratable benefit of the Lenders, as it may be amended or modified and in effect from time to time. 12 18 "Indebtedness" of a Person means, as of any date, such Person's (i) obligations for borrowed money or evidenced by bonds, notes, acceptances, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv)obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (v) Capitalized Lease Obligations, (vi) any other obligation for borrowed money or other financial accommodation which in accordance with Agreement Accounting Principles would be shown as a liability on the consolidated balance sheet of such Person, (vii) any Rate Hedging Obligations of such Person, and (viii) all Contingent Liabilities of such Person with respect to or relating to the indebtedness, obligations and liabilities of others similar in character to those described in clauses (i) through (vii) of this definition. "Interest Period" means, with respect to a Eurocurrency Advance, a period of one, two, three or six months (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter (or such longer or shorter period requested by the Borrower and acceptable to all of the Lenders), provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Investment" of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) or contribution of capital by such Person; stocks, bonds, mutual funds, partnership interests, notes, debentures or other securities owned by such Person; any certificate of deposit owned by such Person; and structured notes, derivative financial instruments and other similar instruments or contracts owned by such Person. "Lead Arranger" means First Chicago Capital Markets, Inc., a Delaware corporation, and its successors. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Administrative Agent, the office, branch, subsidiary or Affiliate of such Lender or the Administrative Agent with respect to each Agreed Currency listed on Schedule 4, or otherwise selected by such Lender and the Administrative Agent pursuant to Section 2.18. 13 19 "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's loan made pursuant to Article II (or any conversion or continuation thereof). "Loan Documents" means this Agreement, the Notes, the Guaranty and any other instrument or document executed in connection with any of the foregoing at any time. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company to perform its obligations under the Loan Documents to which it is a party, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder. "Moody's" means Moody's Investors Service, Inc. "Multicurrency Advance" means a borrowing hereunder (or continuation or a conversion thereof) consisting of the several Multicurrency Loans made on the same Borrowing Date (or date of conversion or continuation) by the Lenders to a Borrower of the same Type and for the same Interest Period. "Multicurrency Commitment" means for each Lender the aggregate amount set forth as its Multicurrency Commitment on Schedule 6 or as set forth in any assignment that has become effective pursuant to Section 12.3.2, as such amount shall be modified from time to time pursuant to the terms hereof, provided, however that the Aggregate Multicurrency Commitments of the Lenders shall not exceed the Equivalent Amount of $150,000,000. "Multicurrency Commitment Percentage" means as to any Multicurrency Lender, the percentage which such Multicurrency Lender's Multicurrency Commitment then constitutes of the Aggregate Multicurrency Commitments (or, if the Multicurrency Commitments have terminated or expired, the percentage which (a) the Aggregate Multicurrency Outstandings of such Multicurrency Lender at such time constitutes of (b) the Aggregate Multicurrency Outstandings of all Multicurrency Lenders at such time). "Multicurrency Lender" means each Lender having a Multicurrency Commitment. "Multicurrency Loans" means, with respect to a Multicurrency Lender, such Lender's Loans made pursuant to Section 2.1(a)(ii). 14 20 "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Company is a party to which more than one employer is obligated to make contributions. "National Currency Unit" means the unit of currency (other than a euro unit) of a Participating Member State. "Net Worth" means at any time the consolidated stockholder's equity of the Company and its Subsidiaries calculated on a consolidated basis as of such time in accordance with Agreement Accounting Principles . "Non-U.S. Borrower" is defined in Section 3.1(b). "Non-U.S. Lender" is defined in Section 3.5(iv). "Note" means any promissory note issued at the request of a Lender pursuant to Section 2.14 in the form of Exhibit E. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrowers to the Lenders or to any Lender, the Administrative Agent or any indemnified party arising under the Loan Documents. "Other Taxes" is defined in Section 3.5(ii). "Overdue Rate" means a per annum rate that is equal to the sum of two percent (2%) plus the Alternate Base Rate, changing as and when the Alternate Base Rate changes or, with respect to any Alternate Currency Loan, such other overdue rate, if any, as specified in the applicable Alternate Currency Addendum. "Participants" is defined in Section 12.2.1. "Participating Member State" means any member state of the European Union which has the euro as its lawful currency. "Payment Date" means the last day of each calendar quarter, commencing June 30, 1999. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and as to which the Company or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule attached hereto identified as such. 15 21 "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned or leased by such Person. "Purchasers" is defined in Section 12.3.1. "Quotation Date" in relation to any period for which a Eurocurrency Reference Rate for an Agreed Currency other than Dollars is to be determined hereunder, means the date on which quotations would ordinarily be given by prime lenders in the London inter-bank market for deposits in the Agreed Currency in relation to which such rate is to be determined for delivery on the first day of that period, provided that, if, for such period, quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates. "Rate Hedging Agreement" means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having at least 51% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 51% of the Aggregate Outstandings. 16 22 "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Significant Subsidiary" means any Subsidiary of the Company that would be a "significant subsidiary" within the meaning of Rule 1-02 of the Securities and Exchange Commission's Regulation S-X if 5% were substituted for 10% wherever it occurs in such Rule. "S&P" means Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Single Employer Plan" means a Plan maintained by the Company or any member of the Controlled Group for employees of the Company or any member of the Controlled Group. "Subsequent Participant" means any member state of the European Union that adopts the euro as its lawful currency after the date of this Agreement. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Company. "Subsidiary Borrower" means each Subsidiary of the Company listed as a Subsidiary Borrower on Schedule 1 as amended from time to time in accordance with Section 5.8. "Substantial Portion" means, with respect to the Property of the Company and its Subsidiaries, Property which (i) represents more than 20% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 20% of the consolidated net sales or of the consolidated net income of the Company and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "Swingline Lender" means First Chicago. "Swingline Loan" means any borrowing under Section 2.8 evidenced by the Swingline Note and made by the Swingline Lender pursuant to Section 2.1(b). 17 23 "Swingline Note" means the promissory note of the Company evidencing the Swingline Loans, in substantially the same form as Exhibit F hereto, as amended or modified at the time such Swingline Loan is made to the Company. "Syndication Agent" means Bank of America NT & SA. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurocurrency Advance. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations. "Unpaid Amount" is defined in Section 2.19(b). "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. "Year 2000 Issues" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications of the Company and its Subsidiaries, and of the Company's and its Subsidiaries' material customers, suppliers and vendors, to function on and after January 1, 2000 as they do on the date hereof, including handling applications involving dates, as such inability affects the business, operations and financial condition of the Company and its Subsidiaries. "Year 2000 Program" is defined in Section 5.18. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. 18 24 ARTICLE II. THE CREDITS 2.1 Commitments of the Lenders and Swing Line Facility. (a) Revolving Credit Advances. (i) From and including the date of this Agreement and prior to the Facility Termination Date, each Lender agrees, for itself only, subject to the terms and conditions set forth in this Agreement, to make Loans to the Borrowers in Dollars from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Dollar Commitment. Each Dollar Advance shall consist of Dollar Loans made by each Lender ratably in proportion to such Lender's respective Available Dollar Commitment divided by the aggregate Available Dollar Commitments of all Lenders at such time. (ii) From and including the date of this Agreement and prior to the Facility Termination Date, each Multicurrency Lender agrees, for itself only, subject to the terms and conditions set forth in this Agreement, to make Multicurrency Loans to the Borrowers in Eligible Currencies from time to time prior to the Facility Termination Date so long as after giving effect thereto and any concurrent repayment or prepayment of Loans (x) the Available Multicurrency Commitment of each Multicurrency Lender is greater than or equal to zero, (y) the Equivalent Amount of the Aggregate Multicurrency Outstandings of all Lenders does not exceed $150,000,000 and (z) the Aggregate Outstandings of all Lenders does not exceed the Aggregate Commitment. Each Multicurrency Advance shall consist of Multicurrency Loans made by each Multicurrency Lender ratably in proportion to such Multicurrency Lender's respective Available Multicurrency Commitment divided by the aggregate Available Multicurrency Commitments of all Multicurrency Lenders at such time. (iii) Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitments to lend hereunder shall expire on the Facility Termination Date. (iv) Immediately and automatically upon the occurrence of a Default under Sections 7.2, 7.6 or 7.7, (A) each Lender shall be deemed to have unconditionally and irrevocably purchased from each Multicurrency Lender, without recourse or warranty, an undivided interest in and participation in each Multicurrency Loan ratably in accordance with such Lender's Commitment Percentage, (B) immediately and automatically all Multicurrency Loans shall be converted to and redenominated in Dollars equal to the Equivalent Amount of each such Multicurrency Loan determined as of the date of such conversion, (C) each Multicurrency Lender shall be deemed to have unconditionally and irrevocably purchased from each Dollar Lender, without recourse or warranty, an undivided interest in and participation in each Dollar Loan ratably in accordance with such Multicurrency Lender's Commitment Percentage. Each of the Lenders shall pay to 19 25 the applicable Multicurrency Lender not later than two (2) Business Days following a request for payment from such Lender, in Dollars, an amount equal to the undivided interest in and participation in the Multicurrency Loan purchased by such Lender pursuant to this Section 2.1(a)(iv), and each of the Multicurrency Lenders shall pay to the applicable Dollar Lender not later than two (2) Business Days following a request for payment from such Lender, in Dollars, an amount equal to the undivided interest in and participation in the Dollar Loan purchased by such Multicurrency Lender pursuant to this Section 2.1(a)(iv), it being the intent of the Lenders that following such equalization payments, each Lender shall hold its Commitment Percentage of the Aggregate Outstandings. (b) Swingline Loans. (i) Subject to the terms and conditions of this Agreement, the Swingline Lender agrees to make Swingline Loans to the Company from time to time on any Business Day during the period from the date hereof to but excluding the Facility Termination Date in the aggregate principal Dollar Amount not to exceed at any date the lesser of (A) $50,000,000 (the "Swingline Amount") and (B) the unused portion of the Aggregate Commitment as of such date. In addition, the outstanding principal amount of Swingline Loans made in Dollars shall not exceed $40,000,000 at any time, and the Equivalent Amount of the outstanding principal amount of Swingline Loans made in British Pounds Sterling or the euro unit shall not exceed $10,000,000 at any time. The obligation of the Swingline Lender to make Swingline Loans in British Pounds Sterling or the euro unit shall be in the Swingline Lender's sole discretion, and any such Swingline Loans shall be deemed to utilized the Swingline Lender's Multicurrency Commitment. Each Lender's Commitment shall be deemed utilized by an amount equal to such Lender's Commitment Percentage of each Swingline Loan for purposes of determining the amount of Loans required to be made by such Lender. All Swingline Loans shall bear interest at the Alternate Base Rate or such other rate as shall be agreed between the Company and the Swingline Lender with respect to any Swingline Loan at the time such Swingline Loan is made. If any Swingline Loan made in Dollars is not repaid by the Company on the date when due, each Lender will make a Floating Rate Loan the proceeds of which will be used to repay the Swingline Loan. (ii) The Swingline Lender may at any time in its sole and absolute discretion require that any Swingline Loan be refunded by a Floating Rate Advance from the Lenders, and upon written notice thereof by the Swingline Lender to the Administrative Agent, the Lenders and the Company, the Company shall be deemed to have requested a Floating Rate Advance in an amount equal to the Dollar Amount of such Swingline Loan and such Floating Rate Advance shall be made to refund such Swingline Loan. Any Swingline Loan outstanding in an Eligible Currency other than Dollars, shall, upon the giving of such notice by the Swingline Lender, immediately and automatically be converted to and redenominated in Dollars equal to the Equivalent Amount of each such Swingline Loan determined as of the date of such conversion. Each Lender shall be absolutely and unconditionally obligated to fund its Commitment Percentage of such Floating Rate Advance or, if applicable, to purchase a participation interest in the 20 26 Swingline Loans pursuant to Section 2.1(b)(iii) and such obligation shall not be affected by any circumstance, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender has or may have against the Administrative Agent or the Company or any of its Subsidiaries or anyone else for any reason whatsoever (including without limitation any failure to comply with the requirements of Section 4.2, other than the Swingline Lender making a Swingline Loan when it had actual knowledge of the existence of a Default); (B) the occurrence or continuance of a Default, subject to Section 2.1(b)(iii); (C) any adverse change in the condition (financial or otherwise) of the Company or any of its Subsidiaries; (D) any breach of this Agreement by the Company or any of its Subsidiaries or any other Lender; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing (including without limitation the Company's failure to satisfy any conditions contained in Article IV or any other provision of this Agreement). (iii) If, for any reason (including without limitation as a result of the occurrence of a Default with respect to the Company pursuant to Article VII) Floating Rate Loans may not be made by the Lenders as described in Section 2.1(b)(ii), then (A) the Company agrees that each Swingline Loan not paid pursuant to Section 2.1(b)(ii) shall bear interest, payable on demand by the Swingline Lender, at the Overdue Rate, (B) the Company agrees that each Swingline Loan outstanding in an Eligible Currency other than Dollars shall be immediately and automatically converted to and redenominated in Dollars equal to the Equivalent Amount of each such Swingline Loan determined as of the date of such conversion, and (C) effective on the date each such Floating Rate Loan would otherwise have been made, each Lender severally agrees that it shall unconditionally and irrevocably, without regard to the occurrence of any Default, in lieu of deemed disbursement of loans, to the extent of such Lender's Commitment, purchase a participation interest in the Swingline Loans by paying its Commitment Percentage thereof, provided, however, that no Lender shall be obligated to purchase such participation in a Swingline Loan made by the Swingline Lender when it had actual knowledge of the existence of a Default. Each Lender will immediately transfer to the Swingline Lender, in same day funds, the amount of its participation. Each Lender shall share based on its Commitment Percentage in any interest which accrues thereon and in all repayments thereof. If and to the extent that any Lender shall not have so made the amount of such participating interest available to the Swingline Lender, such Lender and the Company severally agree to pay to the Swingline Lender forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swingline Lender until the date such amount is paid to the Swingline Lender, at (x) in the case of the Company, at the interest rate specified above and (y) in the case of such Lender, the Federal Funds Effective Rate. (c) Alternate Currency Loans. (i) Subject to the terms and conditions of this Agreement and the applicable Alternate Currency Addendum, from and including the later of the date of this Agreement and the date of execution of the applicable Alternate Currency Addendum and prior to the Facility Termination Date (unless an earlier termination date shall be specified in the 21 27 applicable Alternate Currency Addendum), the Administrative Agent and the applicable Alternate Currency Lenders agree, on the terms and conditions set forth in this Agreement and in the applicable Alternate Currency Addendum, to make Alternate Currency Loans under such Alternate Currency Addendum to the applicable Borrower party to such Alternate Currency Addendum from time to time in the applicable Alternate Currency, in an amount not to exceed each such Alternate Currency Lender's applicable Alternate Currency Commitment; provided, however, (i) at no time shall the outstanding principal amount of all Alternate Currency Loans exceed the Alternate Currency Commitment for such currency (ii) at not time shall the Aggregate Multicurrency Outstandings exceed the Aggregate Multicurrency Commitments and (iii) at no time shall the aggregate outstanding principal amount of the Alternate Currency Loans for any specific Alternate Currency exceed the amount specified as the maximum amount for such Alternate Currency in the applicable Alternate Currency Addendum. The Equivalent Amount of any Alternate Currency Commitment of an Alternate Currency Lender shall be deemed to utilize such Lender's Multicurrency Commitment. Each Alternate Currency Loan shall consist of Alternate Currency Loans made by each applicable Alternate Currency Lender ratably in proportion to such Alternate Currency Lender's respective Alternate Currency Share. Subject to the terms of this Agreement and the applicable Alternate Currency Addendum, the Borrowers may borrow, repay and reborrow Alternate Currency Loans at any time prior to the Facility Termination Date. On the Facility Termination Date, the outstanding principal balance of the Alternate Currency Loans shall be paid in full by the applicable Borrower and prior to the Facility Termination Date prepayments of the Alternate Currency Loans shall be made by the applicable Borrower if and to the extent required by this Agreement. Subject to the applicable Alternate Currency Addendum, each Alternate Currency Loan shall have a maturity of one, two, three or six months and bear interest at the Alternate Currency Rate for such period plus the Applicable Margin as if such Loan were a Eurocurrency Loan. (ii) The Company may, by written notice to the Administrative Agent request the establishment of additional Alternate Currency Commitments in additional Alternate Currencies provided the Equivalent Amount of the Alternate Currency Commitment requested together with the Aggregate Multicurrency Outstandings does not exceed the Aggregate Multicurrency Commitments ("Request for a New Alternate Currency Facility"). The Administrative Agent will promptly forward to the Multicurrency Lenders any Request for a New Alternate Currency Facility received from the Company; provided each Lender shall be deemed not to have agreed to such request unless its written consent thereto has been received by the Administrative Agent within ten (10) Business Days from the date of such notification by the Administrative Agent to such Lender (or such shorter period as shall be specified by the Company in the Request for a New Alternate Currency Facility). In the event that one or more Multicurrency Lenders consent to such Request for a New Alternate Currency Facility and agree to make Alternate Currency Loans in such Alternate Currency in an amount not less than that requested by the Company, upon execution of the applicable Alternate Currency Addendum and the other documents, instruments and agreements required pursuant to this Agreement and such Alternate Currency Addendum, the Alternate Currency Loans with respect thereto may be made. 22 28 (iii) Except as otherwise required by applicable law, in no event shall the Administrative Agent or Alternate Currency Lenders have the right to accelerate the Alternate Currency Loans outstanding under any Alternate Currency Addendum or to terminate their Alternate Currency Commitments (if any) thereunder to make Alternate Currency Loans prior to the stated termination date in respect thereof, except that such Administrative Agent and Alternate Currency Lenders shall, in each case, have such rights upon an acceleration of the Loans and a termination of the Commitments pursuant to Section 8.1. (iv) Immediately and automatically upon the occurrence of a Default under Sections 7.2, 7.6 or 7.7, each Lender shall be deemed to have unconditionally and irrevocably purchased from each Alternate Currency Lender, without recourse or warranty, an undivided interest in and participation in each Alternate Currency Loan ratably in accordance with such Lender's Commitment Percentage, and immediately and automatically all Alternate Currency Loans shall be converted to and redenominated in Dollars equal to the Equivalent Amount of each such Alternate Currency Loan determined as of the date of such conversion. Each of the Lenders shall pay to the applicable Alternate Currency Lender not later than two (2) Business Days following a request for payment from such Lender, in Dollars, an amount equal to the undivided interest in and participation in the Alternate Currency Loan purchased by such Lender pursuant to this Section 2.1(c)(iv). 