<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-12525
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ALLEGIANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5047 36-4095179
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1430 WAUKEGAN ROAD
MCGAW PARK, ILLINOIS 60085
(847) 689-8410
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WILLIAM L. FEATHER
SENIOR VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
ALLEGIANCE CORPORATION
1430 WAUKEGAN ROAD
MCGAW PARK, ILLINOIS 60085
(847) 689-8410
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
SCOTT N. GIERKE, P.C. ROBERT RISOLEO, ESQ.
MCDERMOTT, WILL & EMERY SULLIVAN & CROMWELL
227 WEST MONROE STREET 125 BROAD STREET
CHICAGO, ILLINOIS 60606-5096 NEW YORK, NEW YORK 10004
(312) 984-7521 (212) 558-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
$500,000,000
[LOGO] ALLEGIANCE CORPORATION
$200,000,000 % NOTES DUE , 2006
$150,000,000 % DEBENTURES DUE , 2016
$150,000,000 % DEBENTURES DUE , 2026
Interest on the % Notes due , 2006, the % Debentures due
, 2016 and the % Debentures due , 2026 (the Notes and the
Debentures collectively, the "Securities") is payable on and
of each year, commencing , 1997. The holder of each 2026
Debenture may elect to have that 2026 Debenture, or any portion of the principal
amount thereof that is a multiple of $1,000, repaid on , 2003 at
100% of the principal amount thereof, together with accrued interest to
, 2003. Such election, which is irrevocable when made, must be made
within the period commencing on , 2003 and ending at the close of
business on , 2003. The Securities are not redeemable at the option
of the Company prior to maturity and are not entitled to the benefit of any
sinking fund. The Securities are unsecured obligations of the Company and will
rank PARI PASSU with each other and with all other unsecured and unsubordinated
indebtedness of the Company.
Each series of the Securities will be represented by one or more global
Securities registered in the name of the nominee of The Depository Trust Company
("DTC"). Beneficial interests in the global Securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as described herein, Securities in definitive form will
not be issued. The Securities will be issued only in registered form in
denominations of $1,000 and integral multiples thereof. See "Description of
Securities."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per % Note due 2006....................... % % %
Total........................................ $ $ $
Per % Debenture due 2016.................. % % %
Total........................................ $ $ $
Per % Debenture due 2026.................. % % %
Total........................................ $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $650,000 payable by the Company.
The Securities offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
Securities will be ready for delivery in book-entry form only through the
facilities of DTC in New York, New York, on or about , 1996, against
payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SMITH BARNEY INC.
BA SECURITIES, INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC CAPITAL MARKETS, INC.
--------------
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
Allegiance has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, as amended and the rules promulgated thereunder (the
"Securities Act"), for the registration of the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information in the Registration Statement certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the related exhibits
and schedules filed by Allegiance with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional
Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such information may be obtained by mail from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, electronic copies of the
Registration Statement and all related exhibits and schedules may be accessed on
the world wide web via the Commission's EDGAR database at its website
(http://www.sec.gov). In addition, the common stock of Allegiance is listed on
the New York Stock Exchange and materials filed by Allegiance after September
30, 1996 can be inspected at the office of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Allegiance is subject to the informational and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected at the public reference facilities and website maintained by the
Commission that are referenced in the above paragraph.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF EACH SERIES OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
PROSPECTUS SUMMARY
REFERENCE IS MADE TO, AND THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
THE CONTEXT REQUIRES OTHERWISE, (I) "ALLEGIANCE" OR THE "COMPANY" REFERS TO THE
ALLEGIANCE BUSINESS (AS DEFINED BELOW) OF BAXTER INTERNATIONAL INC. ("BAXTER")
FOR PERIODS PRIOR TO SEPTEMBER 30, 1996 (THE "DISTRIBUTION DATE") AND ALLEGIANCE
CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES FOR THE PERIODS ON AND AFTER THE
DISTRIBUTION DATE, (II) ALL REFERENCES TO "BAXTER" INCLUDE BAXTER INTERNATIONAL
INC. AND ITS CONSOLIDATED SUBSIDIARIES AS OF THE RELEVANT DATE, AND (III)
"OFFERING" REFERS TO THE OFFERING OF $200,000,000 MILLION AGGREGATE PRINCIPAL
AMOUNT OF THE COMPANY'S % NOTES DUE , 2006 (THE "NOTES"),
$150,000,000 MILLION AGGREGATE PRINCIPAL AMOUNT OF THE COMPANY'S %
DEBENTURES DUE , 2016 (THE "2016 DEBENTURES") AND $150,000,000
MILLION AGGREGATE PRINCIPAL AMOUNT OF THE COMPANY'S % DEBENTURES DUE
, 2026 (THE "2026 DEBENTURES" AND TOGETHER WITH THE NOTES AND THE 2016
DEBENTURES, THE "SECURITIES"). SEE "COMPANY BACKGROUND."
THE COMPANY
Allegiance Corporation is America's largest provider of health-care products
and cost-management services for hospitals and other health-care providers, with
recorded total sales of approximately $4.5 billion in 1995. Allegiance offers
more than 200,000 products -- the broadest range of medical and laboratory
products in the industry. Allegiance's offering includes its own products as
well as products manufactured by more than 2,000 independent suppliers.
Allegiance operates more than 60 distribution centers across the country,
delivering products often on a just-in-time basis.
The economics of health care are undergoing rapid and fundamental change,
particularly in the United States, which is Allegiance's largest current market.
In the past, doctors and nurses were paid for their services with few cost
constraints. Today, large employers, insurance companies and HMOs are
negotiating set fees for the care of patients. For U.S. hospitals and health
systems, Allegiance's main customers, the pressure to reduce costs has never
been greater. At the same time, demand for health services is continuing to
climb with the dramatic growth of elderly populations in the United States and
abroad. This environment offers opportunities for Allegiance, which has invested
in integrated product and service programs that help medical professionals cope
with health care's new economics and demographic trends. Management believes
Allegiance, with its size, breadth of product line, customer relationships,
growing array of cost-management services and financial strength, is
well-positioned competitively for the increasingly cost-conscious health-care
marketplace.
The health-care distribution market in the United States has experienced
intense competition and a resultant erosion in its margins in recent years in
response to the growth of managed care and increased consolidation among
health-care providers. Allegiance has responded by integrating its
market-leading distribution capabilities with a broad product offering, high
levels of customer service and innovative cost-management services. Within a
larger Baxter organization, Allegiance's cost structure was higher than industry
standards. As an independent public company, Allegiance intends to realign its
cost structure, and improve returns from its distribution operations.
Allegiance's mission is to align its objectives with those of its customers
- -- to help hospitals and others throughout the health-care field fulfill their
mission of serving patients. Allegiance intends to achieve this goal by
providing high-quality products, excellent service and new ways of managing
costs. Allegiance's leading competitive position within the health-care
marketplace is a function of several key advantages, including its size and
breadth of products; an intense customer-service orientation; a growing
portfolio of cost-management services and financial strength. Allegiance is the
only health-care company that fully integrates distribution, products and
services to bring greater efficiency to health care. Management believes its key
competitive advantages and integrated product and service offerings provide a
solid platform for growth.
3
<PAGE>
Allegiance's strategy is designed to continue to improve efficiency and
returns in its distribution operations, to increase market penetration for its
self-manufactured and "best value" preferred distributed products, and to expand
its ability to help health-care professionals manage costs.
Allegiance was formed in June 1996 as a wholly owned subsidiary of Baxter
consisting of Baxter's U.S. distribution, surgical and respiratory-therapy
products, and health-care cost-management services operations (the "Allegiance
Business"). These integrated businesses recorded total sales of approximately
$4.5 billion in 1995. On September 30, 1996 (the "Distribution Date"), Baxter
effected a spin-off of Allegiance through a distribution of all of the
outstanding shares of common stock of Allegiance ("Allegiance Stock") to Baxter
stockholders. Prior to the Distribution Date, Allegiance became the owner of all
of the assets, liabilities and operations of the Allegiance Business.
RISK FACTORS
Prospective purchasers of the Securities offered hereby should consider
carefully the information set forth under "Risk Factors," in addition to the
other information set forth in this Prospectus, before purchasing any of the
Securities.
THE OFFERING
<TABLE>
<CAPTION>
Securities Offered........................... $200,000,000 aggregate principal amount of
Notes, $150,000,000 aggregate principal
amount of 2016 Debentures and $150,000,000
aggregate principal amount 2026 Debentures.
<S> <C>
Interest..................................... Interest on the Notes, the 2016 Debentures
and the 2026 Debentures is payable
semiannually on and
of each year, commencing
, 1997, at an annual rate of %
for the Notes, % for the 2016 Debentures
and % for the 2026 Debentures.
Repayment.................................... The holder of each 2026 Debenture may elect
to have that 2026 Debenture, or any portion
of the principal amount thereof that is a
multiple of $1,000, repaid on
,2003 at 100% of the principal
amount thereof, together with accrued
interest to ,2003. Such
election, which is irrevocable when made,
must be made within the period commencing on
,2003 and ending at the close of
business on , 2003. The Notes
and the 2016 Debentures are not subject to
repayment at the option of their holders.
Redemption................................... The Securities are not subject to redemption
at the option of the Company prior to
maturity.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Ranking...................................... The Securities will be unsecured obligations
of the Company and will rank PARI PASSU with
each other and with all other unsecured and
unsubordinated debt of the Company. As of
September 30, 1996, the Company had no
outstanding indebtedness that would in
effect rank ahead of the Securities. See
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital
Resources."
Certain Restrictive Covenants................ The Indenture under which each series of the
Securities is to be issued contains a
limited number of restrictive covenants
regarding, among other things, the creation
and existence of additional secured
indebtedness; sale and leaseback
transactions; subsidiary debt; and mergers,
consolidation and certain sales of assets.
See "Description of Securities."
Use of Proceeds.............................. All of the net proceeds from the sale of the
Securities will be used to reduce amounts
outstanding under the Company's $1.2 billion
credit facility. See "Use of Proceeds."
</TABLE>
5
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information with respect
to Allegiance. Selected unaudited historical financial information for the six
months ended June 30, 1996 and 1995 includes all adjustments, consisting only of
normal recurring accruals that are considered necessary for a fair presentation
of combined operating results for such interim periods. Results for the interim
periods are not necessarily indicative of results for the full year. Historical
financial information may not be indicative of Allegiance's performance as an
independent company. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Combined Financial Statements" and related
notes thereto found elsewhere in this Prospectus. Historical per share data for
net income and dividends, and the ratio of earnings to fixed charges have not
been presented because Allegiance was not incorporated until June 1996, and did
not have significant interest expense for the periods presented below. Pro forma
long term debt and net income per share data are presented elsewhere in this
Prospectus.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA (A)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $ 2,201 $ 2,485 $ 4,922 $ 5,109 $ 5,019 $ 4,861 $ 4,402
Gross profit............................. 455 545 1,044 1,378 1,406 1,512 1,448
Restructuring charges (b)................ -- -- 76 -- 484 -- --
Income (loss) before income taxes........ 93 140 476 338 (154) 352 366
Net income (loss) (b) (c)................ $ 57 $ 85 $ 273 $ 215 $ (73) $ 243 $ 250
Ratio of earnings to fixed charges (d)
BALANCE SHEET DATA:
Total Assets............................. $ 3,293 $ 3,765 $ 3,444 $ 4,031 $ 4,590 $ 4,287 $ 4,089
</TABLE>
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(a) See Note 1 to "Notes to the Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for discussions of the impact of certain divestitures on Allegiance's
revenues and expenses.
(b) See Note 4 to "Notes to the Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information related to the restructuring charges of $76
million and $484 million that were recorded in 1995 and 1993, respectively.
(c) Net loss for 1993 reflects the impact of a charge equal to $5 million, net
of tax, resulting from the adoption of Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits."
(d) Historical computation of ratio of earnings to fixed charges is not
considered meaningful as no interest costs were allocated from Baxter to
Allegiance for the historical periods presented. Pro forma ratio of earnings
to fixed charges was 1.9, 2.1 and 2.0 for the periods June 30, 1996, June
30, 1995, and December 31, 1995, respectively. For the purpose of
calculating pro forma ratio of earnings to fixed charges, "earnings"
represents pro forma earnings before income taxes, plus fixed charges.
"Fixed charges" consist of pro forma interest on all indebtedness and
estimated interest on rentals. For further information, see the unaudited
pro forma combined statements of income included in "Pro Forma Financial
Information" in this Prospectus.
6
<PAGE>
SUMMARY SUPPLEMENTARY FINANCIAL DATA
Allegiance's historical results of operations include revenues and expenses
related to certain divested businesses. The Industrial and Life Sciences
division was sold in September 1995 and the diagnostics manufacturing businesses
were sold in December 1994. See Notes 1 and 3 to "Notes to the Combined
Financial Statements" for additional information related to these divestitures.
The following table presents selected supplementary financial data for
Allegiance excluding the revenue and expenses associated with these divested
businesses.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales..................................................... $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
Gross profit.................................................. 455 474 950 1,003 1,004
Restructuring charge.......................................... -- -- -- -- 304
Income (loss) before income taxes............................. 93 108 245 258 (39)
Income (loss)(a).............................................. 57 66 151 157 (26)
</TABLE>
- ------------
(a) Income (loss) for 1993 excludes the impact of a charge equal to $5 million,
net of tax, resulting from the adoption of Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits."
7
<PAGE>
RISK FACTORS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
including, but not limited to, general economic and business conditions,
competition, changing trends in customer profiles, changes in governmental
regulations, and unfavorable foreign currency fluctuations. Although Allegiance
believes that its expectations with respect to the forward-looking statements
are based upon reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results,
performance or achievements of Allegiance will not differ materially from any
future results, performance or achievements expressed or implied by such forward
looking statements.
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Securities offered hereby.
UNITED STATES HEALTH-CARE ENVIRONMENT
The United States health-care system continues to undergo fundamental
change. Competition for patients among health-care providers continues to
intensify. Increasingly, providers are looking for ways to better manage costs
in areas such as materials handling, supply utilization, product standardization
for specific procedures and capital expenditures.
Accelerating cost pressures on hospitals in the United States are resulting
in increased out-patient and alternate-site health-care service delivery and a
focus on cost-effectiveness and quality. These forces increasingly shape the
demand for, and supply of, medical care. Many private health-care payors are
providing incentives for consumers to seek lower cost care outside the hospital.
Many corporations' employee health plans have been restructured to provide
financial incentives for patients to utilize the most cost-effective forms of
treatment (managed care programs, such as health maintenance organizations, have
become more common), and physicians have been encouraged to provide more cost-
effective treatments. In the past, Allegiance's distribution network has been
focused on traditional distribution to hospitals.
The future financial success of health-care product and service companies,
such as Allegiance, will depend on their ability to work with health-care
providers to help them enhance their competitiveness and to distribute products
to alternate sites as treatment moves outside the hospital. Management believes
it can help its customers achieve savings in the total health-care system by
automating supply-ordering procedures, optimizing distribution networks,
improving utilization and materials management and achieving economies through
product and procedure standardization, and performing certain non-clinical
services on an outsourced basis. Management further believes that its strategy
of providing unmatched service to its health-care customers and achieving the
best overall cost in its delivery of health-care products and services is
compatible with any anticipated realignment of the United States health-care
system that may ultimately occur. If customers do not respond favorably to the
Allegiance strategy, these changes could have a material effect on Allegiance's
business, results of operations and financial condition.
UNITED STATES COMPETITION
The changing health-care environment in recent years has led to increasingly
intense competition among health-care suppliers. Competition is focused on
price, service and product performance. Pressure in these areas is expected to
continue. There has been substantial consolidation in Allegiance's customer base
and among its competitors. In recent years, Allegiance's overall price increases
have been lower than increases in the Consumer Price Index. Industry trends and
competition may inhibit Allegiance's ability to increase prices, and may
continue to depress Allegiance's margins in the future.
In part through its previously announced and ongoing restructuring program,
Allegiance plans to continue to increase its efforts to minimize costs and
better meet accelerating price competition. Allegiance believes that its cost
position will continue to benefit from improvements in manufacturing
8
<PAGE>
technology and increased economies of scale. Allegiance continues to improve the
quality of its products and services. If Allegiance is unsuccessful in
maintaining its service and quality levels while decreasing costs, the
competitive environment may have a material adverse effect on Allegiance's
business, results of operations and financial condition. See "Allegiance
Business -- Competition."
REVENUES FROM CUSTOMERS PURCHASING THROUGH BUYING GROUPS
For the last three years, as a percentage of total revenue, sales to
customers which are members of two large hospital buying groups, Premier and
VHA, comprised 27% and 16% respectively in 1995, 23% and 13% respectively in
1994 and 23% and 13% respectively in 1993. Loss of the contracts with either or
both of these buying groups, or renegotiation of these contracts on unfavorable
terms, could have a material adverse effect on the business, results of
operations and financial condition of Allegiance. However, some member hospitals
in each group are free to purchase from the vendors of their choice. Management
believes that its relationships with its larger customers are excellent. No
other buying group or single customer currently accounts for more than 10% of
Allegiance's revenue. See "Allegiance Business -- Contractual Arrangements;
Buying Groups."
FINANCIAL LEVERAGE
As of September 30, Allegiance had outstanding indebtedness in the amount of
approximately $1.2 billion. Such indebtedness may limit Allegiance's future
financial flexibility. See "Pro-Forma Financial Information" and "Management's
Discussion and Analysis of Financial Condition -- Liquidity and Capital
Resources."
MUTUAL DISTRIBUTION ARRANGEMENTS
Allegiance and Baxter are parties to various agency and distribution
arrangements pursuant to which Allegiance will distribute certain Baxter
products in the United States and Baxter will distribute certain Allegiance
products in the United States and internationally. The compensation received by
Allegiance under the domestic distribution arrangements generally is based upon
the internal business unit revenue and expense allocations that were in effect
between the Baxter business units and the Allegiance Business prior to the date
of the Distribution, which management believes will not be materially different
than those that could be negotiated with independent third parties. The initial
terms of these agreements range from three to five years. Although the present
intention of Allegiance and Baxter is that these distribution arrangements
continue as long as the relationship between the parties is mutually beneficial,
no assurance can be given that these arrangements will be extended beyond their
original expiration dates or will not be terminated prior to their original
terms. See "Relationship with Baxter."
DEPENDENCE ON ADMINISTRATIVE SERVICES
Allegiance and Baxter rely on each other for the provision of certain
administrative services. Such services are provided, pursuant to contractual
arrangements that can be terminated by either party upon no more than 12 months
notice, at rates intended to approximate the cost of providing such services. No
assurance can be given that such arrangements will continue in the future, that
the cost of arranging substitute service either internally or from a third party
would not increase the cost to the service recipient, or that a service provider
will not be forced to absorb a greater share of its fixed overhead costs in the
event of a termination of these arrangements. See "Relationship with Baxter."
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Allegiance does not have an operating history as an independent public
company. While Allegiance has been profitable as part of Baxter, there is no
assurance that as a stand-alone company profits will continue at the same level.
See "Combined Financial Statements."
PRODUCTS LIABILITY
On the Distribution Date, Allegiance assumed the defense of litigation
involving claims related to the Allegiance Business, including certain claims of
alleged personal injuries as a result of exposure to natural rubber latex gloves
described below. Allegiance has not been named as a defendant in this
9
<PAGE>
litigation but will be defending and indemnifying Baxter Healthcare Corporation
("BHC"), as contemplated by the Reorganization Agreement between Baxter and
Allegiance (the "Reorganization Agreement"), for all expenses and potential
liabilities associated with claims pertaining to this litigation. It is expected
that Allegiance will be named as a defendant in future litigation, and may be
added as a defendant in existing litigation.
Allegiance believes that a substantial portion of any liability and the
defense costs related to natural rubber latex gloves cases and claims will be
covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency. BHC has notified
its insurance companies that it believes that these cases and claims are covered
by BHC's insurance. Most of BHC's insurers have reserved their rights (I.E.,
neither admitted nor denied coverage), and may attempt to reserve in the future,
the right to deny coverage, in whole or in part, due to differing theories
regarding, among other things, the applicability of coverage and when coverage
may attach. Management does not expect that the outcome of these matters will
have a material adverse effect on Allegiance's business, results of operations
or financial condition.
ENVIRONMENTAL CONTINGENCIES
Under the United States Superfund statute and many state laws, generators of
hazardous waste which is sent to a disposal or recycling site are liable for
cleanup of the site if contaminants from that property later leak into the
environment. The law provides that potentially responsible parties may be held
jointly and severally liable for the costs of investigating and remediating a
site. This liability applies to the generator even if the waste was handled by a
contractor in full compliance with the law.
As of June 30, 1996, BHC has been named as a potentially responsible party
for cleanup costs at ten hazardous waste sites for which Allegiance has assumed
responsibility. Allegiance's largest exposure is at the Thermo-Chem site in
Muskegon, Michigan. Allegiance expects that the total cleanup costs for this
site will be between $44 million and $65 million, of which Allegiance's share
will be approximately $5 million. This amount, net of payments of approximately
$1 million, has been accrued and is reflected in Allegiance's combined financial
statements. The estimated exposure for the remaining nine sites is approximately
$4 million, which has been accrued and reflected in Allegiance's combined
financial statements. Management does not expect that the outcome of these
matters will have a material adverse effect on Allegiance's business, results of
operations or financial condition.
GOVERNMENT REGULATION
Significant aspects of Allegiance's businesses are subject to state and
federal statutes and regulations governing, among other things, reimbursement
under federal and state medical assistance programs, medical waste disposal,
dispensing of controlled substances, and workplace health and safety. In
addition, most of the products manufactured or sold by Allegiance in the United
States are subject to regulation by the Food and Drug Administration ("FDA"), as
well as by other federal and state agencies. The FDA has the power to seize
adulterated or misbranded drugs and devices or to require the manufacturer to
remove them from the market and the power to publicize relevant facts. In the
past, Baxter has removed products from the United States market that were found
not to meet acceptable standards. This may occur with respect to Allegiance in
the future. Product regulatory laws exist in most other countries where
Allegiance will do business. There can be no assurance that federal or state
governments will not impose additional restrictions or adopt interpretations of
existing laws that could materially adversely affect Allegiance's business,
results of operations or financial condition. See "Allegiance Business --
Government Regulation."
INTERNATIONAL EXPANSION
Allegiance currently has international sales of self-manufactured surgical
products primarily in Canada, France and Germany. Allegiance management expects
to increase its sales efforts internationally, which could expose it to greater
risks associated with government regulations and fluctuations in foreign
currency. There can be no assurance that Allegiance will be successful in
expanding its sales efforts internationally or employ a risk management strategy
that will completely eliminate its exposure to adverse movements in foreign
currency rates. See "-- Government Regulation."
10
<PAGE>
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities are new issues of securities for which there is currently no
market. If the Securities are traded after their initial issuance, they may
trade at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities and other factors. The
Underwriters have informed the Company that, subject to applicable laws and
regulations, they currently intend to make a market in the Securities. However,
the Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. Therefore, no assurance can be given as
to whether an active trading market will develop for the Securities or, if such
market develops, whether it will continue. The Company does not intend to apply
for listing of the Securities on any securities exchange or on the National
Association of Securities Dealers, Inc. automated quotation system. See
"Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby are estimated to be approximately $ million, after deducting
underwriting discounts and estimated expenses of the Offering payable by the
Company. All of the net proceeds of the Offering will be used to reduce the
amounts outstanding under the Company's $1.2 billion credit facility. At
September 30, 1996, approximately $1.1 billion was outstanding under the
Company's $1.2 billion credit facility bearing interest at a weighted average
rate of 5.8% per annum and maturing on various dates from October 7, 1996 to
November 29, 1996. Allegiance has borrowed under this credit facility to fund
distributions to Baxter and for working capital requirements.
Affiliates of certain of the Underwriters are lenders under the credit
facility and will receive a portion of the proceeds from the sale of the
Securities offered hereby. See "Underwriting."
COMPANY BACKGROUND
Allegiance Corporation ("Allegiance" or the "Company") was incorporated in
Delaware in June 1996. Prior to September 30, 1996 (the "Distribution Date"),
Allegiance acquired the United States health-care distribution, surgical and
respiratory therapy products and health-care cost management businesses (the
"Allegiance Business") of Baxter International Inc. ("Baxter") in connection
with a spin-off by Baxter of the Allegiance Business. The spin-off was effected
on the Distribution Date through a distribution of common stock of Allegiance
("Allegiance Stock") to Baxter stockholders (the "Distribution"). Unless the
context otherwise indicates, as used in this Prospectus the terms "Allegiance"
and the "Company" mean the Allegiance Business of Baxter for periods prior to
the Distribution Date and Allegiance Corporation and its consolidated
subsidiaries for the periods following the Distribution Date, and all references
to "Baxter" include Baxter International Inc. and its consolidated subsidiaries
as of the relevant date.
Allegiance's principal executive offices are located at 1430 Waukegan Road,
MPA-1, McGaw Park, Illinois 60085 and its telephone number is (847) 689-8410.
11
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth, as of June 30, 1996, the capitalization of
Allegiance and the pro forma capitalization after giving effect to the
Distribution and certain other transactions described in the Notes below, as
well as the application of the estimated net proceeds from the sale of the
Securities. This information should be read in conjunction with the historical
and pro forma combined financial statements and the related notes thereto of
Allegiance included elsewhere herein. The pro forma information set forth below
may not reflect the capitalization of Allegiance in the future or as it would
have been had Allegiance been a separate, independent company at June 30, 1996.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <C> <C>
Long-term debt............................................................ $ -- $ 1,200(a) $ 1,200
Equity
Divisional retained earnings............................................ 1,750 (350)(a) --
(1,400)(b)
Equity investment by parent............................................. 810 (810)(a) --
Stockholders' equity
Common stock, par value $1.00, authorized 200,000,000 shares,
outstanding 54,472,353 shares.......................................... -- 54(b) 54
Retained earnings....................................................... -- 1,346(b) 1,346
----------- ------------- -----------
Total capitalization.................................................. $ 2,560 $ 40 $ 2,600
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
PRO FORMA ADJUSTMENTS
(a) To record the incurrence of approximately $1.2 billion of debt to fund
distributions to Baxter and initial working capital requirements.
(b) To reflect the Distribution of 54,472,353 shares of Allegiance Stock at
$1.00 par value per share (at a distribution ratio of one share of
Allegiance Stock for every five shares of Baxter Stock held on September 26,
1996) and the elimination of divisional retained earnings and Baxter's
equity investment effected by the distribution of all outstanding shares of
Allegiance Stock to Baxter stockholders.
12
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information with respect
to Allegiance. Selected unaudited historical financial information for the six
months ended June 30, 1996 and 1995 includes all adjustments, consisting only of
normal recurring accruals that are considered necessary for a fair presentation
of combined operating results for such interim periods. Results for the interim
periods are not necessarily indicative of results for the full year. Historical
financial information may not be indicative of Allegiance's performance as an
independent company. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Combined Financial Statements" and related
notes thereto found elsewhere in this Prospectus. Historical per share data for
net income and dividends, and the ratio of earnings to fixed charges have not
been presented because Allegiance was not incorporated until June 1996, and did
not have significant interest expense for the periods presented below. Pro forma
long term debt and net income per share data are presented elsewhere in this
Prospectus. See "Pro Forma Financial Information."
SELECTED HISTORICAL FINANCIAL DATA (A)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $ 2,201 $ 2,485 $ 4,922 $ 5,109 $ 5,019 $ 4,861 $ 4,402
Gross profit............................. 455 545 1,044 1,378 1,406 1,512 1,448
Restructuring charges (b)................ -- -- 76 -- 484 -- --
Income (loss) before income taxes........ 93 140 476 338 (154) 352 366
Net income (loss) (b) (c)................ $ 57 $ 85 $ 273 $ 215 $ (73) $ 243 $ 250
Ratio of earnings to fixed charges (d)...
BALANCE SHEET DATA:
Total Assets............................. $ 3,293 $ 3,765 $ 3,444 $ 4,031 $ 4,590 $ 4,287 $ 4,089
</TABLE>
- ------------
(a) See Note 1 to "Notes to the Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for discussions of the impact of certain divestitures on Allegiance's
revenues and expenses.
(b) See Note 4 to "Notes to the Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information related to the restructuring charges of $76
million and $484 million that were recorded in 1995 and 1993, respectively.
(c) Net loss for 1993 reflects the impact of a charge equal to $5 million, net
of tax, resulting from the adoption of Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits."
(d) Historical computation of ratio of earnings to fixed charges is not
considered meaningful as no interest costs were allocated from Baxter to
Allegiance for the historical periods presented. Pro forma ratio of earnings
to fixed charges was 1.9, 2.1 and 2.0 for the periods June 30, 1996, June
30, 1995, and December 31, 1995, respectively. For the purpose of
calculating pro forma ratio of earnings to fixed charges, "earnings"
represent pro forma earnings before income taxes, plus fixed charges. "Fixed
charges" consist of pro forma interest on all indebtedness and estimated
interest on rentals. For further information, see the unaudited pro forma
combined statements of income included in "Pro Forma Financial Information"
in this Prospectus.
13
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
Allegiance's historical results of operations include revenues and expenses
related to certain divested businesses. The Industrial and Life Sciences
division was sold in September 1995 and the diagnostics manufacturing businesses
were sold in December 1994. See Notes 1 and 3 to "Notes to the Combined
Financial Statements" for additional information related to these divestitures.
The following table presents selected supplementary financial data for
Allegiance excluding the revenue and expenses associated with these divested
businesses.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales..................................................... $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
Gross profit.................................................. 455 474 950 1,003 1,004
Restructuring charge.......................................... -- -- -- -- 304
Income (loss) before income taxes............................. 93 108 245 258 (39)
Income (loss)(a).............................................. 57 66 151 157 (26)
</TABLE>
- ------------
(a) Income (loss) for 1993 excludes the impact of a charge equal to $5 million,
net of tax, resulting from the adoption of Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits."
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined statements of income and
unaudited combined condensed balance sheet present the combined results of
Allegiance and its financial position assuming that the transactions
contemplated by the Distribution and certain significant divestitures described
below had been completed as of January 1, 1995.
The unaudited pro forma information has been prepared utilizing the
historical combined financial statements of Allegiance. This information should
be read in conjunction with the historical combined financial statements and
notes thereto, included elsewhere in this Prospectus. The unaudited pro forma
financial data has been included as required by the rules and regulations of the
Commission and is provided for comparative purposes only. The unaudited pro
forma financial data does not purport to be indicative of the results of
Allegiance in the future or what the financial position and results of
operations would have been had Allegiance been a separate, stand-alone entity
during the periods shown. See, for example, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Adoption of New
Accounting Standards and Policies."