2.2 Determination of Dollar Amounts; Termination. (i) The Administrative Agent will determine the Dollar Amount of: (a) each Advance as of the date two Business Days prior to the Borrowing Date or, if applicable, date of conversion/continuation of such Advance, (b) all outstanding Advances and Alternate Currency Loans on and as of the last day of each Interest Period (but not less frequently than quarterly), on receipt of any notice from the Company as to the reduction of the Aggregate Commitment, and on any other Business Day elected by the Administrative Agent in its discretion or upon instruction by the Required Lenders; and (c) all outstanding Advances and Alternate Currency Loans on each Business Day during which Aggregate Dollar Outstandings together with outstanding Swingline Loans exceed $500,000,000 or Aggregate Multicurrency Outstandings exceed $100,000,000. Each day upon or as of which the Administrative Agent determines Dollar Amounts as described in the preceding clauses (a), (b) and (c) is herein described as a "Computation Date" with respect to each Advance for which a Dollar Amount is determined on or as of such day. (ii) Any outstanding Advances together with any other unpaid Obligations then due and payable shall be paid in full by the Borrowers on the Facility Termination Date. 23 29 2.3 Ratable Loans. Other than Alternate Currency Loans, each Multicurrency Advance hereunder shall consist of Multicurrency Loans made from the several Multicurrency Lenders ratably in proportion to such Multicurrency Lenders' respective Available Multicurrency Commitment divided by the aggregate Available Multicurrency Commitments of all Multicurrency Lenders at such time, and each Dollar Advance hereunder shall consist of Dollar Loans made from the Lenders ratably according to their Dollar Commitment Percentage. 2.4 Types of Advances. The Advances may be Floating Rate Advances or Eurocurrency Advances, on the one hand, and Dollar Advances or Multicurrency Advances on the other hand, or a combination thereof, selected by the relevant Borrowers in accordance with Sections 2.8 and 2.9, provided, however, that a Floating Rate Advance must also be a Dollar Advance. 2.5 Facility Fee; Reductions in Aggregate Commitment; Utilization Fee. The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee, determined in accordance with the Pricing Schedule, calculated on the Aggregate Commitment, whether used or unused, payable quarterly in arrears for the ratable benefit of the Lenders from the date of this Agreement until the Facility Termination Date. The Aggregate Commitment may be reduced by the Company in multiples of $10,000,000 upon three Business Days' prior written notice. Any such reduction shall be allocated ratably between the Dollar Commitment and the Multicurrency Commitment. For each day on which the Aggregate Outstandings exceeds 33% of the Aggregate Commitment, a utilization fee at the per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of outstanding Advances for the ratable benefit of the Lenders, payable in arrears on each Payment Date until the Facility Termination Date, provided, however, that irrespective of the amount of Aggregate Outstandings, a utilization fee at the rates set forth on the Pricing Schedule for ">67%" shall accrue on all Multicurrency Advances and Alternate Currency Loans for the benefit of the Multicurrency Lenders, payable as aforesaid. 2.6 Minimum Amount of Each Advance. Each Eurocurrency Advance shall be in the minimum Equivalent Amount of $5,000,000 (and in multiples of Equivalent Amounts of $1,000,000 in excess thereof, or in the case of a Multicurrency Advance, such other lesser multiple as the Administrative Agent deems appropriate), and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. Each Swingline Loan shall be in the minimum amount of $5,000,000 (and in multiples of $500,000 if in excess thereof) or in the case of Swingline Loans in British Pounds Sterling or euro units, such other minimum amounts and multiples as the Swingline Lender shall determine, provided however, that any Swingline Loan may be in the amount of the unused Swingline Commitment. Alternate Currency Loans shall be in such minimum amounts as are set forth in the applicable Alternate Currency Addendum. 24 30 2.7 Prepayments. (a) The Borrowers may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon one Business Days' prior notice to the Administrative Agent, who shall give prompt notice thereof to the Lenders. (b) The Borrowers may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurocurrency Advances, or, in a minimum aggregate Equivalent Amount of $5,000,000 or any integral multiple Equivalent Amount of $1,000,000 in excess thereof, or in the case of a Multicurrency Advance, such other lesser multiple as the Administrative Agent deems appropriate, any portion of the outstanding Eurocurrency Advances upon three Business Days' prior notice to the Administrative Agent, who shall give prompt notice thereof to the Lenders. (c) If at any time, for any reason, the Aggregate Outstandings of all Lenders shall exceed the Aggregate Commitment then in effect, the Borrowers shall, without notice or demand, immediately prepay the Dollar Loans and/or Multicurrency Loans such that the sum of the aggregate principal amount of Dollar Loans so prepaid and the Equivalent Amount of the aggregate principal amount of Multicurrency Loans so prepaid, at least equals the amount of such excess. (d) If, at any time for any reason, either (i) the Aggregate Multicurrency Outstandings of all Multicurrency Lenders exceed the Aggregate Multicurrency Commitments of the Multicurrency Lenders or (ii) the Aggregate Dollar Outstandings of all Lenders exceed the aggregate Dollar Commitments of all Lenders, the Borrowers shall, without notice or demand, immediately prepay the Multicurrency Loans in the Equivalent Amount at least equal to the excess referred to in (i) and the Dollar Loans in an amount at least equal to the excess referred to in (ii). (e) Each prepayment pursuant to this Section 2.7 shall be accompanied by accrued and unpaid interest on the amount prepaid to the date of prepayment and any amounts payable under Section 3.4 in connection with such payment. (f) Notwithstanding the foregoing, mandatory prepayments of Multicurrency Loans that would otherwise be required pursuant to this Section 2.7 solely as a result of fluctuations in exchange rates from time to time shall only be required to be made pursuant to this Section 2.7 on a Computation Date on the basis of the exchange rates in effect on such Computation Date. 2.8 Method of Selecting Types and Interest Periods for New Advances. The Company or the relevant Borrower shall select the Type of Advance and, in the case of each Eurocurrency Advance, the Interest Period and Agreed Currency applicable thereto from time to time. The Company or the relevant Borrower shall give the Administrative Agent 25 31 irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Detroit time) on the Borrowing Date of each Floating Rate Advance (other than Swingline Loans), not later than 11:00 a.m. (Detroit time) three Business Days before the Borrowing Date for each Eurocurrency Advance in Dollars, and not later than 11:00 a.m. (London time) three Business Days before the Borrowing Date for each Multicurrency Advance, specifying: (i) the Borrower, (ii) the Borrowing Date, which shall be a Business Day, of such Advance, (iii) the aggregate amount of such Advance, (iv) the Type of Advance selected, (v) in the case of each Eurocurrency Advance, the Interest Period, and Agreed Currency applicable thereto, and (vi) details relating to funds transfer for such Advance. The Company shall give the Administrative Agent notice of its request for each Swingline Loan not later than 2:00 p.m. Detroit time on the same Business Day such Swingline Loan is requested to be made. Not later than noon (Detroit time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available to the Administrative Agent at its address specified pursuant to Article XIII. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 2.9 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurocurrency Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurocurrency Advance shall continue as a Eurocurrency Advance until the end of the then applicable Interest Period therefor, at which time: (i) each such Eurocurrency Advance denominated in Dollars shall be automatically converted into a Floating Rate Advance unless (x) such Eurocurrency Advance is or was repaid in accordance with Section 2.7 or (y) the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurocurrency Advance either continue as a Eurocurrency Advance for the same or another Interest Period or be converted into a Floating Rate Advance; and (ii) each such Multicurrency Advance shall automatically continue as a Multicurrency Advance in the same Agreed Currency with an Interest Period of one month unless (x) such Multicurrency Advance is or was repaid in accordance with 26 32 Section 2.7 or (y) the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Multicurrency Advance continue as a Multicurrency Advance for the same or another Interest Period. Subject to the terms of Section 2.6, the Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances denominated in the same or any other Agreed Currency (other than an Alternate Currency); provided that any conversion of any Eurocurrency Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Advance or continuation of a Eurocurrency Advance not later than 10:00 a.m. (Detroit time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, three Business Days, in the case of a conversion into or continuation of a Eurocurrency Advance denominated in Dollars, or four Business Days, in the case of a conversion into or continuation of a Multicurrency Advance, prior to the date of the requested conversion or continuation, specifying: i. the requested date, which shall be a Business Day, of such conversion or continuation, and ii. the Agreed Currency, amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurocurrency Advance, the duration of the Interest Period applicable thereto. 2.10 Method of Borrowing. On each Borrowing Date, each Lender shall make available its Loan or Loans, if any, (i) if such Loan is a Dollar Loan, not later than noon, Detroit time, in Federal or other funds immediately available to the Administrative Agent, in Detroit, Michigan at its address specified in or pursuant to Article XIII and, (ii) if such Loan is a Multicurrency Loan, and subject to any applicable Alternate Currency Addendum, not later than noon, local time, in the city of the Administrative Agent's Eurocurrency Payment Office for such currency, in such funds as may then be customary for the settlement of international transactions in such currency in the city of and at the address of the Administrative Agent's Eurocurrency Payment Office for such currency. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the relevant Borrower at the Administrative Agent's aforesaid address. Notwithstanding the foregoing provisions of this Section 2.10, to the extent that a Loan made by a Lender matures on the Borrowing Date of a requested Loan in the same currency, such Lender shall apply the proceeds of the Loan it is then making to the repayment of principal of the maturing Loan. 2.11 Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurocurrency Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date it becomes due or is converted into a Eurocurrency Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on 27 33 that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurocurrency Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Administrative Agent as applicable to such Eurocurrency Advance based upon the Borrower's selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. 2.12 Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurocurrency Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurocurrency Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Administrative Agent or any Lender. 2.13 Method of Payment. (i) Each Advance shall be repaid and each payment of interest thereon shall be paid in the currency in which such Advance was made or converted into. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds by wire transfer to the Administrative Agent at (except as set forth in the next sentence) the Administrative Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (local time) on the date when due and, except for payments on Swingline Loans and Alternate Currency Loans, shall be applied ratably by the Administrative Agent among the Lenders. All payments to be made by the Borrowers hereunder in any currency other than Dollars shall be made in such currency on the date due in such funds as may then be customary for the settlement of international transactions in such currency for the account of the Administrative Agent, at its Eurocurrency Payment Office for such currency and, except for payments of Alternate Currency Loans, shall be applied ratably by the Administrative Agent among the Lenders. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at, (a) with respect to Floating Rate Loans and Eurocurrency Loans denominated in Dollars, its address specified pursuant to Article XIII or at any Lending 28 34 Installation specified in a notice received by the Administrative Agent from such Lender and (b) with respect to Eurocurrency Loans denominated in an Agreed Currency other than Dollars, in the funds received from the Borrower at the address of the Administrative Agent's Eurocurrency Payment Office for such currency. In relation to the payment of any amount of euro, such amount shall be made available to the Administrative Agent in immediately available, freely transferable, cleared funds to such account with such bank in London (or such other principal financial center in such Participating Member State as the Administrative Agent may from time to time nominate for this purpose) as the Administrative Agent shall from time to time nominate for this purpose. (ii) Notwithstanding the foregoing provisions of this Section, if, after the making of any Advance in any currency other than Dollars, currency control or exchange regulations are imposed in the country which issues such currency with the result that the type of currency in which the Advance was made (the "Original Currency") no longer exists or the relevant Borrower is not able to make payment to the Administrative Agent for the account of the Lenders in such Original Currency, then all payments to be made by the Borrowers hereunder in such currency shall instead be made when due in Dollars in an amount equal to the Dollar Amount (as of the date of repayment) of such payment due, it being the intention of the parties hereto that the Borrowers take all risks of the imposition of any such currency control or exchange regulations. For purposes of this Section 2.13(ii), the commencement of the third stage of European Economic and Monetary Union shall not constitute the imposition of currency control or exchange regulations. 2.14 Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Agreed Currency and Type thereof and, if applicable, the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Obligations in accordance with their terms. 29 35 (iv) Any Lender may request that its Loans be evidenced by a promissory note (a "Note"). In such event, the relevant Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender in a form supplied by the Administrative Agent and reasonably acceptable to the Company. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more Notes (but not more than one Note for each Agreed Currency) payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. 2.15 Telephonic Notices. The Borrowers hereby authorize the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Agreed Currencies and Types of Advances and to transfer funds based on telephonic notices given to the Administrative Agent by any person or persons listed on Schedule 8, as such Schedule may be revised by the Company from time to time in accordance with Section 13.1, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrowers agree to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent regarding the telephonic notice shall govern absent manifest error. 2.16 Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest on Floating Rate Loans shall be calculated for actual days elapsed on the basis of a 365 or 366-day year, as appropriate. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurocurrency Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurocurrency Advance shall be payable in arrears on the last day of its applicable Interest Period, on any date on which the Eurocurrency Advance is prepaid, whether by acceleration or otherwise, and at maturity, and with respect to any Alternate Currency Loan, the date specified as the date on which interest is payable in the applicable Alternate Currency Addendum. Interest accrued on each Eurocurrency Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest shall be calculated for actual days elapsed on the basis of a 360-day year, except for interest on Loans denominated in British Pounds Sterling which shall be calculated for actual days elapsed on the basis of a 365-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding 30 36 Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender, the Company and the relevant Borrower of the interest rate applicable to each Eurocurrency Advance promptly upon determination of such interest rate and will give each Lender and the Company prompt notice of each change in the Alternate Base Rate. 2.18 Lending Installations. Each Lender will book its Loans at the appropriate Lending Installation listed on Schedule 4 or such other Lending Installation designated by such Lender in accordance with the final sentence of this Section 2.18. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by not less than one days' prior written notice to the Administrative Agent and the Borrowers in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.19 Non-Receipt of Funds by the Administrative Agent. (a) Unless the relevant Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or any payment by such Lender pursuant to Sections 2.1(a)(iv), 2.1(b)(iii) or 2.1(c)(iv), or (ii) in the case of such Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or such other rate which is customary for the settlement of overnight interbank transactions in the currency of such payment, or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. With respect to Multicurrency Advances, a payment shall be deemed to have been made by the Administrative Agent on the date on which it is required to be made under this Agreement if the Administrative Agent has, on or before that date, taken all relevant steps to make that payment. With respect to the payment of any amount denominated in euro, the Administrative Agent shall not be liable to any Borrower or any of the Lenders in any way whatsoever for any delay, or the consequences of 31 37 any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Administrative Agent if the Administrative Agent shall have taken all relevant steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds in the euro unit to the account with the bank in the principal financial center in the Participating Member State which the relevant Borrower or, as the case may be, any Lender shall have specified for such purpose. In this Section 2.19, "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures of such clearing or settlement system as the Administrative Agent may from time to time determine for the purpose of clearing or settling payments of euro. (b) The failure of any Lender to make the Loan to be made by it as part of any Advance shall not relieve any other Lender of its obligation hereunder to make its Loan on the date of such Advance, but no Lender, except as otherwise provided in the next sentence of this Section 2.19(b), shall be responsible for the failure of a Defaulting Lender to make the Loan to be made by such Defaulting Lender on the date of any Advance. Notwithstanding the foregoing sentence, but otherwise subject to the terms and conditions of this Agreement, the Administrative Agent shall notify each Lender of the failure by a Defaulting Lender to make a Dollar Loan required to be made by it hereunder (the amount not made available being the "Unpaid Amount"), and each Lender shall immediately transfer to the Administrative Agent on such date the lesser of such Lender's proportionate share (based on its Dollar Commitment divided by the Dollar Commitments of all Lenders that have not so failed to fund their Loans) of the Unpaid Amount and its unused Commitment. Any such transfer shall be deemed to be a Floating Rate Loan by such Lender. Each Defaulting Lender shall pay on demand to each other Lender that makes a payment under this Section 2.19(b) the amount paid by such other Lender to cover such failure, together with interest thereon, for each day from the date such payment was made until the date such other Lender has been paid such amount in full, at a rate per annum equal to the Federal Funds Effective Rate plus two percent (2%). 2.20 Market Disruption. Notwithstanding the satisfaction of all conditions referred to in Article II and Article IV with respect to any Advance in any Agreed Currency other than Dollars, if there shall occur on or prior to the date of such Advance any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which would in the reasonable opinion of the Administrative Agent or the Required Lenders make it impracticable for the Eurocurrency Loans comprising such Advance to be denominated in the Agreed Currency specified by the relevant Borrower, then the Administrative Agent shall forthwith give notice thereof to the Borrowers and the Lenders, and such Loans shall not be denominated in such Agreed Currency but shall be made on such Borrowing Date in Dollars, in an aggregate principal amount equal to the Dollar Amount of the aggregate principal amount specified in the related Borrowing Notice or Conversion/Continuation Notice, as the case may be, as Floating Rate Loans, unless the relevant Borrower notifies the Administrative Agent at least two Business Days before such date that (i) it elects not to borrow on such date or (ii) it elects to borrow on such date in a different Agreed Currency, as the case may be, in which the denomination of such Loans would in the opinion of the Administrative Agent and the Required Lenders be practicable and in an aggregate principal amount equal to the Dollar Amount of the aggregate principal 32 38 amount specified in the related Borrowing Notice or Conversion/Continuation Notice, as the case may be. 2.21 Judgment Currency. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due from any Borrower hereunder in the currency expressed to be payable herein (the "specified currency") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the specified currency with such other currency at the Administrative Agent's main Chicago office on the Business Day preceding that on which final, non-appealable judgment is given. The obligations of the Borrowers in respect of any sum due to any Lender or the Administrative Agent hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Administrative Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Administrative Agent, as the case may be, in the specified currency, the Borrowers agree, to the fullest extent that they may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Administrative Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Lender or the Administrative Agent, as the case may be, in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 12.2, such Lender or the Administrative Agent, as the case may be, agrees to remit such excess to the relevant Borrower. 2.22 Payment Provisions Relating to the euro. (a) Any amount payable by the Administrative Agent to the Lenders under this Agreement in the currency of a Participating Member State shall be paid in the euro unit. (b) If, in relation to the currency of any Subsequent Participant, the basis of accrual of interest or fees expressed in this Agreement with respect to such currency shall be inconsistent with any convention or practice in the London Interbank Market or, as the case may be, the Paris Interbank Market for the basis of accrual of interest or fees in respect of the euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such Subsequent Participant becomes a Participating Member State; provided, that if any Loan in the currency of such Subsequent Participant is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Loan, at the end of the then current Interest Period. (c) Without prejudice and in addition to any method of conversion or rounding prescribed by any EMU legislation and (i) without prejudice to the respective liabilities for indebtedness of the Borrowers to the Lenders and the Lenders to the Borrowers under or 33 39 pursuant to this Agreement and (ii) without increasing the Multicurrency Commitment of any Lender: (y) each reference in this Agreement to a minimum amount (or an integral multiple thereof) in a national currency denomination of a Subsequent Participant to be paid to or by the Administrative Agent shall, immediately upon such Subsequent Participant becoming a Participating Member State, be replaced by a reference to such reasonably comparable and convenient amount (or an integral multiple thereof) in the euro unit as the Administrative Agent may from time to time specify; and (z) except as expressly provided in this Section 2.22, each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be necessary or appropriate. 2.23 Redenomination and Alternative Currencies. Each obligation under this Agreement of a party to this Agreement which has been denominated in the national currency unit of a Subsequent Participant state shall be redenominated into the euro unit in accordance with EMU legislation immediately upon such Subsequent Participant becoming a Participating Member State (but otherwise in accordance with EMU Legislation). 2.24 Replacement of Lender. If any Borrower is required pursuant to Section 3.1, 3.2 or 3.5 to make any additional payment to any Lender or if any Lender's obligation to make or continue, or to convert Floating Rate Advances into, Eurocurrency Advances shall be suspended pursuant to Section 3.3, or if any Lender shall become a Defaulting Lender (any Lender so affected an "Affected Lender"), the Company may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Lender as a Lender party to this Agreement, provided that no Default or Unmatured Default shall have occurred and be continuing at the time of such replacement, and provided further that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Company and the Administrative Agent shall agree, as of such date, to purchase for cash the Advances and other Obligations due to the Affected Lender pursuant to an assignment substantially in the form of Exhibit C and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 12.3 applicable to assignments, and (ii) the Borrowers shall pay to such Affected Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrowers hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5. Nothing herein shall release any Defaulting Lender from any obligation it may have to any Borrower, the Administrative Agent or any other Lender. 2.25 Application of Payments with Respect to Defaulting Lenders. No payments of principal, interest or fees delivered to the Administrative Agent for the account of any Defaulting Lender shall be delivered by the Administrative Agent to such Defaulting Lender. Instead, such payments shall, for so long as such Defaulting Lender shall be 34 40 a Defaulting Lender, be held by the Administrative Agent, and the Administrative Agent is hereby authorized and directed by all parties hereto to hold such funds in escrow and apply such funds as follows: (a) First, if applicable to any payments due to the Swingline Lender under Section 2.1(b)(iii); and (b) Second, to Loans required to be made by such Defaulting Lender on any Borrowing Date to the extent such Defaulting Lender fails to make such Loans. Notwithstanding the foregoing, upon the termination of the Commitments and the payment and performance of all of the Obligations (other than those owing to a Defaulting Lender), any funds then held in escrow by the Administrative Agent pursuant to the preceding sentence shall be distributed to each Defaulting Lender, pro rata in proportion to amounts that would be due to each Defaulting Lender but for the fact that it is a Defaulting Lender ARTICLE III. YIELD PROTECTION; TAXES 3.1 Yield Protection. (a) If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurocurrency Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurocurrency Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of maintaining its Commitment or making, funding or maintaining its Eurocurrency Loans (including, without limitation, any conversion of any Loan denominated in an Agreed Currency other than euro into a Loan denominated in euro) or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurocurrency Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by 35 41 reference to its Commitment or the amount of Eurocurrency Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurocurrency Loans (including, without limitation, any conversion of any Loan denominated in an Agreed Currency other than euro into a Loan denominated in euro) or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurocurrency Loans or Commitment, then, within 30 days of demand by such Lender, the relevant Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. (b) Non-U.S. Reserve Costs or Fees With Respect to Loans to Non-U.S. Borrowers. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive of any jurisdiction outside of the United States of America or any subdivision thereof (whether or not having the force of law) imposes or deems applicable any reserve requirement against or fee with respect to assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation, and the result of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurocurrency Loans to any Borrower that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Borrower") or its Commitment to any Non-U.S. Borrower or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurocurrency Loans to any Non-U.S. Borrower or Commitment to any Non-U.S. Borrower, then, within 30 days of demand by such Lender, such Non-U.S. Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received, provided that such Non-U.S. Borrower shall not be required to compensate any Lender for such non-U.S. reserve costs or fees to the extent that an amount equal to such reserve costs or fees is received by such Lender as a result of the calculation of the interest rate applicable to Eurocurrency Advances pursuant to clause (i)(b) of the definition of "Eurocurrency Rate." 3.2 Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change (as defined below), then, within 15 days of demand by such Lender, the Company shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding 36 42 capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3 Availability of Types of Advances. If any Lender determines that maintenance of its Eurocurrency Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type, currency and maturity appropriate to match fund Eurocurrency Advances are not available or (ii) the interest rate applicable to Eurocurrency Advances does not accurately reflect the cost of making or maintaining Eurocurrency Advances, then the Administrative Agent shall suspend the availability of Eurocurrency Advances and require any affected Eurocurrency Advances to be repaid or converted to Floating Rate Advances at the end of the then current Interest Period for the affected Eurocurrency Advance. 3.4 Funding Indemnification. If any payment of a Eurocurrency Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurocurrency Advance is not made on the date specified by a Borrower for any reason other than default by the Lenders, the Borrowers will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurocurrency Advance. 3.5 Taxes. (i) All payments by the Borrowers to or for the account of any Lender or the Administrative Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrowers hereby agree to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). 37 43 (iii) The Borrowers hereby agree to indemnify the Administrative Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Administrative Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Administrative Agent or such Lender makes demand therefor pursuant to Section 3.6. (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of the Company and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement from the Company and any other Borrower that is not a Non-U.S. Borrower without deduction or withholding of any United States federal income taxes, or (ii) deliver to each of the Company and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Company and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Company or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Company and the Administrative Agent that it is not capable of receiving payments from the Company and any other Borrower other than a Non-U.S. Borrower without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Company with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Company shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. 38 44 (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. Each Multicurrency Lender which is neither a resident of the United Kingdom nor a bank carrying on a bona fide banking business in the United Kingdom agrees to furnish, on or before the date such Lender makes a Loan to a Borrower in the United Kingdom or denominated in British Pounds Sterling, to the Administrative Agent, the Company and any relevant Subsidiary Borrower evidence satisfactory to the Administrative Agent and the Company that such Lender has filed with the United Kingdom Inland Revenue a "Claim on Behalf of a United States Domestic Corporation to Relief from United Kingdom Income Tax on Interest and Royalties Arising in the United Kingdom" or other appropriate form or forms of exemption from withholding tax and received from the Inland Revenue authority that payments to such Lender by the relevant Borrower hereunder may be made gross; provided that such Lender's failure to furnish such evidence shall not relieve the Company or any Subsidiary Borrower of any of their respective obligations under this Agreement, except as otherwise provided in this Section 3.5. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this Section 3.5(vii) shall survive the payment of the Obligations and termination of this Agreement. 3.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurocurrency Loans to reduce any liability of the Borrowers to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurocurrency Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrowers (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrowers in the absence of manifest error. Determination of amounts payable 39 45 under such Sections in connection with a Eurocurrency Loan shall be calculated as though each Lender funded its Eurocurrency Loan through the purchase of a deposit of the type, currency and maturity corresponding to the deposit used as a reference in determining the Eurocurrency Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrowers of such written statement. The obligations of the Borrowers under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV. CONDITIONS PRECEDENT 4.1 Initial Advance. The Lenders shall not be required to make the initial Advance hereunder unless the Borrowers have satisfied the following conditions: (a) Each Borrower has furnished to the Administrative Agent with sufficient copies for the Lenders: (i) Copies of the articles or certificate of incorporation of such Borrower, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of such Borrower, of its by-laws or code of regulations and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which such Borrower is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of such Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of such Borrower authorized to sign the Loan Documents to which such Borrower is a party, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Borrower. (iv) A certificate, signed by the Chief Financial Officer or Treasurer of such Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of such Borrower's counsel, addressed to the Lenders in substantially the form of Exhibit A. 40 46 (vi) Any Notes requested by a Lender pursuant to Section 2.14 payable to the order of each such requesting Lender. (vii) Written money transfer instructions, in substantially the form of Exhibit D, addressed to the Administrative Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested. (viii) Information reasonably satisfactory to the Administrative Agent regarding the Company's Year 2000 Program. (ix) A pro forma covenant compliance certificate in form and substance reasonably satisfactory to the Administrative Agent from the Chief Financial Officer or Treasurer of the Company. (x) The Guaranty, duly executed by the Company. (xi) Such other documents as any Lender or its counsel may have reasonably requested. (b) The presentation of evidence satisfactory to the Administrative Agent that the Amended and Restated Credit Agreement dated as of March 30, 1994 among R.P. Scherer Corporation and the lenders party thereto and the agent named therein shall terminate and all indebtedness, liabilities, and obligations outstanding thereunder shall be paid in full not later than April 9, 1999. (c) The presentation of evidence satisfactory to the Administrative Agent that the Credit Agreement Facility A dated September 23, 1996, as amended, among Allegiance Corporation and the lenders party thereto and the agent named therein shall have been terminated and all indebtedness, liabilities, and obligations outstanding thereunder shall have been paid in full or will be paid from the proceeds of the initial Advance. (d) The presentation of evidence satisfactory to the Administrative Agent that revolving credits facilities of the Company totaling not less than $95,000,000 have been terminated and all indebtedness, liabilities and obligations outstanding thereunder shall have been paid in full or will be paid from the proceeds of the initial Advance. 4.2 Each Advance The Lenders shall not be required to make, continue or convert any Advance, and the Swingline Lender shall not be required to make any Swingline Loan, unless on the applicable Borrowing Date or date of conversion or continuation: (i) There exists no Default or Unmatured Default. 