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------
ADJUSTMENTS
FOR DIVESTED ADJUSTED PRO FORMA
HISTORICAL BUSINESSES (A) HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ------------ -------------
(IN MILLIONS, EXCEPT SHARES AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 2,201 -- $ 2,201 $ 1(b) $2,202
Costs and expenses
Cost of goods sold....................... 1,746 -- 1,746 2(b) 1,748
Selling, general and administrative
expenses................................ 345 -- 345 4(b) 349
Interest, net............................ -- -- -- 45(d) 45
Goodwill amortization.................... 18 -- 18 -- 18
Other (income) expense................... (1) -- (1) -- (1)
----------- ------- ----------- ------------ -------------
Total costs and expenses............... 2,108 -- 2,108 51 2,159
----------- ------- ----------- ------------ -------------
Income before income taxes................. 93 -- 93 (50) 43
Income tax expense (benefit)............... 36 -- 36 (20)(f) 16
----------- ------- ----------- ------------ -------------
Net income............................. $ 57 -- $ 57 $ (30) $ 27
----------- ------- ----------- ------------ -------------
----------- ------- ----------- ------------ -------------
Share information
Shares to be issued (g).................. 54,472,353
-------------
-------------
Net income per share (g)................. $ 0.50
-------------
-------------
Ratio of earnings to fixed charges (h)..... 1.9
-------------
-------------
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------
ADJUSTMENTS
FOR DIVESTED ADJUSTED PRO FORMA
HISTORICAL BUSINESSES (A) HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -------------- -------------
(IN MILLIONS, EXCEPT SHARES AND PER SHARE)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 2,485 $(241) $ 2,244 $ (7)(b) $2,237
Costs and expenses
Cost of good sold........................ 1,940 (170) 1,770 (3)(b) 1,767
Selling, general and administrative
expenses................................ 384 (39) 345 2(b) 351
4(c)
Interest, net............................ -- -- -- 45(d) 45
Goodwill amortization.................... 19 -- 19 -- 19
Other (income) expense................... 2 -- 2 -- 2
----------- --------------- ----------- --- -------------
Total costs and expenses............... 2,345 (209) 2,136 48 2,184
----------- --------------- ----------- --- -------------
Income (loss) before income taxes.......... 140 (32) 108 (55) 53
Income tax expense (benefit)............... 55 (13) 42 (22)(f) 20
----------- --------------- ----------- --- -------------
Net income............................. $ 85 $ (19) $ 66 $ (33) $ 33
----------- --------------- ----------- --- -------------
----------- --------------- ----------- --- -------------
Share information
Shares to be issued (g).................. 54,472,353
-------------
-------------
Net income per share (g)................. $ 0.61
-------------
-------------
Ratio of earnings to fixed charges (h)..... 2.1
-------------
-------------
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------
ADJUSTMENTS
FOR DIVESTED ADJUSTED PRO FORMA
HISTORICAL BUSINESSES (A) HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ------------ -------------
(IN MILLIONS, EXCEPT SHARES AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 4,922 $(347) $ 4,575 $ (4)(b) $4,571
Costs and expenses
Cost of goods sold....................... 3,878 (253) 3,625 3,625
Selling, general and administrative
expenses................................ 756 (55) 701 3 (b) 714
10 (c)
Interest, net............................ -- -- -- 90 (d) 90
Restructuring............................ 76 (76) -- -- --
Goodwill amortization.................... 38 (1) 37 -- 37
Other (income) expense................... (302) 269 (33) 37 (e) 4
----------- --------------- ----------- ------------ -------------
Total costs and expenses............... 4,446 (116) 4,330 140 4,470
----------- --------------- ----------- ------------ -------------
Income before income taxes................. 476 (231) 245 (144) 101
Income tax expense (benefit)............... 203 (109) 94 (56)(f) 38
----------- --------------- ----------- ------------ -------------
Net income............................. $ 273 $(122) $ 151 $ (88) $ 63
----------- --------------- ----------- ------------ -------------
----------- --------------- ----------- ------------ -------------
Share information
Shares to be issued (g).................. 54,472,353
-------------
-------------
Net income per share (g)................. $ 1.16
-------------
-------------
Ratio of earnings to fixed charges (h)..... 2.0
-------------
-------------
</TABLE>
PRO FORMA ADJUSTMENTS
(a) To adjust the historical financial statements for the impact of the
divestitures of the diagnostics manufacturing business and the Industrial
and Life Sciences division for the periods presented, to reflect only those
ongoing business operations to be included in the Distribution. See Notes 1
and 3 to "Notes to the Combined Financial Statements" for additional
information related to these divestitures.
(b) To reflect the impact of various business arrangements between Allegiance
and Baxter effective on the Distribution Date for (i) product distribution
and distribution services under agency, services and distribution agreements
in the U.S. with terms from three to five years, (ii) contract manufacturing
agreements under which both Allegiance and Baxter agree to produce certain
products and components for each other for one to three years, and (iii)
agreements with terms of one to five years under which Baxter will
distribute Allegiance products in various countries around the world and
provide export services. See "Relationship with Baxter."
(c) To reflect (i) the estimated incremental costs associated with being an
independent, public company, including costs associated with corporate
administrative services such as tax, treasury, risk management and
insurance, legal, stockholder relations and human resources and (ii) the
estimated reduction in expenses related to changes in Allegiance's benefit
plans.
(d) To record the estimated interest expense which would have been incurred by
Allegiance based on the incurrence of approximately $1.2 billion of debt,
including the Securities offered hereby, at a weighted average interest rate
of 7.5%. An increase or decrease of 0.125% in the weighted average interest
rate would result in an increase or decrease in interest expense of $1.5
million.
(e) To adjust the historical financial statements for a non-recurring payment
related to the transfer of rights under various service agreements with
Alliant Foodservices, Inc., to reflect only those ongoing business
operations included in the Distribution.
(f) To reflect the estimated tax impact, at statutory rates, for pro forma
adjustments (b) through (e).
(g) Pro forma net income per share is computed as if the 54,472,353 shares of
Allegiance stock, issued in the Distribution, had been outstanding for the
periods presented.
(h) For the purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent pro forma earnings before income taxes, plus fixed
charges. "Fixed charges" consist of pro forma interest on all indebtedness
and estimated interest on rentals.
17
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------------------------------
ADJUSTMENTS
FOR DIVESTED ADJUSTED PRO FORMA
HISTORICAL BUSINESSES (A) HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------------- ----------- ------------- -----------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C>
Current assets
Cash and equivalents.......................... $ 5 -- $ 5 $ 40 (a) $ 45
Accounts receivable, net...................... 450 -- 450 450
Notes and other current receivables........... 26 -- 26 -- 26
Inventories................................... 656 -- 656 656
Short-term deferred income taxes.............. 119 -- 119 -- 119
Prepaid expenses.............................. 16 -- 16 -- 16
----------- ------ ----------- ------------- -----------
Total current assets........................ 1,272 -- 1,272 40 1,312
----------- ------ ----------- ------------- -----------
Property, plant and equipment
Property, plant and equipment................. 1,523 -- 1,523 -- 1,523
Accumulated depreciation and amortization..... 663 -- 663 -- 663
----------- ------ ----------- ------------- -----------
Net property, plant and equipment........... 860 -- 860 -- 860
----------- ------ ----------- ------------- -----------
Other assets
Goodwill and other intangibles................ 1,096 -- 1,096 -- 1,096
Other......................................... 65 -- 65 -- 65
----------- ------ ----------- ------------- -----------
Total other assets.......................... 1,161 -- 1,161 -- 1,161
----------- ------ ----------- ------------- -----------
Total assets.............................. $ 3,293 -- $ 3,293 $ 40 $ 3,333
----------- ------ ----------- ------------- -----------
----------- ------ ----------- ------------- -----------
Current liabilities
Accounts payable and accrued liabilities...... $ 550 -- $ 550 $ 550
----------- ------ ----------- ------------- -----------
Long-term debt.................................. -- -- -- 1,200 (a) 1,200
----------- ------ ----------- ------------- -----------
Long-term deferred income taxes................. 115 -- 115 -- 115
----------- ------ ----------- ------------- -----------
Other non-current liabilities................... 68 -- 68 -- 68
----------- ------ ----------- ------------- -----------
Stockholders' equity
Divisional retained earnings.................. 1,750 -- 1,750 (350)(a) --
(1,400)(b)
Equity investment by parent................... 810 -- 810 (810)(a) --
Common stock, $1 par value, authorized
200,000,000 shares, outstanding 54,472,353
shares....................................... -- -- -- 54 (b) 54
Retained earnings............................. -- -- -- 1,346 (b) 1,346
----------- ------ ----------- ------------- -----------
Total liabilities and stockholders'
equity................................... $ 3,293 -- $ 3,293 $ 40 $ 3,333
----------- ------ ----------- ------------- -----------
----------- ------ ----------- ------------- -----------
</TABLE>
PRO FORMA ADJUSTMENTS
(a) To record the incurrence of approximately $1.2 billion of debt to fund
distributions to Baxter and initial working capital requirements.
(b) To reflect the distribution of 54,472,353 shares of common stock of
Allegiance to stockholders of Baxter and the elimination of divisional
retained earnings and Baxter's equity investment effected by the
Distribution.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis present the factors that had a
material effect on the results of operations of Allegiance during the three
years ended December 31, 1995, and for the six-month periods ended June 30, 1996
and 1995. Also discussed is Allegiance's financial position as of December 31,
1995 and 1994, and June 30, 1996. This discussion should be read in conjunction
with the historical and pro forma combined financial statements and related
notes thereto included elsewhere in this Prospectus.
OVERVIEW
Allegiance operates in a single industry segment as a leading provider of
health-care products and services that help its health-care customers manage and
reduce the total cost of providing patient care. Through its nationwide
distribution network, Allegiance distributes to hospital and alternate-care
customers a broad offering of medical, surgical and laboratory supplies,
including its own self-manufactured surgical and respiratory-therapy products.
Allegiance also provides cost management services to its health-care customers,
including inventory management programs, customized packaging, and procedure and
process consulting. The delivery of such a broad array of product and service
offerings requires focused investments in cost management services, information
systems and manufacturing efficiencies.
Accelerating cost pressures on U.S. hospitals are resulting in increased
out-patient and alternate-site health-care service delivery and an increased
focus on cost-effectiveness and quality. At the same time, the elderly segment
of the population in the U.S. and abroad is growing. These forces increasingly
shape the demand for, and supply of, medical care. Many private health-care
payors are providing incentives for consumers to seek lower cost care outside
the hospital. Many corporations' employee health plans have been restructured to
provide financial incentives for patients to utilize the most cost-effective
forms of treatment (managed care programs, such as health maintenance
organizations, have become more common), and physicians have been encouraged to
provide more cost-effective treatments. In response to these pressures, the U.S.
health-care system has undergone fundamental changes over the past several
years, and such changes and cost-containment efforts are expected to continue
throughout the foreseeable future.
While the high cost of health care is forcing hospitals and other providers
to increase their efficiency, reduce excess capacity and lower costs, management
believes that it is well-positioned to work with health-care providers to help
them enhance their competitiveness and to distribute products to alternate sites
as treatment moves outside the hospital. Management believes that it can help
its customers achieve savings in the total health-care system by automating
supply-ordering procedures, optimizing distribution networks, improving
utilization and materials management and achieving economies through product and
procedure standardization, and performing certain non-clinical services on an
outsourced basis. Management further believes that its strategy of providing
unmatched service to its health-care customers and its seeking to achieve the
lowest overall cost in its delivery of health-care products and services is
compatible with any anticipated realignment of the U.S. health-care system that
may ultimately occur.
RESULTS OF OPERATIONS
Allegiance's historical results of operations in 1995, 1994 and 1993 include
revenues and expenses related to certain divested businesses. The Industrial and
Life Sciences division of the Allegiance Business was sold in September 1995 and
the diagnostics manufacturing businesses were sold in
19
<PAGE>
December 1994. See Notes 1 and 3 to "Notes to Combined Financial Statements" for
additional information related to these divestitures. The following table
presents selected financial data for Allegiance excluding the revenue and
expenses associated with these divested businesses:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
Costs and expenses
Cost of goods sold................................ 1,746 1,770 3,625 3,311 3,245
Selling, general and administrative expenses...... 345 346 701 711 746
Restructuring charge.............................. -- -- -- -- 304
Goodwill amortization............................. 18 18 37 37 37
Other (income) expense............................ (1) 2 (33) (3) (44)
--------- --------- --------- --------- ---------
Total costs and expenses........................ 2,108 2,136 4,330 4,056 4,288
--------- --------- --------- --------- ---------
Pretax income (loss)................................ 93 108 245 258 (39)
Income tax expense (benefit)........................ 36 42 94 101 (13)
--------- --------- --------- --------- ---------
Income (loss)....................................... $ 57 $ 66 $ 151 $ 157 $ (26)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SALES
The following table summarizes net sales, excluding the divested businesses
discussed previously, by major geographic region:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1996 1995 1995 1994 1993
----------- --------- ----------- ----------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Geographic region
United States.............................. $ 2,052 $ 2,103 $ 4,284 $ 4,043 $ 4,001
Percent increase (decrease).............. (2)% 6% 1%
International.............................. 149 141 291 271 248
Percent increase......................... 6% 7% 9%
----------- --------- ----------- ----------- ---------
Total net sales.............................. $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
Percent increase (decrease).............. (2)% 6% 2%
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
</TABLE>
The decline in Allegiance's domestic net sales for the six months ended June
30, 1996 as compared to the same period in the prior year, is the result of
planned attempts to reduce sales growth and improve profitability in lower
margin, distributed products in the U.S. Additionally, domestic sales of
self-manufactured surgical products continue to be unfavorably impacted by the
loss of a contract with Columbia/ HCA in February 1994. Columbia began shifting
to other vendors its purchases of surgical supplies for certain product lines in
early 1994 and for other product lines throughout 1995 and 1996. International
sales increased by 6% in the first half of 1996 as compared to 1995 as a result
of continued focus on the penetration of surgical products into international
markets.
Domestic net sales growth of 6% in 1995 is primarily due to increased sales
volume in lower margin, distributed products, resulting from an increase in
ValueLink-Registered Trademark- distribution agreements and the large supply and
service contract signed with the VHA in 1994. Domestic net sales in 1994 were
adversely affected by pricing pressures experienced in the domestic market place
and the loss of the Columbia/ HCA supply contract.
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<PAGE>
Allegiance currently has international sales of self-manufactured surgical
products primarily in Canada, France and Germany. International sales growth of
7% in 1995 and 9% in 1994 was the result of continued focus on the penetration
of surgical products into these international markets. International sales
growth in local currency was approximately 5% in 1995 and 13% in 1994.
Allegiance expects to increase its sales efforts internationally.
COSTS AND EXPENSES
The following table summarizes Allegiance's gross margin and expense ratios,
excluding the divested businesses discussed previously:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gross margin........................................... 20.7% 21.1% 20.8% 23.2% 23.6%
Selling, general and administrative expenses........... 15.7% 15.4% 15.3% 16.5% 17.6%
</TABLE>
The gross margin declined for the six-month period ended June 30, 1996 as
compared with the same period in 1995, due to pricing pressure in the U.S.
combined with lower sales in Allegiance's higher margin surgical products as a
result of the loss of the Columbia/HCA contract. Allegiance's gross margin
decline of 2.8% between 1993 and 1995 resulted from general market conditions,
growth in lower margin sales of third party products and the loss of the
Columbia/HCA surgical supply contract. Allegiance plans to stabilize its gross
margins by offsetting pricing pressures with manufacturing cost efficiencies,
managing its product mix more effectively, and instituting price increases.
Total selling, general and administrative expenses remained flat between the
first half of 1996 and 1995. However, such costs as a percent of sales for the
period ended June 30, 1996 increased .3% from the comparable period in 1995. The
increase in the ratio for the six months ended June 30, 1996 is the result of
the decline in sales discussed above, as the timing of expense reduction
initiatives lag the planned reduction in lower-margin product sales. Selling,
general and administrative expenses in 1993 were adversely affected by a
downsizing program. Excluding the impact of the downsizing program, selling,
general and administrative expenses as a percent of sales in 1993 would have
been approximately 16.7%. The remaining 1.4% decline in selling, general and
administrative expenses that occurred between 1993 and 1995 was the result of
initiatives taken in connection with the 1993 restructuring program and leverage
on the growth in distributed products that occurred in 1994. Management plans to
continue to leverage this ratio.
RESTRUCTURING PROGRAM
In November 1993, Baxter initiated a restructuring program to improve
shareholder value and reduce costs. The strategic actions of the program were
designed in part to make the Allegiance Business more efficient and responsive
in addressing the changes occurring in the U.S. health-care system. See Note 4
to "Notes to the Combined Financial Statements" for discussions related to the
initial charge for the program, components of the charge, any resulting changes
in estimates, and cash and non-cash utilization of the related reserves.
Since the announcement of the 1993 restructuring program, Allegiance
management has implemented, or is in the process of implementing, all of the
major strategic actions associated therewith and is satisfied that the program
is progressing on schedule and will meet established financial targets. During
the first half of 1996, Allegiance utilized $55 million of restructuring
reserves, including $34 million in cash payments. In 1995, Allegiance utilized
$171 million of restructuring reserves, including $105 million in cash payments.
Cash outflows pertain primarily to employee-related costs for severance,
outplacement assistance, relocation, implementation teams and facility
consolidation. As of June 30, 1996, Allegiance had eliminated approximately
1,920 positions of the approximately 2,860 positions that were originally
expected to be affected by the program. As process changes were implemented in
connection with the restructuring program, it became apparent that, as certain
management level positions were
21
<PAGE>
eliminated, other lower cost positions were added. While this has generated
savings levels consistent with expectations, management has revised its targeted
head count reduction to 2,230 net positions. The majority of the remaining
reductions will occur in 1996 and 1997, as facility closures and consolidations
are completed as planned. In addition to improvements in the effectiveness of
its sales force and the management of customer relations, Allegiance realized
direct savings in manufacturing and administrative costs from this program of
approximately $95 million in 1995 and $40 million in 1994. These savings have
mitigated the effect of declines in gross margin and have been invested in cost
management initiatives. Management is targeting direct savings of approximately
$125 million in 1996, $155 million in 1997 and in excess of $155 million in
1998. Management anticipates that these savings will continue to offset
potential future gross margin erosion and investments into cost-management
initiatives. Management further believes that its remaining restructuring
reserves are adequate to complete the actions contemplated by the restructuring
program and that future cash expenditures related to the program will be funded
from cash generated from operations.
OTHER INCOME AND EXPENSE
Other income and expense, excluding the divested businesses discussed
previously, is principally comprised of net gains associated with the disposal
or discontinuance of minor, non-strategic businesses.
PRETAX INCOME
The following table compares pretax income, excluding divested businesses
and restructuring charges discussed previously:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1996 1995 1995 1994 1993
----------- --------- ----------- ----------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Pretax income excluding divested businesses and
restructuring charges............................... $ 93 $ 108 $ 245 $ 258 $ 265
Percent decrease................................... (14)% (5)% (3)%
</TABLE>
Pretax income in the first six months of 1996 decreased primarily due to the
decline in net sales and gross margins discussed above. Pretax income decreased
in 1995 primarily as a result of gross margin declines, partially offset by a
higher level of net gains associated with the disposal or discontinuance of
minor, non-strategic businesses. Excluding net gains associated with the
disposal or discontinuance of minor, non-strategic businesses, 1995 pretax
income would have declined 16%. The decrease in 1994 is primarily the result of
gross margin declines, partially offset by net gains associated with the
disposal or discontinuance of minor, non-strategic businesses. Excluding these
net gains, 1994 pretax income would have declined 7%.
INCOME TAXES
Allegiance's effective tax rate, excluding divested businesses discussed
previously, was 39% for the six months ended June 30, 1996 and 1995.
Allegiance's effective tax rate, excluding divested businesses discussed
previously, was 38% in 1995, 39% in 1994 and 33% in 1993. The decline in the
effective tax rate in 1995 was a result of a larger proportion of earnings
generated in lower tax jurisdictions. The effective tax rate in 1993 was
impacted by the restructuring charge. Excluding this charge, the effective tax
rate in 1993 would have been 41%; the decrease in the 1994 effective tax rate
was the result of a larger proportion of earnings generated in lower tax
jurisdictions.
NET INCOME
Net income, excluding divested businesses discussed previously, decreased
14% for the six months ended June 30, 1996 as compared to the same period in
1995. This decrease is consistent with the decrease in pretax income discussed
above. Net income for 1995, excluding divested businesses and net gains
associated with the disposal or discontinuance of minor, non-strategic
businesses, decreased 14% as a result of gross margin declines, partially offset
by a decline in the effective tax rate.
22
<PAGE>
After adjusting for the restructuring charge recorded in 1993 and net gains
associated with the disposal or discontinuance of minor, non-strategic
businesses, net income excluding divested businesses decreased by approximately
4% in 1994 as a result of gross margin declines, partially offset by the decline
in Allegiance's effective income tax rate discussed above.
ADOPTION OF NEW ACCOUNTING STANDARDS AND POLICIES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for fiscal years
beginning after December 31, 1995. Adoption of FASB No. 121 in fiscal year 1996
did not have a material impact on Allegiance.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. The statement provides management with a choice of accounting
methods for stock-based transactions with employees. Management has decided to
adopt FASB No. 123 through disclosure only and, accordingly, the required pro
forma information on net income and earnings per share will be included in
Allegiance's fiscal year 1996 financial statements.
As a subsidiary of Baxter, Allegiance followed the accounting policies
established by Baxter for its consolidated group. Management believes that the
market value of Allegiance, as a stand-alone company, could be substantially
below its stockholders' equity. While Allegiance cannot forecast its market
value, management is currently evaluating the accounting policy for assessing
impairment of goodwill to ensure that its present policy remains appropriate for
Allegiance as a separate, publicly-traded company. As of June 30, 1996, actual
goodwill was approximately $1.1 billion and pro-forma stockholders' equity was
$1.4 billion. Management is considering a change from Baxter's current
undiscounted cash flow methodology to one based upon fair value. A change to a
fair value methodology could result in a material, noncash charge to
Allegiance's results of operations which would be approximately equal to the
excess of Allegiance's pro-forma stockholders' equity value over its market
value and could have a substantial effect on its financial position. If
Allegiance were to adopt such a change in accounting policy, the current annual
amortization expense pertaining to goodwill would be reduced in future periods
by 3.4% of any resulting reduction in the value of goodwill, and would produce a
potentially significant increase in net income. Such a change in accounting
policy would be subject to the review and approval by Allegiance's board of
directors.
IMPACT OF INFLATION
In recent years, Allegiance has experienced increases in its labor and
material cost base influenced, in part, by general inflationary trends. While
not directly related to inflationary trends, Allegiance's revenue base over
recent years has been adversely affected by lower average selling prices on
certain products as a result of changes in Medicare reimbursement regulations,
economic pressures in the U.S. hospital marketplace and increased competition in
certain product lines. There is little correlation between general inflation
rates directly affecting costs and expenses and Allegiance's pricing levels for
products sold to health-care customers. Management expects that these trends
will continue.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses Allegiance's liquidity in terms of its overall ability
to mobilize cash to support ongoing business levels and to fund its growth.
Management believes that it has sufficient cash flow from operations and
financial flexibility to attract long-term capital to support normal operating
activities and fund short-term and long-term growth objectives.
Allegiance's current assets exceeded current liabilities by $722 million at
June 30, 1996 versus an excess of $680 million and $1,055 million at December
31, 1995 and 1994, respectively. Current assets at June 30, 1996 included
accounts and notes receivable of $476 million and inventories of $656 million.
These sources of liquidity are convertible into cash over a relatively short
period of time and thus, will help Allegiance satisfy normal operating cash
requirements.
23
<PAGE>
DEBT AND FINANCIAL INSTRUMENTS
In connection with the Distribution, Allegiance entered into two revolving
unsecured credit facilities providing for up to $1.2 billion and $300 million
respectively (the "Credit Facilities"). The $1.2 billion credit facility expires
in September 2001 and the $300 million credit facility expires in September
1997. As of September 30, 1996, approximately $1.1 billion was outstanding under
the $1.2 billion credit facility, which bears interest at an average weighted
rate of 5.8% and matures on various dates from October 7, 1996 to November 29,
1996, and no amounts were outstanding under the $300 million credit facility.
Allegiance has borrowed under the $1.2 billion credit facility to fund
distributions to Baxter and for ongoing working capital requirements. As of
September 30, 1996, approximately $100 million was available for borrowing under
the $1.2 billion credit facility and $300 million was available for borrowing
under the $300 million credit facility. See "Description of Credit Facilities."
Assuming a debt level of $1.2 billion, Allegiance's long-term debt as a
percent of its total capitalization (the sum of long-term debt plus
stockholder's equity) would have been 46.2% at June 30, 1996. Net-
debt-to-net-capital (after consideration of cash equivalents including working
capital) would have been 44.4% at June 30, 1996. Allegiance expects to maintain
a net-debt-to-net-capital ratio between 40% and 45% over the next several years.
Allegiance intends to fund its short-term and long-term obligations as they
mature through cash flow from operations or by issuing additional debt.
Allegiance believes it will have lines of credit adequate to support ongoing
operational, capital and restructuring requirements. Beyond that, Allegiance
believes it has sufficient financial flexibility to attract long-term capital on
acceptable terms as may be needed to support its growth objectives.
CASH FLOW FROM OPERATIONS
Cash flow provided by operations (which includes working capital components)
was $136 million and $139 million for the six months ended June 30, 1996 and
1995, respectively. Cash flow provided by operations for 1995, 1994 and 1993,
was $253 million, $422 million and $336 million, respectively. The decrease in
cash flow provided by operations for the first six months of 1996 was the result
of a decline in earnings (resulting principally from the divestiture of the
Industrial and Life Sciences division), partially offset by improved balance
sheet management. The decline in cash flow provided by operations in 1995 was
primarily the result of a decline in earnings, resulting principally from the
divestitures of the Industrial and Life Sciences division and the diagnostics
manufacturing businesses. The increase in 1994 was the result of lower cash flow
from operations in 1993. The lower cash flow provided by operations in 1993 was
the result of changes in working capital components (principally inventory and
accrued liabilities).
To facilitate an emphasis on cash flow provided by operations, management
monitors an internal performance measure called "operational cash flow."
"Operational cash flow" is defined as cash flow provided by operations per
Allegiance's combined statement of cash flows, less capital expenditures and
plus the tax effect of divestiture gains (losses). This measure evaluates each
operating unit on all aspects of cash flow under its direct control. In
addition, the incentive compensation programs for Allegiance's senior management
in each operating unit include significant emphasis on the attainment of both
"operational cash flow" as well as earnings objectives.
24
<PAGE>
The following table reconciles cash flow provided by operations, as
determined by generally accepted accounting principles, to Allegiance's internal
measure of "operational cash flow" (brackets denote cash outflows):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash flow provided by operations per Allegiance's
combined statements of cash flows................. $ 136 $ 139 $ 253 $ 422 $ 336
Capital expenditures............................... (33) (48) (112) (122) (273)
Other.............................................. -- (2) 41 3 15
--------- --------- --------- --------- ---------
Total "operational cash flow".................. $ 103 $ 89 $ 182 $ 303 $ 78
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The increase in "operational cash flow" in the first six months of 1996 as
compared to the same period in 1995 is primarily the result of reduced capital
expenditures, partially offset by the decline in cash flow provided by
operations discussed above. The decline in "operational cash flow" in 1995 was
primarily the result of the decline in cash flow provided by operations
discussed above. The increase in 1994 was the result of lower "operational cash
flow" in 1993. The lower "operational cash flow" in 1993 was the result of cash
flow provided by operations as discussed above and higher capital expenditures
resulting from the diagnostics manufacturing businesses.
INVESTMENT TRANSACTIONS
Net investment transactions for Allegiance are comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31,
JUNE 30,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Capital expenditures........................................ $ (33) $ (48) $ (112) $ (122) $ (273)
Acquisitions................................................ (14) -- (5) (2) (14)
Proceeds from asset dispositions............................ (10) 178 626 107 68
--- --------- --------- --------- ---------
Total investment transactions, net...................... $ (57) $ 130 $ 509 $ (17) $ (219)
--- --------- --------- --------- ---------
--- --------- --------- --------- ---------
</TABLE>
The reductions in capital expenditures in 1995 and 1994 are primarily the
result of Allegiance's divestitures of the Industrial and Life Sciences division
and the diagnostics manufacturing businesses. Management expects to invest in
capital expenditures at levels consistent with 1995 and 1994, principally for
improvements of its existing facilities, construction of new facilities and
system upgrades.
The acquisitions summarized in the above table involved no significant
change to Allegiance's strategic direction, and were made for the purpose of
acquiring technologies, broadening product lines and service offerings, or
expanding market coverage.
Proceeds from asset dispositions in the first half of 1995 primarily related
to cash received from the collection of notes receivable related to Allegiance's
divestiture of the diagnostics manufacturing businesses in December 1994. The
proceeds received from asset dispositions for the year ended December 31, 1995,
primarily related to cash received in connection with Allegiance's divestiture
of its Industrial and Life Sciences division in September 1995 and the
collection of notes receivable related to the divestiture of Allegiance's
diagnostics manufacturing businesses. See Notes 1 and 3 to "Notes to Combined
Financial Statements" for additional information related to these divestitures.
25
<PAGE>
LITIGATION
See Note 12 to "Notes to Combined Financial Statements" for a detailed
description of the status of Allegiance's litigation.
Under the U.S. Superfund statute and many state laws, generators of
hazardous waste which is sent to a disposal or recycling site are liable for
cleanup of the site if contaminants from that property later leak into the
environment. The law provides that potentially responsible parties may be held
jointly and severally liable for the costs of investigating and remediating a
site. This liability applies to the generator even if the waste was handled by a
contractor in full compliance with the law.
As of June 30, 1996, Baxter has been named as a potentially responsible
party for cleanup costs at ten hazardous waste sites, for which Allegiance has
assumed responsibility. The largest assumed exposure is at the Thermo-Chem site
in Muskegon, Michigan. Allegiance expects that the total cleanup costs for this
site will be between $44 million and $65 million, of which Allegiance's share
will be approximately $5 million. This amount, net of payments of approximately
$1 million, has been accrued and is reflected in Allegiance's combined financial
statements. The estimated exposure for the remaining nine sites is approximately
$4 million, which has been accrued and reflected in Allegiance's combined
financial statements.
Upon resolution of any of the uncertainties described in Note 12 to "Notes
to Combined Financial Statements," Allegiance may incur charges in excess of
available reserves. Management does not believe that such charges will have a
material impact on Allegiance's results of operations, cash flow or financial
position.
26
<PAGE>
BUSINESS
OVERVIEW
Allegiance is America's largest provider of health-care products and
cost-management services for hospitals and other health-care providers.
Allegiance was formed in June 1996 as a wholly owned subsidiary of Baxter
consisting of Baxter's U.S. distribution, surgical and respiratory-therapy
products, and health-care cost-management services operations. These integrated
businesses recorded total sales of approximately $4.5 billion in 1995.
The economics of health care are undergoing rapid and fundamental change,
particularly in the United States, which is Allegiance's largest current market.
In the past, doctors and nurses were paid for their services with few cost
constraints. Today, large employers, insurance companies and HMOs are
negotiating set fees for the care of patients. For U.S. hospitals and health
systems, Allegiance's main customers, the pressure to reduce costs has never
been greater. At the same time, demand for health services is continuing to
climb with the dramatic growth of elderly populations in the United States and
abroad. This environment offers opportunities for Allegiance, which has invested
in integrated product and service programs that help medical professionals cope
with health care's new economics and demographic trends. Management believes
Allegiance, with its size, breadth of product line, customer relationships,
growing array of cost-management services, and financial strength, is
well-positioned competitively for the increasingly cost-conscious health-care
marketplace.
The health-care distribution market in the United States has experienced
intense competition and a resultant erosion in its margins in recent years in
response to the growth of managed care and increased consolidation among
health-care providers. Allegiance has responded by integrating its
market-leading distribution capabilities with a broad product offering, high
levels of customer service and innovative cost-management services. Within a
larger Baxter organization, Allegiance's cost structure was higher than industry
standards. As an independent public company, Allegiance intends to realign its
cost structure in order to improve returns from its distribution operations.
STRATEGIC PROFILE
Allegiance's mission is to align its objectives with those of its customers
- -- to help hospitals and others throughout the health-care field fulfill their
mission of serving patients. Allegiance intends to achieve this goal by
providing high-quality products, excellent service and new ways of managing
costs.
Allegiance's leading competitive position within the health-care marketplace
is a function of several key advantages, including its size and breadth of
products; an intense customer-service orientation; a growing portfolio of
cost-management services, and financial strength. Allegiance is the only
health-care company that fully integrates distribution, products and services to
bring greater efficiency to health care. Management believes its key competitive
advantages and integrated product and service offerings provide a solid platform
for growth.
SIZE AND BREADTH
Allegiance is the largest provider of health-care products and
cost-management services in the United States. Total net sales in 1995 were
approximately $4.5 billion. Allegiance offers more than 200,000 products -- the
broadest range of medical and laboratory products in the industry. Allegiance's
offering includes its own products as well as products manufactured by more than
2,000 independent suppliers. Allegiance operates more than 60 distribution
centers across the country, delivering products often on a just-in-time basis.
Management believes the size and scope of the Company are key competitive
advantages in the evolving health-care environment.
CUSTOMER SERVICE
Allegiance is recognized throughout the industry for its service to
customers. Allegiance develops relationships based on collaboration, quality
management processes and common goals. Its sales and
27
<PAGE>
service personnel are rewarded for achieving goals that are established jointly
with customers. Allegiance sets service standards in an industry where the time
from customer order to delivery can be critical. Management believes its focus
on customer service and satisfaction will continue to distinguish Allegiance
from competitors.