41 47 (ii) The representations and warranties contained in Article V (other than Section 5.5, 5.7 and 5.15) are true and correct in all material respects as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel. (iv) Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. ARTICLE V. REPRESENTATIONS AND WARRANTIES The Company and each of the Borrowers represents and warrants to the Lenders that: 5.1 Existence and Standing. Each of the Company and its Significant Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.2 Authorization and Validity. Each Borrower has the power and authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by each Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate or other proceedings, and the Loan Documents to which such Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrowers of the Loan Documents to which they are a party, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, 42 48 injunction, decree or award binding on any Borrower or (ii) any Borrower's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, code or regulations, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which any Borrower is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of any Borrower pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by a Borrower, is required to be obtained by any Borrower in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by such Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4 Financial Statements. The following consolidated financial statements heretofore delivered to the Lenders were prepared in accordance with Agreement Accounting Principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Company and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject, in the case of such interim statements, to routine year-end audit adjustments: (i) June 30, 1998 audited consolidated financial statements of the Company and its Subsidiaries; December 31, 1997 audited consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries; (ii) December 31, 1998 unaudited interim consolidated financial statements of the Company and its Subsidiaries; and (iii) December 31, 1998 unaudited interim consolidated financial statements of Allegiance Corporation and its consolidated subsidiaries. 5.5 Material Adverse Change. Since June 30, 1998 there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6 Taxes. The Company and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles and as to which no Lien exists. No tax liens have been filed and no claims are being asserted with respect to any such 43 49 taxes which could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7 Litigation and Contingent Obligations. Except as set forth on Schedule 7, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Loans. As of the date of this Agreement, other than any liability incident to any litigation, arbitration or proceeding which (i) could not reasonably be expected to have a Material Adverse Effect or (ii) is set forth on Schedule 7, the Company has no material Contingent Obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 5.8 Subsidiaries. Schedule 1 contains an accurate list of all Subsidiaries of the Company (other than immaterial or inactive Subsidiaries) and each Subsidiary Borrower as of the date of this Agreement, setting forth their respective jurisdictions of organization and the percentage of their respective capital stock or other ownership interests owned by the Company or other Subsidiaries. All of the issued and outstanding shares of capital stock or other ownership interests of such Subsidiaries have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable, except to the extent that the lack of such status could not reasonably be expected to have a Material Adverse Effect. The Company may amend Schedule 1 from time to time by delivering to the Administrative Agent an updated list of Subsidiaries, and the Company may designate any Subsidiary thereon which is directly or indirectly 80% (or, in the case of R.P. Scherer S.A., 75%) or more owned by the Company as a Subsidiary Borrower hereunder so long as (a) the Company guarantees the obligations of such new Subsidiary Borrower pursuant to the terms of the Guaranty, (b) such new Subsidiary Borrower delivers all corporate or organizational documents and authorizing resolutions and legal opinions reasonably requested by the Administrative Agent and (c) such new Subsidiary Borrower agrees to the terms and conditions of this Agreement and the Borrowers and the new Subsidiary Borrower execute all agreements and take such other action reasonably requested by Administrative Agent. Schedule 1 may be amended to remove any Subsidiary as a Subsidiary Borrower upon (i) written notice by the Company to the Administrative Agent to such effect and (ii) repayment in full of all outstanding Loans of such Subsidiary Borrower. 5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $75,000,000. Each Single Employer Plan complies in all material respects with all applicable requirements of law and regulations where the failure to so comply could reasonably be expected to have a Material Adverse Effect. No Reportable Event has occurred with respect to any Plan where such occurrence could reasonably be expected to have a Material Adverse Effect. Neither the Company or any of its Significant Subsidiaries has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Single Employer Plan 44 50 where in either instance a liability in excess of $75,000,000 could reasonably be expected to result. 5.10 Accuracy of Information. No information, exhibit or report furnished by the Company or any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading; provided, however, that to the extent any such information, exhibits or reports include or incorporate by reference any forward-looking statement (each, a "Forward-Looking Statement") which reflects the Company's current view (as of the date such Forward-Looking Statement is made) with respect to future events, prospects, projections or financial performance, such Forward-Looking Statement is subject to uncertainties and other factors which could cause actual results to differ materially from such Forward-Looking Statement. 5.11 Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of the value of those assets of the Company and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12 Material Agreements. Neither the Company nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. 5.13 Compliance With Laws. The Company and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.14 Plan Assets; Prohibited Transactions. The Company is not an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.15 Environmental Matters. In the ordinary course of its business, the officers of the Company consider the effect of Environmental Laws on the business of the Company and its Subsidiaries, in the course of which 45 51 they identify and evaluate potential risks and liabilities accruing to the Company due to Environmental Laws. On the basis of this consideration, the Company has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.16 Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.17 Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.18 Year 2000. The Company has substantially completed an assessment of the Year 2000 Issues and has a realistic and achievable program for addressing the remediation of Year 2000 Issues on a timely basis to avoid any impact on the Company and its Subsidiaries which would reasonably be expected to have a Material Adverse Effect (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program the Company does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 5.19 Default. There exists no Default or Unmatured Default under Article VII of this Agreement. ARTICLE VI. COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1 Financial Reporting. The Company will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with Agreement Accounting Principles, and furnish to the Lenders: 46 52 (i) Within 120 days after the close of each of its fiscal years, an unqualified (except for qualifications relating to changes in accounting principles or practices reflecting changes in Agreement Accounting Principles and required or approved by the Company's independent certified public accountants) audit report certified by independent certified public accountants reasonably acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss statements, and a statement of cash flows, accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof. (ii) Within 60 days after the close of each of the first three quarterly periods of each fiscal year, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated unaudited profit and loss statements and a consolidated unaudited statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer, Controller, or Treasurer. (iii) Together with the financial statements required under Sections 6.1(i) and (ii), a compliance certificate in substantially the form of Exhibit B signed by its Chief Financial Officer, Controller, or Treasurer and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within 10 Business Days after the Company knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Financial Officer, Controller, or Treasurer of the Company, describing said Reportable Event and the action which the Company proposes to take with respect thereto. (v) As soon as possible and in any event within 10 Business Days after receipt by the Company, a copy of (a) any notice or claim to the effect that the Company or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Company, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Company or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Such other information (including non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request. 47 53 6.2 Use of Proceeds. The Company will, and will cause each Subsidiary to, use the proceeds of the Advances for general corporate purposes, including Acquisitions. The Company will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U). 6.3 Notice of Default. The Company will, and will cause each Borrower and Significant Subsidiary to, give prompt notice in writing to the Administrative Agent of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect. 6.4 Conduct of Business. The Company will, and will cause each Significant Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted or fields related thereto (except that the Company and its Significant Subsidiaries shall have no duty to renew or extend contracts which expire by their terms) and do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, unless the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.5 Taxes. The Company will, and will cause each Significant Subsidiary to, timely file complete and correct United States federal and applicable foreign, state and local tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6 Insurance. The Company will, and will cause each Significant Subsidiary to, maintain as part of a self-insurance program or with financially sound and reputable insurance companies insurance on all their Property in such amounts (with such customary deductibles, exclusions and self-insurance) and covering such risks as is consistent with sound business practice. 6.7 Compliance with Laws. The Company will, and will cause each Significant Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be 48 54 subject including, without limitation, all Environmental Laws, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.8 Inspection. The Company will, and will cause each Significant Subsidiary to, permit the Administrative Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Company and each Significant Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Significant Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable prior notice at such reasonable times and intervals as the Administrative Agent or any Lender may designate, provided that neither the Company nor any of its Subsidiaries shall be responsible for the costs and expenses incurred by the Administrative Agent, any Lender, or their representatives in connection with such inspection prior to the occurrence and continuation of a Default. 6.9 Merger. The Company will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into any other Person, except that, provided that no Default or Unmatured Default shall have occurred and be continuing or would result therefrom on a pro forma basis reasonably acceptable to the Administrative Agent, the Company may merge or consolidate with any other U.S. corporation and each Significant Subsidiary may merge or consolidate with any other Person, provided, further, that (i) in the case of any such merger or consolidation involving the Company, the Company is the surviving corporation and (ii) in the case of any such merger or consolidation involving a Significant Subsidiary which is a Subsidiary Borrower, the surviving corporation assumes all of such Borrower's obligations under this Agreement and remains or becomes a Subsidiary Borrower. 6.10 Sale of Assets. The Company will not, nor will it permit any Significant Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person (other than the Company or another Subsidiary), except: (i) Sales of inventory in the ordinary course of business. (ii) Sales or other dispositions in the ordinary course of business of fixed assets for the purpose of replacing such fixed assets, provided that such fixed assets are replaced within 360 days of such sale or other disposition with other fixed assets which have a fair market value not materially less than the fixed assets sold or otherwise disposed of. (iii) Sales or other dispositions outside the ordinary course of business of accounts receivable, lease receivables, leases or equipment which had been leased by the Company or such Significant Subsidiary, provided that any such sale or other disposition is for reasonably equivalent value and could not reasonably be expected to have a Material Adverse Effect. 49 55 (iv) Other leases, sales (including sale-leasebacks) or other dispositions of its Property that, together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i), (ii) and (iii) above) as permitted by this Section during the twelve-month period ending with the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Company and its Subsidiaries, or together with all other Property of the Company and its Subsidiaries previously leased, sold or disposed of (other than as provided in clauses (i) and (ii) above) as permitted by this Section during the period from the date of this Agreement to the end of the month prior to the month in which any such lease, sale or other disposition occurs, do not constitute 35% of the consolidated assets of the Company and its Subsidiaries as would be shown in the consolidated financial statements of the Company and its Subsidiaries as at the beginning of the fiscal year in which any such lease, sale or other disposition occurs. Notwithstanding anything in this Section 6.10 to the contrary, (a) no such leases, sales or other dispositions of property may be made (other than pursuant to clause (i) above) if any Default or Unmatured Default has occurred and is continuing, and (b) all leases, sales and other dispositions of Property at any time shall be for not less than the fair market value of such Property as determined in good faith by the Company. 6.11 Investments. The Company will not, nor will it permit any Significant Subsidiary to, make or suffer to exist any Investments, or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, except: (i) Cash Equivalent Investments. (ii) Investments in Subsidiaries. (iii) other Investments in existence on the date hereof. (iv) Other Investments provided that the aggregate amount of such Investments made in any fiscal year does not exceed 25% of Adjusted Tangible Net Worth as of the beginning of such fiscal year. 6.12 Liens. The Company will not, nor will it permit any Significant Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Company or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for 50 56 which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as landlord's, carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation (other than Liens in favor of the PGBC). (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Company or its Subsidiaries. (v) Liens existing on the date hereof. (vi) Liens on any assets which exist at the time of acquisition of such assets by the Company or any of its Subsidiaries, or liens to secure the payment of all of any part of the purchase price of such assets upon the acquisition of such assets by the Company or any of its Subsidiaries or to secure any Indebtedness incurred or guaranteed by the Company or any of its Subsidiaries prior to, at the time, of or within 360 days after, such acquisition (or, in the case of real property, the completion of construction (including any improvements on an existing asset) or commencement of full operation of such asset, whichever is later), which Indebtedness is incurred or guaranteed for the purpose of financing all or any part of the purchase price thereof or, in the case of real property, construction or improvements thereon, provided, however, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to such assets theretofore owned by the Company or any of its Subsidiaries other than, in the case of any such construction or improvement, any real property on which the property so constructed, or the improvement, is located, provided further, however, that the aggregate outstanding principal amount of Indebtedness secured by Liens permitted by this Section 6.12(vi) shall not at any time exceed $250,000,000. (vii) Liens in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction), of the assets subject to such liens (including without limitation liens incurred in connection with pollution control, industrial revenue or similar financings). 51 57 (viii) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing clauses, provided, however, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured prior to such extension, renewal or replacement and that such extension, renewal or replacement Lien shall be limited to all or a part of the assets which secured the Lien so extended, renewed or replaced (plus improvements and construction on such real property). (ix) So long as no Default under Section 7.9 would occur in connection therewith, Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company or any of its Subsidiaries with respect to which the Company or such Subsidiary is in good faith prosecuting an appeal or proceeding for review or for which the time to make an appeal has not yet expired; or final unappealable judgment Liens which are satisfied within 15 days of the date of judgment; or Liens incurred by the Company or any of its Subsidiaries for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company or such Subsidiary is a party. (x) Liens securing Indebtedness described in Section 6.16(iv) and (v). (xi) Liens securing Indebtedness and not otherwise permitted by the foregoing provisions of this Section 6.12, provided that the aggregate outstanding principal amount of the Indebtedness secured by all such Liens shall not at any time exceed 25% of Adjusted Tangible Net Worth. 6.13 Year 2000. The Company will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Administrative Agent, the Company will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. 6.14 Subsidiary Indebtedness. The Company will not permit any Subsidiary to create, incur or suffer to exist any Indebtedness, except: (i) The Loans. (ii) Indebtedness outstanding on the date of this Agreement or incurred pursuant to commitments in existence on the date of this Agreement. (iii) Indebtedness of any Subsidiary to the Company or any other Subsidiary. 52 58 (iv) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that such Indebtedness existed at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary. (v) Any refunding or refinancing of any Indebtedness referred to in clauses (i) through (iv) above, provided that any such refunding or refinancing of Indebtedness referred to in clause (ii), (iii) or (iv) does not increase the principal amount thereof. (vi) Indebtedness arising from (a) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, or (b) the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business. (vii) Indebtedness arising from guarantees of loans and advances by third parties to employees and officers of a Subsidiary in the ordinary course of business for bona fide business purposes, provided that the aggregate outstanding principal amount of such Indebtedness does not at any time exceed $100,000,000 . (viii) Indebtedness of a Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations or from guarantees, letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Subsidiaries incurred or assumed in connection with the disposition of any business, property or Subsidiary. (ix) Indebtedness arising from Rate Hedging Obligations. (x) Contingent Obligations. (xi) Indebtedness outstanding under investment grade commercial paper programs. (xii) Other Indebtedness; provided that, at the time of the creation, incurrence or assumption of such other Indebtedness and after giving effect thereto, the aggregate amount of all such other Indebtedness of the Subsidiaries does not exceed an amount equal to 25% of Adjusted Tangible Net Worth at such time. 6.15 Limitation on Restrictions on Significant Subsidiary Distributions. The Company will not, and will not permit any Significant Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Significant Subsidiary of the Company to (i) pay dividends or make any other distributions in respect of any capital stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (ii) make loans or advances to the Company or any other Subsidiary of the Company 53 59 or (iii) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (a) any restrictions existing under the Loan Documents, (b) any restrictions with respect to a Significant Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of all or substantially all of the capital stock or assets of such Subsidiary, and (c) any restrictions with respect to assets encumbered by a Lien permitted by Section 6.12 so long as such restriction applies only to the asset encumbered by such permitted Lien. 6.16 Contingent Obligations. The Company will not, nor will it permit any Subsidiary to, make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary), except (i) by endorsement of instruments for deposit or collection in the ordinary course of business, (ii) the Guaranty, (iii) Contingent Obligations of special-purpose finance Subsidiaries, provided that no Person has recourse against the Company or any Significant Subsidiary for such Contingent Obligations, (iv) Contingent Obligations arising from the sale by Pyxis Corporation of lease receivables, leases or equipment, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 10% of Adjusted Tangible Net Worth, (v) Contingent Obligations arising out of operating or synthetic leases entered into by Subsidiaries of the Company, provided that the aggregate amount of such Contingent Obligations do not at any time exceed 25% of Adjusted Tangible Net Worth, and (vi) Contingent Obligations in addition to those described in (i)-(v) above, provided that the aggregate amount of such additional Contingent Obligations (without duplication) do not at any time exceed 25% of Adjusted Tangible Net Worth. 6.17 Minimum Net Worth. The Company shall not permit its Net Worth to be less than $2,550,000,000 at any time. ARTICLE VII. DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of the Company or any of its Subsidiaries to the Lenders or the Administrative Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Loan within one day after the same becomes due, or nonpayment of interest upon any Loan or of any commitment fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Company of Sections 6.3, 6.9, 6.10, 6.14, 6.16, or 6.17. 54 60 7.4. The breach by any Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within thirty days after written notice from the Administrative Agent or any Lender. 7.5. Failure of the Company or any of its Significant Subsidiaries to pay when due any principal, interest or other amounts, subject to any applicable grace period, or the default by the Company or any of its Significant Subsidiaries in the performance beyond the applicable grace period with respect thereto, if any, of any term, provision or condition contained in the 364-Day Credit Agreement or any agreement or agreements under which any Indebtedness in excess of 2% of Adjusted Tangible Net Worth was created or is governed, or any other event shall occur or condition exist, the effect of which default or event is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Company or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Company or any of its Significant Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. The Company or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Company or any of its Significant Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Company or any of its Significant Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Company or any of its Significant Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of, all or any portion of the Property of the Company and its Subsidiaries which, when taken together with all other Property of the Company and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such action occurs, constitutes a Substantial Portion. 7.9. The Company or any of its Significant Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge one or more (i) judgments or orders for the payment of money (not covered by insurance)in excess of 2% of Adjusted Tangible Net Worth (or the equivalent thereof in currencies other than U.S. Dollars) in the aggregate, or (ii) nonmonetary judgments or 55 61 orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in either such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith. 7.10. Any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $75,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Single Employer Plan with Unfunded Liabilities in excess of $20,000,000 (a "Material Plan") shall be filed under Section 4041(c) of ERISA by any member of the Controlled Group, any plan administrator or any combination of the foregoing; or PBGC shall institute proceedings under which it is likely to prevail under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which causes one or more members of the Controlled Group to incur a current payment obligation in excess of $75,000,000. 7.11. Any Change in Control shall occur. 7.12. The Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or the Company shall fail to comply with any of the terms or provisions of the Guaranty, or the Company shall deny that it has any further liability under the Guaranty, or shall give notice to such effect. ARTICLE VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Company or any of its Significant Subsidiaries, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs and is continuing, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Company hereby expressly waives. If, within 60 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Company) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Company, rescind and annul such acceleration and/or termination. 56 62 8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrowers may enter into written agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrowers hereunder or waiving any Default hereunder; provided, however, that no such supplemental written agreement shall, without the consent of all of the Lenders: (i) Extend the final maturity of any Loan or postpone any regularly scheduled payment of principal of any Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Facility Termination Date or reduce the amount or extend the payment date for, the mandatory payments required under Section 2.2, or increase the amount of the Aggregate Commitment or of the Commitment of any Lender hereunder, or permit any Borrower to assign its rights under this Agreement (other than as may be permitted pursuant to Section 6.9). (iv) Amend this Section 8.2. (v) Release the Company as guarantor of any Advance. No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent, and no amendment of any provision of this Agreement relating to the Swingline Loans shall be effective without the written consent of the Swingline Lender. The Administrative Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. Notwithstanding anything herein to the contrary, no Defaulting Lender shall be entitled to vote (whether to consent or to withhold its consent) with respect to any amendment, modification, termination or waiver requiring the consent of the Required Lenders, and, for purposes of determining the Required Lenders, the Commitments and the Loans of each Defaulting Lender shall be disregarded. 8.3 Preservation of Rights No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of a Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be 57 63 valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX. GENERAL PROVISIONS 9.1 Survival of Representations. All representations and warranties of the Borrowers contained in this Agreement shall survive the making of the Loans herein contemplated. 9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrowers in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrowers, the Administrative Agent and the Lenders and supersede all prior agreements and understandings among the Borrowers, the Administrative Agent and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. 9.5 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Lead Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6 Expenses; Indemnification. (i) The Borrowers shall reimburse the Administrative Agent and the Lead Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including 58 64 reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent, but subject to any limitations contained in the letter from Dickinson Wright PLLC to First Chicago dated February 19, 1999) paid or incurred by the Administrative Agent or the Lead Arranger in connection with the preparation, investigation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents, whether incurred prior to or subsequent to closing. The Borrowers also agree to reimburse the Administrative Agent, the Lead Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent, the Lead Arranger and the Lenders, which attorneys may be employees of the Administrative Agent, the Lead Arranger or the Lenders) paid or incurred by the Administrative Agent, the Lead Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Company hereby further agrees to indemnify the Administrative Agent, the Lead Arranger and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Administrative Agent, the Lead Arranger or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Company under this Section 9.6 shall survive the termination of this Agreement. 9.7 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 9.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles except that any calculation or determination which is to be made on a consolidated basis shall be made for the Company and all its Subsidiaries, including those Subsidiaries, if any, which are unconsolidated on the Company's audited financial statements. 9.9 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or 59 65 validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10 Nonliability of Lenders. The relationship between the Company on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower and lender. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any fiduciary responsibilities to the Company solely by reason of being a party to this Agreement. Neither the Administrative Agent, the Lead Arranger nor any Lender undertakes any responsibility to the Company to review or inform the Company of any matter in connection with any phase of the Company's business or operations. The Company agrees that neither the Administrative Agent, the Lead Arranger nor any Lender shall have liability to the Company (whether sounding in tort, contract or otherwise) for losses suffered by the Company in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Administrative Agent, the Lead Arranger nor any Lender shall have any liability with respect to, and the Company hereby waives, releases and agrees not to sue for, any special, indirect or consequential damages suffered by the Company in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11 Confidentiality. Each of the Administrative Agent and each Lender agrees to hold any confidential information which it may receive from the Company pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or the Administrative Agent or, subject to Section 12.4, to a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender's contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, (vii) permitted by Section 12.4, and (viii) to rating agencies if requested or required by such agencies in connection with a rating relating to the Advances hereunder, provided that reasonable advance written notice is given to the Company. 9.12 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. 60 66 ARTICLE X. THE AGENT 10.1 Appointment; Nature of Relationship. The First National Bank of Chicago is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the "Administrative Agent") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Administrative Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Administrative Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2 Powers. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent. 10.3 General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Company, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. 10.4 No Responsibility for Loans, Recitals, etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing 61 67 hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Administrative Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Company or any guarantor of any of the Obligations or of any of the Company's or any such guarantor's respective Subsidiaries. The Administrative Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Company to the Administrative Agent at such time, but is voluntarily furnished by the Company to the Administrative Agent (either in its capacity as Administrative Agent or in its individual capacity). 10.5 Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6 Employment of Agents and Counsel. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document. 10.7 Reliance on Documents; Counsel. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. 62 68 10.8 Administrative Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Company for which the Administrative Agent is entitled to reimbursement by the Company under the Loan Documents (other than the fee payable pursuant to Section 10.13), (ii) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Administrative Agent in connection with any dispute between the Administrative Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Administrative Agent and (ii) any indemnification required pursuant to Section 3.5(vii) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Administrative Agent has received written notice from a Lender or the Company referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. 10.10 Rights as a Lender. In the event the Administrative Agent is a Lender, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, at any time when the Administrative Agent is a Lender, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Subsidiaries in which the Company or such 63 69 Subsidiary is not restricted hereby from engaging with any other Person. The Administrative Agent, in its individual capacity, is not obligated to remain a Lender. 10.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on the financial statements prepared by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Lead Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12 Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Company, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, forty-five days after the retiring Administrative Agent gives notice of its intention to resign. The Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Company and the Lenders, a successor Administrative Agent, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If no successor Administrative Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Administrative Agent may appoint, on behalf of the Company and the Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, without the consent of any Lender but upon thirty days prior written notice to the Lenders and the Company, the Administrative Agent may appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder, which successor Administrative Agent shall (unless a Default shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed). If the Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, the Lenders may perform all the duties of the Administrative Agent hereunder and the Company shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $5,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of the Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and 64 70 under the Loan Documents. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article X shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Administrative Agent by merger, or the Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent. 10.13 Administrative Agent's Fee. The Company agrees to pay to the Administrative Agent, for its own account, the fees agreed to by the Company and the Administrative Agent pursuant to that certain letter agreement dated February 15, 1999 or as otherwise agreed from time to time. 10.14 Delegation to Affiliates. The Company and the Lenders agree that the Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Administrative Agent is entitled under Articles IX and X. 10.15 Administrative Agent, Syndication Agent, Co-Documentation Agents, Lead Arranger, etc. Neither the Syndication Agent, the Co-Documentation Agents nor the Lead Arranger shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders or the Administrative Agent shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Administrative Agent in Section 10.11. ARTICLE XI. SETOFF; RATABLE PAYMENTS 11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Borrower becomes insolvent, however evidenced, or any Default occurs and is continuing, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of any Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 65 71 11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5 or payments of Alternate Currency Loans) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of the Company to a Lender other than Indebtedness comprised of Loans made by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness comprised of such Loans. ARTICLE XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns, except that (i) the Borrowers shall not have the right to assign their rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrowers or the Administrative Agent, assign all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; provided, however, that no such assignment to a Federal Reserve Bank shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of the rights to any Loan or any Note agrees by acceptance of such transfer or assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Loan. 12.2 Participations. 12.2.1. Permitted Participants; Effect. 66 72 Any Lender may, in its sole discretion, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrowers under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, extends the Facility Termination Date, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases the Company as guarantor of any such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. 12.2.3. Benefit of Setoff. The Company agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3 Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more financial institutions, mutual funds, insurance companies or other entities engaged in the business of extending credit for borrowed money ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in such other form as may be agreed to by the parties thereto. The consent of the Company and the Administrative Agent shall be required prior to an 67 73 assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Company shall not be required. Such consent shall not be unreasonably withheld or delayed. The assignor shall give prompt written notice to the Company of any assignment becoming effective without the consent of the Company. The Administrative Agent shall give written notice to each Lender of any assignment becoming effective to an assignor other than a Lender or an Affiliate thereof. Each such assignment with respect to a Purchaser which is not a Lender or an Affiliate thereof shall (unless each of the Company and the Administrative Agent otherwise consents) be in an amount not less than the lesser of (i) $5,000,000 and in multiples of $1,000,000 or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or outstanding Loans (if the applicable Commitment has been terminated). If any Lender assigns a part of its rights and obligations in respect of its Dollar Loans and/or its Dollar Commitment under this Agreement to a Purchaser other than a Lender or an Affiliate thereof, such Lender shall assign proportionate interests in its respective Multicurrency Loans and Multicurrency Commitment and other related rights and obligations hereunder to such Purchaser, and if any Lender assigns a part of its rights and obligations under this Agreement in respect of its Multicurrency Loans and/or Multicurrency Commitments to a Purchaser other than a Lender or an Affiliate thereof, such Lender shall assign proportionate interests in its Dollar Loans and Dollar Commitments to such Purchaser. Any assignment of an Alternate Currency Loan shall be for the entire amount of such Alternate Currency Loan of such Lender. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Administrative Agent of an assignment, together with any consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Administrative Agent for processing such assignment (unless such fee is waived by the Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Company, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Administrative Agent and the Borrowers shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 68 74 12.4 Dissemination of Information. The Company authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Company and its Subsidiaries, provided that each Transferee and prospective Transferee agrees in writing to be bound by Section 9.11 of this Agreement. 