COST-MANAGEMENT SERVICES
Allegiance has pioneered a broad range of cost-management services, such as
shared-risk/shared-savings agreements that align Allegiance's goals with those
of its customers. Allegiance and its customers work together to reduce costs and
improve the quality of care. Allegiance assigns clinician consultants to these
cost-management customers. Allegiance's consultants use a proprietary "best
demonstrated practices" database of more than 500 procedures to help health-care
professionals use fewer supplies and improve outcomes. In addition to clinical
consulting, Allegiance offers a range of cost-management services, including
just-in-time delivery, procedure-based product packaging and outsourcing of
certain non-clinical functions. Management believes this portfolio of
cost-management services is a key competitive advantage in the increasingly
cost-conscious health-care market.
FINANCIAL STRENGTH
As America's leading provider of health-care products and cost-management
services, Allegiance has unparalleled opportunity to provide its services to
health-care providers. In 1995, on a pro forma basis, Allegiance achieved
approximately $4.5 billion of net sales, $950 million of gross profit and $350
million of earnings before interest, taxes, depreciation and amortization, or
EBITDA. Management believes that Allegiance's size and flexibility are important
competitive advantages in the rapidly changing health-care industry. In
addition, Allegiance has established an incentive compensation program for
senior managers that is linked to achieving certain cash-flow and earnings
objectives.
STRATEGIC PRIORITIES
Allegiance's strategy is to continue to improve the efficiency of and
returns from its distribution operations, to increase market penetration for its
self-manufactured and "best value" preferred distributed products, and to expand
its ability to help health-care professionals manage costs.
DISTRIBUTION SERVICES
Distribution services are the basis for Allegiance's relationships with
hospitals and laboratories and the starting point for strategic relationships
that align Allegiance's objectives with those of its customers. Strategic
priorities include improving the total economics of distribution; segmenting
customers based on their service needs; and increasing sales of "best value"
products, which result in better service for customers and higher returns for
Allegiance.
PRODUCT OFFERING
Allegiance's products -- from latex gloves to customized surgical-procedure
kits -- hold leadership positions in sales to U.S. hospitals. Allegiance's
strategic priorities include: (i) increasing sales through cost-management
agreements; (ii) increasing sales to non-hospital (alternate-site) health-care
providers in the United States and to customers in selected international
marketplaces; (iii) developing new integrated offerings of products and
cost-management services; (iv) selectively expanding the Allegiance product
portfolio; and (v) maintaining manufacturing operations at the highest levels of
quality and efficiency.
COST-MANAGEMENT SERVICES
Allegiance can bring to its customers more resources to control costs than
are offered by any competitor. Allegiance's strategy is to work in partnership
with hospitals and others in health care to help them become more efficient,
decrease costs and eliminate many of the logistical burdens that detract from
their primary business -- providing health care. Strategic priorities include
signing more shared-risk/shared-savings agreements and investing in new
cost-management services -- beyond supplies and logistics -- that help customers
reduce costs across a greater portion of their total operating budget.
28
<PAGE>
DISTRIBUTION SERVICES
Allegiance is the leading distributor of medical and laboratory products in
the United States. Allegiance can supply any of more than 200,000 different
products to its customers. Most items are available for shipment the same day
the customer requests them. Allegiance has more than 60 U.S. distribution
centers that deliver products to locations across the United States every day.
Each order can be tracked electronically. Allegiance has made substantial
investments in information systems to enhance its operations and improve service
to customers. In addition to its own surgical and respiratory-therapy products,
Allegiance distributes an array of products from more than 2,000 manufacturers
to a wide variety of health-care settings. Products range from full lines of
laboratory equipment and operating-room supplies to children's gift packs with
coloring books and crayons.
Allegiance divides its distributed products into two categories:
medical/surgical products ("med/ surg") and laboratory products. It is the
industry leader in both product categories. Allegiance's med/ surg portfolio
comprises a broad array of products, including sutures, endoscopy instruments,
needles and syringes, wound-care products, electrodes, face masks, bed pans,
wash basins, blood-pressure cuffs, stethoscopes, waste-disposal bags and others.
Increasingly, these products are being delivered just-in-time in ready-to-use
quantities. In some cases, Allegiance delivers the products directly to patient
floors. Allegiance distributes products not only to hospitals, but increasingly
to surgery centers, physician clinics, long-term and sub-acute care facilities,
home-care companies and other health-care providers. Laboratory products -- used
primarily to perform diagnostic tests -- are sold primarily to hospitals and
reference labs. These products include supplies such as test tubes, pipettes and
slides and equipment such as microscopes, centrifuges and scales.
THE VALUELINK-REGISTERED TRADEMARK- SERVICE
Allegiance's ValueLink-Registered Trademark- "stockless" inventory service
provides just-in-time deliveries of products in small, ready-to-use quantities
to hospitals and health-care networks primarily in metropolitan areas.
Allegiance was the first to bring just-in-time distribution to the health-care
industry and it remains the leader.
The ValueLink-Registered Trademark- service helps hospitals reduce inventory
levels and operating expenses. Orders from hospitals are transmitted
electronically and products are delivered several times a day, sometimes
directly to patient floors. In some ValueLink-Registered Trademark- accounts,
Allegiance personnel work at the hospital 24 hours a day, stocking shelves as
needed. Demand for this service has been strong. Allegiance ended 1995 with 130
ValueLink-Registered Trademark- accounts, compared with 114 in 1994 and 53 at
the end of 1993.
The ValueLink-Registered Trademark- service also serves as a channel through
which Allegiance delivers labor-saving, made-to-order packages containing
virtually every sterile and non-sterile product needed to perform dozens of
medical procedures, from open-heart bypass surgery to a hernia repair.
STRATEGIC SUPPLIER RELATIONSHIPS
In 1995, Allegiance began a process of consolidating its distribution
service around a carefully selected group of preferred suppliers, not
relinquishing product breadth, but seeking to reduce the number of suppliers
that furnish redundant items. This "best value" products strategy is designed to
strengthen Allegiance's relationships with fewer preferred suppliers, resulting
in savings to Allegiance and better service to its customers. At the same time,
Allegiance is continuing to streamline its distribution network to reduce costs,
improve service and strengthen the growing number of cost-management
relationships it is establishing with health-care providers and systems.
SUPPLY CHAIN MANAGEMENT
Supply-chain management requires precise knowledge and planning of customer
demand. Given Allegiance's size and scope, advanced information systems, and
balance of internally manufactured and externally supplied products, Allegiance
is well-positioned to maximize service to customers and minimize inventory
levels and variability. To accelerate this process, Allegiance has made major
investments in information technology that uses EDI, or electronic data
interchange, to exchange purchasing
29
<PAGE>
and inventory data with many of its suppliers and largest customers. Management
believes this integrated distribution and product offering strengthens
Allegiance's financial and competitive position. In 1995, Allegiance opened a
National Drop Ship Center in McGaw Park, Illinois, from which it distributes
less-frequently ordered items. By aggregating such products in one facility, the
amount of regional inventory variability has decreased and Allegiance has
achieved lower system-wide inventory levels.
SERVING HEALTH CARE OUTSIDE HOSPITALS
Health care increasingly is being delivered outside hospitals as health-care
providers re-evaluate their cost position and integrate into regional networks.
Many procedures previously performed in hospital operating rooms are now
performed in surgery centers, and some procedures that had been performed in
surgery centers are now taking place in physician clinics. To reach these
alternate-site customers -- surgery centers, physician clinics, subacute and
long-term care facilities, and home-care providers -- Allegiance has developed a
capability to make more frequent deliveries of smaller orders. Allegiance also
is entering into relationships with dealers that specialize in serving these
fast-growing markets. For some very small, or geographically remote customers,
Allegiance provides service through its Network Sales organization. This sales
and customer-service unit conducts business via the telephone, distributing in
some cases by commercial carrier.
PRODUCT OFFERING
Allegiance has differentiated itself by integrating its product offering
with its distribution and cost-management services. Allegiance offers the
industry's broadest range of medical and laboratory products, representing more
than 2,000 suppliers in addition to its own line of surgical and respiratory-
therapy products.
Increasingly, Allegiance is working with health professionals to reduce the
variety and number of products they buy under agreements that provide incentives
for Allegiance to help customers save money. In return, customers purchase a
greater portion of their supplies from Allegiance. Allegiance's manufacturing
units custom-assemble purchased products into procedure-based modules.
Allegiance's distribution system -- the largest and most technologically
advanced of the industry -- delivers the customized packages as they are needed.
No other single company provides such a comprehensive offering.
Allegiance operates 28 manufacturing plants, producing products used in
surgery and other medical procedures. All Allegiance plants are ISO 9000
certified. Most of Allegiance's self-manufactured products hold leading sales
positions, and investing further in these product lines is a strategic priority.
Allegiance has several major product lines, most of which enjoy leading
sales positions:
CUSTOM-STERILE-TM- PRODUCTS AND THE PBDS-TM- SERVICE
Allegiance's leading Custom-Sterile-TM- products and Procedure Based
Delivery System-TM- (PBDS-TM-) service help health-care providers save time and
money by assembling customer-designated supplies into single packages for
specific procedures. Custom-Sterile-TM- packs contain sterile, disposable
supplies made by Allegiance and other manufacturers. They are used to perform
dozens of procedures, from open-heart surgery and childbirth to treating cuts
and bruises. Customers also can select items for these packs from a data base of
approximately 30,000 products from nearly 800 manufacturers. PBDS-TM- modules
contain Custom-Sterile-TM- packs along with non-sterile supplies. PBDS-TM- is
one of Allegiance's fastest-growing product-based cost-management services.
Introduced in 1993, the service was in place in 175 hospitals by the end of 1995
and is expected to be in place in 400 hospitals by the end of 1996. PBDS-TM-
modules often are delivered to operating rooms and other hospital departments on
a just-in-time basis through Allegiance's ValueLink-Registered Trademark-
distribution service.
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CONVERTORS-REGISTERED TRADEMARK- PRODUCTS
The Convertors-Registered Trademark- product line is a leading brand of
single-use surgical drapes, gowns and apparel. These products provide barrier
protection for patients, doctors and clinical staff during surgery, childbirth
and other procedures. Many of Allegiance's Convertors-Registered Trademark-
products are included in Custom Sterile-TM- packs.
Convertors-Registered Trademark- also provides clean-room apparel and equipment
covers for industrial manufacturers.
GLOVES
Allegiance is the world's largest manufacturer and marketer of medical
gloves. Allegiance produces latex surgical and exam gloves in Malaysia, the
world's biggest source of natural latex, as well as in the United States.
Allegiance also manufactures vinyl exam gloves in the United States.
MEDI-VAC-REGISTERED TRADEMARK- PRODUCTS
Allegiance is the world's leading producer of fluid suction and collection
systems. The Medi-Vac-Registered Trademark- line consists of disposable suction
canisters and liners, suction tubing, and supporting hardware and accessories.
These products are used in the operating room to remove fluids and debris from
the body during surgery. Outside the operating room, the products are used when
fluid must be removed from a patient. The Medi-Vac-Registered Trademark- product
line also includes wound-drainage tubing and reservoirs used to remove fluid
from closed wounds, preventing infection and promoting healing.
Medi-Vac-Registered Trademark- autotransfusion systems collect blood for
reinfusion to the patient after filtration, allowing patients to receive their
own blood instead of transfusions from donors.
RESPIRATORY THERAPY PRODUCTS
Allegiance is a leading manufacturer of respiratory-therapy products, which
are used primarily to deliver oxygen to patients suffering from respiratory
distress. This product line includes ventilator circuits (tubing used to connect
patients to ventilator machines), oxygen masks, cannulae, and suction catheters
used to clear the trachea.
V. MUELLER
Allegiance's V. Mueller product line consists of a broad range of
stainless-steel surgical instruments and related products and services. The
business was established in 1895 and is known worldwide for the quality of its
instruments. Allegiance's V. Mueller division manufactures about a third of its
product line; other products are sourced from contract manufacturers. V. Mueller
products include clamps, needle-holders, retractors, specialty scissors and
forceps. The business unit also manufactures and markets the cost-saving
Genesis-TM- container system -- complete instrument sets, assembled to order,
sterilized and ready for use in reusable metal containers.
SPECIAL PROCEDURE PRODUCTS
Allegiance provides specialty biopsy needles for extracting samples of bone
marrow and soft tissue, and a variety of specialty procedure trays. These
include lumbar puncture trays, for measuring pressure and taking samples of
cerebrospinal fluid; thoracentesis trays, for withdrawing fluid from chest or
abdominal cavities, or from joints or cysts; amniocentesis trays, for obtaining
amniotic fluid to assess the condition of fetuses; and other diagnostic trays
and products used by obstetricians and gynecologists.
OTHER PRODUCTS
Allegiance is a manufacturer and a marketer of a range of other leading
products. It is the world's largest producer of latex urinary drainage
catheters, and it manufactures endotracheal tubes for respiration, anesthesia
and other therapies. Allegiance produces a broad line of hot and cold packs used
to provide localized temperature therapy for orthopedic injuries and for
patients recovering from childbirth and surgical procedures. It also
manufactures and markets a broad line of patient-preparation, hair-removal and
skin-care products such as clippers, razors, and basins, as well as special
soaps, sponges and scrub brushes for surgeons and other operating-room
personnel.
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COST-MANAGEMENT SERVICES
Reducing costs while improving quality of care is the most significant
challenge facing health-care providers today. Allegiance offers the broadest
range of cost-management services in the health-care industry and is investing
significantly to expand its offering further.
Through its shared-risk/shared-savings programs, Allegiance aligns its goals
with those of its customers. Under these agreements, which Allegiance introduced
to the health-care industry in late 1994, the Company and its customers agree to
share the savings if supply and related costs fall below an agreed-upon target,
or share the overage if these costs exceed the target. As of June 1, 1996,
Allegiance had shared-risk/shared-savings agreements covering 16 hospitals. In
shared-risk/shared-savings accounts, Allegiance assigns a clinical project
manager to work with a hospital's clinical staff to identify patterns of supply
usage, reduce variation by standardizing procedures and products, and eliminate
unnecessary supplies. Product standardization involves the selection and use of
one preferred brand from many options. Savings are realized from selecting the
best-value product, cost efficiencies from increased volume for the selected
brand and dealing with fewer vendors. Procedure standardization involves helping
clinical staff reach consensus on what supplies should be used in a given
procedure, then packaging and distributing the products. A typical assignment
for a clinical project manager lasts 24 months. Hospitals ultimately buy fewer
supplies, but a greater total portion of their supplies from Allegiance. Sales
of Allegiance's surgical products, for example, have grown more than 40% in
these accounts, while the hospitals' total supply costs have decreased. To the
extent that savings do not materialize from these efforts, Allegiance will be
obligated to reimburse the customer for a portion of the shortfall.
Much of the savings generated in these cost-management accounts come from
the implementation of PBDS-TM- modules, which contain Allegiance's
self-manufactured products, "best value" products from preferred suppliers, and
other third-party distributed products. These modules reduce hospital labor,
purchasing and other product and product-management costs. Rather than ordering
products separately for a procedure, customers can order a single catalog
number. Rather than nurses having to locate and assemble individual products for
a procedure, the products arrive in one package. Additional savings are achieved
when PBDS-TM- modules are delivered just-in-time, direct to the point of use
through Allegiance's ValueLink-Registered Trademark- service. Only Allegiance
can offer such a unique combination of products and cost management services.
In addition, Allegiance offers customers professional consulting services,
including modules derived from Allegiance's proprietary database of
"best-demonstrated practices," to help hospitals improve their clinical
operations, reduce lengths of stay and improve clinical outcomes. Allegiance
also offers, through its ACCESS-TM- program, the expertise and services of
leaders in other industries such as waste management, food service and property
management.
Each of Allegiance's manufacturing units also offers programs to help
customers control costs. There are programs to help health-care providers
standardize and select the most cost-effective drapes, gowns, gloves and other
products for various procedures; identify the most cost-effective mix of
products to include in custom procedure kits; sterilize, repair and refurbish
surgical instruments; and process reusable laundry, linen and textiles. The
Right Choice-TM- glove-management program, for example, helps health-care
providers select the most cost-effective glove for various procedures while
ensuring appropriate patient care and worker safety.
CONTRACTUAL ARRANGEMENTS; BUYING GROUPS
A substantial portion of Allegiance's products are sold through contracts
with purchasers. Some of these contracts are for terms of more than one year and
include limits on price increases. In the case of hospitals, clinical
laboratories and other facilities, these contracts may provide the customer
incentives to purchase particular products or categories of products. Some of
these contracts are entered into with hospital buying groups which seek to
achieve economies of scale in aggregating multiple hospitals' purchases from
Allegiance.
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For the last three years, as a percentage of Allegiance's total revenue,
sales to customers which are members of two of the largest hospital buying
groups, Premier Purchasing Partners, LP ("Premier," which is an affiliate of
Premier, Inc.) and VHA, Inc. ("VHA"), comprised 27% and 16% respectively in
1995, 23% and 13% respectively in 1994, and 23% and 13% respectively in 1993.
Some member hospitals in each group are free to purchase from the vendors of
their choice. The loss of the relationship with either group would not
necessarily mean the loss of sales attributable to all members of such group. In
addition, management of Allegiance believes that its relationships with its
larger customers are excellent. No other buying group or single customer
currently accounts for more than 10% of Allegiance's revenue.
SALES AND MARKETING
Allegiance conducts its selling efforts through its subsidiaries. These
subsidiaries have their own sales forces and direct their own sales efforts. In
the United States, Allegiance has implemented a "team selling" approach with
many of its hospitals, health systems and multi-hospital group customers. This
approach relies on an account manager to coordinate the various Allegiance
businesses' sales efforts. The account manager assumes responsibility for all
sales and service contacts with a given customer, acting as a focal point, and
assembles cross-functional teams as needed to meet that customer's requirements.
Allegiance manages its field sales and service organization on a regional basis.
The regional sales organization is designed to develop strong strategic
relationships with customers. In addition, sales are made to independent
distributors, dealers and sales agents. Outside of the U.S., Allegiance products
are distributed through Baxter. See "Relationship with Baxter."
RAW MATERIALS SUPPLIERS
Raw materials essential to Allegiance's business are purchased worldwide in
the ordinary course of business from numerous suppliers. The vast majority of
these materials are generally available, and no serious shortages or delays have
been encountered. Certain raw materials used in producing some of Allegiance's
products, including its latex products, are available only from a small number
of suppliers.
In some of these situations, Allegiance has long-term supply contracts with
its suppliers, although it does not consider its obligations under such
contracts to be material. Allegiance does not always recover cost increases
through customer pricing due to contractual limits and market pressure on such
price increases. See "-- Contractual Arrangements; Buying Groups" and
"Relationship with Baxter."
PATENTS AND TRADEMARKS
Allegiance does not consider any one or more of the patents and trademarks
it holds, or the licenses granted to or by it with respect to any patent or
trademark to be essential to its businesses.
COMPETITION
Allegiance is faced with substantial competition in all of its markets. The
changing health-care environment in recent years has led to increasingly intense
competition among health-care suppliers. Competition is focused on price,
service and product performance. Pressure in these areas is expected to
continue. See "Risk Factors -- United States Competition."
The future financial success of health-care product and service companies,
such as Allegiance, will depend on their ability to work with health-care
customers to help them enhance their competitiveness through cost management
initiatives. Management believes it can help its customers achieve savings in
the total health-care system by automating supply-ordering procedures,
optimizing distribution networks, improving utilization and materials management
and achieving economies through product and procedure standardization, and
performing certain non-clinical services on an outsourced basis. Management
further believes that its strategy of providing high levels of service to its
health-care customers and achieving the best overall cost in its delivery of
health-care products and services is compatible with any anticipated realignment
of the U.S. health-care system that may ultimately occur.
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QUALITY CONTROL
Allegiance places great emphasis on providing quality products and services
to its customers. An integrated network of quality systems, including control
procedures that are developed and implemented by technically trained
professionals, result in rigid specifications for raw materials, packaging
materials, labels, sterilization procedures and overall process control. The
quality systems integrate the efforts of raw material and finished goods
suppliers to provide the highest value to customers. On a statistical sampling
basis, a quality assurance organization tests components and finished goods at
different stages in the manufacturing process to assure that exacting standards
are met.
GOVERNMENT REGULATION
Most of the products manufactured or sold by Allegiance in the United States
are subject to regulation by the Food and Drug Administration ("FDA"), as well
as by other federal and state agencies. The FDA regulates the introduction and
advertising of new drugs and devices as well as manufacturing procedures,
labeling and record keeping with respect to drugs and devices. The FDA has the
power to seize adulterated or misbranded drugs and devices or to require the
manufacturer to remove them from the market and the power to publicize relevant
facts. From time to time, Baxter has removed products from the market that were
found not to meet acceptable standards. This may occur with respect to
Allegiance in the future. Product regulatory laws exist in most other countries
where Allegiance will do business.
Environmental policies of Allegiance mandate compliance with all applicable
regulatory requirements concerning environmental quality and contemplate, among
other things, appropriate capital expenditures for environmental protection.
Various non-material capital expenditures for environmental protection were made
by Baxter related to the Allegiance Business during 1995 and similar
expenditures are planned for 1996. See "-- Legal Proceedings."
EMPLOYEES
As of August 1, 1996, Allegiance employed approximately 22,000 people.
LEGAL PROCEEDINGS
As of the Distribution Date, Allegiance assumed the defense of litigation
involving claims related to the Allegiance Business, including certain claims of
alleged personal injuries as a result of exposure to natural rubber latex gloves
described below. Allegiance has not been named as a defendant in this litigation
but will be defending and indemnifying Baxter Healthcare Corporation ("BHC"), as
contemplated by the Reorganization Agreement, for all expenses and potential
liabilities associated with claims pertaining to this litigation. It is expected
that Allegiance will be named as a defendant in future litigation, and may be
added as a defendant in existing litigation.
BHC was one of ten defendants named in a purported class action filed in
August 1993, on behalf of all medical and dental personnel in the state of
California who allegedly suffered allergic reactions to natural rubber latex
gloves and other protective equipment or who allegedly have been exposed to
natural rubber latex products. (KENNEDY, ET AL., V. BAXTER HEALTHCARE
CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632). The case alleges
that users of various natural rubber latex products, including medical gloves
made and sold by BHC and other manufacturers, suffered allergic reactions to the
products ranging from skin irritation to systemic anaphylaxis. The Court granted
defendants' demurrer to the class action allegations. On February 29, 1996, the
California Appellate Court upheld the trial court's ruling. In April 1994, a
similar purported class action, GREEN, ET AL. V. BAXTER HEALTHCARE CORPORATION,
ET AL., (Cir. Ct., Milwaukee Co., WI, 94CV004977) was filed against Baxter and
three other defendants. The class action allegations have been withdrawn, but
additional plaintiffs added individual claims. On July 1, 1996, the Company was
served with a similar purported class action, WOLF V. BAXTER HEALTHCARE CORP. ET
AL., Circuit Court, Wayne County, MI, 96-617844NP. The Company is the only named
defendant in that suit. As of August 19, 1996, 36 additional lawsuits have been
served on BHC containing similar allegations of sensitization to natural rubber
latex products. Allegiance intends to vigorously defend against these actions.
Since none of these cases has proceeded to a hearing on the merits, Allegiance
is unable to evaluate the extent of any potential liability, and unable to
estimate any potential loss.
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Allegiance believes that a substantial portion of the liability and defense
costs related to natural rubber latex gloves cases and claims will be covered by
insurance, subject to self-insurance retentions, exclusions, conditions,
coverage gaps, policy limits and insurer solvency. BHC has notified its
insurance companies that it believes that these cases and claims are covered by
BHC's insurance. Most of BHC's insurers have reserved their rights (i.e.,
neither admitted nor denied coverage), and may attempt to reserve in the future,
the right to deny coverage, in whole or in part, due to differing theories
regarding, among other things, the applicability of coverage and when coverage
may attach. It is not expected that the outcome of these matters will have a
material adverse effect on Allegiance's business, results of operations or
financial condition.
Under the United States Superfund statute and many state laws, generators of
hazardous waste which is sent to a disposal or recycling site are liable for
cleanup of the site if contaminants from that property later leak into the
environment. The law provides that potentially responsible parties may be held
jointly and severally liable for the costs of investigating and remediating a
site. This liability applies to the generator even if the waste was handled by a
contractor in full compliance with the law.
As of June 30, 1996, BHC has been named as a potentially responsible party
for cleanup costs at ten hazardous waste sites for which Allegiance has assumed
responsibility. Allegiance's largest exposure is at the Thermo-Chem site in
Muskegon, Michigan. Allegiance expects that the total cleanup costs for this
site will be between $44 million and $65 million, of which Allegiance's share
will be approximately $5 million. This amount, net of payments of approximately
$1 million, has been accrued and is reflected in Allegiance's combined financial
statements. The estimated exposure for the remaining nine sites is approximately
$4 million, which has been accrued and reflected in Allegiance's combined
financial statements. It is not expected that the outcome of these matters will
have a material adverse effect on Allegiance's business, results of operations
or financial condition.
BHC is a defendant in a number of other claims, investigations and lawsuits
for which Allegiance has assumed responsibility. Based on the advice of counsel,
management does not believe that the other claims, investigations and lawsuits
individually or in the aggregate, will have a material adverse effect on
Allegiance's business, results of operations or financial condition.
PROPERTIES
Allegiance owns or has long-term leases on substantially all of its major
manufacturing facilities. Allegiance maintains 28 manufacturing facilities in
the United States, and also operates manufacturing facilities in France,
Malaysia, Malta and Mexico. Allegiance owns or leases 60 distribution centers in
the United States.
Allegiance maintains a continuing program for improving its properties,
including the retirement or improvement of older facilities and the construction
of new facilities. This program includes improvement of manufacturing facilities
to enable production and quality control programs to conform with the current
state of technology and government regulations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's directors and executive officers and their ages as of June 30,
1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Lester B. Knight................ 38 Chairman of the Board and Chief Executive Officer
Joseph F. Damico................ 42 President and Chief Operating Officer
Peter B. McKee.................. 58 Senior Vice President and Chief Financial Officer
Kathy Brittain White............ 46 Senior Vice President and Chief Information Officer
Robert B. DeBaun................ 46 Corporate Vice President
Mark J. Ehlert.................. 42 Corporate Vice President
Gail Gaumer..................... 44 Corporate Vice President of Allegiance Healthcare Corporation
Robert J. Zollars............... 39 Group Vice President of Allegiance Healthcare Corporation
Richard C. Adloff............... 38 Corporate Vice President and Controller
William L. Feather.............. 49 Senior Vice President, General Counsel and Secretary
Leonard G. Kuhr................. 38 Corporate Vice President and Treasurer
Silas S. Cathcart............... 70 Director
David W. Grainger............... 68 Director
Arthur F. Golden................ 50 Director
Michael D. O'Halleran........... 46 Director
Kenneth D. Bloem................ 50 Director
Connie Curran, Ed.D............. 49 Director
Roger L. Sisterman.............. 52 Corporate Vice President of Allegiance Healthcare Corporation
</TABLE>
LESTER B. KNIGHT has been chairman of the board and chief executive officer
of Allegiance, since June 1996. From 1992 to June 1996, Mr. Knight was executive
vice president of Baxter, responsible for its U.S. Healthcare business. Mr.
Knight joined Baxter in 1981 and served in several manufacturing,
research-and-development and management positions before being named general
manager of Baxter's renal business in 1987. He was named president of the renal
business in 1988 and president of the I.V. Systems business the following year.
He was elected a corporate vice president of Baxter in 1990, and was named
executive vice president in 1992.
JOSEPH F. DAMICO has been president and chief operating officer of
Allegiance, since June 1996. From 1993 to June 1996, Mr. Damico was group vice
president, responsible for Baxter's Field Sales, Health Systems, and
Distribution organizations in the U.S. Healthcare business. Mr. Damico joined
Baxter in 1979 as a sales representative and served in a variety of management
positions before being
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named vice president and general manager of the company's Custom Sterile
division in 1987. He was named president of the Convertors/Custom Sterile
business in 1989 and also assumed responsibility for Baxter's Pharmaseal
division in 1992. He was elected a corporate vice president the same year.
PETER B. MCKEE has been senior vice president and chief financial officer of
Allegiance since September 1996. From May 1996 to June 1996, Mr. McKee worked at
Baxter. Prior to that date, he had been senior vice president and chief
financial officer at FoxMeyer Health Corporation, a leading pharmaceutical
distributor, since 1993. Mr. McKee's career as a financial executive spans more
than 35 years. Before joining Dallas-based FoxMeyer, he worked in financial
consulting and held CFO positions at Metro Airlines and Swift Independent
Packing. He also has held senior financial positions at Ford Motor Company and
Cooper Industries Inc.
KATHY BRITTAIN WHITE has been senior vice president and chief information
officer of Allegiance since September 1996. Prior to that date, Ms. White served
as corporate vice president and chief information officer of Baxter, since 1995.
She came to Baxter from AlliedSignal Corporation, where she had served as vice
president, information systems and services since 1993. Prior to that, she was
vice president, corporate services, for Guilford Mills, Inc.
ROBERT B. DEBAUN has been a corporate vice president of Allegiance,
responsible for human resources, since September 1996. Prior to that date, Mr.
DeBaun served as vice president of human resources for the U.S. Distribution
organization of Baxter, since 1991. Mr. DeBaun joined Baxter in 1981 as manager
of college relations. In 1986, after a series of increasingly responsible
positions, he was named vice president, human resources, for Baxter's I.V.
Systems group.
MARK J. EHLERT has been a corporate vice president of Allegiance,
responsible for quality assurance and regulatory affairs, since September 1996.
Prior to that date, Mr. Ehlert served as vice president, quality and regulatory
affairs, for Baxter's U.S. Sales and Distribution organization, since 1994. Mr.
Ehlert joined Baxter in 1975. In 1990, after a series of increasingly
responsible positions, he was promoted to general manager of Baxter's Singapore
manufacturing operations.
GAIL GAUMER has been a corporate vice president of a subsidiary of
Allegiance, responsible for strategy and business development as well as cost
management services, since September 1996. Prior to that date, Ms. Gaumer served
as president of marketing, strategy and business development for Baxter's U.S.
Healthcare business, since 1995. Ms. Gaumer joined Baxter in 1980 and held a
number of positions in its subsidiary's Renal business. Most recently, she was
president of Renal-Europe. Before that, she was vice president of global
marketing, planning and new business development, and then vice president and
general manager for the Renal business. Before joining Baxter, she worked for
ALZA Corporation, a drug-delivery company. Ms. Gaumer is a director of FemRx,
Inc.
ROBERT J. ZOLLARS has been a group vice president of a subsidiary of
Allegiance since September 1996. He leads the regional companies and health
systems organizations of Allegiance. Prior to that date Mr. Zollars served as
president of Baxter's U.S. Distribution, responsible for its Hospital Supply/
Scientific Products, Life Sciences, Hospitex, Dietary Products, and ValueLink
distribution businesses, since 1994. Mr. Zollars joined Baxter in 1979 as a
sales representative for the Scientific Products division and rose to vice
president and general manager of the division in 1983. In 1986, he was named
president of the Dietary Products division, and in 1990, became president of the
I.V. Therapy business. He was named president of the Hospital Supply division in
1992, and assumed additional responsibility for Scientific Products in 1993.
RICHARD C. ADLOFF has been a corporate vice president and controller of
Allegiance, since September 1996. Prior to that date, Mr. Adloff served as vice
president of finance for Baxter's U.S. Healthcare business, since 1994. Mr.
Adloff joined Baxter in 1980 with the Hospital Supply division. In 1990, after a
series of increasingly responsible positions in distribution and manufacturing,
he was promoted to vice president -- finance of IV Systems.
WILLIAM L. FEATHER has been senior vice president, general counsel and
secretary of Allegiance since June 1996 and will head its law function. Prior to
that date, Mr. Feather served as associate general
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counsel for Baxter's U.S. Healthcare business since January 1996. Mr. Feather
joined Baxter in 1986 as corporate counsel. He was promoted to senior counsel in
1990 and assistant general counsel in January 1994.
LEONARD G. KUHR has been a corporate vice president and treasurer of
Allegiance since September 1996. He will also supervise its tax function. Prior
to June 1996, Mr. Kuhr served as vice president, capital markets, in a Baxter
subsidiary's Treasury group since 1995. From 1992 to 1995, Mr. Kuhr was vice
president, finance, for Baxter's Surgical business. Mr. Kuhr joined Baxter in
1979 and served in a variety of management positions in the Corporate Tax
department, in both domestic and international functions. He was named vice
president and controller of the Specialty Business group in Baxter's U.S.
Distribution business in 1992.
SILAS S. CATHCART has been a director of Allegiance since September 1996.
Mr. Cathcart is a director of General Electric Company and The Quaker Oats
Company. Mr. Cathcart is also a trustee of Northern Funds Mutual Fund. From 1985
to 1987, and from 1990 to the present, Mr. Cathcart served as a director of
Baxter. From 1970 to 1985 he served as a director of American Hospital Supply
Corporation. Mr. Cathcart served as chairman of the board and chief executive
officer of Kidder, Peabody Group Inc., an investment banking firm, from 1988 to
1989, and as president and chief executive officer from 1987 to 1988. From 1972
to 1986, he was chairman of Illinois Tool Works, Inc.
DAVID W. GRAINGER has been a director of Allegiance since September 1996.
Since 1968, Mr. Grainger has been chairman of the board of W. W. Grainger, Inc.,
a nationwide distributor of equipment, components and supplies. He joined W. W.
Grainger, Inc. in 1952. From 1990 to the present, Mr. Grainger has served as a
director of Baxter.
ARTHUR F. GOLDEN has been a director of Allegiance since September 1996.
Since 1978, Mr. Golden has been a partner of Davis, Polk & Wardwell, a general
practice law firm. He is a director of Esco Electronics Corporation and Borg
Warner Security Corporation.
MICHAEL D. O'HALLERAN has been a director of Allegiance since September
1996. Since 1995, Mr. O'Halleran has been president of Aon Group, Inc., an
insurance holding company, and since 1988, he has been the chairman of the board
of Aon Risk Services, Inc., a subsidiary of that company.
KENNETH D. BLOEM has been a director of Allegiance since September 1996.
Since 1994, Mr. Bloem has been the chief executive officer of The Advisory Board
Company, a privately held research and publishing company. From 1989 to 1994, he
was the president of Stanford University Hospital.
CONNIE CURRAN has been a director of Allegiance since September 1996. Since
1995, Ms. Curran has been president of CurranCare, Inc., a nation-wide hospital
based home care management company. From 1990 to 1995, she was the vice
chairman/national director of patient services of APM, Inc.
ROGER L. SISTERMAN has been a corporate vice president of a subsidiary of
Allegiance, responsible for manufacturing worldwide, since September 1996. Prior
to that date, Mr. Sisterman served as vice president of manufacturing and
operations for the U.S. Healthcare business of Baxter since 1994. Mr. Sisterman
joined Baxter in 1977 and held a number of positions. In 1985, Mr. Sisterman
became director of materials management for Baxter's Pharmaseal division. In
1987, he was promoted to vice president of manufacturing for Baxter Custom
Sterile, and in 1991, for Baxter Convertors/Custom Sterile.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation of Allegiance provides that the Allegiance
directors (other than those who may be elected by the holders of any series of
Preferred Stock of Allegiance under specified circumstances), will be divided
into three classes of directors, with the classes to be as nearly equal in
number as possible. The Certificate of Incorporation provides that the term of
office of the first class will expire at the 1997 annual meeting of stockholders
("Class I"), the term of office of the second class will expire at the 1998
annual meeting of stockholders ("Class II") and the term of office of the third
class will
38
<PAGE>
expire at the 1999 annual meeting of stockholders ("Class III"). Messrs.
Cathcart and O'Halleran serve as Class I directors, Messrs. Damico and Golden
and Ms. Curran serve as Class II directors and Messrs. Knight, Grainger and
Bloem serve as Class III directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Allegiance has established two Committees, the
Audit and Public Policy Committee and the Compensation and Nominating Committee.
The Audit and Public Policy Committee reviews the scope of the audit by the
independent auditors, inquires into the effectiveness of Allegiance's accounting
and internal control functions, and recommends to the Allegiance Board any
changes in the appointment of independent auditors which the committee may deem
to be in the best interests of the corporation and its stockholders. The
committee also assists the Board in establishing and monitoring compliance with
the ethical standards of Allegiance. The Audit and Public Policy Committee also
reviews the policies of Allegiance to assure they are consistent with its social
responsibility to employees, customers and to society, including policies
relating to health and safety and ethics. The committee consists solely of
directors who are independent of management. Members of this committee consist
of Mr. O'Halleran (Chairman), Mr. Cathcart, Mr. Grainger, Mr. Golden, Mr. Bloem
and Ms. Curran.
The Compensation and Nominating Committee determines the compensation of
officers, other than the chairman of the board and chief executive officer,
exercises the authority of the Board concerning employee benefit plans,
administers Allegiance's stock option plans, and advises the Board on other
compensation and employee benefit matters. In addition, the committee makes
recommendations to the Board regarding candidates for election as directors of
Allegiance. The committee also advises the Board on board committee structure
and membership. The committee consists solely of directors who are independent
of management. Members of this committee consist of Mr. Cathcart (Chairman), Mr.
Golden, Mr. O'Halleran, Mr. Bloem and Ms. Curran.
COMPENSATION OF DIRECTORS
Cash compensation of non-employee directors consists of a $1,000 fee for
each board and each committee meeting attended. Chairpersons of committees
receive an additional annual retainer of $3,000. Employee directors are not
compensated separately for their board or committee activities.
In addition, to align the directors' interests more closely with the
interest of all of the Company's stockholders, each non-employee director
receives options to purchase (at fair market value on the date of grant) 10,000
shares of Allegiance common stock under the Allegiance Corporation 1996 Outside
Director Incentive Compensation Plan. Such options vest one year after date of
grant. An aggregate of 350,000 shares of common stock are reserved for issuance
under such plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table shows the 1995 compensation for services rendered by the
chairman of the board and chief executive officer of Allegiance and the
individuals who are expected to be the next four most highly compensated
executive officers of Allegiance (collectively, the "named executive officers")
based on their 1995 Baxter compensation. The compensation shown in this table
was paid by Baxter (or its subsidiaries) for all of their services to Baxter and
its subsidiaries. References to "restricted stock" and "stock options" mean
restricted shares of common stock of Baxter ('Baxter Stock') and options to
purchase Baxter Stock. Amounts shown are for each individual in their last
position with Baxter, and do not necessarily reflect the compensation which
these five individuals will earn in their new capacities as executive officers
of Allegiance.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
------------------------------------------------ RESTRICTED SECURITIES PAYOUTS
OTHER ANNUAL STOCK UNDERLYING ------------- ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS LTIP PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(1) ($) ($)(2) (#) ($) ($)(3)
- ---------------------- --------- --------- --------- --------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lester B. Knight 1995 $ 367,000 $ 350,000 $ 12,134 $ 23,139 44,800 -0- $ 23,241
Chairman of the Board
& Chief Executive
Officer
Joseph F. Damico 1995 $ 285,000 $ 170,000 $ 2,432 -0- 22,900 -0- $ 13,866
Chief Operating
Officer
Kathy B. White 1995 $ 182,692 $ 142,500 $ 929 $ 319,600 41,000 -0- $ 0
Corporate Vice
President
Robert J. Zollars 1995 $ 230,000 $ 43,200 -- -0- 10,000 -0- $ 9,346
Corporate Vice
President
Gail Gaumer 1995 $ 200,000 $ 43,200 -- -0- 8,500 -0- $ 8,446
Corporate Vice
President
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned by the named executive
officers during the year indicated, including amounts deferred at the
election of those officers. Bonuses are paid in the year following the year
during which they are earned.
(2) Amounts shown represent the market value at the date of grant, without
giving effect to the diminution in value attributable to the restrictions on
such stock. The amounts shown in this column include grants to the specified
named executive officers under Baxter's 1989 Long-Term Incentive Plan. The
restricted shares granted to Mr. Knight and Ms. White under that Plan could
be earned based on 1996 performance and, if so, they would ordinarily vest
on December 31, 1997. As of December 31, 1995, the number and value of the
aggregate Baxter restricted stock holdings of the named executive officers
are as follows: Mr. Knight -- 22,000 shares ($921,250); Mr. Damico -- 11,508
shares ($481,898); Ms. White -- 9,400 shares ($393,625); Mr. Zollars --
6,931 shares ($290,236); Ms. Gaumer -- 4,408 shares ($184,585). Dividends
are payable on all outstanding shares of Baxter restricted stock held by all
executives at the same rate and time and in the same form in which dividends
are payable on all outstanding shares of Baxter Stock, as required by
Baxter's 1987 Incentive Compensation Program.
(3) Amounts shown represent Baxter matching contributions in Baxter's Incentive
Investment Plan, a qualified section 401(k) profit sharing plan, additional
matching contributions in Baxter's deferred compensation plan and the dollar
value of Baxter split-dollar life insurance benefits. Those three amounts
for 1995, expressed in the same order as identified above, for the named
executive officers are as follows: Mr. Knight -- $4,500, $18,510, and $231;
Mr. Damico -- $4,500, $9,300, and $66; Ms. White -- (none); Mr. Zollars --
$4,500, $4,762, and $84; Ms. Gaumer -- $4,500, $3,852, and $94.
40
<PAGE>
Of the five named executive officers, Mr. Zollars and Ms. Gaumer are
eligible to receive a special incentive payment equal to one times annual base
salary. The payment will be made on December 31, 1996 as long as they have not
voluntarily resigned, been terminated for cause, or have accepted a position
outside of the Allegiance organization.
STOCK OPTION GRANTS
The following table contains information relating to the Baxter stock option
grants made in 1995 under Baxter's 1994 Incentive Compensation Program to the
named executive officers.
BAXTER OPTION GRANTS IN LAST FISCAL YEAR (1)(2)(3)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES IN EXERCISE OR PRICE APPRECIATION FOR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION --------------------------------------------
NAME GRANTED (#) YEAR (4) ($/SH)(5) DATE 0% ($) 5% ($)(6) 10% ($)(6)
- -------------------------- ------------ ------------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Knight................ 44,800 0.9% $ 37.25 7/29/05 $ -0- $ 1,049,498 $ 2,659,637
Mr. Damico................ 22,900 0.4% $ 37.25 7/29/05 $ -0- $ 536,462 $ 1,359,502
21,000 0.4% $ 37.25 7/29/05 $ -0- $ 491,952 $ 1,246,705
Ms. White (7)............. 20,000 0.4% $ 34.00 4/24/05 $ -0- $ 427,648 $ 1,083,744
Mr. Zollars............... 10,000 0.2% $ 37.25 7/29/05 $ -0- $ 234,263 $ 593,669
Ms. Gaumer................ 8,500 0.2% $ 37.25 7/29/05 $ -0- $ 199,124 $ 504,619
</TABLE>
- ---------------
(1) No SARs were granted by Baxter in 1995.
(2) All options shown in this table except for the 20,000 share grant to Ms.
White, become exercisable five years from the date of grant, subject to
accelerated vesting as follows. One hundred percent of the option will
become exercisable on the first business day after the ninetieth consecutive
calendar day during which the average fair market value of Baxter Stock
equals or exceeds $50 per share. Ms. White's 20,000 share grant becomes
exercisable five years from the date of grant, subject to accelerated
vesting as follows. Fifty percent of the option became exercisable on
December 27, 1995; fifty percent of the option will become exercisable on
the first business day after the ninetieth consecutive calendar day during
which the average fair market value of Baxter Stock equals or exceeds $50
per share. The exercise price may be paid in cash or shares of Baxter Stock.
Baxter's 1994 Program provides that if specified corporate control changes
occur, all outstanding options will become exercisable immediately.
(3) The Compensation Committee of the Board of Directors of Baxter adopted an
equitable adjustment formula applicable to all options to purchase Baxter
Stock which are outstanding as of the Distribution Date. The formula, which
is consistent with tax and accounting rules, is intended to preserve the
value of the options after the Distribution Date.
(4) In 1995, Baxter granted options on approximately 5.2 million shares of
Baxter Stock to approximately 6,400 employees.
(5) The exercise price shown is the closing price of Baxter Stock on the date of
grant, which was July 31, 1995 for all options except the option granted to
Ms. White for 20,000 shares. The exercise price shown for the 20,000 shares
granted to Ms. White is the closing price of Baxter Stock on the date of
grant which was April 24, 1995.
(6) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates
of stock price appreciation are set by the Commission's executive
compensation disclosure rules and are not intended to forecast the future
appreciation of Baxter Stock.
(7) The 20,000 share grant to Ms. White was an element of the compensation
package provided to her upon joining Baxter in her current role. The 21,000
share grant she received was part of Baxter's normal option grant process.
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<PAGE>
STOCK OPTION EXERCISES
The following table contains information relating to the exercise of Baxter
stock options by the named executive officers in 1995 as well as the number and
value of their unexercised Baxter options as of December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END (#)(1) AT FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Knight............... -0- N/A 46,757 53,800 $ 619,426 $ 350,075
Mr. Damico............... -0- N/A 32,140 27,733 $ 486,278 $ 182,652
Ms. White................ -0- N/A 10,000 31,000 $ 78,750 $ 175,875
Mr. Zollars.............. -0- N/A 27,784 12,534 $ 429,462 $ 82,722
Ms. Gaumer............... -0- N/A 20,320 9,867 $ 310,449 $ 61,014
</TABLE>
- ------------
(1) The sum of the numbers under the Exercisable and Unexercisable columns of
this heading represents each named executive officer's total outstanding
Baxter options.
(2) The dollar amounts shown under the Exercisable and Unexercisable columns
represent the number of exercisable and unexercisable Baxter options,
respectively, which were "In-the-Money" on December 31, 1995, multiplied by
the difference between the closing price of Baxter Stock on December 31,
1995, which was $41.875 per share, and the exercise price of the Baxter
options. For purposes of these calculations, In-the-Money options are those
with an exercise price below $41.875 per share.
BAXTER PENSION PLAN
The Baxter International Inc. and Subsidiaries Pension Plan's (the "Baxter
Pension Plan") normal retirement benefit equals 1.75% of the average of an
employee's five highest consecutive calendar years of earnings out of his or her
last ten calendar years of earnings ("Final Average Pay"), multiplied by the
employee's years of benefit service, as determined by the Baxter Pension Plan.
In general, the earnings covered by the Baxter Pension Plan include salary,
annual cash bonuses and other regular pay. The figures shown include benefits
payable under the Baxter Pension Plan and Baxter's related defined benefit
excess pension plan. The estimates assume that benefit payments begin at age 65
under a single life annuity form. The figures are net of the Social Security
offset specified by the Baxter Pension Plan's benefit formula and therefore do
not include Social Security benefits payable from the federal government. The
primary Social Security amount used in the calculations is that payable for an
individual attaining age 65 in 1995.
Eligible Allegiance employees (transferring employees) will continue to
participate for purposes of benefit accruals in the Baxter Pension Plan through
the Distribution Date. All benefit accruals for Allegiance employees in the
Baxter Pension Plan cease as of the Distribution Date and all Allegiance
employees will be fully vested in their accrued benefits under the Baxter
Pension Plan as of such date. The terms of the Baxter Pension Plan will be
amended with respect to Allegiance employees to impute certain compensation paid
by Allegiance during 1996 in order to provide for a full year's earnings for
1996 to be included in determining the Final Average Pay of transferring
employees. Allegiance employees with vested accrued benefits in the Baxter
Pension Plan will have those benefits maintained by the Baxter Pension Plan
until they are eligible or required to receive them.
42
<PAGE>
PENSION PLAN TABLE
Estimated Annual Retirement Benefits
Years of Pension Plan Participation (1)
<TABLE>
<CAPTION>
FINAL AVERAGE
PAY (1) 15 20 25 30 35
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 22,300 $ 29,800 $ 37,200 $ 44,700 $ 52,300
200,000 48,600 64,800 81,000 97,200 113,500
300,000 74,800 99,800 124,700 149,700 174,800
400,000 101,100 134,800 168,500 202,200 236,000
500,000 127,300 169,800 212,200 254,700 297,300
600,000 153,600 204,800 256,000 307,200 358,500
700,000 179,800 239,800 299,700 359,700 419,800
</TABLE>
- ------------
(1) As of January 1, 1996, the named executive officers' years of Baxter Pension
Plan participation and Final Average Pay for purposes of calculating annual
retirement benefits payable under the Baxter Pension Plan are as follows:
Mr. Knight -- 13 years and $538,702; Mr. Damico -- 16 years and $370,048;
Ms. White -- 0 years and $0; Mr. Zollars -- 16 years and $254,798; Ms.
Gaumer -- 16 years and $216,743.
Although age 65 is the normal retirement age under the Baxter Pension Plan,
the Baxter Pension Plan has early retirement provisions based on a "point"
system. Under the point system, each participant is awarded one point for each
year of benefit service as determined by the Baxter Pension Plan and one point
for each year of age. Participants who terminate employment after accumulating
65 points, and who wait to begin receiving their Baxter Pension Plan benefits
until they have 85 points, receive the same Baxter Pension Plan benefits they
would otherwise receive at age 65, regardless of their actual age when they
begin receiving their Baxter Pension Plan benefits.
BAXTER STOCK HELD BY ALLEGIANCE EMPLOYEES
Baxter restricted stock held by Allegiance employees will continue to be
earned, based upon performance through December 31, 1996, and vested, in
accordance with the terms and conditions of those grants, as if the employee's
service with Allegiance were service with Baxter. Allegiance employees holding
Baxter Stock Options will, as of the Distribution Date, be considered terminated
and, as such, vesting and exercise will be in accordance with the terms and
conditions of the outstanding grants.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of Allegiance's executive officers for periods beginning on
and after the Distribution Date will be determined by the Board of Directors or
its Compensation and Nominations Committee.
COMPENSATION PHILOSOPHY. Allegiance's philosophy is to provide compensation
opportunities supporting Allegiance's values. Forms and levels of total
compensation will be structured to be competitive when compared to other
companies of similar focus and size. These companies are reported in surveys
whose participants include many companies in the Fortune 500 as well as other
companies with which Allegiance and its subsidiaries compete for executive
talent ("comparable companies"). This philosophy is intended to assist
Allegiance in attracting, retaining and motivating executives with superior
leadership and management abilities. Consistent with this philosophy, a total
compensation structure has been determined for each officer, including Mr.
Knight, consisting primarily of salary, cash bonus, stock options and benefits.
The proportions of these elements of compensation will vary among the officers
depending upon their levels of responsibility. The senior executive officers
will receive a larger portion of their total compensation through
performance-based incentive plans, which place a greater percentage of their
compensation at risk while more closely aligning their interests with the
interests of Allegiance's stockholders.
Allegiance's philosophy with respect to the cap on the tax-deductibility of
executive compensation will be to maximize the benefit of tax laws for
Allegiance's stockholders by seeking performance-based
43
<PAGE>
exemptions where consistent with Allegiance's compensation policies and
practices. Allegiance will adopt performance goals for the officer cash bonus
plan which are expected to satisfy the deductibility requirements with respect
to any payments under those plans.
COMPENSATION ELEMENTS. Salaries will be established each year at a level
primarily intended to be competitive at the 50th percentile with salaries of
executive officers in comparable companies. In addition, officer salaries will
be based on the officer's individual performance. Bonuses are intended to
provide executive officers with an opportunity to receive additional cash
compensation but only if they earn it through Allegiance's achievement of strong
performance results as measured by key financial indicators. Each year, a bonus
target will be established for each executive officer at the 50th percentile of
the market data of comparable companies. After year-end results are calculated,
each officer's bonus will be determined based on Allegiance's performance
against the key financial indicators established for the year. Achievement of
the performance objective will determine an officer's opportunity to earn bonus
compensation either significantly above or below the 50th percentile of
opportunity within comparable companies.
Stock options will be granted under the Allegiance Corporation's 1996
Incentive Compensation Program. They represent a vehicle for more closely
aligning management's and stockholders' interests, specifically motivating
executives to remain focused on the market value of Allegiance Stock. The number
of stock options granted to executive officers is expected to be formula-driven.
The formula is designed to provide an opportunity to earn stock-based
compensation at a third-quartile level compared to executives in comparable
companies.
1996 INCENTIVE COMPENSATION PROGRAM
The Company's 1996 Incentive Compensation Program (the "Program") is
designed to promote success and enhance the value of Allegiance by linking
participants' interests more closely to those of Allegiance stockholders and by
providing participants with an incentive for excellence.
The Program is administered by the Compensation Committee of Allegiance
("Committee"). Incentives may consist of the following: (a) stock options; (b)
restricted stock; (c) stock awards; (d) performance shares; and (e) other
incentives, including cash. Incentives may be granted to any employee of
Allegiance (including directors of Allegiance who are also employees of
Allegiance) selected from time to time by the Committee. The Company has
authorized 9,683,000 shares for issuance under the Program.
Under the Program, the Committee may grant non-qualified and incentive stock
options to eligible employees to purchase shares of Allegiance Stock from
Allegiance. The Program gives the Committee discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable, subject to the following limitations. No
stock option may be granted with a purchase price less than the fair market
value of the shares subject to the option on the date of grant and the term may
not exceed 10 years and one day from the date of grant. Except to the extent
that the Committee determines that another value is more appropriate given the
circumstances, the fair market value of shares on the date of a grant shall mean
the closing sale price of Allegiance Stock as reported on the New York Exchange
composite reporting tape. The initial option grant to the named executive
officers will be as follows: Mr. Knight, 514,000 shares; Mr. Damico, 330,000
shares; Ms. White, 124,000 shares; Mr. Zollars, 106,000; and Ms. Gaumer, 80,000
shares. These grants are intended to cover a two-year period.
SARs may be granted by the Committee pursuant to the Program in such number
and on such terms as the Committee may decide, provided that the term of an SAR
may not exceed 10 years and one day from the date of grant. SARs may be granted
together with or independently of any stock option. SARs may be paid in
Allegiance Stock or cash, as determined by the Committee.
Restricted stock consists of the sale or transfer by Allegiance to an
eligible employee of one or more shares of Allegiance Stock which are subject to
restrictions on their sale or other transfer by the
44
<PAGE>
employee. The price, if any, at which restricted stock will be sold will be
determined by the Committee, and it may vary from time to time and among
employees and may require no payment or be less than the fair market value of
the shares at the date of sale.
Stock awards consist of the transfer by Allegiance to an eligible employee
of shares of Allegiance Stock, without payment, as additional compensation for
his or her services to Allegiance or a subsidiary of Allegiance.
Performance shares consist of the grant by Allegiance to an eligible
employee of a contingent right to receive payment of shares of Allegiance Stock.
The performance shares will be paid in shares of Allegiance Stock, or cash
equivalents at the Committee's discretion, to the extent performance goals set
forth in the grant are achieved.
CHANGE IN CONTROL PLAN
Under Allegiance's Change of Control Plan ("Change in Control Plan"), the
Company entered into agreements with certain employees of the Company selected
to participate (including each of the named executive officers) which entitles
such employees to separation pay and benefits following a change of control in
Allegiance and the employee's subsequent termination of employment unless such
termination is voluntary and unprovoked or results from death, disability,
retirement or cause. The eligible termination must occur within 24 months of the
change of control or the agreement is void. Each agreement continues for three
years from the Distribution Date and automatically renews every three years from
that date unless the participants receive written notice of termination at least
ninety days prior to the renewal date. The separation pay provided will equal
the employee's one years' annualized base salary and target cash bonus plus the
value of all deferred or unvested awards under all incentive compensation plans
per the terms of the Program. For Messrs. Knight, Damico and McKee, the
separation pay provided will equal three years' annualized base salary and
target cash bonus plus the value of all deferred or unvested awards under all
incentive compensation plans per the terms of the Program. In addition, in the
event that any payments would be subject to an excise tax under the Code, the
Company will pay Messrs. Knight, Damico and McKee an additional gross-up amount
for any excise tax and federal, state and local income taxes, such that the net
amount of the payments would be equal to the net payments after income taxes had
the excise tax and resulting gross-up not been imposed.
ALLEGIANCE RETIREMENT PLAN
Allegiance's qualified defined contribution retirement plan (the "Allegiance
Retirement Plan") for its United States employees includes a section 401(k)
deferred compensation account ("401(k) account"), a company matching
contribution account, a fixed account, a performance account, and a transition
account for each eligible employee as described below.
The defined contribution accounts for transferring employees under the
Baxter International Inc. and Subsidiaries Incentive Investment Plan (the
"Baxter Incentive Investment Plan"), Baxter's qualified section 401(k) profit
sharing plan, were transferred to the Allegiance Retirement Plan. The Allegiance
Retirement Plan has established a fund to hold the Baxter stock currently held
on behalf of Allegiance employees in the Baxter Incentive Investment Plan. The
Allegiance Retirement Plan allows participants to redirect the balances of their
Allegiance Retirement Plan accounts that are invested in the Baxter stock fund
but will not allow participants to direct that their plan accounts make new
investments in Baxter stock within the Allegiance Retirement Plan.
401(k) ACCOUNT AND COMPANY MATCHING CONTRIBUTION ACCOUNT
Employees of Allegiance are eligible to contribute to the Allegiance 401(k)
account. Participants may elect to contribute, on a before-tax basis, up to
twelve percent of their annual base compensation into their 401(k) accounts.
Allegiance will match the first three percent of the participant's annual base
compensation contributed to the plan on a dollar for dollar basis.
45
<PAGE>
FIXED ACCOUNT
Subject to the terms of the Allegiance Retirement Plan, employees of
Allegiance are eligible to receive contributions to their fixed accounts under
such plan. Allegiance will make annual contributions to each fixed account equal
to three percent of a participant's annual base compensation.
PERFORMANCE ACCOUNT
Subject to the terms of the Allegiance Retirement Plan, Allegiance may make
additional performance account contributions on a discretionary basis as certain
performance measures are achieved. The additional contributions will be
allocated to each eligible participant's account in proportion to each
participant's annual base compensation. These additional discretionary
contributions may be made more frequently or less frequently than the annual
three percent contribution to the fixed accounts.
TRANSITION ACCOUNT
Allegiance recognizes that certain longer service employees need additional
benefits to assist in transitioning from Baxter's United States Pension Plan to
Allegiance's Retirement Plan. Contributions to a transition account within the
Allegiance Retirement Plan are provided by the Company to two groups of
Allegiance employees.
Employees with at least 55 "points" and 10 years of "benefit service" (as
determined under the terms of the Baxter Pension Plan explained under "-- Baxter
Pension Plan") as of the Distribution Date will have transition profit sharing
contributions made annually over an eight year period, and each of these
contributions will be equal to not less than 3% and not more than 8% of the
participant's annual base compensation, depending on the participant's points
under the Baxter Pension Plan as of the Distribution Date. The named executive
officers eligible to receive contributions to the transition account are as
follows: Mr. Knight -- 0%; Mr. Damico -- 3%; Ms. White -- 0%; Mr. Zollars -- 3%;
and Ms. Gaumer -- 3%.
Allegiance employees who have at least 15 years of "benefit service" but
less than 55 "points" (as determined under the terms of the Baxter Pension Plan
explained on page 49) as of the Distribution Date will receive transition profit
sharing contributions made annually over an eight year period, and each of these
contributions will be equal to 2% of the participant's annual base compensation.
ALLEGIANCE EXCESS PLAN
Federal income tax laws limit the amount which may be contributed to the
accounts of all participants, including certain highly compensated participants
under the Allegiance Retirement Plan. Allegiance will adopt an unfunded
non-qualified excess plan (the "Allegiance Excess Plan") that will credit
certain participants affected by the limits with the amount of contributions
that the participants would have contributed or that Allegiance would have
contributed on their behalf to the Allegiance Retirement Plan but for such
limits.
EMPLOYEE STOCK PURCHASE PLAN
Allegiance will adopt an employee stock purchase plan for its United States
employees, as described in Section 423 of the Code. All active employees of
Allegiance and its United States subsidiaries will be eligible to participate in
the Company's Employee Stock Purchase Plan. The Employee Stock Purchase Plan
makes available shares of Allegiance Stock for purchase by eligible employees
through payroll deductions at a maximum rate to be determined by the Committee.
The purchase price per share will be equal to 85% of the lesser of the fair
market value of Allegiance Stock on the effective date of subscription or the
fair market value of Allegiance Stock on the date of exercise. 2,000,000 shares
will be reserved for issuance under this plan.
COMPENSATION COMMITTEE INTERLOCKS DISCLOSURE AND INSIDER PARTICIPATION
There are no compensation committee interlocks.
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<PAGE>
RELATIONSHIP WITH BAXTER
Allegiance and Baxter have entered into various agreements for the purpose
of governing certain of the ongoing relationships between Baxter and Allegiance
after the Distribution, and to provide mechanisms for an orderly transfer of the
Allegiance Business from Baxter to Allegiance and facilitate an orderly
transition to the status of two separate, publicly traded companies.
Allegiance has significant continuing relationships with Baxter as an agent,
distributor, customer and supplier for a wide array of health-care products and
services, and for certain administrative support services. Allegiance is
Baxter's primary agent in distributing Baxter's intravenous solutions,
cardiovascular devices and other products in the United States and provides
Baxter with certain administrative services including credit and collection,
accounts payable, information technology and telecommunications. Baxter
distributes Allegiance's products in many countries around the world and
provides various administrative services to Allegiance. Baxter does not have any
ownership interest in Allegiance.
REORGANIZATION AGREEMENT
Subject to certain exceptions, the Reorganization Agreement provides for
certain cross-indemnities (including an indemnity of Baxter by Allegiance with
respect to certain guarantees by Baxter in connection with certain Allegiance
agreements and certain financial guarantees) principally designed to place
financial responsibility for the liabilities of the Allegiance Business with
Allegiance and financial responsibility for the obligations and liabilities of
Baxter's retained businesses and its other subsidiaries with Baxter.
Specifically, Allegiance has agreed to assume liability for, and to indemnify
Baxter against, any and all liabilities associated with the Allegiance Business,
including any litigation, proceedings or claims relating to the products and
operations thereof whether or not the underlying basis for such litigation,
proceeding or claim arose prior to or after the Distribution Date. Baxter has
agreed to indemnify Allegiance against any and all liabilities associated with
Baxter's retained businesses. Specifically, Baxter has retained liability for,
and agreed to indemnify Allegiance against, proceedings or claims relating to
allegations of disease transmission through blood products and silicon-gel
mammary implants. See "Business -- Legal Proceedings."
Pursuant to the Reorganization Agreement, Allegiance assumed all
environmental liabilities that arise from or are attributable to the operations
of the Allegiance Business, including, but not limited to, off-site waste
disposal liabilities. Allegiance also has agreed to indemnify Baxter against any
and all such environmental liabilities. Baxter has agreed to indemnify
Allegiance against any and all environmental liabilities associated with the
retained Baxter businesses. In addition, the Reorganization Agreement provides
that each of Baxter and Allegiance will indemnify the other in the event of
certain liabilities arising under the Exchange Act.
The Reorganization Agreement provides, among other things, that, in order to
avoid potentially adverse tax consequences relating to the Distribution, for a
period of two years after the Distribution Allegiance will not: (i) cease to
engage in an active trade or business within the meaning of the Internal Revenue
Code of 1966, as amended (the "Code"); (ii) issue or redeem any share of stock
of Allegiance, except for certain issuances and redemptions for the benefit of
Allegiance's employees or to effect acquisitions by Allegiance in the ordinary
course of business or in connection with the issuance of any convertible debt by
Allegiance or in accordance with the requirements for permitted purchases of
Allegiance Stock as set forth in section 4.05(1)(b) of Revenue Procedure 96-30
issued by the IRS; or (iii) liquidate or merge with any other corporation,
unless, with respect to (i), (ii) or (iii) above, either (a) an opinion is
obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in
either case to the effect that such act or event will not adversely affect the
federal income tax consequences of the Distribution to Baxter, its stockholders
who receive Allegiance Stock or Allegiance. Allegiance expects that these
limitations will not significantly constrain its activities or its ability to
respond to unanticipated developments.