12.5 Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv). 12.6 Transfer to an SPC. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Company, the option to provide to the Borrowers all or any part of any Loan (other than an Alternate Currency Loan) that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary in this Section 12.6, any SPC may (i) with notice to, but without the prior written consent of, the Company and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. As this Section applies to any particular SPC, this section may not be amended without the written consent of such SPC. 69 75 ARTICLE XIII. NOTICES 13.1 Notices. Except as otherwise permitted by Section 2.15 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrowers or the Administrative Agent, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrowers in accordance with the provisions of this Section 13.1. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. 13.2 Change of Address. The Borrowers, the Administrative Agent and any Lender may each change the address for service of notice upon it by 5 days' prior written notice to the other parties hereto. ARTICLE XIV. COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrowers, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by facsimile transmission or telephone that it has taken such action. 70 76 ARTICLE XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 15.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2 CONSENT TO JURISDICTION. EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 15.3 WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 71 77 IN WITNESS WHEREOF, the Borrowers, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written. CARDINAL HEALTH, INC. By: /s/ Stephanie A. Wagoner ------------------------------------- Title: Vice President & Treasurer ---------------------------------- 7000 Cardinal Place Dublin, Ohio 43017 Attention: Suzanne L. Stoddard Telephone: (614) 717-7542 FAX: (614) 717-8542 72 78 Commitment: $65,625,000 THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Administrative Agent By: /s/ D. J. Pienta ------------------------------------- Title: Vice President ---------------------------------- 611 Woodward Avenue Detroit, Michigan 48226 Attention: Daniel J. Pienta Telephone: (313) 225-1525 FAX: (313) 225-1671 73 79 Commitment: $61,875,000 BANK OF AMERICA NT & SA By: /s/ Scott Singhoff ------------------------------------- Title: Senior Vice President ---------------------------------- 700 Louisiana Street Houston, TX 77002 Attention: Scott Singhoff Telephone: (713) 247-6961 FAX: (713) 247-6719 74 80 Commitment: $61,875,000 CITICORP USA, INC. By: /s/ Mark Packard ------------------------------------- Title: Vice President ---------------------------------- 399 Park Avenue New York, NY 10043 Attention: ------------------------------ Telephone: ------------------------------ FAX: ------------------------------------ 75 81 Commitment: $61,875,000 CREDIT SUISSE FIRST BOSTON By: /s/ Robert N. Finney ------------------------------------- Title: Managing Director ---------------------------------- By: /s/ Todd C. Morgan ------------------------------------- Title: Director ---------------------------------- 11 Madison Avenue New York, NY 10010 Attention: ------------------------------ Telephone: ------------------------------ FAX: ------------------------------------ 76 82 Commitment: $46,875,000 FIRST UNION NATIONAL BANK By: /s/ John E. Reid ------------------------------------- Title: Vice President ---------------------------------- 301 South College Street, 10th Floor Charlotte, NC 28288-0745 Attention: John Reid Telephone: (704) 383-1385 FAX: (704) 383-7236 77 83 Commitment: $46,875,000 PNC BANK, NATIONAL ASSOCIATION By: /s/ C. J. Richardson ------------------------------------- Title: Senior Vice President ---------------------------------- 201 East Fifth Street Cincinnati, OH 45202 Attention: C. Joseph Richardson Telephone: (513) 651-8984 FAX: (513) 651-8951 78 84 Commitment: $46,875,000 WACHOVIA BANK, NA By: /s/ Brad Watkins ------------------------------------- Title: Vice President ---------------------------------- 191 Peachtree Street, NE Atlanta, GA 30303 Attention: Bradford L. Watkins Telephone: (404) 332-1093 FAX: (404) 332-6898 79 85 Commitment: $39,375,000 BARCLAYS BANK PLC By: /s/ Matthew Tuck --------------------------------------- Title: Associate Director & Vice President ------------------------------------ 222 Broadway, 8th Floor New York, NY 10038 Attention: Matthew Tuck Telephone: (212) 412-1131 FAX: (212) 412-1075 80 86 Commitment: $39,375,000 FLEET BANK, NATIONAL ASSOCIATION By: /s/ Magda Hayden ------------------------------------- Title: Senior Vice President ---------------------------------- 300 Broad Hollow Road Melville, NY 11747 Attention: Magda Hayden Telephone: (516) 547-7726 FAX: (516) 447-7815 81 87 Commitment: $39,375,000 DEUTSCHE BANK AG - NEW YORK BRANCH A/O CAYMAN ISLANDS BRANCH By: /s/ Susan L. Pearson ------------------------------------- Title: Director ---------------------------------- By: /s/ Stephan A. Wiedemann ------------------------------------- Title: Director ---------------------------------- 31 W. 52nd Street New York, NY 10019 Attention: Sue Pearson Telephone: (212) 469-7140 FAX: (212) 469-8701 82 88 Commitment: $24,000,000 BANCA COMMERCIALE ITALIANA - CHICAGO BRANCH By: /s/ ------------------------------------- Title: Vice President ---------------------------------- 150 N. Michigan Avenue Chicago, Illinois 60601 Attention: Diana R. Lamb Telephone: (312) 346-1112 FAX: (312) 346-5758 83 89 Commitment: $24,000,000 BANK OF MONTREAL By: /s/ Patrice Wetzel ------------------------------------- Title: Director ---------------------------------- 115 S. LaSalle Street Chicago, Illinois 60603 Attention: Patrice Wetzel Telephone: (312) 750-3472 FAX: (312) 750-6057 84 90 Commitment: $24,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By: /s/ Hisashi Miyashiro ------------------------------------- Title: Deputy General Manager ---------------------------------- 227 W. Monroe Street, Suite 2300 Chicago, Illinois 60606 Attention: William Murray Telephone: (312) 696-4500 FAX: (312) 696-4535 85 91 Commitment: $24,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi ------------------------------------- Title: Vice President ---------------------------------- 60 Wall Street, 32nd Floor New York, NY 10271 Attention: ------------------------------ Telephone: ------------------------------ FAX: ------------------------------------ 86 92 Commitment: $24,000,000 NATIONAL CITY BANK By: /s/ Patricia Jackson ------------------------------------- Title: Vice President ---------------------------------- 155 East Broad Street Columbus, OH 43251 Attention: Patricia Jackson Telephone: (614) 463-8065 FAX: (614) 463-6770 87 93 Commitment: $24,000,000 THE NORTHERN TRUST COMPANY By: /s/ M. M. Teteak ------------------------------------- Title: Vice President ---------------------------------- 50 S. LaSalle Street Chicago, Illinois 60675 Attention: Michelle M. Teteak Telephone: (312) 444-3506 FAX: (312) 444-5055 88 94 Commitment: $24,000,000 SUNTRUST BANK, ATLANTA By: /s/ Linda L. Dash ------------------------------------- Title: Vice President ---------------------------------- 303 Peachtree Street, N.E., 3rd Floor Mail Code 1928 Atlanta, Georgia 30308 Attention: Linda L. Dash Telephone: (404) 658-4923 FAX: (404) 658-4905 89 95 Commitment: $24,000,000 STANDARD CHARTERED BANK By: /s/ D. D. Cutting Kristina McDavid ------------------------------------------ Title: Senior Vice President Vice President --------------------------------------- Seven World Trade Center New York, NY 10048 Attention: David Cutting Telephone: (212) 667-0213 FAX: (212) 667-0225 90 96 Commitment: $24,000,000 THE BANK OF NEW YORK By: /s/ Ed Dougherty ------------------------------------- Title: Vice President ---------------------------------- One Wall Street New York, NY 10286 Attention: Edward Dougherty Telephone: (212) 635-1330 FAX: (212) 635-6434 91 97 Commitment: $24,000,000 WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Brad Hardy ------------------------------------- Title: Vice President ---------------------------------- 222 W. Adams Street, Suite 2180 Chicago, Illinois 60606 Attention: Karen DeSantes Telephone: (312) 845-8602 FAX: (312) 553-2353 92 98 PRICING SCHEDULE The Applicable Margin shall be as determined by the matrix below:
- ------------------------------------------------------------------------------------------------------------------------------------ Level I Level II Level III Level IV Level V Level VI Status Status Status Status Status Status - ------------------------------------------------------------------------------------------------------------------------------------ (Less than Reference Rating BBB+ or BBB or or Equal to) (Greater than or Equal to) A+ or A1 A or A2 A- or A3 Baa1 Baa2 BBB- or Baa3 - ------------------------------------------------------------------------------------------------------------------------------------ Facility Fee 7.0 8.0 9.0 10.0 12.0 15.0 - ------------------------------------------------------------------------------------------------------------------------------------ Eurocurrency Rate Applicable Margin 13.0 17.0 21.0 25.0 28.0 35.0 - ------------------------------------------------------------------------------------------------------------------------------------ Utilization fee (Greater than) 33% 2.5 2.5 5.0 5.0 10.0 15.0 - ------------------------------------------------------------------------------------------------------------------------------------ Utilization fee (Greater than) 67% 5.0 5.0 10.0 15.0 20.0 20.0 - ------------------------------------------------------------------------------------------------------------------------------------
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Company's Moody's Rating is A1 or better or the Company's S&P Rating is A+ or better. "Level II Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status and (ii) the Company's Moody's Rating is A2 or better or the Company's S&P Rating is A or better. "Level III Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status or Level II Status and (ii) the Company's Moody's Rating is A3 or better or the Company's S&P Rating is A- or better. "Level IV Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Company's Moody's Rating is Baa1 or better or the Company's S&P rating is BBB+ or better. "Level V Status" exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Company's Moody's rating is Baa2 or better or the Company's S&P rating is BBB or better. "Level VI Status" exists at any date if, on such date, the Company has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status. 93 99 "Moody's Rating" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "S&P Rating" means, at any time, the rating issued by Standard and Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means either Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status. The Applicable Margin shall be determined in accordance with the foregoing table based on the Company's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Company has no Moody's Rating or no S&P Rating, Level VI Status shall exist. 94 100 EXHIBIT A FORM OF OPINION March 31, 1999 The Administrative Agent and the Lenders who are parties to the Credit Agreement described below. SUBJECT: CARDINAL HEALTH, INC. - FIVE-YEAR CREDIT AGREEMENT Gentlemen/Ladies: We are counsel for Cardinal Health, Inc., an Ohio corporation (the "COMPANY"), and have represented the Company in connection with its execution and delivery of a Five-Year Credit Agreement dated as of March 31,1999 (the "AGREEMENT"), among the Company, the Subsidiary Borrowers, the Lenders named therein, and The First National Bank of Chicago, as Administrative Agent, providing for Advances in an aggregate principal amount not exceeding $750,000,000 at any one time outstanding. All capitalized terms used in this opinion and not otherwise defined herein shall have the meanings attributed to them in the Agreement. This opinion is being delivered to you pursuant to Section 4.1(a)(v) of the Agreement. In connection with the issuance of this opinion letter, we have examined the following documents: (a) A copy of the Agreement executed by the Company; (b) The Company's Articles of Incorporation as certified by the Ohio Secretary of State; (c) The Company's Code of Regulations as certified by the Company's assistant secretary; (d) A certificate of good standing of the Company issued by the Ohio Secretary of State; (e) Resolutions of the executive committee of the Company's board of directors as certified by the Company's assistant secretary; 95 101 (f) [INSERT DESCRIPTION OF NOTE(S) TO BE EXECUTED AT CLOSING]; (g) An executed copy of the Guaranty of the Company dated as of March 31, 1999; (h) Certificates of certain officers of the Company as to certain factual matters; and (i) Such other documents and matters of law as we deemed necessary or advisable in order to render the opinions set forth in this letter. The documents referenced in items (a), (f), and (g) are sometimes referred to hereinafter as the "LOAN DOCUMENTS". In our review and in rendering the opinions expressed herein, we have assumed, without independent verification, the following: (I) the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, facsimile, or photostatic copies, the completeness and correctness of any representations and certifications made to us by officers of the Company, and the completeness and correctness of any representations and certificates of public officials and public filing records; (II) that the Loan Documents have been duly and validly authorized, executed, and delivered by all parties thereto other than the Company, and that the Loan Documents are binding and legally enforceable against all of the parties thereto, including without limitation the Subsidiary Borrowers, other than the Company; (III) all parties to the Loan Documents other than the Company have received adequate consideration for their execution and delivery of, and performance of their respective obligations under, the Loan Documents to which each of them is a party; and (IV) all conditions and other transactions contemplated by the Agreement to have occurred at or prior to the funding of the initial Loans have occurred or have been waived by the appropriate parties and Loans in the amount of the Aggregate Commitment will be fully available pursuant to the terms of the Agreement. Based upon the foregoing, and subject to the qualifications set forth below, we are of the opinion that: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Ohio. 2. The execution and delivery by the Company of the Loan Documents to which it is a party and the performance by the Company of its obligations thereunder have been duly authorized by proper corporate proceedings on the part of the Company and will not: (a) Require any consent of the Company's shareholders; (b) (i) Violate (A) any order, judgment, or decree of any court or governmental agency binding on the Company and known to us, (B) any statute of the State of Ohio or the United States, or any written regulation thereunder, (C) the Company's articles of incorporation or code of regulations, or (D) the provisions of any indenture, instrument, or agreement to which the Company is a party or is subject, or by which it, or its Property, is bound, and which is filed or incorporated by reference as an exhibit to the Company's periodic reports under the Securities Exchange Act of 1934, 96 102 pursuant to item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission, or (ii) conflict with or constitute a default under any such indenture, instrument, or agreement, provided that no opinion is expressed with respect to any violation, conflict, or default of any financial covenants set forth in any such indenture, instrument, or agreement that may, among other things, limit or otherwise restrict the amount of Indebtedness the Company may incur or restrict the amount of interest or other expenses the Company may incur; or (c) Result in, or require, the creation or imposition of any Lien in or on the Property of the Company pursuant to the terms of any indenture, instrument or agreement binding upon the Company, and which is filed or incorporated by reference as an exhibit to the Company's periodic reports under the Securities Exchange Act of 1934, pursuant to item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission. 3. The Loan Documents to which the Company is a party have been duly executed and delivered by the Company and, except for the "choice of law" provisions of the Loan Documents, constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. Set forth later in this opinion letter is an opinion regarding the enforceability of the "choice of law" provisions of the Loan Documents. 4. To the best of our knowledge and except as set forth in Schedule 8 of the Agreement, there is no litigation, arbitration, governmental investigation, proceeding, or inquiry pending or threatened against the Company which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 5. No authorization or approval of, or filing with, any governmental agency of the United States or of the State of Ohio which has not been obtained or made is necessary for the execution and delivery of, and performance of the Company's obligations under the Loan Documents. In addition to any other qualification set forth herein, our opinions are qualified as follows: (A) We wish to advise you that we do not express any opinion with respect to: (1) the power or authority of the Lenders to make the loans contemplated by the Agreement; (2) compliance by the Lenders with any federal or state banking law, rule, regulation, or restriction; or (3) compliance by the Lenders with any federal, state, or foreign law, rule, regulation, or restriction which is or was required to be complied with by the Lenders (as opposed to compliance therewith by the Company) in order to enforce any rights or remedies of the Lenders under the Loan Documents. Accordingly, all of the foregoing opinions expressed by us are qualified to the extent set forth in the preceding sentence. (B) To the extent that the foregoing opinions are stated to be to the best of our knowledge, or relate to matters which are known to us, we have, with your consent, relied on one or more certificates of officers of the Company as to factual matters, and the absence of any contrary knowledge of those attorneys of our firm 97 103 familiar with the affairs of the Company, and we have neither independently investigated nor attempted to verify any of such matters. (C) We have made no examination of and express no opinion as to: (1) the right, title, or interest of any person to any property; (2) the accuracy or sufficiency of the description in the Loan Documents of any real or personal property; or (3) the existence of or freedom of any property from any liens, security interests, or other encumbrances. (D) Our opinions are subject to and affected by: (1) any bankruptcy, insolvency, avoidance, fraudulent conveyance, reorganization, moratorium, or similar laws affecting the rights and remedies of creditors generally; and (2) general principles of equity (whether considered in a proceeding in equity or at law). (E) We express no opinion as to whether a court would limit the exercise or enforcement of rights or remedies by the Lenders under the Loan Documents: (1) in the event of any default by the Company, if it is determined that such default is not material or if such exercise or enforcement is not reasonably necessary for the protection of the Lenders; or (2) if the exercise or enforcement thereof under the circumstances would violate an implied covenant of good faith and fair dealing. (F) Certain waivers and exculpatory clauses contained in the Loan Documents may be limited or unenforceable. (G) No opinion is expressed with respect to the validity or enforceability of those provisions of the Loan Documents which purport by their terms to relieve any party of, or to indemnify such party against, any liability for such party's own negligence, gross negligence, or willful misconduct, or to obligate the Company to bear the legal and other expenses of any other party. (H) We are authorized to practice law in Ohio, and no opinion is expressed herein other than as to the laws of the State of Ohio and federal law. With your permission, for purposes of the opinion set forth in paragraph 3, we have assumed that the substantive laws of the State of Ohio, except for conflict of laws principles, would govern the Loan Documents. In addition to the foregoing opinions, you have also requested our opinion regarding whether an Ohio court would enforce the "choice of law" provisions of the Loan Documents (the "CHOICE OF LAW PROVISIONS") against the Company. In Schulke Radio Prod. v. Midwestern Broadcast, 453 N.E. 2d 683 (Ohio 1983), the Ohio Supreme Court held that the rule set forth in the Restatement of Law 2d (1971) 561, Conflict of Laws, Section 187, is to be applied in determining whether or not a contractual choice of law provision will be enforced by an Ohio court. The relevant part of Section 187 is set forth below: (2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either 98 104 (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of Section 188, would be the state of the applicable law in the absence of an effective choice of law by the parties. In Schulke, the agreement at issue included a term providing that it was to be governed by New York law. One of the parties to the agreement was located in New York and executed the agreement in New York. In addition, performance under the agreement also took place in New York. Based upon the foregoing, the Ohio Supreme Court concluded that New York did bear a substantial relationship to the parties and the agreement. Schulke, 453 N.E. 2d 686. Similarly, Comment (f) to Section 187 of the Restatement states that a substantial relationship exists when the state of choice is where performance by one of the parties is to take place or where one of the parties has its principal place of business. In rendering the following opinion, we have assumed, with your approval and without independent verification, that the following facts and statements are true and accurate in all respects: (i) The Administrative Agent's principal office is located in Illinois; (ii) The terms of the Loan Documents were negotiated by certain representatives of the Administrative Agent from Illinois; (iii) The Loan Documents are being executed by certain of the Lenders in Illinois and are being delivered to Illinois; (iv) In selecting the laws of the State of Illinois to govern the Loan Documents, the parties acted in good faith and without an intent to evade the law; and (v) The application of the laws of the State of Illinois to the Loan Documents will not be contrary to any fundamental policy of any state which has a materially greater interest than the State of Illinois in the determination of any particular right, duty, or obligation of any party under the Loan Documents. Based upon the foregoing, and subject to the qualifications and assumptions set forth herein, we our of the opinion that it would be more likely than not that an Ohio court would enforce the Choice of Law Provisions based upon a determination by such court that the Loan Documents and the parties thereto have a substantial relationship with the State of Illinois. 