The Reorganization Agreement also provides that if, as a result of certain
transactions occurring after the Distribution Date involving either the stock or
assets of either Allegiance or any of its subsidiaries, or any combination
thereof, the Distribution fails to qualify as tax-free under the provisions of
Section
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355 of the Code, then Allegiance shall indemnify Baxter for all taxes,
liabilities, and associated expenses, including penalties and interest, incurred
as a result of such failure of the Distribution to qualify under Section 355 of
the Code. The Reorganization Agreement further provides that if the Distribution
fails to qualify as tax-free under the provisions of Section 355 of the Code,
other than as a result of a transaction occurring after the Distribution Date
involving either the stock or assets of Allegiance or any of its subsidiaries,
or any combination thereof, then Allegiance shall not be liable for such taxes,
liabilities, or expenses.
The Reorganization Agreement also provides for the allocation of benefits
between Baxter and Allegiance under existing insurance policies after the
Distribution Date for claims made or occurrences prior to the Distribution Date
and sets forth procedures for the administration of insured claims. In addition,
the Reorganization Agreement provides that Baxter will use its reasonable
efforts to maintain directors' and officers' insurance at substantially the
level of Baxter's current directors' and officers' insurance policy for a period
of six years with respect to the directors and officers of Baxter who will
become directors and officers of Allegiance as of the Distribution Date for acts
relating to periods prior to the Distribution Date.
The Reorganization Agreement also addresses the treatment of employee
benefit matters and other compensation arrangements for certain former and
current Allegiance employees and their beneficiaries and dependents, as well as
certain former employees of certain former Allegiance businesses and their
beneficiaries and dependents (collectively, the "Allegiance Participants"). The
Reorganization Agreement provides that the account balances (including
outstanding loans) of all Allegiance Participants in the Baxter International
Inc. and Subsidiaries Incentive Investment Plan (the "IIP"), and the plan assets
related to such liabilities will be transferred to Allegiance's new retirement
savings plan. The Reorganization Agreement also generally provides that
Allegiance will assume all liabilities for benefits under any welfare plans
related to Allegiance Participants, other than certain claims incurred on or
before the Distribution Date. Moreover, the Reorganization Agreement provides
that, effective as of the Distribution Date, Allegiance will become responsible
for all other liabilities to Allegiance Participants (including unfunded
supplemental retirement benefits), other than certain accruals under the Baxter
Defined Benefit Excess Plan.
TAX SHARING AGREEMENT
Baxter and Allegiance have entered into a tax sharing agreement (the "Tax
Sharing Agreement") which allocates tax liabilities and responsibility for tax
audits for periods prior to, and subsequent to the Distribution Date. The Tax
Sharing Agreement also allocates consolidated alternative minimum tax and other
tax credit carry-forwards as of the Distribution Date between Baxter and
Allegiance.
AGENCY, SERVICES AND DISTRIBUTION AGREEMENTS
Baxter's principal domestic operating subsidiary, Baxter Healthcare
Corporation ("BHC"), and an Allegiance subsidiary have entered into an Agency,
Services and Distribution Agreement (the "Domestic Distribution Agreements") for
each of Baxter's four primary domestic business units, I.V. Systems, Renal,
Cardiovascular, and Biotechnology, pursuant to which Baxter supplies products to
Allegiance, and Allegiance, as agent or distributor for Baxter, provides
physical distribution and various sales and sales support services to Baxter.
The Domestic Distribution Agreements cover substantially all of the existing
products of each of the foregoing business units.
In most instances, Allegiance will act as Baxter's agent for the physical
distribution of Baxter's products in return for a fee. In such situations,
Baxter will maintain the contractual relationship with the customer, will manage
sales, order-taking, and billing and collections, and will retain title to the
products until shipment to the ultimate customer. In certain situations,
Allegiance will act as a full-service, value-added distributor for Baxter
products with a direct contractual relationship with the ultimate customer. In
these situations, Allegiance will provide additional sales, sales support, and
other customer and product-related services to the customer and will purchase
the products from Baxter at specified prices. In addition, Baxter will pay to
Allegiance the fee described above. Such additional services may include
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aggregating Baxter's products with others to be sold as "kits" for a given
medical procedure or other cost management services which assist the customer in
reducing product consumption, improving utilization of assets, improving
logistics, and reducing or eliminating operating costs.
The initial term of the Domestic Distribution Agreements range from three
years (Renal and Biotechnology) to five years (I.V. Systems and Cardiovascular).
The agreements may be renewed upon expiration upon the mutual agreement of the
parties. In the event of a Change In Control of one of the parties to the
Domestic Distribution Agreements or certain of their affiliates, the other party
to such agreement will have the right, subject to certain notice periods and
other restrictions, to terminate all, or in certain cases only the affected
portion, of such agreement prior to its normal expiration. In the case of a
Change In Control involving a competitor of the non-affected party, the notice
period required for termination may be shorter than if such a competitor was not
involved. For purposes of these agreements, a "Change In Control" includes the
acquisition of more than 30 per cent of the stock of either party or one of its
affiliates, certain mergers or consolidations involving either party or one of
its affiliates, the acquisition by either party of certain significant
subsidiaries, and, in the case of an affiliate of either of the parties, the
disposition of substantially all of its business and assets.
Under the Domestic Distribution Agreements, Baxter is required within the
Territory to distribute all covered I.V. Systems and Cardiovascular products
(including any line extensions of such products) through Allegiance, subject to
certain exceptions. In addition, Allegiance may not market, promote or solicit
orders for any product that competes with any covered I.V. Systems or
Cardiovascular product. Allegiance may however take orders for, stock and sell
competing products in response to customer requests. For purposes of the
Domestic Distribution Agreements, the "Territory" is defined as the 50 states
comprising the United States of America and the District of Columbia.
Allegiance's right to distribute the covered products is limited to the
Territory.
The compensation received by Allegiance under the Domestic Distribution
Agreements generally approximates or is based upon the internal business unit
revenue and expense allocations that were in effect between the Baxter business
units and the Allegiance Business prior to the date of the Distribution.
Similarly, the service levels and performance standards remain as they were
prior to the date of the Distribution.
In addition to the Domestic Distribution Agreements, Baxter and Allegiance
have entered into agreements pursuant to which Baxter has agreed to distribute
Allegiance's surgical and other products outside of the United States and to
distribute certain surgical products to the long-term, sub-acute and home care
markets within the United States.
SERVICES AGREEMENTS
Baxter and Allegiance have entered into several services agreements, to be
effective from and after the Distribution Date, pursuant to which Baxter
provides to Allegiance, and Allegiance provides to Baxter, certain
administrative services necessary for the conduct of Baxter's and Allegiance's
businesses. Services provided to Baxter by Allegiance include credit, collection
and cash application, accounts payable, telecommunications, and information
technology services. Services provided to Allegiance by Baxter include payroll,
sales and use tax, human resources (including international expatriate
services), research and development, travel, property management, and other
services. These agreements have varying terms and, subject to certain
exceptions, are generally terminable by either party upon 12 months or less
notice. Under certain circumstances involving a Change In Control the agreements
may be terminated earlier than normal. The agreements may be renewed upon
expiration upon the mutual agreement of the parties. The prices at which such
services will be provided generally will be equal to or based on the actual cost
of rendering such services.
In addition, Baxter leases from Allegiance, for a term of ten years, a
217,000 square foot office building at Allegiance's McGaw Park, Illinois
headquarters site. The leased building will continue to be occupied by Baxter's
Renal Division. Allegiance subleases from Baxter all or a substantial part of an
85,000 square foot office building located in Deerfield, Illinois. This building
is part of a three building complex leased by Baxter, and Allegiance's sublease
is for the remainder of the current term of Baxter's
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lease. Baxter and Allegiance may also lease or sublease to each other
miscellaneous office or other space for use in connection with various services
performed for one another pursuant to the agreements described above.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 30, 1996
regarding the beneficial ownership of Allegiance Stock by (i) each director of
the Company, (ii) each named executive officer and (iii) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the Allegiance Stock listed
below, based on information provided by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. The address of each of the stockholders named below is the
Company's principal executive offices. The Company is not aware of any
stockholders who beneficially own 5% or more of the Allegiance Stock.
<TABLE>
<CAPTION>
NAME NUMBER PERCENT
- ------------------------------------------------------------------------------------------ --------- -----------------
<S> <C> <C>
Lester B. Knight.......................................................................... 56,348 *
Joseph F. Damico.......................................................................... 39,083 *
Silas Cathcart............................................................................ 1,466 *
David W. Grainger......................................................................... 6,500 *
Arthur F. Golden.......................................................................... -- *
Michael D. O'Halleran..................................................................... -- *
Kenneth D. Bloem.......................................................................... -- *
Connie Curran, Ed.D....................................................................... -- *
Kathy Brittain White...................................................................... 3,880 *
Gail Gaumer............................................................................... 17,366 *
Robert J. Zollars......................................................................... 18,142 *
All directors and executive officers as a group (18 persons).............................. 188,252 *
</TABLE>
- ------------
* less than 1%
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DESCRIPTION OF CREDIT FACILITIES
On September 23, 1996, the Company entered into two unsecured revolving
credit agreements (the "Credit Facilities"), providing for up to an aggregate of
$1.5 billion in borrowings, with the financial institutions listed therein (the
"Banks"), the First National Bank of Chicago, as Syndication Agent, NationsBank
of Texas, N.A., as Documentation Agent, Morgan Guaranty Trust Company of New
York, as Co-Syndication Agent, and Bank of America National Trust and Savings
Association, as Administrative Agent, and as arranged by BA Securities, Inc. The
following summary of the Credit Facilities does not purport to be complete and
is subject to the detailed provisions of the Credit Facilities, copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.
One of the Credit Facilities provides for borrowings up to an aggregate of
$1.2 billion and expires in September 2001. The other Credit Facility provides
for borrowings up to an aggregate of $300 million and expires in September 1997.
As of September 30, 1996, approximately $1.1 billion was outstanding under the
$1.2 billion credit facility and no amounts were outstanding under the $300
million credit facility. Amounts borrowed under the Credit Facilities may be
used only to repay indebtedness owing to Baxter at the time of the Distribution,
for the payment of fees and expenses related to the Distribution and for general
corporate purposes of Allegiance. As of September 30, 1996, approximately $400
million was available for borrowing under the Credit Facilities.
Borrowings under the Credit Facilities are unsecured obligations of
Allegiance and rank PARI PASSU with all other unsecured and unsubordinated
indebtedness of Allegiance, including the Securities offered pursuant to this
Prospectus.
Borrowings under the Credit Facilities typically bear interest at either the
"Base Rate" or the "Euro Dollar Rate," at the option of the Company, plus
applicable interest margin. The Base Rate is the higher of (i) the reference
rate of Bank of America National Trust and Savings Association or (ii) the sum
of the latest Federal Funds Rate and 0.50%. In addition, same day, short term
(seven days or less) borrowings under the Credit Facilities bear interest at the
"IBOR Rate" plus 1%. The IBOR Rate is defined as a Bank's cost of funds in the
interbank market for a same day borrowing of the type requested by Allegiance.
Furthermore, at the request of Allegiance, any of the Banks may offer to loan to
Allegiance amounts available for borrowing under the Credit Facilities at
interest rates agreed upon by Allegiance through a competitive bid process
initiated by Allegiance.
The Credit Facilities contain a number of covenants that, among other
things, restrict Allegiance's ability to dispose of its assets, incur additional
indebtedness, create liens on assets, engage in mergers or consolidations or
change the businesses conducted by Allegiance, and otherwise restrict certain
corporate activities by Allegiance. In addition, under the Credit Facilities,
Allegiance is required to comply with and maintain specified financial ratios
and tests, including, without limitation, an interest expense coverage ratio, a
leverage ratio and subsidiary debt levels thresholds.
The Credit Facilities specify certain customary events of default,
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default and cross-acceleration to certain other
indebtedness and agreements, bankruptcy and insolvency events, material
judgments and liabilities, changes of control and unenforceability of certain
documents under the Credit Facilities.
DESCRIPTION OF SECURITIES
The Notes, the 2016 Debentures and the 2026 Debentures (together, the
"Securities") will each constitute a series of senior debt securities of the
Company, and will rank PARI PASSU with each other and with all other unsecured
and unsubordinated indebtedness of the Company. The Securities of each series
will be issued pursuant to an Indenture, to be dated as of October 1, 1996
between Allegiance and PNC Bank, Kentucky, Inc., as Trustee (the "Trustee"), a
copy of which is filed as an exhibit to the
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Registration Statement of which this Prospectus is a part. The Indenture
provides for the issuance from time to time in one or more series of unsecured
debentures, notes or other evidences of indebtedness and does not limit the
aggregate principal amount of securities that may be issued thereunder.
The following summaries of certain provisions of the Securities and the
Indenture do not purport to be complete and are subject, and are qualified in
their entirety by reference, to all the provisions of the Securities and the
Indenture, including the definitions therein of certain terms. Wherever
particular Sections or defined terms of the Indenture are referred to herein,
such Sections or defined terms are incorporated by reference.
NOTES
The Notes will be unsecured obligations of the Company, will be limited to
$200,000,000 aggregate principal amount and will mature on ,
2006 . The Notes will bear interest at the rate per annum shown on the front
cover of this Prospectus from , 1996 or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semi-annually on and of each year,
commencing , 1997, to the Persons in whose names the Notes (or
any predecessor Notes) are registered at the close of business on the preceding
or , as the case may be. The Notes will not
be redeemable at the option of the Company prior to maturity and are not subject
to any sinking fund.
DEBENTURES
The 2016 Debentures and the 2026 Debentures will each be unsecured
obligations of the Company, will be limited to $150,000,000 aggregate principal
amount and $150,000,000 aggregate principal amount, respectively, and will
mature on , 2016 and , 2026, respectively. The
2016 Debentures and the 2026 Debentures will bear interest at the respective
rates per annum shown on the front cover of this Prospectus from
, 1996 or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semi-annually on
and of each year, commencing ,
1997, to the Persons in whose names such Debentures (or any predecessor
Debentures) are registered at the close of business on the preceding
or , as the case may be. The 2016 Debentures and
the 2026 Debentures will not be redeemable at the option of the Company. The
2026 Debentures may be repaid on , 2003, at the option of the
registered holders of the 2026 Debentures, at 100% of their principal amount,
together with accrued interest to , 2003. In order for a holder to
exercise this option, the Company must receive at its office or agency in New
York, New York, during the period beginning on , 2003 and ending at
5:00 p.m. (New York City time) on , 2003 (or, if ,
2003 is not a Business Day, the next succeeding Business Day), the certificate
representing the 2026 Debenture subject to repayment with the form "Option to
Elect Repayment on , 2003" on such certificate duly completed.
Any such notice received by the Company during the period beginning on
, 2003 and ending at 5:00 p.m. (New York City time) on
, 2003 shall be irrevocable. See "-- Book Entry, Delivery and Form".
The repayment option may be exercised by the holder of a 2026 Debenture for less
than the entire principal amount of the 2026 Debenture held by such holder, so
long as the principal amount that is to be repaid is equal to $1,000 or an
integral multiple of $1,000. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any 2026 Debenture for repayment
will be determined by the Company, whose determination will be final and
binding.
Failure by the Company to repay the 2026 Debentures when required as
described in the preceding paragraph will result in an Event of Default under
the Indenture.
As long as the 2026 Debentures are represented by a Global Debenture (as
defined below), the Depositary or the Depositary's nominee will be the
registered holder of the 2026 Debentures and therefore will be the only entity
that can exercise a right to repayment. See "-- Book Entry, Delivery and Form."
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No similar right of repayment is available to holders of the Notes or the
2016 Debentures.
RESTRICTIVE COVENANTS
LIMITATIONS ON LIENS
The Company covenants that it will not issue, incur, create, assume or
guarantee, and will not permit any Restricted Subsidiary (as defined below) to
issue, incur, create, assume or guarantee, any debt for borrowed money secured
by a mortgage, security interest, pledge, lien, charge or other encumbrance
("mortgages") upon any Principal Property (as defined below) of the Company or
any Restricted Subsidiary or upon any shares of stock or indebtedness of any
Restricted Subsidiary (whether such Principal Property, shares or indebtedness
are now existing or owned or hereafter created or acquired) without in any such
case effectively providing concurrently with the issuance, incurrence, creation,
assumption or guarantee of any such secured debt, or the grant of a mortgage
with respect to any such indebtedness, that the Securities (together with, if
the Company shall so determine, any other indebtedness of or guarantee by the
Company or such Restricted Subsidiary ranking equally with the Securities) shall
be secured equally and ratably with (or, at the option of the Company, prior to)
such secured debt. The foregoing restriction, however, will not apply to: (a)
mortgages on property existing at the time of acquisition thereof by the Company
or any Subsidiary, provided that such mortgages were in existence prior to the
contemplation of such acquisition; (b) mortgages on property, shares of stock or
indebtedness or other assets of any corporation existing at the time such
corporation becomes a Restricted Subsidiary, provided that such mortgages are
not incurred in anticipation of such corporation becoming a Restricted
Subsidiary; (c) mortgages on property, shares of stock or indebtedness existing
at the time of acquisition thereof by the Company or a Restricted Subsidiary or
mortgages thereon to secure the payment of all or any part of the purchase price
thereof, or mortgages on property, shares of stock or indebtedness to secure any
indebtedness for borrowed money incurred prior to, at the time of, or within 270
days after, the latest of the acquisition thereof, or, in the case of property,
the completion of construction, the completion of improvements, or the
commencement of substantial commercial operation of such property for the
purpose of financing all or any part of the purchase price thereof, such
construction, or the making of such improvements; (d) mortgages to secure
indebtedness owing to the Company or to a Restricted Subsidiary; (e) mortgages
existing at the date of the Indenture; (f) mortgages on property of a
corporation existing at the time such corporation is merged into or consolidated
with the Company or a Restricted Subsidiary or at the time of a sale, lease or
other disposition of the properties of a corporation as an entirety or
substantially as an entirety to the Company or a Restricted Subsidiary, provided
that such mortgage was not incurred in anticipation of such merger or
consolidation or sale, lease or other disposition; (g) mortgages in favor of the
United States or any State, territory or possession thereof (or the District of
Columbia), or any department, agency, instrumentality or political subdivision
of the United States or any State, territory or possession thereof (or the
District of Columbia), to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any indebtedness incurred for
the purpose of financing all or any part of the purchase price or the cost of
constructing or improving the property subject to such mortgages; (h) mortgages
created in connection with the acquisition of assets or a project financed with,
and created to secure, a Nonrecourse Obligation (as defined below); and (i)
extensions, renewals, refinancings or replacements of any mortgage referred to
in the foregoing clauses (a), (b), (c) (e), (f), (g) and (h); provided, however,
that any mortgages permitted by any of the foregoing clauses (a), (b), (c) (e),
(f), (g) and (h) shall not extend to or cover any property of the Company or
such Restricted Subsidiary, as the case may be, other than the property, if any,
specified in such clauses and improvements thereto, and provided further that
any refinancing or replacement of any mortgages permitted by the foregoing
clauses (g) and (h) shall be of the type referred to in such clauses (g) or (h),
as the case may be.
Notwithstanding the restrictions described in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Securities,
provided that after giving effect thereto, the aggregate amount of all debt so
secured by
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mortgages (not including mortgages permitted under clauses (a) through (i)
above) does not exceed 10% of the Consolidated Net Tangible Assets (as defined
below) of the Company as most recently determined on or prior to such date.
LIMITATIONS ON SALE AND LEASE-BACK TRANSACTIONS
The Company covenants that it will not, nor will it permit any Restricted
Subsidiary to, enter into any Sale and Lease-Back Transaction (as defined below)
with respect to any Principal Property, other than any such transaction
involving a lease for a term of not more than three years or any such
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, unless: (a) the Company or such Restricted Subsidiary
would be entitled to incur indebtedness secured by a mortgage on the Principal
Property involved in such transaction at least equal in amount to the
Attributable Debt (as defined below) with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Securities, pursuant to
the limitation on liens in the Indenture; or (b) the Company shall apply an
amount equal to the greater of the net proceeds of such sale or the Attributable
Debt with respect to such Sale and Lease-Back Transaction within 180 days of
such sale to either (or a combination of) the retirement (other than any
mandatory retirement, mandatory prepayment or sinking fund payment or by payment
at maturity) of debt for borrowed money of the Company or a Restricted
Subsidiary that matures more than 12 months after the creation of such
indebtedness or the purchase, construction or development of other comparable
property.
LIMITATIONS ON SUBSIDIARY DEBT
The Company shall not permit any Subsidiary of the Company to Incur or
suffer to exist any Debt, except: (1) Debt outstanding on the date of this
Indenture; (2) Debt issued to and held by the Company or a Wholly Owned
Subsidiary; (3) Debt Incurred by a Person prior to the time such Person became,
merges into, or consolidates with a Subsidiary, or a Subsidiary merges into or
consolidates with such Person and thereby such Person becomes a Subsidiary
(which Debt was not Incurred in anticipation of such transaction and was
outstanding prior to such transaction); (4) Debt which is exchanged for, or the
proceeds of which are used to refinance or refund, any Debt permitted to be
outstanding pursuant to clauses (1) through (3) above (or any extension or
renewal thereof), in an aggregate principal amount not to exceed the principal
amount of the Debt so exchanged, refinanced or refunded and provided such
refinancing or refunding Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is issued (x) does not provide for
payments of principal at the stated maturity of such Debt or by way of a sinking
fund applicable to such Debt or by way of any mandatory redemption, defeasance,
retirement or repurchase or such Debt by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt upon an
event of default thereunder), in each case prior to the stated maturity of the
Debt being refinanced or refunded and (y) does not permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company) of
such Debt at the option of the holder thereof prior to the stated maturity of
the Debt being refinanced or refunded, other than a redemption or other
retirement at the option of the holder of such Debt (including pursuant to an
offer to purchase made by the Company) which is conditioned upon the change of
control of the Company; and (5) Debt having a principal amount and liquidation
value not in excess of 20% of the Consolidated Net Tangible Assets of the
Company in the aggregate.
CERTAIN DEFINITIONS APPLICABLE TO COVENANTS
The term "Attributable Debt" when used in connection with a Sale and
Lease-Back Transaction involving a Principal Property shall mean, at the time of
determination, the lesser of: (a) the fair value of such property (as determined
in good faith by the Board of Directors of the Company); or (b) the present
value of the total net amount of rent required to be paid under such lease
during the remaining term thereof (including any renewal term or period for
which such lease has been extended), discounted at the rate of interest set
forth or implicit in the terms of such lease or, if not practicable to determine
such rate, the weighted average interest rate per annum (in the case of Original
Issue Discount Securities, the imputed interest rate) borne by the Securities of
each series outstanding pursuant to the Indenture compounded semi-annually. For
purposes of the foregoing definition, rent shall not include amounts
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required to be paid by the lessee, whether or not designated as rent or
additional rent, on account of or contingent upon maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges. In the case of
any lease which is terminable by the lessee upon the payment of a penalty, such
net amount shall be the lesser of the net amount determined assuming termination
upon the first date such lease may be terminated (in which case the net amount
shall also include the amount of the penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated) and the net amount determined assuming no such
termination.
The term "Consolidated Net Tangible Assets" shall mean, as of any particular
time, total assets (excluding applicable reserves and other properly deductible
items) less: (a) total current liabilities, except for (1) notes and loans
payable, (2) current maturities of long-term debt, and (3) current maturities of
obligations under capital leases; and (b) goodwill, patents and trademarks, to
the extent included in total assets; all as set forth on the most recent
consolidated balance sheet of the Company and its Restricted Subsidiaries and
computed in accordance with generally accepted accounting principles.
The term "Debt" shall mean (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in connection
with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) the maximum
fixed redemption or repurchase price of redeemable stock of such Person at the
time of determination, (vi) every obligation to pay rent or other payment
amounts of such Person with respect to any Sale and Lease-back Transaction to
which such Person is a party and (vii) every obligation of the type referred to
in Clauses (i) through (vi) of another Person and all dividends of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
The term "Incur" shall mean, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have the meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Debt shall not
be deemed an Incurrence of such Debt.
The term "Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
The term "Principal Property" shall mean the land, land improvements,
buildings and fixtures (to the extent they constitute real property interests,
including any leasehold interest therein) constituting the principal corporate
office, any manufacturing facility or any distribution center (whether now owned
or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b)
is located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
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conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 1.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
The term "Restricted Subsidiary" shall mean any Subsidiary that owns any
Principal Property.
The term "Sale and Lease-Back Transaction" shall mean any arrangement with
any person providing for the leasing by the Company or any Restricted Subsidiary
of any Principal Property which property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person.
The term "Subsidiary" shall mean any corporation of which at least a
majority of the outstanding voting stock having the power to elect a majority of
the board of directors of such corporation is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For the purposes of this definition,
"voting stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
The term "Wholly Owned Subsidiary" of any Person shall mean a Subsidiary of
such Person all of the outstanding capital stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into, or convey, transfer or
lease its properties and assets substantially as an entirety to, any Person (a
"successor Person"), and may not permit any Person to consolidate with or merge
into, or convey, transfer or lease its properties and assets substantially as an
entirety to, the Company, unless (i) the successor Person (if any) is a
corporation, partnership, trust or other entity organized and validly existing
under the laws of any domestic jurisdiction and assumes the Company's
obligations on the Securities and under the Company's obligations on the
Securities and under the Indenture, (ii) immediately after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, (iii) if, as a result of the transaction, property of the Company
would become subject to a mortgage, pledge, lien, security interest or other
encumbrance that would not be permitted under the limitation on mortgage,
pledge, lien, security interest or other encumbrance described above under
"Restrictive Covenants," the Company takes such steps as shall be necessary to
secure the Securities equally and ratably with (or prior to) the indebtedness
secured by such mortgage, pledge, lien, security interest or other encumbrance
and (iv) certain other conditions are met. (Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Securities of any series: (a) failure to pay principal
of or any premium on any Security of that series at its Maturity; (b) failure to
pay any interest on any Securities of that series when due, continued for 30
days; (c) failure to deposit any sinking fund payment, when due, in respect of
any Security of that series; (d) failure to perform, or the breach of, any
covenant or warranty of the Company in the Indenture (other than a covenant or
warranty included in the Indenture solely for the benefit of a series of
Securities other than that series), continued for 60 days after written notice
has been given by the Trustee, or the Holders of at least 10% in principal
amount of the Outstanding Securities of that series, as provided in the
Indenture; (e) failure to pay when due (subject to any applicable grace period)
the principal of, or acceleration of, any indebtedness for money borrowed by the
Company (including a default with respect to Securities of any series other than
that series) having an aggregate principal amount outstanding of at least
$10,000,000, if, in the case of any such failure, such indebtedness has not been
discharged or, in the case of any such acceleration, such indebtedness has not
been discharged or such acceleration has not been rescinded or annulled, in each
case within 10 days after written notice has been given by the
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Trustee, or the Holders of at least 10% in principal amount of the Outstanding
Securities of that series, as provided in the Indenture; and (f) certain events
in bankruptcy, insolvency or reorganization of the Company or any Restricted
Subsidiary. (Section 501)
If an Event of Default (other than an Event of Default described in clause
(f) above) with respect to the Securities of any series at the time Outstanding
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in principal amount of the Outstanding Securities of that series by notice as
provided in the Indenture may declare the principal amount of the Securities of
that series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities, as may be
specified in the terms of such Securities) to be due and payable immediately. If
an Event of Default described in clause (f) above with respect to the Securities
of any series at the time Outstanding occurs, the principal amount of all the
Securities of that series (or, in the case of any such Original Issue Discount
Security, such specified amount) will automatically, and without any action by
the Trustee or any Holder, become immediately due and payable. After any such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in principal amount of the Outstanding Securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other that the non-payment of accelerated principal (or other
specified amount), have been cured or waived as provided in the Indenture.
(Section 502) For information as to waiver of defaults, see "Modification and
Waiver."
Subject to the provisions of the Indenture relating to the duties and
responsibilities of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. (Section 603) Subject to such provisions of the
Indenture, the Holders of a majority in principal amount of the Outstanding
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Securities of that series. (Section 512)
No Holder of a Security of any series will have any right to institute any
proceeding with respect to the Indenture, or for the appointment of a receiver
or a trustee, or for any other remedy thereunder, unless (i) such Holder has
previously given to the Trustee written notice of a continuing Event of Default
with respect to the Securities of that series, (ii) the Holders of at least 25%
in principal amount of the Outstanding Securities of that series have made
written request, and such Holder or Holders have offered reasonable indemnity,
to the Trustee to institute such proceeding as trustee and (iii) the Trustee has
failed to institute such proceeding, and has not received from the Holders of a
majority in principal amount of the Outstanding Securities of that series a
direction inconsistent with such request, within 60 days after such notice,
request and offer. (Section 507) However, such limitations do not apply to a
suit instituted by a Holder of a Security for the enforcement of payment of the
principal of or any premium or interest on such Security on or after the
applicable due date specified in such Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
by certain of its officers as to whether or not the Company, to the best of
their knowledge, is in default in the performance or observance of any of the
terms, provisions and conditions of the Indenture and, if so, specifying all
such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than 66 2/3% in
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
instalment of principal of or interest on, any Security, (b) reduce the
principal amount of, or any premium or interest on, any Security, (c) reduce the
amount of principal of an Original Issue Discount Security or any other Security
payable upon acceleration of the Maturity thereof, (d) change the place or
currency of payment of principal of, or any
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premium or interest on, any Security, (e) impair the right to institute suit for
the enforcement of any payment on or with respect to any Security, (f) reduce
the percentage in principal amount of Outstanding Securities of any series, the
consent of whose Holders is required for modification or amendment of the
Indenture, (g) reduce the percentage in principal amount of Outstanding
Securities of any series necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults or (h) modify such
provisions with respect to modification and waiver. (Section 902)
The Holders of not less than 66 2/3% in principal amount of the Outstanding
Securities of any series may waive compliance by the Company with certain
restrictive provisions of the Indenture. (Section 1010) The Holders of not less
than a majority in principal amount of the Outstanding Securities of any series
may waive any past default under the Indenture, except a default in the payment
of principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of the Holder of each
Outstanding Security of such series affected. (Section 513)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken any
direction, notice, consent, waiver or other action under the Indenture as of any
date, (i) the principal amount of an Original Issue Discount Security that will
be deemed to be Outstanding will be the amount of the principal thereof that
would be due and payable as of such date upon acceleration of the Maturity
thereof to such date, (ii) is, as of such date, the principal amount payable at
the Stated Maturity of a Security is not determinable (for example, because it
is based on an index), the principal amount of such Security deemed to be
Outstanding as of such date will be an amount determined in the manner
prescribed for such Security and (iii) the principal amount of a Security
denominated in one or more foreign currencies or currency units that will be
deemed to be Outstanding will be the U.S. dollar equivalent, determined as of
such date in the manner of such Security (or, in the case of a Security
described in clause (i) or (ii) above, of the amount described in such clause).
Certain Securities, including those for whose payment or redemption money has
been deposited or set aside in trust for the Holders and those that have been
fully defeased pursuant to Section 1302, will not be deemed to be Outstanding.
(Section 101)
Except in certain limited circumstances, the Company will be entitled to set
any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any demand,
authorization, direction, notice, consent, waiver or other action under the
Indenture, in the manner and subject to the limitations provided in the
Indenture. In certain limited circumstances, the Trustee will be entitled to set
a record date for action by Holders. If a record date is set for any action to
be taken by Holders of a particular series, such action may be taken only by
persons who are Holders of Outstanding Securities of that series on the record
date. To be effective, such action must be taken by Holders of the requisite
principal amount of such Securities within a specified period following the
record date. For any particular record date, this period will be 180 days or
such shorter period as may be specified by the Company (or the Trustee, if it
set the record date), and may be shortened or lengthened (but not beyond 180
days) from time to time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
The Company has elected, in the Board Resolution establishing the terms of
each series of Securities, to have the provisions of Section 1302, relating to
defeasance and discharge of indebtedness and Section 1303, relating to
defeasance of certain restrictive covenants in the Indenture, applied to the
Securities of each series, or to any specified part of a series at the option of
the Company at any time. (Section 1301)
DEFEASANCE AND DISCHARGE. Upon the Company's exercise of its option to have
Section 1302 applied to any Securities or any series of Securities, the Company
will be discharged from all its obligations with respect to such Securities
(except for certain obligations to exchange or register the transfer of
Securities, to replace stolen, lost or mutilated Securities, to maintain paying
agencies and to hold moneys for payment in trust) upon the deposit in trust for
the benefit of the Holders of such Securities of money or U.S. Government
Obligations, or both, which, through the payment of principal and interest in
respect thereof in accordance with their terms, the terms of the Indenture and
such
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Securities. Such defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling, or there has been a change in tax law,
in either case to the effect that Holders of such Securities will not recognize
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge were not to occur. (Sections 1302 and
1304)
DEFEASANCE OF CERTAIN COVENANTS. Upon the Company's exercise of its option
to have Section 1303 applied to any Securities or any series of Securities, the
Company may omit to comply with certain restrictive covenants, including those
described under "Restrictive Covenants" and in the last sentence under
"Consolidation, Merger and Sale of Assets", and the occurrence of certain Events
of Default, which are described above in clause (d) (with respect to such
restrictive covenants) and clause (e) under "Events of Default," will be deemed
not to be or result in an Event of Default, in each case with respect to such
Securities. The Company, in order to exercise such option, will be required to
deposit, in trust for the benefit of the Holders of such Securities, money or
U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on such Securities on the respective Stated Maturities in accordance
with the terms of the Indenture and such Securities. The Company will also be
required, among other things, to deliver to the Trustee an Opinion of Counsel to
the effect that Holders of such Securities will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were not to occur. In the event the Company
exercised this option with respect to any Securities and such Securities were
declared due and payable because of the occurrence of any Event of Default, the
amount of money and U.S. Government Obligations so deposited in trust would be
sufficient to pay amounts due on such Securities at the time of their respective
Stated Maturities but may not be sufficient to pay amounts due on such
Securities upon any acceleration resulting from such Event of Default. In such
case, the Company would remain liable for such payments. (Sections 1303 and
1304)
BOOK ENTRY, DELIVERY AND FORM
The Notes and Debentures will each be issued in the form of one or more
fully registered certificates registered in the name of Cede & Co., the nominee
of The Depository Trust Company (the "Depository"). Except as provided below,
owners of beneficial interests in the certificates for the Notes registered in
the name of the Depository ("Global Notes") or in the certificates for the
Debentures registered in the name of the Depository ("Global Debentures") will
not be entitled to have either the Global Notes or the Global Debentures, as the
case may be, registered in their names and will not receive or be entitled to
receive physical delivery of either the Global Notes or the Global Debentures in
definitive form. Unless and until definitive Notes or Debentures are issued to
owners of beneficial interests in the Global Notes or the Global Debentures,
such owners of beneficial interests will not be recognized as Holders of either
the Notes or the Debentures, as the case may be, by the Trustee. Hence, until
such time, owners of beneficial interests in either the Global Notes or the
Global Debentures will only be able to exercise the rights of Holders indirectly
through the Depository and its participating organizations. Except as set forth
below, the certificates may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
nominee to a successor or the Depository or a nominee of such successor.
The Depository has advised the Company that it is a limited-purpose trust
Company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
The Depository was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transaction among its
participants in such securities through electronic book-entry
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changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Depository's participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own the Depository. Access to the
Depository's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by the Depository only
through participants.
The Depository advises that pursuant to procedures established by it (i)
upon the issuance of the Notes and the Debentures by the Company, the Depository
will credit the accounts of participants designated by the Underwriters with the
amount of the Global Notes and the Global Debentures purchased by the
Underwriters, and (ii) ownership of beneficial interests in the certificates
representing the Global Notes and the Global Debentures will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depository (with respect to participants' interests) and the participants
and the indirect participants (with respect to beneficial owners' interests).
The laws of some states require that certain persons take physical delivery in
definitive form of securities which they own. Consequently, the ability to
transfer beneficial interests in such certificates is limited to such extent.
Neither the Company, the Trustee, any Payment Agent, nor the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the certificates representing the Global Notes or the Global
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Principal and interest payments on the Global Notes and the Global
Debentures registered in the name of the Depository's nominee will be made by
the Trustee to the Depository's nominee as the registered owner of the
certificates relating to the Global Notes and the Global Debentures. The Senior
Indenture provides that the Company and the Trustee will treat the persons in
whose names either the Global Notes or the Global Debentures are registered (the
Depository or its nominee) as the owners of the Global Notes or the Global
Debentures, as the case may be, for the purpose of receiving payment of
principal and interest on either the Global Notes or the Global Debentures and
for all other purposes whatsoever. Therefore, neither the Company, the Trustee
nor any Paying Agent has any direct responsibility or liability for the payment
of principal or interest on the Global Notes or the Global Debentures to owners
of beneficial interests in the certificates relating to the Global Notes or the
Global Debentures. The Depository has advised the Company, and the Trustee that
its present practice is, upon receipt of any payment of principal or interest,
to immediately credit the accounts of the participants with such payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in the certificates relating to the Global Notes the Global
Debentures, as shown on the records of the Depository. Payments by participants
and indirect participants to owners of beneficial interests in the certificates
relating to the Global Notes and the Global Debentures will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of the participants or indirect
participants.
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company, the
Company will issue Notes and Debentures in definitive form in exchange for the
total amount of the certificates representing the Global Notes and the Global
Debentures. In addition, the Company may at any time determine not to have Notes
or Debentures represented by Global Notes or Global Debentures, as the case may
be, and, in such event, the Company will issue Notes or Debentures in definitive
form in exchange for the total amount of the certificates representing the
Global Notes or the Global Debentures. In addition, if any event shall have
happened and be continuing that constitutes an Event of Default with respect to
the Notes or the Debentures, the owners of beneficial interests in certificates
for the Global Notes or the Global Debenture will be entitled to receive Notes
or Debentures, as the case may be, in certificated form in exchange for the
Book-Entry certificate or certificates representing the Global Notes or the
Global Debentures, as
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the case may be. In any such instance, an owner of a beneficial interest in such
certificates will be entitled to physical delivery in definitive form of Notes
or Debentures equal in amount to such beneficial interest and to have such Notes
or Debentures registered in its name.
EXCHANGE AND TRANSFER
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Securities of each series will be
exchangeable for other Securities of the same series of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Securities may be presented for exchange as provided above or
for registration of transfer (duly endorsed or with the form of transfer
endorsed thereon duly executed) at the office of the Security Registrar or at
the office of any transfer agent designated by the Company for such purpose. No
service charge will be made for any registration of transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Such transfer
or exchange will be effected by the Security Registrar or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request. The Company has appointed the Trustee as Security
Registrar. The Company may at any time designate additional transfer agents or
rescind the designation of any transfer agent or approve a change in the office
through which any transfer agent acts, except that the Company will be required
to maintain a transfer agent in each Place of Payment for the Securities of each
series. (Sections 305 and 1002)
If the Securities of any series (or of any series and specified terms) are
to be redeemed in part, the Company will not be required to (i) issue, register
the transfer of or exchange any Security of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption of any such
Security that may be selected for redemption and ending at the close of business
on the day of such mailing or (ii) register the transfer of or exchange any
Security so selected for redemption, in whole or in part, except the unredeemed
portion of any such Security being redeemed in part. (Section 305)
PAYMENT AND PAYING AGENTS
Payment of interest on a Security on any Interest Payment Date will be made
to the Person in whose name such Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Principal of and any premium and interest on the Securities of a particular
series will be payable at the office or agency of such Paying Agent or Paying
Agents as the Company may designate for such purpose from time to time. The
corporate trust office of the Trustee will be designated as the Company's sole
Paying Agent for payments with respect to Securities of each series. The Company
may at any time designate additional Paying Agents or rescind the designation of
any Paying Agent or approve a change in the office through which any Paying
Agent acts, except that the Company will be required to maintain an office or
agency in each Place of Payment for the Securities of any series. (Sections 1002
and 1003)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Security which remain unclaimed
at the end of two years after such principal, premium or interest has become due
and payable will be repaid to the Company, and the Holder of such Security
thereafter may look only to the Company for payment thereof as an unsecured
general creditor. (Section 1003)
NOTICES TO HOLDERS
Notices to Holders of Securities will be given in writing and mailed,
first-class postage prepaid, to the addresses of such Holders as they may appear
in the Security Register. (Section 106)
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TITLE
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner thereof, whether
or not such Security may be overdue, for the purpose of making payment and for
all other purposes. (Section 308)
GOVERNING LAW
The Indenture and the Securities will be governed by and construed in
accordance with the law of the State of New York. (Section 112)
REGARDING THE TRUSTEE
The Company maintains a banking relationship with PNC Bank, Kentucky, Inc.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase, the respective principal amount of each series of the Securities set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF 2016 AMOUNT OF 2026
UNDERWRITER NOTES DEBENTURES DEBENTURES
- -------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Goldman, Sachs & Co............................... $ $ $
J.P. Morgan Securities Inc........................
Smith Barney Inc..................................
BA Securities, Inc................................
First Chicago Capital Markets, Inc................
NationsBanc Capital Markets, Inc..................
---------------- ---------------- ----------------
Total......................................... $ $ $
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of each series of the
Securities, if any are taken.
The Underwriters propose to offer each series of the Securities in part
directly to the public at the respective initial public offering price set forth
on the cover page of this Prospectus and in part to certain securities dealers
at such prices less a concession not to exceed 0. % of the principal amount of
the Notes, not to exceed 0. % of the principal amount of the 2016 Debentures,
and not to exceed 0. % of the principal amount of the 2026 Debentures. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
0. % of the principal amount of the Notes, not to exceed 0. % of the principal
amount of the 2016 Debentures, and not to exceed 0. % of the principal amount
of the 2026 Debentures to certain brokers and dealers. After the Securities are
released for sale to the public, the offering prices and other selling terms may
from time to time be varied by the Underwriters.
Each series of Securities is a new issue of securities with no established
trading market. The Company has been advised by the Underwriters that the
Underwriters intend to make a market in each series of the Securities but are
not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
each series of the Securities.
From time to time in the ordinary course of their businesses, affiliates of
certain of the Underwriters have engaged and may in the future engage in general
financing and banking transactions with the Company and its affiliates.
Furthermore, more than 10% of the proceeds of the offering, not including
underwriting compensation, will be received by lenders to the Company under its
$1.2 billion credit facility that are affiliated with certain members of the
National Association of Securities Dealers, Inc. ("NASD") who are participating
in the offering. As a result, the offering is being conducted in accordance with
NASD Corporate Financing Rule 2710(c)(8) and Rule 2720(c)(3)(A).
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
63
<PAGE>
VALIDITY OF SECURITIES
The validity of the Securities offered hereby will be passed upon for the
Company by McDermott, Will & Emery, Chicago, Illinois and for the Underwriters
by Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statements as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
64
<PAGE>
ALLEGIANCE CORPORATION
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Combined Statements of Income.............................................................................. F-3
Combined Balance Sheets.................................................................................... F-4
Combined Statements of Cash Flows.......................................................................... F-5
Combined Statements of Equity.............................................................................. F-6
Notes to Combined Financial Statements..................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Baxter International Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, cash flows and equity present fairly, in all
material respects, the financial position of Allegiance Corporation at December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Baxter International Inc.'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.
Our audits of the combined financial statements of Allegiance also included
an audit of Financial Statement Schedule II appearing on page F-19 of this
Prospectus. 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 combined financial statements.
Price Waterhouse LLP
Chicago, Illinois
June 26, 1996
F-2
<PAGE>
ALLEGIANCE CORPORATION
COMBINED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................................................... $ 2,201 $ 2,485 $ 4,922 $ 5,109 $ 5,019
Costs and expenses
Cost of goods sold.......................................... 1,746 1,940 3,878 3,731 3,613
Selling, general and administrative expenses................ 345 384 756 1,005 1,061
Restructuring charges....................................... -- -- 76 -- 484
Goodwill amortization....................................... 18 19 38 41 41
Other (income) expense...................................... (1) 2 (302) (6) (26)
--------- --------- --------- --------- ---------
Total costs and expenses.................................. 2,108 2,345 4,446 4,771 5,173
--------- --------- --------- --------- ---------
Income (loss) before income taxes............................. 93 140 476 338 (154)
Income tax expense (benefit).................................. 36 55 203 123 (86)
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of accounting change... 57 85 273 215 (68)
Cumulative effect of change in accounting for other
postemployment benefits, net of income tax benefit of $3..... -- -- -- -- (5)
--------- --------- --------- --------- ---------
Net income (loss)......................................... $ 57 $ 85 $ 273 $ 215 $ (73)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
ALLEGIANCE CORPORATION
COMBINED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
JUNE 30, --------- ---------
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and equivalents......................................................... $ 5 $ 1 $ 3
Accounts receivable, net of allowance for doubtful accounts of $27 at June
30, 1996, and $18 and $17 at December 31, 1995 and 1994, respectively....... 450 487 635
Notes and other current receivables.......................................... 26 59 246
Inventories.................................................................. 656 684 721
Short-term deferred income taxes............................................. 119 129 145
Prepaid expenses............................................................. 16 12 25
------------ --------- ---------
Total current assets....................................................... 1,272 1,372 1,775
------------ --------- ---------
Property, plant and equipment
Property, plant and equipment................................................ 1,523 1,307 1,330
Accumulated depreciation and amortization.................................... 663 429 410
------------ --------- ---------
Net property, plant and equipment............................................ 860 878 920
------------ --------- ---------
Other assets
Goodwill and other intangibles............................................... 1,096 1,116 1,214
Other........................................................................ 65 78 122
------------ --------- ---------
Total other assets......................................................... 1,161 1,194 1,336
------------ --------- ---------
Total assets............................................................. $ 3,293 $ 3,444 $ 4,031
------------ --------- ---------
------------ --------- ---------
Current liabilities
Accounts payable and accrued liabilities..................................... $ 550 $ 692 $ 720
Long-term deferred income taxes................................................ 115 110 54
Other noncurrent liabilities................................................... 68 64 188
Equity
Divisional retained earnings................................................. 1,750 1,768 2,259
Equity investment by parent.................................................. 810 810 810
------------ --------- ---------
Total equity............................................................... 2,560 2,578 3,069
------------ --------- ---------
Total liabilities and equity............................................. $ 3,293 $ 3,444 $ 4,031
------------ --------- ---------
------------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
ALLEGIANCE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------- -------------------------------
1996 1995 1995 1994 1993
--------------- --------- --------- --------- ---------
(UNAUDITED)
(BRACKETS DENOTE CASH OUTFLOWS)
<S> <C> <C> <C> <C> <C>
Cash flow provided by operations
Income (loss) before cumulative effect of accounting
change...................................................... $ 57 $ 85 $ 273 $ 215 $ (68)
Adjustments
Depreciation and amortization.............................. 73 83 165 223 221
Deferred income taxes...................................... 16 19 50 3 (199)
Gain on asset dispositions, net............................ -- 4 (263) (11) (36)
Restructuring charges...................................... -- -- 76 -- 484
Other...................................................... -- 2 5 2 11
Changes in balance sheet items
Accounts receivable........................................ 69 31 73 8 (6)
Inventories................................................ 24 (76) 29 86 (124)
Accounts payable and other current liabilities............. (88) 14 (120) (43) 78
Restructuring program payments............................. (21) (29) (62) (54) (18)
Other...................................................... 6 6 27 (7) (7)
--- --------- --------- --------- ---------
Cash flow provided by operations............................. 136 139 253 422 336
--- --------- --------- --------- ---------
Investment transactions
Capital expenditures......................................... (33) (48) (112) (122) (273)
Acquisitions (net of cash received).......................... (14) -- (5) (2) (14)
Proceeds from asset dispositions............................. (10) 178 626 107 68
--- --------- --------- --------- ---------
Investment transactions, net................................. (57) 130 509 (17) (219)
--- --------- --------- --------- ---------
Financing transactions
Payments to Baxter International Inc......................... (75) (268) (764) (402) (119)
--- --------- --------- --------- ---------
Financing transactions, net.................................. (75) (268) (764) (402) (119)
--- --------- --------- --------- ---------
Increase (decrease) in cash and equivalents.................... 4 1 (2) 3 (2)
Cash and equivalents at beginning of period.................... 1 3 3 -- 2
--- --------- --------- --------- ---------
Cash and equivalents at end of period.......................... $ 5 $ 4 $ 1 $ 3 $ --
--- --------- --------- --------- ---------
--- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
ALLEGIANCE CORPORATION
COMBINED STATEMENTS OF EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
SIX MONTHS --------- --------- ---------
ENDED JUNE 30,
1996
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Divisional retained earnings
Beginning balance............................................... $ 1,768 $ 2,259 $ 2,446 $ 2,633
Net income (loss)............................................... 57 273 215 (68)
Payments to Baxter International Inc............................ (75) (764) (402) (119)
------- --------- --------- ---------
Ending balance.................................................. 1,750 1,768 2,259 2,446
------- --------- --------- ---------
Equity investment of parent....................................... 810 810 810 810
------- --------- --------- ---------
Total equity.................................................. $ 2,560 $ 2,578 $ 3,069 $ 3,256
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
On November 27, 1995, the board of directors of Baxter International Inc.
("Baxter") approved in principle a plan to distribute to Baxter stockholders all
of the outstanding stock of its health-care cost management business in a
spin-off transaction (the "Distribution") which is expected to be tax-free.
Allegiance Corporation ("Allegiance" or the "Company") operates in a single
industry segment as a leading provider of medical products and services that
help its health-care customers manage and reduce the total cost of providing
patient care. Through its nationwide distribution network, Allegiance
distributes a broad offering of medical, surgical and laboratory supplies,
including its own self-manufactured surgical and respiratory-therapy products,
to hospital and alternate-care customers. Allegiance also provides cost
management services to its health-care customers through inventory management
programs, customized packaging, and procedure and process consulting. The
delivery of such a broad array of product and service offerings requires focused
investments in cost management services, information systems and manufacturing
efficiencies.
The Distribution is expected to occur in late 1996 and will result in
Allegiance operating as an independent entity with publicly traded common stock.
Baxter will have no ownership interest in Allegiance after the spin-off but will
continue to conduct business as described in the Reorganization and other
agreements outlined in Note 8 to the Combined Financial Statements. However,
Baxter will, unless released by third parties, remain liable for certain lease,
guarantee and other obligations and liabilities that are transferred to and
assumed by Allegiance. Allegiance will be obligated by the Reorganization
agreement to indemnify Baxter against liabilities related to those transferred
obligations and liabilities.
Allegiance's historical results of operations in 1995, 1994 and 1993 include
revenues and expenses related to certain divested businesses. The Industrial and
Life Sciences division was sold in September 1995 and the diagnostics
manufacturing businesses were sold in December 1994. See Note 3 to the Combined
Financial Statements for additional information related to these divestitures.
The following table presents selected financial data for Allegiance
excluding the revenue and expenses associated with these divested businesses:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales..................................................... $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
Costs and expenses
Cost of goods sold.......................................... 1,746 1,770 3,625 3,311 3,245
Selling, general and administrative expenses................ 345 346 701 711 746
Restructuring charges....................................... -- -- -- -- 304
Goodwill amortization....................................... 18 18 37 37 37
Other (income) expense...................................... (1) 2 (33) (3) (44)
--------- --------- --------- --------- ---------
Total costs and expenses.................................. 2,108 2,136 4,330 4,056 4,288
--------- --------- --------- --------- ---------
Pretax income (loss).......................................... 93 108 245 258 (39)
Income tax expense (benefit).................................. 36 42 94 101 (13)
--------- --------- --------- --------- ---------
Income (loss)............................................. $ 57 $ 66 $ 151 $ 157 $ (26)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the combined financial statements. These
policies are in conformity with generally
F-7
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accepted accounting principles and have been applied consistently in all
material respects. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying combined financial statements include those assets,
liabilities, revenues and expenses directly attributable to Allegiance's
operations. These financial statements have been prepared as if Allegiance had
operated as a free-standing entity for all periods presented. Operations outside
the United States and Puerto Rico, which are not significant, are included in
the combined financial statements on the basis of fiscal years ending November
30.
The financial information included herein does not necessarily reflect what
the financial position and results of operations of Allegiance would have been
had it operated as a stand-alone entity during the periods covered, and may not
be indicative of future operations or financial position.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the interim combined financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods. All such adjustments are of a normal, recurring nature. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the full year.
CASH AND EQUIVALENTS
Cash and equivalents include cash, cash investments and marketable
securities with original maturities of three months or less. Cash payments for
income taxes related to Allegiance's operations were made by Baxter.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Market for raw materials is based on replacement costs and for other
inventory classifications on net realizable value. Appropriate consideration is
given to deterioration, obsolescence and other factors in evaluating net
realizable value.
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
JUNE 30,
1996
-------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Raw materials................................................... $ 63 $ 54 $ 64
Work in process................................................. 53 49 55
Finished products............................................... 540 581 602
----- --------- ---------
Total inventories........................................... $ 656 $ 684 $ 721
----- --------- ---------
----- --------- ---------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for financial reporting purposes principally on the
straight-line method over the following estimated useful lives: buildings and
leasehold improvements, 20 to 44 years; machinery and other equipment, 3 to 20
F-8
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
years; equipment leased or rented to customers, 1 to 5 years. Leasehold
improvements are depreciated over the life of the related facility leases or the
asset whichever is shorter. Straight-line and accelerated methods of
depreciation are used for income tax purposes.
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Land.................................................................. $ 102 $ 104
Buildings and leasehold improvements.................................. 396 386
Machinery and equipment............................................... 724 778
Equipment leased or rented to customers............................... 14 16
Construction in progress.............................................. 71 46
--------- ---------
Total property, plant and equipment, at cost........................ 1,307 1,330
Accumulated depreciation and amortization............................. (429) (410)
--------- ---------
Net property, plant and equipment................................. $ 878 $ 920
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $106, $154 and $156 million in 1995, 1994 and 1993,
respectively. Repairs and maintenance expense was $36 million in 1995, $30
million in 1994 and $33 million in 1993.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over estimated useful lives
not exceeding 40 years. Based upon management's assessment of the future
undiscounted operating cash flows of acquired businesses, the carrying value of
goodwill at December 31, 1995, has not been impaired. As of December 31, 1995
and 1994, goodwill was $1,092 million and $1,170 million, respectively, net of
accumulated amortization of $369 million and $345 million, respectively.
Other intangible assets include purchased patents, trademarks, deferred
charges and other identified rights which are amortized on a straight-line basis
over their legal or estimated useful lives, whichever is shorter (generally not
exceeding 17 years). As of December 31, 1995 and 1994, other intangibles were
$24 million and $44 million, respectively, net of accumulated amortization of
$46 million and $38 million, respectively.
INCOME TAXES
Allegiance's operations were historically included in Baxter's consolidated
U.S. federal and state income tax returns and in the tax returns of certain
Baxter foreign subsidiaries. The provision for income taxes has been determined
as if Allegiance had filed separate tax returns under its existing structure for
the periods presented. Accordingly, the effective tax rate of Allegiance in
future years could vary from its historical effective rates depending on
Allegiance's future legal structure and tax elections. All income taxes are
settled with Baxter on a current basis through the "Divisional Retained
Earnings" account.
Provision has been made for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income
Taxes."
DERIVATIVES
Gains and losses on hedges of existing assets or liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts.
F-9
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses relating to qualifying hedges of firm commitments or
anticipated transactions also are deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs.
3. ACQUISITIONS, INVESTMENTS IN AFFILIATES AND DIVESTITURES
ACQUISITIONS
Allegiance invested $5 million in 1995, $2 million in 1994 and $14 million
in 1993 for acquisitions accounted for as purchase transactions and investments
in affiliated companies. Had the acquisitions taken place on January 1,
consolidated results in the year of acquisition would not have been materially
different from reported results. These acquisitions involved no significant
change in Allegiance's strategic direction and were made to acquire
technologies, broaden product lines and expand market coverage.
DIVESTITURES
In 1995, Allegiance disposed of several businesses or product lines which
resulted in a net gain of $141 million (net of $122 million in related income
tax expense). The majority of the net gain for 1995 related to the divestiture
of Allegiance's Industrial and Life Sciences Division ("Industrial") to VWR
Corporation for approximately $400 million in cash and $25 million in deferred
payments, resulting in a gain of $268 million. As part of the divestiture,
Allegiance will continue to supply its self-manufactured products and supplies
sold in non-health-care markets to VWR Corporation under a long-term
distribution agreement. Allegiance disposed of or discontinued several minor
non-strategic or unprofitable product lines or investments which resulted in a
net gain of $8 million (net of $3 million in related income tax expense) in 1994
and $22 million (net of $14 million in related income tax expense) in 1993. The
majority of these transactions resulted in the disposition of Allegiance's
entire interest in such product lines and investments.
Proceeds from divestitures were $626 million in 1995, $107 million in 1994
and $68 million in 1993. Proceeds in 1995 included approximately $400 million
for the Industrial divestiture discussed earlier. The divestiture of the
diagnostics manufacturing business discussed in Note 4 to the Combined Financial
Statements included proceeds of approximately $200 million in 1995 and $44
million in 1994.
4. RESTRUCTURING CHARGES
In November 1993, Baxter's board of directors approved a series of strategic
actions to improve shareholder value and reduce costs. The strategic actions of
the program were designed in part to make the Allegiance Business more efficient
and responsive in addressing the changes occurring in the U.S. health-care
system. In November 1993, a $484 million pretax provision was recorded to cover
costs associated with these restructuring initiatives. Since the announcement of
the 1993 restructuring program, Allegiance has implemented, or is in the process
of implementing, all of the major strategic actions associated with the
restructuring program, which is expected to be completed in 1997.
Included in the 1993 restructuring plan was the intent to divest the
diagnostics manufacturing businesses and a valuation allowance was established
as a component of the 1993 restructuring charge. In December 1994, subject to
certain settlement provisions, the divestiture of these businesses was completed
and net proceeds were received of approximately $44 million in cash, $200
million in installment notes (which were collected in cash during January 1995)
and $40 million in face value of preferred stock. In addition, accounts
receivable were retained of approximately $85 million, which was collected from
customers in the normal course of business. Allegiance has retained the rights
to distribute all current diagnostics products in the U.S.
F-10
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING CHARGES (CONTINUED)
Throughout 1995, active discussions took place with the buyer of the
diagnostics businesses related to interpretations of and responsibility relative
to the settlement provisions contained in the purchase and sale and related
agreements. The divestiture was also significantly complicated by a dispute
between the diagnostics manufacturing businesses and one of its major suppliers,
which ultimately led to a lower than expected final valuation of the business.
This dispute has been settled. In the third quarter of 1995, settlement
negotiations were completed with the buyer of the diagnostics businesses and
adjustments to the purchase price were finalized along with a revision of cost
estimates to complete the divestiture. This resulted in an additional
restructuring charge of approximately $76 million.
Employee-related costs include provisions for severance, outplacement
assistance, relocation and retention payments for employees in the affected
operations worldwide. Since the inception of the restructuring program,
approximately 1,920 of the 2,860 positions that were originally expected to be
affected by the program have been eliminated. As process changes were
implemented in connection with the restructuring program, it became apparent
that, as certain management level positions were eliminated, other lower cost
positions were added. While this has generated savings levels consistent with
expectations, management has revised its targeted head count reduction to 2,230
net positions. The majority of the remaining reductions will occur in 1996 and
1997, as facility closures and consolidations are completed as planned.
Noncash restructuring reserve utilization with respect to divestitures and
asset write-downs of $160 million, $66 million and $21 million in 1994 and 1995,
and for the six months ended June 30, 1996, respectively, included $118 million,
$16 million and $3 million, respectively, relating to the divestiture of the
diagnostics manufacturing businesses. Also included was $42 million in 1994, $50
million in 1995 and $16 million for the six months ended June 30, 1996, relating
primarily to the closure of a manufacturing facility and consolidations or
certain distribution facilities. The utilization relating to the diagnostics
divestiture primarily represents the excess of the net assets of the businesses
sold over the proceeds received. The utilization relating to the manufacturing
facility closure and distribution facility consolidations primarily represents
fixed asset and inventory write-downs.
F-11
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING CHARGES (CONTINUED)
The following table summarizes the 1993 restructuring program for Allegiance
businesses:
<TABLE>
<CAPTION>
DIVESTITURES
EMPLOYEE- AND ASSET OTHER
RELATED COSTS WRITE- DOWNS COSTS TOTAL
--------------- ------------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Initial restructuring charge................... $ 103 $ 278 $ 103 $ 484
Utilization:
Cash......................................... (31) (22) (23) (76)
Noncash...................................... -- (160) -- (160)
----- ------ --------- ---------
December 31, 1994.............................. $ 72 $ 96 $ 80 $ 248
----- ------ --------- ---------
Utilization:
Cash......................................... (29) (43) (33) (105)
Noncash...................................... -- (66) -- (66)
Adjustment to reserve.......................... -- 76 -- 76
----- ------ --------- ---------
December 31, 1995.............................. $ 43 $ 63 $ 47 $ 153
----- ------ --------- ---------
Utilization:
Cash......................................... (11) (13) (10) (34)
Noncash...................................... -- (21) -- (21)
----- ------ --------- ---------
June 30, 1996.................................. $ 32 $ 29 $ 37 $ 98
----- ------ --------- ---------
----- ------ --------- ---------
</TABLE>
The 1995 restructuring reserve balance consisted of $89 million of current
and $64 million noncurrent liabilities. The balance in the 1994 reserves
consisted of $80 million of current and $168 million of non-current liabilities.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------------
(IN MILLIONS)
<S> <C> <C>
Accounts payable, principally trade................................... $ 378 $ 390
Employee compensation and withholdings................................ 88 109
Restructuring......................................................... 89 80
Property, payroll and other taxes..................................... 40 37
Other................................................................. 97 104
--------- -----
Accounts payable and accrued liabilities.............................. $ 692 $ 720
--------- -----
--------- -----
</TABLE>
6. LEASE OBLIGATIONS
Certain facilities and equipment are leased under operating leases expiring
at various dates. Most of the operating leases contain renewal options. Total
expense for all operating leases was $26 million in 1995, $38 million in 1994
and $38 million in 1993.
F-12
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. LEASE OBLIGATIONS (CONTINUED)
Future minimum lease payments (including interest) under noncancelable
operating leases at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------------
(IN MILLIONS)
<S> <C>
1996.................................................................. $ 20
1997.................................................................. 15
1998.................................................................. 11
1999.................................................................. 6
2000.................................................................. 4
Thereafter............................................................ 6
---
Total obligations and commitments..................................... $ 62
---
---
</TABLE>
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
CONCENTRATIONS OF CREDIT RISK
Allegiance provides credit, in the normal course of business, to hospitals,
private and government institutions, health-care agencies, insurance agencies
and doctors' offices. Allegiance performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses which, when
realized, have been within the range of management's allowance for doubtful
accounts.
FINANCIAL INSTRUMENT USE
For all periods presented, Allegiance has been considered in Baxter's
overall risk management strategy. As part of this strategy, Baxter uses certain
financial instruments to reduce its exposure to adverse movements in foreign
exchange rates. These financial instruments are not used for trading purposes.
FOREIGN EXCHANGE RISK MANAGEMENT
As part of implementing its strategy, Baxter has allocated to Allegiance the
income and expense associated with certain option contracts used to hedge
anticipated cost of production expected to be denominated in foreign currencies.
The terms of these financial instruments were less than one year. Allocated net
expense and the related notional amounts for these options were immaterial in
all years presented. Subsequent to year-end 1995, Baxter entered into options to
reduce its foreign exchange exposures. Baxter allocated to Allegiance options
with a notional value of approximately $40 million to hedge anticipated costs of
production expected to be denominated in foreign currency.
FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
CARRYING AMOUNTS APPROXIMATE FAIR VALUES
------------------------ ------------------------
AS OF DECEMBER 31 (IN MILLIONS) 1995 1994 1995 1994
- ---------------------------------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Investment in affiliates.................................. $ 15 $ 9 $ 15 $ 9
</TABLE>
The carrying values of cash and cash equivalents, accounts receivable and
payable, and accrued liabilities, approximate fair value due to the short-term
maturities of these assets and liabilities.