99 105 The opinions set forth herein are given as of the date hereof, and we disclaim any obligation to notify you or any other person or entity if any change in fact or law, or both (whether statutory, regulatory, regulatory interpretation or judicial interpretation), should change our opinion with respect to any matter set forth herein. This opinion may be relied upon and is solely for the benefit of the Addressees at the beginning of this opinion (and also any Purchasers, but not any Participants), and it is not to be made available to or relied upon by any other party or communicated or disclosed to any other person without our prior written consent. Very truly yours, BAKER & HOSTETLER LLP By______________________________ Boyd Moehring, Partner 100 106 EXHIBIT B COMPLIANCE CERTIFICATE Date:_______________________________ _______________ The First National Bank of Chicago _______________ _______________ Dear __________: This notice serves to confirm that, to the best of my knowledge, Cardinal Health, Inc. (the "Company") has observed or performed in all material respects all of the covenants, conditions and agreements contained in the Five-Year Credit Agreement and the 364-Day Credit Agreement, each dated March __, 1999 and each among the Company, certain subsidiaries of the Company named therein, The First National Bank of Chicago, as Administrative Agent, and the lenders named therein. Detailed calculations are attached. In addition, please find enclosed a copy of our most recently filed Form 10-Q. Sincerely, _____________________________________________ [Chief Financial Officer/Controller/Treasurer] 101 107 Section 6.17, Minimum Net Worth. [INSERT CALCULATION] 102 108 EXHIBIT C ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between (the "Assignor") and (the "Assignee") is dated as of , 19. The parties hereto agree as follows: 1) PRELIMINARY STATEMENT. The Assignor is a party to a Five-Year Credit Agreement dated as of March ___, 1999 (the "Agreement") among the Company, the Subsidiary Borrowers, the Lenders named therein, and The First National Bank of Chicago, as Administrative Agent (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2) ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents, such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents relating to the facilities listed in Item 3 of Schedule 1. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3) EFFECTIVE DATE. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Administrative Agent) after this Assignment Agreement, together with any consents required under the Credit Agreement, are delivered to the Administrative Agent. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date are not made on the proposed Effective Date. 4) PAYMENT OBLIGATIONS. In consideration for the sale and assignment of Loans hereunder, the Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. On and after the Effective Date, the Assignee shall be entitled to receive from the Administrative Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee will promptly remit to the Assignor any interest on Loans and fees received from the Administrative Agent which 103 109 relate to the portion of the Commitment or Loans assigned to the Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee to the Assignor. In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 5) RECORDATION FEE. The Assignor and Assignee each agree to pay one-half of the recordation fee required to be paid to the Administrative Agent in connection with this Assignment Agreement unless otherwise specified in Item 6 of Schedule 1. 6) REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S LIABILITY. The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder, (ii) such interest is free and clear of any adverse claim created by the Assignor and (iii) the execution and delivery of this Assignment Agreement by the Assignor is duly authorized. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Company or any guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Company or any guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the property, books or records of the Company, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7) REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) confirms that the execution and delivery of this Assignment Agreement by the Assignee is duly authorized, (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (vi) agrees that its payment instructions and notice instructions are as set forth in the 104 110 attachment to Schedule 1, (vii) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement, and (ix) if applicable, attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes. 8) GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Illinois. 9) NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. 10) COUNTERPARTS; DELIVERY BY FACSIMILE. This Assignment Agreement may be executed in counterparts. Transmission by facsimile of an executed counterpart of this Assignment Agreement shall be deemed to constitute due and sufficient delivery of such counterpart and such facsimile shall be deemed to be an original counterpart of this Assignment Agreement. IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have executed this Assignment Agreement by executing Schedule 1 hereto as of the date first above written. 105 111 SCHEDULE 1 TO ASSIGNMENT AGREEMENT 1) Description and Date of Credit Agreement: 2) Date of Assignment Agreement: , 19 3) Amounts (As of Date of Item 2 above):
Facility Facility Facility Facility 1* 2* 3* 4* -------- -------- -------- -------- a. Assignee's percentage of each Facility purchased under the Assignment Agreement ***, **** ____% ____% ____% ____% b. Amount of each Facility purchased under the Assignment Agreement ***, ****t $____ $____ $____ $____ --------------------------------------------------------------------------------
4) Assignee's Commitment (or Loans with respect to terminated Commitments) purchased hereunder: $_________________________________ 5) Proposed Effective Date: ___________________________ N/A 6) Non-standard Recordation Fee Arrangement [Assignor/Assignee to pay 100% of fee] [Fee waived by Administrative Agent] Accepted and Agreed: 106 112 [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By:__________________________ By:________________________ Title:_______________________ Title:_____________________ ACCEPTED AND CONSENTED TO BY: ACCEPTED AND CONSENTED TO BY [NAME OF COMPANY] [NAME OF AGENT] By:__________________________ By:________________________ Title:_______________________ Title:_____________________ * Insert specific facility names per Credit Agreement ** Percentage taken to 10 decimal places *** If fee is split 50-50, pick N/A as option **** Assignments must be pro rata 107 113 Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT ADMINISTRATIVE INFORMATION SHEET Attach Assignor's Administrative Information Sheet, which must include notice addresses for the Assignor and the Assignee (Sample form shown below) ASSIGNOR INFORMATION CONTACT: Name:_________________________________ Telephone No.:________________ Fax No.:______________________________ Telex No.:____________________ Answerback:___________________ PAYMENT INFORMATION: Name & ABA # of Destination Bank:______________________________________ ________________________________________________________________________________ Account Name & Number for Wire Transfer:_______________________________ ________________________________________________________________________________ Other Instructions:____________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Address for Notices for Assignor:______________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ASSIGNEE INFORMATION CREDIT CONTACT: Name:_________________________________ Telephone No.:________________ 108 114 Fax No.:______________________________ Telex No.:____________________ Answerback:___________________ KEY OPERATIONS CONTACTS: Booking Booking Installation:_________________________ Installation:_________________ Name:_________________________________ Name:_________________________ Telephone No.:________________________ Telephone No.:________________ Fax No.:______________________________ Fax No.:______________________ Telex No.:____________________________ Telex No.:____________________ Answerback:___________________________ Answerback:___________________ PAYMENT INFORMATION: Name & ABA # of Destination Bank:______________________________________ ________________________________________________________________________________ Account Name & Number for Wire Transfer:_______________________________ ________________________________________________________________________________ Other Instructions:____________________________________________________ ________________________________________________________________________________ Address for Notices for Assignee:______________________________________ ________________________________________________________________________________ 109 115 EXHIBIT D LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent") under the Credit Agreement Described Below. Re: Credit Agreement, dated March __, 1999 (as the same may be amended or modified, the "Credit Agreement"), among Cardinal Health, Inc. (the "Company"), the Lenders named therein and the Administrative Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. The Administrative Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Administrative Agent of a specific written revocation of such instructions by the Company, provided, however, that the Administrative Agent may otherwise transfer funds as hereafter directed in writing by the Company in accordance with Section 13.1 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.14 of the Credit Agreement. Facility Identification Number(s)______________________________________ Customer/Account Name__________________________________________________ Transfer Funds To______________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ For Account No.________________________________________________________ Reference/Attention To_________________________________________________ Authorized Officer (Customer Representative) Date __________________________________ _______________________ (Please Print) Signature Bank Officer Name Date __________________________________ _______________________ (Please Print) Signature 110 116 EXHIBIT E NOTE [Date] Cardinal Health, Inc., an Ohio corporation (the "Borrower"), promises to pay to the order of ____________________________________ (the "Lender") the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Agreement (as hereinafter defined), in immediately available funds at the place specified pursuant to Article II of the Agreement together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Five-Year Credit Agreement dated as of March 31, 1999 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and The First National Bank of Chicago, as Administrative Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is guaranteed pursuant to the Guaranty, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. By:___________________________ Print Name:___________________ Title:________________________ 111 117 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF ______________, DATED ______________,
Date Principal Maturity of Principal Unpaid Amount of Loan Interest Period Amount Paid Balance - ------------------------------------------------------------------------------------------------------------------------
112 118 SCHEDULE 1 SUBSIDIARIES AND OTHER INVESTMENTS (SEE SECTIONS 5.8 AND 6.12)
- --------------------------------------------------------------------------------------------------------------------- NAME 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 - ---------------------------------------------------------------------------------------------------------------------
113 119
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------
114 120
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------
115 121
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------
116 122
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- 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 Canada - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer Corporation Delaware - --------------------------------------------------------------------------------------------------------------------- F & F Holding GmbH Germany - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer GmbH Germany - --------------------------------------------------------------------------------------------------------------------- Allcaps Weichgelatinekapseln GmbH Germany - --------------------------------------------------------------------------------------------------------------------- Gelatine Products International Delaware - ---------------------------------------------------------------------------------------------------------------------
117 123
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- 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 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 K.K. Japan - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer Korea Limited Korea - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer Production S.A. France - ---------------------------------------------------------------------------------------------------------------------
118 124
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer S.A. France - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer S.p.A. Italy - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer DDS BV Holland - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer Pharmaceutical, Inc. New Jersey - --------------------------------------------------------------------------------------------------------------------- RPS Technical Services, Inc. Delaware - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer Verwaltungs GmgH Germany - --------------------------------------------------------------------------------------------------------------------- Allcaps Wichgelatinekapseln Verwaltungs GmbH Germany - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer International (FSC), Ltd. Barbados - --------------------------------------------------------------------------------------------------------------------- R.P. Scherer (Spain) SA Spain - --------------------------------------------------------------------------------------------------------------------- The LVC Corporation Missouri - --------------------------------------------------------------------------------------------------------------------- RedKey, Inc. Ohio - --------------------------------------------------------------------------------------------------------------------- Solomons Company Georgia - --------------------------------------------------------------------------------------------------------------------- Whitmire Distribution Corporation Delaware - ---------------------------------------------------------------------------------------------------------------------
119 125
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- Williams Drug Distributors, Inc. Delaware - --------------------------------------------------------------------------------------------------------------------- Allegiance Corporation Delaware - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Corporation Delaware - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Foreign Sales Corporation Barbados - --------------------------------------------------------------------------------------------------------------------- West Hudson, Inc. Nevada - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare International, Inc. Delaware - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Canada Inc. Canada - --------------------------------------------------------------------------------------------------------------------- Source Medical, Inc. Canada - --------------------------------------------------------------------------------------------------------------------- Cirmex de Chihuahua S.A. de C.V. Mexico - --------------------------------------------------------------------------------------------------------------------- Cirpro de Delicias S.A. de C.V. Mexico - --------------------------------------------------------------------------------------------------------------------- Convertors de Mexico S.A. de C.V. Mexico - --------------------------------------------------------------------------------------------------------------------- Productos Urologos de Mexico S.A. de C.V. Mexico - --------------------------------------------------------------------------------------------------------------------- Quiroproductos de Cuauhtemoc S.A. de C.V. Mexico - ---------------------------------------------------------------------------------------------------------------------
120 126
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- Dutch American Manufacturers (D.A.M.) B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Holding B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Deutschland Holding GmbH Germany - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Deutschland GmbH Germany - --------------------------------------------------------------------------------------------------------------------- International Medical Produces (Deutschland) GmbH Germany - --------------------------------------------------------------------------------------------------------------------- Surgi-Tech Deutschland GmbH Germany - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare GmbH Switzerland - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Limited United Kingdom - --------------------------------------------------------------------------------------------------------------------- Allegiance Industries Sdn. Bhd. New Synthetics Company Malaysia - --------------------------------------------------------------------------------------------------------------------- Allegiance International Manufacturing B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Allegiance Medica S.R.L. Italy - --------------------------------------------------------------------------------------------------------------------- Allegiance S.L. Spain - --------------------------------------------------------------------------------------------------------------------- Allegiance S.P.R.L. Belgium - ---------------------------------------------------------------------------------------------------------------------