Investments in affiliates are accounted for by both the cost and equity
methods and pertain to several minor equity investments in companies for which
fair values are determined by quoted market prices and others for which fair
values are not readily available, but are believed to exceed carrying amounts.
F-13
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
Baxter has provided to Allegiance certain legal, treasury, insurance and
administrative services. Charges for these services are based on actual costs
incurred by Baxter. In addition, Allegiance is the primary distributor of
Baxter's intravenous solutions, cardiovascular devices and other products in the
United States and also provides other services to Baxter. Negotiated fees for
these distribution services have generally been under the same terms and
conditions granted to independent third parties. Additionally, these fees are
not materially different than the terms of the Distribution Agreement subsequent
to the Distribution. A summary of related party transactions, all of which are
with Baxter or Baxter affiliates, is shown in the table below (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Allegiance provided:
Distribution services to Baxter in the U.S......................... $ 214 $ 206 $ 201
Administrative services to Baxter.................................. $ 25 $ 24 $ 23
Allegiance received:
Administrative services from Baxter................................ $ 48 $ 46 $ 44
International distribution services from Baxter.................... $ 26 $ 25 $ 23
</TABLE>
Management believes that the basis used for allocating corporate services is
reasonable. However, the terms of these transactions may differ from those that
would result from transactions among unrelated parties.
Allegiance participates in a centralized cash management program
administered by Baxter. Short-term advances from Baxter or excess cash sent to
Baxter has been treated as an adjustment to the "Divisional Retained Earnings"
account through the Balance Sheet date. No interest is charged on this balance.
Effective on the Distribution Date, Baxter and Allegiance will enter into a
series of administrative services agreements pursuant to which Baxter and
Allegiance will continue to provide, for a specified period of time, certain
administrative services which each entity historically has provided to the
other. These agreements require both parties to pay to each other a fee which
approximates the actual costs of these services. Additionally, subsequent to the
spin-off, Allegiance will have continuing significant relationships with Baxter
as a distributor, customer and supplier for a wide array of health-care products
and services, and for specified transitional administrative support services.
See "Arrangements Between Baxter and Allegiance" included elsewhere in this
Information Statement, for detailed descriptions of the related agreements.
9. RETIREMENT AND OTHER BENEFIT PROGRAMS
Allegiance participated in Baxter-sponsored non-contributory, defined
benefit pension plans covering substantially all employees in the U.S. and
Puerto Rico. The benefits were based on years of service and the employee's
compensation during 5 of the last 10 years of employment as defined by the
plans. Plan assets, which are maintained in a trust administered by Baxter,
consist primarily of equity and fixed income securities. Baxter and Allegiance
have announced their intent to freeze benefits under these plans at the date of
the spin-off for Allegiance employees. Allegiance has also announced that it
will not have a defined benefit pension plan to replace the Baxter plan. The
pension liability related to Allegiance employees' service prior to the spin-off
date will remain with Baxter.
Pension expense associated with the Baxter-sponsored plans prior to its
being frozen was $17 million, $22 million and $28 million for 1995, 1994 and
1993, respectively. The assumed discount rate applied to benefit obligations to
determine 1995 pension expense was 9% and the assumed long-term rate of return
on assets was 9.5% for the U.S. and Puerto Rico plans.
F-14
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT AND OTHER BENEFIT PROGRAMS (CONTINUED)
In addition to pension benefits, Allegiance participated in Baxter-sponsored
contributory health-care and life insurance benefits for substantially all
domestic retired employees. Baxter and Allegiance have announced that they will
freeze benefits under these plans at the date of the spin-off for Allegiance
employees. Expense associated with these benefits prior to the date of the
spin-off were $9 million in 1995, $9 million in 1994 and $11 million in 1993.
Allegiance has announced its intention not to establish new health-care and life
insurance plans for employees retiring subsequent to the Distribution Date.
Effective, January 1, 1993, Allegiance adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits" which requires accrual
accounting for postemployment benefits such as disability related and
workers-compensation payments. The company recorded the obligation as a
cumulative effect of an accounting change for $5 million (net of $3 million in
related income tax benefits). The effect of this change on 1993 operating income
versus the prior method of accounting for these benefits was not material. The
liability associated with these benefits was $14 million for 1995 and 1994.
Most U.S. employees are eligible to participate in a qualified 401(k) plan.
Participants may contribute up to 12% of their annual compensation (limited in
1995 to $9,240 per individual) to the plan and Allegiance matches participants'
contributions, up to 3% of compensation. Matching contributions made by
Allegiance were $11 million in 1995, $14 million in 1994 and $14 million in
1993.
10. OTHER (INCOME) EXPENSE
Components of other (income) expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Asset dispositions, net.............................................. $ (263) $ (11) $ (36)
Foreign exchange..................................................... -- 5 --
Other................................................................ (39) -- 10
--------- --- ---
Total other income................................................... $ (302) $ (6) $ (26)
--------- --- ---
--------- --- ---
</TABLE>
11. INCOME TAXES
Income (loss) before tax expense by category is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
U.S................................................................. $ 434 $ 292 $ (191)
International....................................................... 42 46 37
--------- --------- ---------
Income (loss) before income tax expense............................. $ 476 $ 338 $ (154)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
Income tax expense before cumulative effect of accounting change by category
and by income statement classification is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Current
U.S.
Federal......................................................... $ 124 $ 91 $ 79
State and local, including Puerto Rico.......................... 34 26 29
International..................................................... (5) 3 5
--------- --------- ---------
Current income tax expense........................................ 153 120 113
--------- --------- ---------
Deferred
U.S.
Federal......................................................... 38 (5) (164)
State and local, including Puerto Rico.......................... 8 4 (34)
International..................................................... 4 4 (1)
--------- --------- ---------
Deferred income tax expense (benefit)............................. 50 3 (199)
--------- --------- ---------
Income tax expense (benefit)........................................ $ 203 $ 123 $ (86)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax expense shown above was calculated as if Allegiance were a
stand-alone entity.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Deferred tax assets
Accrued expenses................................................... $ 70 $ 60 $ 60
Restructuring costs................................................ 57 77 111
Other.............................................................. -- -- 1
--------- --------- ---------
Total deferred tax assets........................................ 127 137 172
--------- --------- ---------
Deferred tax liabilities
Asset basis differences............................................ 107 46 70
Other.............................................................. 1 -- 8
--------- --------- ---------
Total deferred tax liabilities................................... 108 46 78
--------- --------- ---------
Net deferred tax assets.......................................... $ 19 $ 91 $ 94
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1995, $22 million of deferred tax assets were transferred to Baxter. The
deferred tax assets related to the asset basis difference associated with
preferred stock received in connection with the divestiture of the diagnostics
manufacturing businesses. Since agreements entered into with the buyer of the
diagnostics manufacturing businesses require that the preferred stock be
retained by Baxter for a prescribed period of time, the related deferred tax
assets were transferred to Baxter.
F-16
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
Income tax expense differs from income tax expense calculated by using the
U.S. federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate....................... $ 166 $ 118 $ (54)
Tax-exempt operations................................................ (17) (23) (37)
Non deductible goodwill.............................................. 28 14 14
State and local taxes................................................ 27 15 (12)
Foreign tax (benefit)................................................ (1) (2) (2)
Other................................................................ -- 1 5
--------- --------- ---------
Income tax expense (benefit)....................................... $ 203 $ 123 $ (86)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Allegiance has manufacturing operations outside the U.S. that benefit from
reductions in local tax rates under tax incentives that will continue at least
through 1998. U.S. federal income taxes, net of available foreign tax credits,
on unremitted earnings deemed permanently reinvested would not be material.
12. LEGAL PROCEEDINGS
Upon the Distribution, Allegiance will assume the defense of litigation
involving claims related to Allegiance Business, including certain claims of
alleged personal injuries as a result of exposure to natural rubber latex gloves
described below. Allegiance has not been named as a defendant in this litigation
but will be defending and indemnifying Baxter Healthcare Corporation ("BHC"), as
contemplated by the Reorganization Agreement, for all expenses and potential
liabilities associated with claims pertaining to this litigation. It is expected
that Allegiance will be named as a defendant in future litigation and may be
added as a defendant in existing litigation. (Information subsequent to June 26,
1996 is unaudited).
BHC was one of ten defendants named in a purported class action filed in
August 1993, on behalf of all medical and dental personnel in the state of
California who allegedly suffered allergic reactions to natural rubber latex
gloves and other protective equipment or who allegedly have been exposed to
natural rubber latex products. (KENNEDY, ET AL., V. BAXTER HEALTHCARE
CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632). The case alleges
that users of various natural rubber latex products, including medical gloves
made and sold by BHC and other manufacturers, suffered allergic reactions to the
products ranging from skin irritation to systemic anaphylaxis. The Court granted
defendants' demurrer to the class action allegations. On February 29, 1996, the
California Appellate Court upheld the trial court's ruling. In April 1994, a
similar purported class action, GREEN, ET AL. V. BAXTER HEALTHCARE CORPORATION,
ET AL., (Cir. Ct., Milwaukee Co., WI, 94CV004977) was filed against Baxter and
three other defendants. The class action allegations have been withdrawn, but
additional plaintiffs added individual claims. On July 1, 1996, the Company was
served with a similar purported class action, WOLF V. BAXTER HEALTHCARE CORP. ET
AL., Circuit Court, Wayne County, MI, 96-617844NP. The Company is the only named
defendant in that suit. As of August 19, 1996, 36 additional lawsuits have been
served on BHC containing similar allegations of senseitization to natural rubber
latex products. Allegiance intends to vigorously defend against these actions.
Since none of these cases has proceeded to a hearing on the merits, Allegiance
is unable to evaluate the extent of any potential liability, and unable to
estimate any potential loss.
Allegiance believes that a substantial portion of the liability and defense
costs related to natural rubber latex gloves cases and claims will be covered by
insurance, subject to self-insurance retentions, exclusions, conditions,
coverage gaps, policy limits and insurer solvency. BHC has notified its
insurance
F-17
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. LEGAL PROCEEDINGS (CONTINUED)
companies that it believes that these cases and claims are covered by BHC's
insurance. Most of BHC's insurers have reserved their rights (i.e., neither
admitted nor denied coverage), and may attempt to reserve in the future, the
right to deny coverage, in whole or in part, due to differing theories
regarding, among other things, the applicability of coverage and when coverage
may attach. It is not expected that the outcome of these matters will have a
material adverse effect on Allegiance's business, cash flow, results of
operations or financial condition.
Under the U.S. Superfund statute and many state laws, generators of
hazardous waste which is sent to a disposal or recycling site are liable for
cleanup of the site if contaminants from that property later leak into the
environment. The law provides that potentially responsible parties may be held
jointly and severally liable for the costs of investigating and remediating a
site. This liability applies to the generator even if the waste was handled by a
contractor in full compliance with the law.
As of June 30, 1996, BHC has been named as a potentially responsible party
for cleanup costs at ten hazardous waste sites, for which Allegiance has assumed
responsibility. Allegiance's largest assumed exposure is at the Thermo-Chem site
in Muskegon, Michigan. Allegiance expects that the total cleanup costs for this
site will be between $44 million and $65 million, of which Allegiance's share
will be approximately $5 million. This amount, net of payments of approximately
$1 million, has been accrued and is reflected in Allegiance's combined financial
statements. The estimated exposure for the remaining nine sites is approximately
$4 million, which has been accrued and reflected in Allegiance's combined
financial statements.
BHC is a defendant in a number of other claims, investigations and lawsuits
for which Allegiance has assumed responsibility. Based on the advice of counsel,
management does not believe that the other claims, investigations and lawsuits
individually or in the aggregate, will have a material adverse effect on
Allegiance's business, cash flow, results of operations or financial condition.
13. INDUSTRY INFORMATION
Allegiance operates in a single industry segment as a leading provider of
medical products and services that help its health-care customers manage and
reduce the total cost of providing patient care. Through its nationwide
distribution network, Allegiance distributes a broad offering of hospital
supplies, including its own self-manufactured surgical and respiratory-therapy
products, to hospital and alternate-care customers. Allegiance also provides
cost management services to its health-care customers through inventory
management programs, customized packaging, and procedure and process consulting.
International sales from self-manufactured products are primarily in Canada,
France and Germany. For surgical products, the majority of raw materials used
for the manufacture of latex gloves are located in Malaysia. None of these
geographic locations represent 10% or more of net sales or identifiable assets
of Allegiance.
For the last three years, sales to customers which are members of two large
hospital buying groups, Premier and VHA, Inc. ("VHA"), as a percentage of total
sales were 27% and 16%, respectively in 1995, 23% and 13%, respectively in 1994,
and 23% and 13%, respectively in 1993. Premier and VHA each are comprised of a
group of health-care organizations which benefit from the pricing and other
benefits available to members of the group. However, some members are free to
purchase from the vendors of their choice. The loss of the relationship with
either group would not necessarily mean the loss of sales attributable to all
members of such group.
F-18
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 11
Company Background............................. 11
Capitalization................................. 12
Selected Historical Financial Data............. 13
Pro Forma Financial Information................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business....................................... 27
Management..................................... 36
Relationship with Baxter....................... 47
Principal Stockholders......................... 50
Description of Credit Facilities............... 51
Description of Securities...................... 51
Underwriting................................... 63
Validity of Securities......................... 64
Experts........................................ 64
Index to Financial Statements.................. F-1
</TABLE>
THROUGH AND INCLUDING (THE 40TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$500,000,000
ALLEGIANCE CORPORATION
$200,000,000
% NOTES DUE , 2006
$150,000,000
% DEBENTURES DUE , 2016
$150,000,000
% DEBENTURES DUE , 2026
--------------
[LOGO]
--------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SMITH BARNEY INC.
BA SECURITIES, INC.
FIRST CHICAGO
CAPITAL MARKETS, INC.
NATIONSBANC
CAPITAL MARKETS, INC.
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee) of the issuance and distribution of the securities being registered, all of
which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 206,897
Printing expenses.............................................. 50,000
Fees and expenses of counsel................................... 75,000
Fees and expenses of accountants............................... 25,000
Trustee fees and expenses...................................... 15,000
Rating Agency Fees............................................. 250,000
Blue sky fees and expenses..................................... 18,000
Miscellaneous.................................................. 10,103
---------
Total.......................................................... $ 650,000
---------
---------
</TABLE>
- ------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Allegiance Certificate of Incorporation provides that a director of
Allegiance will not be personally liable to Allegiance or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Allegiance or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware Law, which concerns unlawful payments of dividends, stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. The provisions of the Certificate of Incorporation
described above apply to an officer of Allegiance only if he or she is a
director of Allegiance and is acting in his or her capacity as director, and do
not apply to officers of Allegiance who are not directors.
The Allegiance Certificate of Incorporation provides that each person who is
or was or had agreed to become a director or officer of Allegiance, and each
person who serves or may have served at the request of Allegiance as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, will be indemnified by Allegiance to the fullest
extent permitted from time to time by Delaware law, as the same exists or may
hereafter be amended, except with respect to an action commenced by such
directors or officers against Allegiance or by such directors or officers as a
derivative action.
The Certificate of Incorporation provides that the right to indemnification
and the payment of expenses conferred in the Certificate of Incorporation will
not be exclusive of any other right which any person may have or may in the
future acquire under any agreement, vote of stockholders or disinterested
directors or otherwise. The Certificate of Incorporation permits Allegiance to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Allegiance, or is serving at the request of Allegiance as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not Allegiance would have the power to indemnify such person against
such liability under the Certificate of Incorporation or Delaware Law.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
II-1
<PAGE>
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement or otherwise.
The Company intends to enter into agreements to indemnify its directors and
certain officers, in addition to the indemnification provided for in the
Company's Amended Certificate and Amended By-Laws. Under these agreements, the
Company will, among other things, indemnify the Company's directors and officers
for all direct and indirect expenses and costs (including, without limitation,
all reasonable attorneys' fees and related disbursements, other out of pocket
costs and reasonable compensation for time spent by such persons for which they
are not otherwise compensated by the Company or any third person) and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines and settlement fees) actually and reasonably incurred by such person in
connection with either the investigation, defense, settlement or appeal of any
threatened, pending or completed action, suit or other proceeding, including any
action by or in the right of the corporation, arising out of such person's
services as a director, officer, employee or other agent of the Company, any
subsidiary of the Company or any other company or enterprise to which the person
provides services at the request of the Company. The Company believes that these
provisions and agreements are necessary to attract and retain talented and
experienced directors and officers.
The Company maintains liability insurance for the benefit of its directors
and officers.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1996, Allegiance issued shares of common stock to Baxter
International, Inc. in consideration of the transfer of the assets of the
Allegiance Business to Allegiance. Allegiance has not sold or issued any
securities except for the shares of common stock issued to Baxter.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
2.1 Reorganization Agreement between Baxter International, Inc. and Allegiance
Corporation
+3.1 Certificate of Incorporation of Allegiance Corporation
+3.2 By-Laws of Allegiance Corporation
4.1 Form of Indenture dated as of October 1, 1996 between Allegiance Corporation and
PNC Bank, Kentucky, Inc.
+4.2 Forms of Board Resolution creating the respective series of Securities
+5.1 Opinion of McDermott, Will & Emery regarding legality
+10.1 Allegiance Corporation 1996 Outside Director Incentive Compensation Plan
+10.2 Allegiance Corporation 1996 Incentive Compensation Plan
+10.3 Allegiance Change in Control Plan
+10.4 Retention Agreement for Ms. Gaumer
+10.5 Retention Agreement for Mr. Zollars
+10.6* Form of Agency, Services and Distribution Agreement
+10.7 $1.2 Billion Credit Agreement dated as of September 23, 1996 among Allegiance
Corporation and the financial institution named therein.
+10.8 $300 Million Credit Agreement dated as of September 23, 1996 among Allegiance
Corporation and the financial institutions named therein.
10.9 Rights Agreement, by and between Allegiance Corporation and the rights agent
named therein
+11.1 Statement regarding Computation of Per Share Earnings
+12.1 Statement regarding Computation of Ratios of Earnings to Fixed Charges
+21.2 Subsidiaries of Allegiance Corporation
+23.1 Consent of Price Waterhouse LLP
+23.2 Consent of McDermott, Will & Emery (included in Exhibit 5.1)
+24.1 Power of Attorney
+25.1 Statement of eligibility and qualification of Trustee relating to the
Securities.
+27.1 Financial Data Schedule
</TABLE>
- ------------
+ Previously Filed.
* Confidential treatment requested for certain portions of this document.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
(b) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in McGaw Park, Illinois on October 3,
1996.
ALLEGIANCE CORPORATION
By /s/ LEONARD G. KUHR
--------------------------------------------------------------
Leonard G. Kuhr
Corporate Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on October 3, 1996.
SIGNATURE TITLE
- ------------------------------ ---------------------------------------------
*
- ------------------------------ Chairman of the Board and
Lester B. Chief Executive Officer
Knight (Principal Executive Officer)
*
- ------------------------------ Senior Vice President and Chief Financial
Peter B. Officer
McKee (Principal Financial Officer)
*
- ------------------------------ Corporate Vice President and Controller
Richard C. (Principal Accounting Officer)
Adloff
*
- ------------------------------
Joseph F. Director
Damico
*
- ------------------------------
Silas S. Director
Cathcart
*
- ------------------------------
David W. Director
Grainger
*
- ------------------------------
Arthur F. Director
Golden
*
- ------------------------------
Michael D. Director
O'Halleran
*
- ------------------------------
Kenneth D. Director
Bloem
*
- ------------------------------
Connie Curran, Ed. Director
D.
*By Power of Attorney
/s/ LEONARD G.
KUHR
- ------------------------------
Leonard G.
Kuhr
ATTORNEY-IN-FACT
II-5
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 15, 1996
BY AND BETWEEN
BAXTER INTERNATIONAL INC.
AND
ALLEGIANCE CORPORATION
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I. DEFINITIONS AND INTERPRETATIONS.................................. 2
Section 1.1 Definitions................................................. 2
Section 1.2 Rules of Construction.......................................12
ARTICLE II. THE SPIN-OFF....................................................13
Section 2.1 Issuance and Delivery of Allegiance
Shares....................................................13
Section 2.2 Spin-Off of Allegiance Shares...............................13
Section 2.3 Treatment of Fractional Shares..............................13
Section 2.4 Baxter Board Action.........................................14
Section 2.5 Additional Approvals........................................14
ARTICLE III. TRANSFERS TO AHII..............................................14
Section 3.1 General.....................................................14
Section 3.2 Malaysian Glove Factory.....................................14
Section 3.3 Euromedical.................................................15
Section 3.4 France......................................................16
Section 3.5 Germany.....................................................16
Section 3.6 Malta.......................................................16
Section 3.7 Mexico......................................................17
Section 3.8 Canada......................................................18
Section 3.9 Restrictions on Intercompany Debt...........................19
Section 3.10 Transfer of Assets.........................................20
Section 3.11 Transfer of Liabilities....................................20
ARTICLE IV. TRANSFERS TO AHC................................................20
Section 4.1 Organization of AHC.........................................20
Section 4.2 Transferred Assets..........................................20
Section 4.3 Assumed Liabilities.........................................26
ARTICLE V. ORGANIZATION OF ALLEGIANCE CORPORATION...........................28
Section 5.1 Organization of Allegiance..................................28
Section 5.2 Transfer of Certain Subsidiaries............................28
Section 5.3 Transfer of Assets..........................................29
Section 5.4 Transfer of Liabilities.....................................30
ARTICLE VI. OTHER CLOSING MATTERS...........................................31
Section 6.1 Instruments of Conveyance...................................31
Section 6.2 No Representations or Warranties............................31
Section 6.3 Non-Assignable Contracts....................................32
Section 6.4 Further Assurances..........................................33
Section 6.5 Excluded Assets.............................................34
Section 6.6 Excluded Liabilities........................................35
Section 6.7 Release of Baxter...........................................35
Section 6.8 Nominee Shares..............................................35
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Page
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ARTICLE VII. CERTAIN COVENANTS..............................................35
Section 7.1 Conduct of Allegiance Business
Pending the Spin-Off Date.................................35
Section 7.2 Registration and Listing....................................35
Section 7.3 Funds Distributed to Baxter.................................36
Section 7.4 Post-Spin-Off Tax-Related
Restrictions..............................................36
Section 7.5 Insurance Policies and Claims
Administration............................................37
Section 7.6 Intercompany Receivables and
Payables and Cash Management..............................41
Section 7.7 Intercompany Debt True-Up...................................43
Section 7.8 Agreements Relating to Baxter and
Allegiance................................................45
Section 7.9 Certain Releases............................................45
Section 7.10 Litigation.................................................45
Section 7.11 Liability for Previously Delivered
Products.................................................46
Section 7.12 Allegiance Bank Accounts...................................48
Section 7.13 Unassigned Indemnifiable Contracts.........................48
Section 7.14 Ad Now Program.............................................48
Section 7.15 Products at Cost to Dade...................................48
Section 7.16 Informal, Nondocumented Real Estate
Leases...................................................49
Section 7.17 Rexam Payment..............................................49
Section 7.18 Clintec Receivables........................................49
ARTICLE VIII. INTELLECTUAL PROPERTY.........................................50
Section 8.1 License of Allegiance Intellectual
Property to Baxter........................................50
Section 8.2 License of Baxter Intellectual
Property to Allegiance....................................53
Section 8.3 Use of Baxter Trade Names and
Trademarks................................................55
ARTICLE IX. EMPLOYEES AND EMPLOYEE BENEFITS.................................56
Section 9.1 Allegiance Employee.........................................56
Section 9.2 Employment of Allegiance Employees..........................56
Section 9.3 Terminations/Layoff/Severance...............................57
Section 9.4 International Allegiance Employees..........................57
Section 9.5 Employment Solicitation.....................................58
Section 9.6 WARN Act....................................................58
Section 9.7 Leave of Absence Policies...................................58
Section 9.8 Withdrawal From Participation in
Baxter Plans and Establishment
of Allegiance Plans.......................................59
Section 9.9 Transfer of Savings Plan Account
Balances..................................................59
Section 9.10 Entitlement to Distributions Under
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Page
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Pension Plan..............................................60
Section 9.11 Welfare Benefits Provided Under
Allegiance Plans.........................................60
Section 9.12 Stock Purchase Plan........................................61
Section 9.13 Workers' Compensation......................................61
Section 9.14 Vacation Pay Policy........................................62
Section 9.15 Non-Qualified Deferred Compensation
Plans....................................................62
Section 9.16 Information to Be Provided to
Baxter...................................................62
Section 9.17 Corporate Action; Delegation of
Authority................................................62
Section 9.18 Split-Dollar Life Insurance................................63
ARTICLE X. ACCESS TO INFORMATION............................................63
Section 10.1 Access to Information......................................63
Section 10.2 Production of Witnesses....................................65
Section 10.3 Provision of Corporate Records.............................65
Section 10.4 Confidentiality............................................65
Section 10.5 Privileged Matters.........................................66
ARTICLE XI. CONDITIONS PRECEDENT TO SPIN-OFF................................67
Section 11.1 Tax Ruling.................................................67
Section 11.2 No Actions.................................................67
Section 11.3 NYSE Listing...............................................68
Section 11.4 Opinions of Financial Advisor..............................68
Section 11.5 Consents...................................................68
Section 11.6 Registration Statement.....................................68
Section 11.7 New Credit Facility........................................68
Section 11.8 Pre-Spin-Off Transactions..................................68
Section 11.9 Ancillary Agreements.......................................68
Section 11.10 Resignations..............................................68
Section 11.11 Board Approval............................................68
Section 11.12 Election of Allegiance Board..............................68
Section 11.13 Satisfaction of Conditions................................68
ARTICLE XII. EXPENSES; TAXES................................................69
Section 12.1 Allocation of Expenses.....................................69
Section 12.2 Taxes......................................................70
Section 12.3 Directors' and Officers' Insurance.........................70
ARTICLE XIII. SURVIVAL, INDEMNIFICATION,CLAIMS AND OTHER MATTERS............71
Section 13.1 Survival...................................................71
Section 13.2 Indemnification............................................71
Section 13.3 Procedure for Indemnification..............................74
Section 13.4 Direct Claims..............................................76
Section 13.5 Adjustment of Indemnifiable Losses.........................76
Section 13.6 Contribution...............................................78
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Page
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Section 13.7 No Third Party Beneficiaries...............................78
Section 13.8 Release of Pre-Divestiture
Liabilities..............................................78
ARTICLE XIV. DISPUTE RESOLUTION.............................................79
Section 14.1 Escalation.................................................79
Section 14.2 Arbitration................................................80
Section 14.3 Injunctive Relief..........................................80
ARTICLE XV. MISCELLANEOUS PROVISIONS........................................80
Section 15.1 Entire Agreement...........................................80
Section 15.2 Choice of Law..............................................80
Section 15.3 Amendment; Waiver..........................................81
Section 15.4 Severability...............................................81
Section 15.5 Counterparts...............................................81
Section 15.6 Records Retention..........................................81
Section 15.7 Beneficiaries..............................................81
Section 15.8 Notices....................................................82
Section 15.9 Termination................................................82
Section 15.10 Performance...............................................82
List of Exhibits
- ----------------
Exhibit A - The Transferred Business
Exhibit B - The Transferred Services
Exhibit C - Transferred Subsidiaries
Exhibit D - Operating Agreements
Exhibit E - Tax Sharing Agreement
Exhibit F - June 30, 1996 Balance Sheet
Exhibit G - Certificate of Incorporation of Allegiance
Exhibit H - By-Laws of Allegiance
Exhibit I - Allegiance Preferred Share Purchase Rights Plan
Exhibit J - Allegiance Board of Directors
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
September 15, 1996, by and between Baxter International Inc., a Delaware
corporation ("Baxter"), and Allegiance Corporation, a Delaware corporation
("Allegiance"), and, prior to the Spin-Off (as hereinafter defined), a wholly-
owned Subsidiary (as hereinafter defined) of Baxter.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Baxter through its Subsidiaries is engaged, INTER ALIA, in
the health care distribution, surgical and respiratory therapy products and
health care cost management business (as more fully described in EXHIBIT A
hereto, the "Transferred Business");
WHEREAS, the Board of Directors of Baxter has determined that it would
be advisable and in the best interests of Baxter and its stockholders for Baxter
(i) to transfer to Allegiance and/or one or more of its Subsidiaries the
business, operations, assets and liabilities related to the Transferred
Business, and (ii) to transfer to Allegiance or one or more of its Subsidiaries,
the employees and certain liabilities related to the provision of the
administrative services and functions set forth in EXHIBIT B hereto (the
"Transferred Services") (the Transferred Business and the Transferred Services
are hereinafter referred to together as the "Allegiance Business");
WHEREAS, Baxter has agreed to transfer and assign, or cause to be
transferred and assigned, to Allegiance or one or more of its Subsidiaries (i)
substantially all of the assets and properties of the Allegiance Business held
by Baxter, Baxter Healthcare Corporation, a Delaware corporation ("BHC"), and
certain other Subsidiaries of Baxter, and (ii) all of the issued and outstanding
shares owned by Baxter and its Subsidiaries of certain of its Subsidiaries as
set forth in EXHIBIT C hereto (the "Transferred Subsidiaries"), and Allegiance
has agreed to assume, or cause to be assumed by one or more of its Subsidiaries,
certain liabilities and obligations arising out of or relating to the Allegiance
Business;
WHEREAS, the Board of Directors of Baxter has determined that it would
be advisable and in the best interests of Baxter and its stockholders for Baxter
to distribute all of the outstanding shares of Allegiance common stock, par
value $1.00 per share (together with the preferred share purchase rights
associated therewith, the "Allegiance Common Stock"), on a pro rata basis to the
holders of Baxter's common stock, par value $1.00 per share ("Baxter Common
Stock"); and
<PAGE>
WHEREAS, on the Spin-Off Date (as hereinafter defined), Baxter will
cause the Agent (as hereinafter defined) to distribute in the manner described
herein to all holders of record of Baxter Common Stock as of the Record Date (as
hereinafter defined), without any consideration being paid by such holders,
outstanding shares of Allegiance Common Stock.
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Baxter and Allegiance agree as
follows:
ARTICLE I. DEFINITIONS AND INTERPRETATIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below.
"Actions" means any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative entity,
agency or commission or any arbitration tribunal.
"Active Allegiance Employee" means any regular full-time or part-time
employee of Baxter or one of its Subsidiaries who commences employment with
Allegiance or one of its Subsidiaries on the Spin-Off Date.
"Affiliate" shall mean any Person controlling, controlled by, or under
direct or indirect common control with a party hereto. For the purpose of this
definition, the term "control" means the power to direct the management of an
entity, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. After the Spin-Off
Date, Allegiance and Baxter shall not be deemed to be under common control for
purposes hereof due solely to the fact that Allegiance and Baxter have common
shareholders.
"Agent" means First Chicago Trust Company of New York, the
distribution agent appointed by Baxter to distribute shares of Allegiance Common
Stock pursuant to the Spin-Off.
"AHC" has the meaning set forth in SECTION 4.1.
"AHC Contracts" has the meaning set forth in SECTION 4.2(viii).
"AHFI" has the meaning set forth in SECTION 3.3.
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<PAGE>
"AHII" has the meaning set forth in SECTION 3.1.
"AHSB" has the meaning set forth in SECTION 3.2(i).
"Allegiance Assigned Intellectual Property" has the meaning set forth
in SECTION 5.3(i).
"Allegiance Business" has the meaning set forth in the recitals of
this Agreement.
"Allegiance Canada" has the meaning set forth in SECTION 3.8(iv).
"Allegiance Common Stock" has the meaning set forth in the recitals of
this Agreement.
"Allegiance Credit Facility" has the meaning set forth in SECTION 7.3.
"Allegiance Distributable Share" means 0.20 Allegiance Shares.
"Allegiance Employee" has the meaning set forth in SECTION 9.1.
"Allegiance Foreign Entity" means any Subsidiary of Baxter that is
located or incorporated in a jurisdiction outside of the United States and will,
upon consummation of the transactions contemplated by this Agreement, become a
Subsidiary of Allegiance.
"Allegiance France" has the meaning set forth in SECTION 3.4(i).
"Allegiance Germany" has the meaning set forth in SECTION 3.5(i).