121 127
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- Allegiance Sante S.A. France - --------------------------------------------------------------------------------------------------------------------- International Medical Products Group B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- International Medical Products Holding B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- International Medical Products, B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Medpro Medische Produkten B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- SOHO Disposables B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Surgical Technologies Europa B.V. Netherlands - --------------------------------------------------------------------------------------------------------------------- Surgi-Tech Europa Divisione Surgi-Tech Italia S.R.L. Italy - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare (Thailand) Ltd. Thailand - --------------------------------------------------------------------------------------------------------------------- Allegiance Healthcare Sdn. Bhd. Malaysia - --------------------------------------------------------------------------------------------------------------------- Allegiance International GmbH Austria - --------------------------------------------------------------------------------------------------------------------- Allegiance International Manufacturing (Bermuda) Ltd. Bermuda - ---------------------------------------------------------------------------------------------------------------------
122 128
- --------------------------------------------------------------------------------------------------------------------- NAME JURISDICTION OF INCORPORATION - --------------------------------------------------------------------------------------------------------------------- Bauer Branch Dominican Republic - --------------------------------------------------------------------------------------------------------------------- Converters Branch Dominican Republic - --------------------------------------------------------------------------------------------------------------------- Eurovac Limited Malta - ---------------------------------------------------------------------------------------------------------------------
123 129 SCHEDULE 3 EUROCURRENCY PAYMENT OFFICES OF THE AGENT Currency Eurocurrency Payment Office -------- --------------------------- Dollars The First National Bank of Chicago Detroit, Michigan British Pounds Sterling The First National Bank of Chicago London Branch Euros The First National Bank of Chicago London Branch ----------------------- ---------------------------------- 124 130 SCHEDULE 4 LENDING INSTALLATIONS
Lender Floating Rate Loans Eurocurrency Loans (list all) - ------ ------------------- ----------------------------- The First National Bank of Chicago The First National Bank of Chicago, The First National Bank of Chicago, Detroit, Michigan Detroit, Michigan The First National Bank of Chicago, London Branch (for Multicurrency Loans) Bank of America NT & SA Bank of America London (for Pounds Sterling) Citicorp USA Inc. Citibank London (for Euro) Citibank Frankfurt (for German Marks) Citibank London (for Pounds Sterling) Citibank New York (for Canadian Dollars) Citibank Sydney (for Australian Dollars) Citibank Paris (for French Francs) Citibank Milan (for Italian Lira) Barclays Bank PLC Barclays Bank PLC London (for Pounds Sterling) Deutsche Bank AG - New York Branch a/o Deutsche Bank AG - London (for Pounds Sterling) Cayman Islands Branch Bank of Montreal Bank of Montreal - London (for Pounds Sterling) Banca Commerciale Italiana - Chicago Banca Commerciale Italiana - London Branch (for Pounds Sterling)
125 131 SCHEDULE 5 ALTERNATE CURRENCY COMMITMENT 126 132 SCHEDULE 6 MULTICURRENCY COMMITMENT
Commitments Lender Multi Currency Dollar ------ -------------- ------ The First National Bank of Chicago $25,000,000 $40,625,000 Bank of America NT & SA $25,000,000 $36,875,000 CITICORP USA, INC. $25,000,000 $36,875,000 Barclays Bank PLC $25,000,000 $14,375,000 Deutsche Bank AG $25,000,000 $14,375,000 Bank of Montreal $15,000,000 $ 9,000,000 Banca Commerciale Italiana $10,000,000 $14,000,000
127 133 SCHEDULE 7 LITIGATION AND CONTINGENT OBLIGATIONS 128 134 EXHIBIT F SWINGLINE NOTE March __, 1999 ---------, ------------ FOR VALUE RECEIVED, CARDINAL HEALTH INC., an Ohio corporation (the "Borrower"), hereby unconditionally promises to pay to the order of The First National Bank of Chicago (the "Lender"), at the principal banking office of the Administrative Agent in lawful money of the United States of America and in immediately available funds, the unpaid principal amount of the Swingline Loans as evidenced by the books and records of the Lender, on the Facility Termination Date or such earlier date as the Lender may require under the Credit Agreement referred to below, when the entire outstanding principal amount of the Swingline Loans evidenced hereby, and all accrued interest thereon, shall be due and payable; and to pay interest on the unpaid principal balance hereof from time to time outstanding, in like money and funds, for the period from the date hereof until the Swingline Loans evidenced hereby shall be paid in full, at the rates per annum on and the dates provided in the Credit Agreement referred to below. The Lender is hereby authorized by the Borrower to record on its books and records the date, currency and the amount of each Swingline Loan, the applicable interest rate, the amount of each payment or prepayment of principal thereon, and the other information provided for in such books and records, which books and records shall constitute prime facie evidence of the information so recorded, provided, however, that any failure by the Lender to record any such notation shall not relieve the Borrower of its obligation to repay the outstanding principal amount of this Swingline Note, all accrued interest hereon and any amount payable with respect hereto in accordance with the terms of this Swingline Note and the Credit Agreement. The Borrower waives presentment, protest, notice of dishonor and any other formality in connection with this Swingline Note. Should the indebtedness evidenced by this Swingline Note or any part thereof be collected in any proceeding or be placed in the hands of attorneys for collection, the Borrower agrees to pay, in addition to the principal, interest and other sums due and payable hereon, all costs of collecting this Swingline Note, including reasonable attorneys' fees and expenses. This Swingline Note evidences Swingline Loans made under a Five-Year Credit Agreement, dated as of March 31, 1999 (as amended or modified from time to time, the "Credit Agreement"), by and among the Borrower, the Lenders (including the Lender) named therein and The First National Bank of Chicago, as Administrative Agent for the Lenders, to which reference is hereby made for a statement of the circumstances under which this Swingline Note is subject to prepayment and under which its due date may be accelerated. Capitalized terms used but not defined in this Swingline Note shall have the respective meanings assigned to them in the Credit Agreement. This Swingline Note is made under, and shall be governed by and construed in accordance with, the Laws of the State of Illinois in the same manner applicable to contracts 129 135 made and to be performed entirely within such State and without giving effect to choice of law principles of such State. CARDINAL HEALTH INC. By:___________________________ Its: 130 EX-16.01 14 EXHIBIT 16.01 1 Exhibit 16.01 Securities and Exchange Commission Mail Stop 11-3 450 5th Street, N.W. Washington, D.C. 20549 Dear Sir/Madams: We have read and agree with the comments in Item 9 of this Annual Report on Form 10-K of Cardinal Health, Inc. for the year ended June 30, 1999. Yours Truly, /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio September 2, 1999 EX-16.02 15 EXHIBIT 16.02 1 Exhibit 16.02 September 1, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Commissioners: We have read the statements made by Cardinal Health, Inc. which we understand will be filed with Commission, pursuant to Item 304 of Regulation S-K, as part of the Company's Form 10-K report dated June 30, 1999. We agree with the statements concerning our Firm in such Form 10-K. Yours truly yours, /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP EX-21.01 16 EXHIBIT 21.01 1 EXHIBIT 21.01 SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Allegiance Corporation Delaware Allegiance Healthcare Corporation Delaware Pacific Surgical Innovations, Inc. California Surgical Enterprises Corp. California Surgical Instrument Repair Service, LLC Michigan Procedure-Based Instrument Services, LLC(1) Michigan Surgical CaRepair, LLC(2) Michigan West Hudson, Inc. Nevada Allegiance Healthcare International, Inc. Delaware Allegiance Healthcare Foreign Sales Corporation Barbados Allegiance Healthcare Canada Inc. Canada Source Medical, Inc.(3) Canada Cardinal Health International Ventures, Limited Barbados Cirmex de Chihuahua S.A. de C.V. Mexico Cirpro de Delicias S.A. de C.V. Mexico Convertors de Mexico S.A. de C.V. Mexico Dutch American Manufacturers (D.A.M.) B.V. Netherlands Allegiance Healthcare Holding B.V. Netherlands Allegiance Healthcare Deutschland GmbH Germany
- -------------------------------------------------------------------------------- 1 25% owned by Allegiance Healthcare Corporation; 75% owned by Surgical Instrument Repair Service, LLC. 2 The company is owned 7.25% by Allegiance Healthcare Corporation and 63.75% by Surgical Instrument Repair Service, LLC. 3 Source Medical, Inc. is controlled by Allegiance Healthcare Canada Inc. with 50% of the common shares and 100% of preferred shares (1 share). 2
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Allegiance Healthcare GmbH Switzerland Allegiance International Manufacturing B.V. Netherlands Allegiance S.L. Spain Allegiance Sante S.A. France International Medical Products Group B.V. Netherlands Allegiance Healthcare International GmbH Austria Allegiance Healthcare Sdn. Bhd. Malaysia Eurovac Limited Malta Productos Urologos de Mexico S.A. de C.V. Mexico Quiroproductos de Cuauhtemoc S.A. de C.V. Mexico C. International, Inc. Ohio C.H. InnoSol, Inc. Ohio The Enright Group, Inc. Virginia Cardal, Inc. Ohio Cardinal Health Capital Corporation Ohio Cardinal Health Holding International, Inc. New Jersey CAH Holdings I B.V. Netherlands Pharmaceutical Packaging Specialties, Inc. Puerto Rico Cardinal Health Systems, Inc. Ohio Cardinal Southeast, Inc. Mississippi Renlar Systems, Inc. Kentucky Cardinal Syracuse, Inc. New York CORD Logistics, Inc. Ohio
3
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Comprehensive Reimbursement Consultants, Inc. Minnesota James W. Daly, Inc. Massachusetts Leader Drugstores, Inc. Delaware Marmac Distributors, Inc.(4) Connecticut Medical Strategies, Inc. Massachusetts Medicine Shoppe International, Inc. Delaware Medicine Shoppe Capital Corporation Nevada Pharmacy Operations of New York, Inc. New York Pharmacy Operations, Inc. Delaware Medicine Shoppe Internet, Inc. Missouri 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.(5) Delaware Owen Healthcare, Inc.(6) Texas PCI Services, Inc. Delaware Packaging Coordinators, Inc. Pennsylvania Packaging Coordinators Incorporated, Caribe Delaware
- -------------------------------------------------------------------------------- 4 84.50% owned by Cardinal Health, Inc.; 15.50% owned by James W. Daly, Inc. 5 88.59% owned by Cardinal Health, Inc.; 11.41% owned by Williams Drug Distributors, Inc. 6 98.42% owned by Cardinal Health, Inc.; 1.58% owned by Allied Healthcare Services, Inc. 4
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- PCI/Delvco, Inc. Delaware PCI/Tri-Line (USA), Inc. Delaware The Tri-Line Co., Inc. Delaware PCI/Allpack Holdings, Inc. Delaware PCI Acquisition I, Inc. Delaware PCI Acquisition II, Inc. Delaware Phillipi Holdings, Inc. Ohio Pyxis Corporation Delaware Pyxis Capital Corporation Nevada Pyxis Healthcare Systems, Inc. Canada R.P. Scherer Corporation Delaware Cardinal Health Holding Ltd.(7) United Kingdom Allegiance Healthcare Ltd. United Kingdom PCI Holdings (UK) Co. United Kingdom Unipack, Ltd. United Kingdom R.P. Scherer Holdings Limited United Kingdom R. P. Scherer Limited United Kingdom Scherer DDS Limited United Kingdom Cardinal Health GbR(8) Germany Cardinal Health Holdings GmbH Germany F&F Holding GmbH Germany R.P. Scherer GmbH & Co. KG(9) Germany
- -------------------------------------------------------------------------------- 7 14.5% owned by PCI Acquisition I, Inc. and PCI Acquisition II, Inc. each; 71% by R. P. Scherer Corporation 8 89.5% owned by R. P. Scherer Corporation; 10% owned by PCI Services, Inc.; 0.5% owned by the Griffin Group. 9 50.094% owned by F & F Holdings GmbH; 0.11% owned by R. P. Scherer Verwaltungs GmbH. 5
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Allcaps Weichgelatinkapseln GmbH & Co. KG(10) Germany Allcaps Weichgelatinkapseln Verwaltungs GmbH Germany R.P. Scherer Betieligungs GmbH Germany R.P. Scherer (Spain) S.A. Spain R.P. Scherer Verwaltungs GmbH(11) Germany PCI allpack GmbH(12) Germany Gelatin Products International, Inc. Delaware R.P. Scherer Argentina S.A.I.C.(13) Argentina Vivax Interamericana S.A.(14) Argentina R.P. Scherer Canada Inc. Canada R.P. Scherer do Brasil Encapsulacoes, Ltda. Brazil R.P. Scherer Egypt(15) Egypt R.P. Scherer (Europe) AG(16) Switzerland R.P. Scherer Hardcapsule (West) Utah R.P. Scherer Holdings Pty. Ltd. Australia R.P. Scherer Pty. Limited Australia R.P. Scherer International (FSC) Limited Barbados R.P. Scherer K.K. Limited(17) Japan R.P. Scherer Korea Limited(18) Korea
- -------------------------------------------------------------------------------- 10 99.9% owned by R. P. Scherer GmbH & Co. KG; 0.1% owned by Allcaps Weichgelatinkapseln Verwaltungs GmbH. 11 51% owned by F&F Holdings GmbH. 12 90% owned by Cardinal Health Holdings GmbH; 10% owned by PCI Services, Inc. 13 99.91% owned by R.P. Scherer Corporation. 14 98.125% owned by R.P. Scherer Argentina S.A.I.C.; 1.875% owned by R.P. Scherer Corporation. 15 R.P. Scherer Corporation has a 10% ownership interest. 16 75% owned by R. P. Scherer Corporation; 25% owned by F & F Holdings GmbH. 17 R.P. Scherer Corporation has a 60% ownership interest. 6
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- R.P. Scherer Inc. New Jersey R.P. Scherer S.A.(19) France R.P. Scherer S.p.A.(20) Italy RPS Technical Services, Inc.(21) Delaware R.P. Scherer DDS B.V. Netherlands Scherer Production S.A. France The LVC Corporation Missouri RedKey, Inc. Ohio The Griffin Group, Inc. Nevada Allied Healthcare Services, Inc. Nevada American Medical Insurance Billing Services, Inc. Georgia Axiom Healthcare Services Pty. Ltd.(22) Australia Brighton Capital, Inc. Nevada Redwing Data Corporation Nevada Cardinal West, Inc. Nevada Cascade Development, Inc. Nevada CDI Investments, Inc. Delaware Griffin Capital Corporation Nevada Meditrol, Inc. Nevada Meditrol Automation Systems, Inc. Texas
- -------------------------------------------------------------------------------- 18 R.P. Scherer Corporation has a 50% ownership interest. 19 50% owned by R. P. Scherer Corporation; 40% owned by R. P. Scherer GmbH; 5% owned by F & F Holdings GmbH; 5% owned by individuals. 20 90% owned by R. P. Scherer Corporation; 10% owned by R. P. Scherer GmbH. 21 60% owned by R. P. Scherer Corporation; 40% owned by R. P. Scherer Canada Inc. 22 An Australian joint venture in which The Griffin Group, Inc. has a 50% ownership interest. 7
SUBSIDIARY NAME STATE/JURISDICTION OF INCORPORATION - --------------- ----------------------------------- Cardinal Health International Ventures, Limited Bermuda Pinnacle Intellectual Property Services, Inc. Nevada Pinnacle Intellectual Property Services International, Inc. Nevada ScriptLINE, Inc. Nevada Whitmire Distribution Corporation Delaware Williams Drug Distributors, Inc. Delaware
EX-23.01 17 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, Registration Statement No. 333-74761 of Cardinal Health, Inc. on Form S-4 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, No. 333-56655-01, No. 333-72727, No. 333-71727 and No. 333-68819-01 of Cardinal Health, Inc. on Form S-8 of our report dated August 10, 1999, appearing in this Annual Report on Form 10-K of Cardinal Health, Inc. for the year ended June 30, 1999. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbus, Ohio August 31, 1999 EX-23.02 18 EXHIBIT 23.02 1 EXHIBIT 23.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report with respect to R.P. Scherer Corporation dated August 9, 1999 included in this Form 10-K and to the incorporation by reference in Registration Statement No. 333-24483 of Cardinal Health, Inc. on Form S-3, Registration Statement No. 333-74761 of Cardinal Health, Inc. on Form S-4 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, No. 333-56655-01, No. 333-72727, No. 333-71727 and No. 333-68819-01 of Cardinal Health, Inc. on Form S-8 and to all references to our Firm included in this Form 10-K. /s/ Arthur Andersen LLP Arthur Andersen LLP Detroit, Michigan August 30, 1999. EX-23.03 19 EXHIBIT 23.03 1 Exhibit 23.03 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in Registration Statement No. 333-24483 of Cardinal Health, Inc. on Form S-3, Registration Statement No. 333-74761 of Cardinal Health, Inc. on form S-4 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, No. 333-56655-01, No. 333-72727, No. 333-71727 and No. 333-68819-01 of Cardinal Health, Inc. on Form S-8 of our report dated July 29, 1999, relating to the Allegiance Corporation consolidated financial statements, which appears in the Cardinal Health, Inc. Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated July 29, 1999 relating to the financial statement schedules, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chicago, Illinois August 31, 1999 EX-27.01 20 EXHIBIT 27.01
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S FORM 10-K FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 165 0 1,590 (54) 2,931 5,147 2,748 (1,208) 8,289 2,959 1,224 0 0 1,090 2,373 8,289 25,034 25,034 22,449 22,449 1,565 0 (99) 759 303 456 0 0 0 456 1.68 1.64
EX-99.01 21 EXHIBIT 99.01 1 EXHIBIT 99.01 The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for "forward-looking statements" (as defined in the Act). The Company's Form 10-K, the Company's Annual Report to Shareholders, any Form 10-Q or any Form 8-K of the Company, the Company's press releases, 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 first 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, such as pharmaceutical and medical/surgical manufacturers for which alternative supplies may not be available; - - the malfunction or failure of our information systems or those of third parties with whom we do business, such as malfunctions or failures associated with Year 2000 readiness problems or otherwise; - - the costs and 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 our independent auditors or the staff of the SEC; - - changes in the distribution or outsourcing pattern for pharmaceutical and medical/surgical products and services, including an increase in direct distribution or a decrease in contract packaging by pharmaceutical manufacturers; - - changes in government regulations or our failure to comply with those regulations; - - the costs and other effects of legal and administrative proceedings; - - injury to person or property resulting from our manufacturing, packaging, repackaging, drug delivery system development and manufacturing, or pharmacy management services; - - competitive factors in our healthcare service businesses, including pricing pressures; - - unforeseen changes in our existing agency and distribution arrangements; - - the continued financial viability and success of our customers, suppliers, and franchisees; - - difficulties encountered by our competitors, whether or not we face the same or similar issues; - - 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 currency exchange ratios and implementation of the Euro currency; - - successful challenges to the validity of our patents, copyrights or trademarks; - - difficulties or delays in the development, production, manufacturing, and marketing of new products and services; - - strikes or other labor disruptions; - - labor and employee benefit costs; - - pharmaceutical and medical/surgical manufacturers' pricing policies and overall drug price inflation; - - changes in hospital buying groups or hospital buying practices; and - - other factors described in this Form 10-K or the documents we file with the SEC. The words "believe", "expect", "anticipate", "project", and similar expressions 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-----