"Allegiance Indemnified Parties" has the meaning set forth in SECTION
13.2(a).
"Allegiance Party" has the meaning set forth in SECTION 13.6.
"Allegiance Products" means those products manufactured by Allegiance
or its Subsidiaries (as they would exist immediately following the Spin-Off
Date) (except for products manufactured for Baxter or its Subsidiaries by
Allegiance or its Subsidiaries pursuant to the Manufacturing Contracts but
including those products manufactured for Allegiance and its Subsidiaries by
Baxter or its Subsidiaries pursuant to the Manufacturing Contracts).
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<PAGE>
"Allegiance Retirement Plan" means the defined contribution plan which
shall be established by Allegiance after the Spin-Off Date for the benefit of
certain eligible employees.
"Allegiance Share" means one share of Allegiance Common Stock.
"Allegiance Welfare Plans" means the welfare benefit plans established
by Allegiance following the Spin-Off, which provide benefits that correspond to
benefits provided under the Baxter Welfare Plans.
"Assumed Actions" has the meaning set forth in SECTION 7.10(a).
"Assumed BHC Liabilities" has the meaning set forth in SECTION 4.3.
"Assumed Liabilities" means any liability or obligation assumed by
Allegiance or its Subsidiaries as contemplated by ARTICLES III, IV or V hereof.
"Balance Sheet" has the meaning set forth in SECTION 4.2(i).
"Baxter Belgium" has the meaning set forth in SECTION 3.6.
"Baxter Cafeteria Plans" means the Baxter Healthcare and Dependent Day
Care Reimbursement Accounts.
"Baxter Canada" has the meaning set forth in SECTION 3.8.
"Baxter Common Stock" has the meaning set forth in the recitals of
this Agreement.
"Baxter Deutschland" has the meaning set forth in SECTION 3.5.
"Baxter France" has the meaning set forth in SECTION 3.4.
"Baxter Group" means Baxter and (a) any corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as Baxter, (b) a trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of the
Code) with Baxter, (c) any organization (whether or not incorporated) which is a
member of an affiliated service group (within the meaning of Section 414(m) of
the Code) which includes Baxter, a corporation
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<PAGE>
described in clause (a) of this definition or a trade or business described in
clause (b) of this definition, or (d) any other entity which is required to be
aggregated with Baxter pursuant to regulations promulgated under Section 414(o)
of the Code.
"Baxter Indemnified Parties" has the meaning set forth in SECTION
13.2(b).
"Baxter Marks" has the meaning set forth in SECTION 8.3(a).
"Baxter Panama" has the meaning set forth in SECTION 3.2.
"Baxter Party" has the meaning set forth in SECTION 13.6.
"Baxter Pension Plan" means the Baxter International Inc. and
Subsidiaries Pension Plan.
"Baxter Plan" means any employee benefit plan or program maintained by
Baxter.
"Baxter Policy" and "Baxter Policies" have the meanings set forth in
SECTION 7.5(a).
"Baxter Products" means those products manufactured by Baxter or its
Subsidiaries (as they would exist immediately following the Spin-Off Date)
(except for products manufactured for Allegiance or its Subsidiaries by Baxter
or its Subsidiaries pursuant to the Manufacturing Contracts but including those
products manufactured for Baxter and its Subsidiaries by Allegiance or its
Subsidiaries pursuant to the Manufacturing Contracts).
"Baxter Retiree Welfare Plan" means the post-retirement medical
portion of the Baxter International Inc. and Subsidiaries Medical Plan and the
post-retirement life insurance portion of the Baxter Employee Group Term Life
Insurance Plan.
"Baxter Savings Plan" means the Baxter International Inc. and
Subsidiaries Incentive Investment Plan.
"Baxter Welfare Plans" means the Baxter Medical Plan, the Baxter Long-
Term Disability Insurance Plan, the Baxter Personal Accident Insurance Plan, the
Baxter Business Travel Accident Insurance Plan, the Group Universal Life
Insurance Plan and the Wellness Reimbursement Account.
"BHC" has the meaning set forth in the recitals of this Agreement.
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<PAGE>
"Biologics" has the meaning set forth in SECTION 8.3(a)(iii).
"Board of Directors" means the board of directors of the referenced
corporation or any duly authorized committee thereof.
"BPS" has the meaning set forth in SECTION 3.6(iv).
"BWT" has the meaning set forth in SECTION 3.1.
"BWTSA" has the meaning set forth in SECTION 3.4(ii).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
"Chateaubriant Plant" has the meaning set forth in SECTION 3.4.
"Cirpro" has the meaning set forth in SECTION 3.7(ii).
"Claims or Losses" means all losses, liabilities, claims, demands,
settlements, penalties, fines, damages, costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise (including reasonable
attorneys' fees and expenses, reasonable consultants' fees and expenses, court
costs, any and all expenses reasonably incurred in investigating, preparing for
or responding to or defending against any litigation or claim), commenced, made
or threatened, and any environmental clean-up or remediation claims and
expenses, including any requirements or obligations under CERCLA and any other
federal, state or local laws relating to cleanup of hazardous materials.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, and any applicable state law requiring continuation coverage
under a medical plan.
"Code" means the Internal Revenue Code of 1986, as amended, and except
where the context otherwise requires, the regulations promulgated thereunder.
"Commonly Used Business Information" has the meaning set forth in
SECTION 4.2(vii)(B).
"Contracts" has the meaning set forth in SECTION 4.2(viii).
"Convertors" has the meaning set forth in SECTION 3.7(ii).
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<PAGE>
"Conveyancing Instruments" has the meaning set forth in SECTION 6.1.
"Cost Management Business" has the meaning set forth in Exhibit A.
"CUBI" has the meaning set forth in SECTION 4.2(vii)(B).
"Dade" has the meaning set forth in SECTION 7.14.
"Dade Distribution Agreement" has the meaning set forth in SECTION
7.14.
"Disabled Employee" means each employee who would have been a Domestic
Allegiance Employee had he or she not been on a long-term disability leave of
absence on the Spin-Off Date.
"Distribution Business" has the meaning set forth in EXHIBIT A.
"Divested Businesses" means the businesses previously divested by
Baxter or any of its Subsidiaries pursuant to any of the agreements listed on
SCHEDULE 4.2(viii)(A) as "Divestitures."
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euromedical" has the meaning set forth in SECTION 3.3.
"Euromedical Loan" has the meaning set forth in SECTION 3.2(iii).
"Eurovac" has the meaning set forth in SECTION 3.6.
"Exchange Act" has the meaning set forth in SECTION 7.2(i).
"Excluded Assets" has the meaning set forth in SECTION 6.5.
"Excluded Liabilities" has the meaning set forth in SECTION 6.6.
"First Party" has the meaning set forth in SECTION 10.4(b).
"Foreign Exchange Rate" means, with respect to any currency other than
United States dollars, as of any date of determination, the average of the
opening bid and asked rates on such date at which such currency may be exchanged
for United States dollars as quoted by Bank of America, N.A.
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<PAGE>
"German Business" has the meaning set forth in SECTION 3.5.
"Inactive Employee" means any employee of Baxter or one of its
Subsidiaries who immediately prior to the Spin-Off Date is on an approved
medical leave of absence or short-term disability leave or is absent from active
employment due to occupational illness or injury covered by workers'
compensation, but excluding any employee who is classified by Baxter or any of
its Subsidiaries as totally and permanently disabled on the Spin-Off Date who is
not on workers' compensation.
"Indemnified Party" means any party who is entitled to receive payment
from an Indemnifying Party pursuant to ARTICLE XIII hereof.
"Indemnifying Party" means any party who is required to pay any other
person pursuant to ARTICLE XIII hereof.
"Indemnity Payment" means the amount an Indemnifying Party is required
to pay an Indemnified Party pursuant to ARTICLE XIII hereof.
"Information" has the meaning set forth in SECTION 10.1(a).
"Information Statement" has the meaning set forth in SECTION 7.2(i).
"Insurance Amount" has the meaning set forth in SECTION 12.3.
"Insurance Charges" has the meaning set forth in SECTION 7.5(d)(i).
"Insured Claims" means those liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability, premium
adjustments (including reserves), retrospectively-rated premium adjustments or
retentions, but only to the extent that such liabilities are within applicable
Policy limits, including aggregates and deductibles.
"Intellectual Property Rights" means any and all United States and
foreign copyrights, copyright applications and registrations; nonpatented
inventions; discoveries; processes; formulations; trade secrets; know-how;
technical data; all patent
- 8 -
<PAGE>
applications and issued patents, including continuations, continuations-in-part,
divisionals, reissues, and extensions thereof; and trade names, trademarks,
service marks and service names, whether or not registered.
"Intercompany Receivables or Payables" means any intercompany
receivables or payables (other than Loans) arising in the ordinary course of
business.
"IRS" means the Internal Revenue Service.
"Kit" means an aggregation by Allegiance or Baxter of Baxter,
Allegiance and/or third-party products packaged together or repackaged for
specific uses and procedures.
"Lag Adjustment" has the meaning set forth in SECTION 7.7(a).
"Liability" has the meaning set forth in SECTION 13.8.
"Licensed Allegiance Intellectual Property" has the meaning set forth
in SECTION 8.1(a).
"Loan" means any intercompany indebtedness for borrowed money.
"Malaysian Glove Branch" has the meaning set forth in SECTION 3.2.
"Managed Capital" has the meaning set forth in SECTION 7.7(b).
"Manufacturing Contracts" means the agreements set forth in EXHIBIT D
under the caption "Contract Manufacturing Agreements."
"Mexicali" has the meaning set forth in SECTION 3.7(i).
"Mexican BHC Subsidiaries" has the meaning set forth in SECTION
3.7(ii).
"MTR" has the meaning set forth in SECTION 10.1(b).
"New Sub" has the meaning set forth in SECTION 3.8(i).
"NYSE" means the New York Stock Exchange, Inc.
"Operating Agreements" means the agreements listed on EXHIBIT D hereto
regarding the ongoing business and service relationships between Baxter and
Allegiance and their respective Affiliates following the Spin-Off.
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<PAGE>
"Party" means Baxter or Allegiance.
"Person" shall mean an individual, corporation, partnership, limited
liability company, unincorporated syndicate, unincorporated organization, trust,
trustee, executor, administrator or other legal representative, governmental
authority or agency, or any group of Persons acting in concert.
"Policies" has the meaning set forth in SECTION 7.5.
"Pre Spin-Off Claims Administration" has the meaning set forth in
SECTION 7.5(e).
"Privilege" and "Privileges" have the meanings set forth in SECTION
10.5(a).
"Privileged Information" has the meaning set forth in SECTION 10.5(a).
"Products" has the meaning set forth in SECTION 7.11.
"Quiroproductos" has the meaning set forth in SECTION 3.7(ii).
"Real Estate Leases" has the meaning set forth in SECTION 4.2(v).
"Receivables" has the meaning set forth in SECTION 4.2(ii)(A).
"Record Date" means the date determined by the Board of Directors of
Baxter as the record date for the Spin-Off.
"Registration Statement" has the meaning set forth in SECTION 7.2(i).
"Repair or Replacement Period" has the meaning set forth in SECTION
7.11(i).
"Retained Business" means those portions of the business of Baxter and
its current Subsidiaries which are not part of the Allegiance Business.
"Rexam" has the meaning set forth in SECTION 7.17.
"SEC" means the United States Securities and Exchange Commission.
"Shared Agreements" has the meaning set forth in
SECTION 7.8(a).
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<PAGE>
"Spin-Off" means the distribution of Allegiance Common Stock as a
dividend to holders of Baxter Common Stock on the basis provided for in ARTICLE
II hereof, which shall be effective as of the Spin-Off Date.
"Spin-Off Date" means the date determined by the Board of Directors of
Baxter as the date on which the Allegiance Shares are payable to holders of
Baxter Common Stock as of the Record Date.
"Subsidiary" means, when used with reference to any entity, any
corporation a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity.
"Surgical Business" has the meaning set forth in EXHIBIT A.
"Tax Sharing Agreement" means the Tax Sharing Agreement in
substantially the form attached as EXHIBIT E hereto.
"Taxes" means any federal, state, local or foreign net income, gross
income, gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental
tax, or any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind.
"Transferred Accounts" has the meaning set forth in SECTION 9.9.
"Transferred Actions" has the meaning set forth in SECTION 7.10(b).
"Transferred Assets" means any of the assets transferred to
Allegiance, AHC, AHII or any of their Subsidiaries as contemplated by ARTICLES
III, IV and V hereof.
"Transferred BHC Assets" has the meaning set forth in SECTION 4.2.
"Transferred Business" has the meaning set forth in the recitals of
this Agreement and in EXHIBIT A.
"Transferred Services" has the meaning set forth in the recitals of
this Agreement.
"Transferred Subsidiaries" has the meaning set forth in the recitals
of this Agreement.
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<PAGE>
"Unassigned Indemnifiable Contracts" has the meaning set forth in
SECTION 7.13(a).
"Unbudgeted Transfer Adjustment" has the meaning set forth in SECTION
7.7(a).
"WARN Act" has the meaning set forth in SECTION 9.6.
Section 1.2 RULES OF CONSTRUCTION. (a) In This Agreement, unless a
clear contrary intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by This Agreement;
(iii) reference to any gender includes the other gender;
(iv) reference to any Section or Exhibit or Schedule means such
Section of this Agreement or such Exhibit or Schedule to this Agreement, as
the case may be, and references in any Section or definition to any clause
means such clause of such Section or definition;
(v) "herein", "hereunder", "hereof", "hereto", and words of similar
import shall be deemed references to this Agreement as a whole and not to
any particular Section or other provision hereof or thereof;
(vi) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(vii) relative to the determination of any period of time, "from"
means "from and including", "to" means "to but excluding" and "through"
means "through and including";
(viii) accounting terms used herein shall have the meanings
historically attributed to them by Baxter and its Subsidiaries prior to the
Spin-Off;
(ix) in the event of any conflict between the provisions of the body
of this Agreement and the Exhibits (other than Exhibit E) or Schedules
hereto, the provisions of the body of this Agreement shall control; and
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(x) the headings contained in this Agreement have been inserted for
convenience of reference only and are not to be used in construing this
Agreement.
(b) This Agreement was negotiated by the Parties with the benefit of
legal representation, and any rule of construction or interpretation otherwise
requiring this Agreement to be construed or interpreted against either Party
shall not apply to any construction or interpretation hereof.
ARTICLE II. THE SPIN-OFF
On the Spin-Off Date, the Allegiance Shares shall be distributed as
follows:
Section 2.1 ISSUANCE AND DELIVERY OF ALLEGIANCE SHARES. Allegiance
shall issue to Baxter the number of Allegiance Shares required so that the total
number of Allegiance Shares held by Baxter on the Spin-Off Date is equal to the
total number of Allegiance Shares distributable pursuant to SECTION 2.2. Baxter
shall deliver to the Agent one or more stock certificates representing all of
the Allegiance Shares then issued and outstanding, together with one or more
stock power(s) duly endorsed in blank. In its capacity as Allegiance's transfer
agent, the Agent will transfer and distribute such shares in the manner
described in SECTION 2.2 below.
Section 2.2 SPIN-OFF OF ALLEGIANCE SHARES. Allegiance shall provide
to the Agent sufficient certificates in such denominations as the Agent may
request in order to effect the Spin-Off. Baxter shall instruct the Agent (i) to
distribute to all holders of record of Baxter Common Stock as of the Record Date
the Allegiance Distributable Share for each share of Baxter Common Stock
outstanding and held of record by such holder as of the Record Date, and (ii) to
deliver to Allegiance, as a contribution to Allegiance, all of the remaining
Allegiance Shares, if any, then held by the Agent. Any such returned Allegiance
Shares shall be canceled immediately by Allegiance, and the Board of Directors
of Allegiance shall take appropriate action so that such returned shares shall
not constitute treasury shares. All of the distributed Allegiance Shares shall
be validly issued, fully paid and nonassessable and shall be free of any
preemptive rights.
Section 2.3 TREATMENT OF FRACTIONAL SHARES. No certificates or scrip
representing fractional Allegiance Shares shall be issued in the Spin-Off. In
lieu of receiving fractional shares, each holder of Baxter Common Stock who
would otherwise be entitled to receive a fractional Allegiance Share pursuant to
the Spin-Off will receive cash for such fractional share. Baxter and
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Allegiance shall instruct the Agent to determine the number of whole Allegiance
Shares and fractional Allegiance Shares allocable to each holder of record of
Baxter Common Stock as of the Record Date, to aggregate all such fractional
shares into whole shares and sell the whole shares obtained thereby in the open
market at the then prevailing prices on behalf of holders who would otherwise be
entitled to receive fractional share interests, and the Agent shall distribute
to each such holder such holder's ratable share of the total proceeds of such
sale after making appropriate deductions of any amounts required for Federal tax
withholding purposes and after deducting any taxes attributable to the sale of
such fractional share interests. Baxter shall bear the costs of commissions
incurred in connection with such sales.
Section 2.4 BAXTER BOARD ACTION. The Board of Directors of Baxter
shall, in its discretion, determine the Record Date and the Spin-Off Date and
all appropriate procedures in connection with the Spin-Off. The Board of
Directors of Baxter shall also have the right to adjust at any time prior to the
Spin-Off Date the Allegiance Distributable Share. The consummation of the
transactions provided for in this ARTICLE II shall only be effected after the
Spin-Off has been declared by the Board of Directors of Baxter and after all of
the conditions set forth in ARTICLE XI hereof shall have been satisfied or
waived by Baxter.
Section 2.5 ADDITIONAL APPROVALS. Baxter shall cooperate with
Allegiance in effecting, and if so requested by Allegiance, Baxter shall, as the
sole stockholder of Allegiance prior to the Spin-Off, ratify any actions which
are reasonably necessary or desirable to be taken by Allegiance to effectuate,
the transactions referenced in or contemplated by this Agreement in a manner
consistent with the terms of this Agreement.
ARTICLE III. TRANSFERS TO AHII
Section 3.1 GENERAL. Prior to or promptly following the execution of
this Agreement, Baxter shall cause to be incorporated, under the General
Corporation Law of Delaware, Allegiance Healthcare International Inc. ("AHII")
as a wholly owned Subsidiary of Baxter World Trade Corporation, a Delaware
corporation ("BWT") and a wholly-owned Subsidiary of Baxter. AHII shall be
qualified as a foreign corporation under the Business Corporation Act of
Illinois. Subject to the terms and conditions of this Agreement, Baxter and
Allegiance hereby agree to take or cause to be taken any and all actions
necessary to effect the transactions described in this ARTICLE III, with each
transaction occurring at the approximate times and in the order described in
SCHEDULE 3.1.
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Section 3.2 MALAYSIAN GLOVE FACTORY. Baxter and Allegiance hereby
agree to take any and all actions necessary to effect the transfer to AHII of
all of the right, title and interest of Panama Healthcare S.A. (Panama), a
Panamanian corporation and a wholly-owned Subsidiary of BWT ("Baxter Panama"),
in the Baxter Panama branch in Malaysia that produces gloves and all of the
assets and liabilities related thereto (the "Malaysian Glove Branch"), as
follows:
(i) Allegiance Healthcare Sdn. Bhd. ("AHSB") shall be
incorporated as a Subsidiary of Baxter Panama;
(ii) Baxter Panama shall declare a U.S.$100,000,000 dividend,
U.S.$50,000,000 of which shall be payable on the Spin-Off Date and the
remainder of which shall be payable to BWT on or before January 31,
1997;
(iii) AHSB shall borrow 10 million Malaysian ringgits (the
"Euromedical Loan") from Euromedical Industries Senderihan Berhad, a
Malaysia corporation ("Euromedical");
(iv) Baxter Panama shall transfer to AHSB all of its right,
title and interest in and to the Malaysian Glove Branch in return for
AHSB stock and the agreement by AHSB to pay to Baxter Panama on the
Spin-Off Date U.S.$90,000,000;
(v) AHII shall borrow U.S.$1,000 from BWT;
(vi) Baxter Panama shall transfer to BWT all of its right, title
and interest in and to the capital stock of AHSB;
(vii) BWT shall transfer to AHII all of its right, title and
interest in and to the capital stock of AHSB in exchange for 84 shares
of AHII voting common stock and 84 shares of AHII non-voting preferred
stock and U.S.$1,000 in cash; and
(viii) Contemporaneously with or immediately before the Spin-Off
(1) AHII shall repay U.S.$1,000 to BWT, and (2) AHSB shall borrow from
Allegiance U.S.$90,000,000 and use the proceeds of such indebtedness
towards the repayment of all debt owed to Baxter Panama.
Section 3.3 EUROMEDICAL. Baxter and Allegiance hereby agree to take
any and all actions necessary to effect the transfer to AHII of all the right,
title and interest in
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Euromedical Industries Senderihan Berhad, a Malaysian corporation
("Euromedical"), held by AHFI/Netherlands B.V., a Dutch corporation and a
wholly-owned Subsidiary of BWT ("AHFI"), as follows:
(i) AHFI shall be liquidated into BWT;
(ii) Baxter World Trade, S.A., a Belgium corporation ("BWTSA"),
shall pay 10,123,410.96 ringgits to Euromedical in satisfaction of
existing intercompany debt;
(iii) BWT shall transfer to AHII all of BWT's right, title and
interest in and to the capital stock of Euromedical in exchange for four
shares of AHII voting common stock and four shares of AHII nonvoting
preferred stock; and
(iv) Euromedical makes the Euromedical Loan.
Section 3.4 FRANCE. Baxter and Allegiance hereby agree to take any
and all actions necessary to effect the transfer to AHII of all of the right,
title and interest of Baxter S.A. (France) ("Baxter France") in the
Chateaubriant manufacturing facility and all of the assets and liabilities
related thereto (the "Chateaubriant Plant") as follows:
(i) AHII shall form Allegiance Sante S.A. ("Allegiance France")
as a French corporation and a wholly-owned Subsidiary of AHII;
(ii) BWT shall contribute U.S.$3,912,828.13 to AHII as equity;
(iii) AHII shall contribute 19,750,000 FF to Allegiance France
as equity; and
(iv) Allegiance France shall pay 17,710,000 FF to Baxter France
to purchase the Chateaubriant Plant.
Section 3.5 GERMANY. Baxter and Allegiance hereby agree to take any
and all actions necessary to effect the transfer to AHII of all of the right,
title and interest of Baxter Deutschland GmbH ("Baxter Deutschland") in certain
German assets and liabilities related to the Allegiance Business (the "German
Business") as follows:
(i) AHII shall incorporate Allegiance Healthcare Deutschland
GmbH ("Allegiance Germany") with 56,000 DM as equity;
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(ii) BWT shall contribute U.S.$83,919.73 to AHII as equity;
(iii) AHII shall contribute 123,790 DM to Allegiance Germany as
equity; and
(iv) Allegiance Germany shall acquire from Baxter Deutschland
the German Business and 100,000 DM in cash.
Section 3.6 MALTA. Baxter and Allegiance hereby agree to take any
and all actions necessary to effect the transfer to AHII of all of the right,
title and interest in Eurovac Ltd., a Malta corporation ("Eurovac") held by
Baxter S.A., a Belgium corporation ("Baxter Belgium"), as follows:
(i) BWT shall loan U.S.$3,691,258.76 to AHII, which shall be due on
the Spin-Off Date;
(ii) AHII shall loan 17,147,331.67 FF to Eurovac;
(iii) Eurovac shall pay 17,147,331.67 FF to Baxter Limited, a
Malta corporation, in satisfaction of an existing loan;
(iv) Baxter Belgium shall distribute as a dividend all of the
capital stock of Eurovac to its two stockholders (BWT and Baxter
Pharmacy Services, a Delaware corporation and a wholly owned
Subsidiary of BWT ("BPS"));
(v) BPS shall distribute as a dividend to BWT all of the capital
stock of Eurovac held by it;
(vi) BWT shall transfer to AHII all of its right, title and
interest in and to the capital stock of Eurovac in exchange for one
share of AHII voting common stock and one share of AHII non-voting
preferred stock and U.S.$1,000 in cash; and
(vii) AHII shall repay U.S.$3,691,258.76, plus accrued interest
of U.S.$17,225, to Baxter.
Section 3.7 MEXICO. Baxter and Allegiance hereby agree to take any
and all actions necessary to effect the transfer to AHII of all of the right,
title and interest in certain Mexican corporations held by BHC and BWT as
follows:
(i) BWT shall transfer all of its right, title and interest in
the capital stock in Productos Urologos de Mexico S.A. de C.V., a
Mexico corporation and a
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wholly-owned Subsidiary of BWT ("Mexicali"), to AHII in exchange for four
shares of AHII voting common stock, four shares of AHII non-voting
preferred stock and $1,000 in cash (and for Mexican tax purposes the value
of the stock of Mexicali shall be considered equal to its Mexican tax
basis);
(ii) BHC shall distribute all of its rights, title and interest
in the capital stock in Cirpro de Delicias S.A. de C.V., a Mexico
corporation and a wholly owned Subsidiary of BHC ("Cirpro"),
Quiroproductos de Cuauhtemoc, S.A. de C.V., a Mexico corporation and a
wholly owned Subsidiary of BHC ("Quiroproductos"), Convertors de
Mexico S.A. de C.V., a Mexico corporation and a wholly owned
Subsidiary of BHC ("Convertors"), and Cirmex de Chihuahua S.A. de
C.V., a Mexico corporation and a wholly owned Subsidiary of BHC
(together with Cirpro, Quiroproductos and Convertors, the "Mexican BHC
Subsidiaries"), to Baxter (and for Mexican tax purposes the value of
the stock of the Mexican BHC Subsidiaries shall be considered equal to
their Mexican tax bases);
(iii) Baxter shall transfer all of its right, title and interest
in the capital stock of the Mexican BHC Subsidiaries to AHII in
exchange for four shares of AHII voting common stock, four shares of
AHII non-voting preferred stock and U.S.$4,000 in cash (and for
Mexican tax purposes the value of the stock of the Mexican BHC
Subsidiaries shall be considered equal to their Mexican tax bases);
and
(iv) The documentation with respect to the stock transfers
contemplated by this SECTION 3.7 provide or will provide that requests to
exempt such transfers from certain Mexican taxes are pending and that in
the event that confirmation of such exemption is not received that such
initial transfer will be deemed null and void. In such event, such
transfers will be redocumented in the most appropriate manner to accomplish
the purposes of this SECTION 3.7 and Baxter and Allegiance shall take or
cause to be taken any and all actions necessary to provide to Allegiance
all of the benefits of beneficial ownership of the stock referred to in
this SECTION 3.7 from the intended date of transfer through the date upon
which such transfer is finally consummated.
Section 3.8 CANADA. Baxter and Allegiance hereby agree to take any
and all actions necessary to effect the transfer to AHII of all of the right,
title and interest in the Allegiance Business held by Baxter Corporation, a
Canada
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corporation and a wholly owned Subsidiary of BWT ("Baxter Canada"), as follows:
(i) Baxter Canada shall form Allegiance Healthcare Canada Inc.
("New Sub") under the laws of Canada and shall contribute to it all of
the right, title and interest of Baxter Canada in the Allegiance
Business plus Can $38,000,000 of intercompany indebtedness owed by
Baxter Canada to BWTSA in exchange for 1,000 Common Shares of New Sub
and the assumption of certain liabilities;
(ii) Baxter Canada shall adopt a new charter pursuant to which
Baxter Canada will exchange all of its outstanding capital stock held
by BWT for 1,000 Class A Shares and 10,000 Class B Shares;
(iii) BWT shall transfer to AHII all of BWT's holdings of Class
B Shares in exchange for four shares of AHII voting common stock and
four shares of AHII non-voting preferred stock;
(iv) AHII shall form 3289559 Canada Inc. under the laws of
Canada ("Allegiance Canada") and shall transfer to Allegiance Canada
all of the Class B Shares in exchange for 1,000 shares of Allegiance
Canada common stock;
(v) Baxter Canada shall transfer to Allegiance Canada all of the
outstanding capital stock of New Sub in exchange for 10,000 Preference
Shares of Allegiance Canada;
(vi) Allegiance Canada shall redeem all of its outstanding
Preference Shares in exchange for its promissory note in the principal
amount of Can$19,000,000;
(vii) Baxter Canada shall redeem all of its outstanding Class B
Shares from Allegiance Canada in exchange for its promissory note in
the principal amount of Can$19,000,000;
(viii) Baxter Canada and Allegiance Canada shall exchange each
other's promissory notes, and such promissory notes shall be canceled;
(ix) New Sub shall amalgamate with Allegiance Canada;
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(x) AHII shall borrow the U.S. dollar equivalent of Can$38,000,000
from Baxter;
(xi) Allegiance Canada shall borrow Can$38,000,000 from AHII and
use the proceeds of such indebtedness to repay the intercompany
indebtedness of New Sub to BWTSA assumed by Allegiance Canada pursuant
to the amalgamation; and
(xii) AHII shall repay to Baxter the U.S. dollar equivalent of
Can$38,000,000.
Section 3.9 RESTRICTIONS ON INTERCOMPANY DEBT. Neither Baxter nor
any Affiliate of Baxter shall make any Loan, other than in the ordinary course
of business, to any Allegiance Foreign Entity from August 26, 1996 through the
Spin-Off Date, except as specifically contemplated by this Agreement.
Section 3.10 TRANSFER OF ASSETS. Subject to the terms and conditions
of this Agreement, Baxter hereby agrees to convey, assign, transfer, contribute
and set over, or cause to be conveyed, assigned, transferred, contributed and
set over, to AHII on or prior to the Spin-Off Date, all of BWT's right, title
and interest in and to all assets, tangible or intangible, including all
goodwill, which are exclusive to the operations of the Allegiance Business.
Section 3.11 TRANSFER OF LIABILITIES. Subject to the terms and
conditions of this Agreement, Allegiance shall cause AHII to assume, effective
as of the Spin-Off Date, and pay, comply with and discharge all contractual and
other obligations of BWT arising out of or relating to the Allegiance Business
or any Divested Business and/or any past or present facilities used primarily in
connection with the Allegiance Business or any Divested Business, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
whether existing on the date hereof or arising at any time or from time to time
after the date hereof, and whether based on circumstances, events or actions
arising heretofore or hereafter, whether or not such obligations shall have been
disclosed herein, and whether or not reflected on the books and records or
Balance Sheet of Allegiance.
ARTICLE IV. TRANSFERS TO AHC
Section 4.1 ORGANIZATION OF AHC. Prior to or promptly following the
execution of this Agreement, Baxter shall cause to be incorporated, under the
General Corporation Law of Delaware, Allegiance Healthcare Corporation ("AHC")
as a wholly owned Subsidiary of BHC. AHC shall be qualified as a foreign
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corporation under the corporation laws of each state where the ownership of its
assets or conduct of its business makes such qualification necessary.
Section 4.2 TRANSFERRED ASSETS. Subject to the terms and conditions
of this Agreement, Baxter shall cause to be conveyed, assigned, transferred,
contributed and set over to AHC on or prior to the Spin-Off Date, and Allegiance
shall cause AHC to accept and receive on or prior to the Spin-Off Date all
right, title and interest (except as noted in SECTION 4.2(vii)(B) below) of BHC
in and to the tangible and intangible assets, properties, rights and interests
of the Allegiance Business (all of such assets being hereinafter referred to as
the "Transferred BHC Assets"), including the following:
(i) BALANCE SHEET ASSETS. All assets reflected or disclosed on
the unaudited balance sheet of the Allegiance Business as of June 30,
1996 attached as EXHIBIT F hereto, (the "Balance Sheet"), including
all machinery, equipment, furniture and other tangible personal
property, whether owned or leased, used primarily in the operation of
the Allegiance Business, subject to acquisitions, dispositions and
adjustments in the ordinary course of the Allegiance Business,
consistent with past practice, after such date;
(ii) RECEIVABLES.
(A) All accounts receivable, notes receivable, lease receivables,
prepayments (other than prepaid insurance), advances and other
receivables arising out of or produced by the Allegiance Business and
owing by any persons (the "Receivables");
(B) all cash payments received after the Spin-Off Date on account
of the Receivables;
(C) all manufacturers' warranties or guarantees related to the
Transferred BHC Assets or related to any of the Assumed BHC
Liabilities; and
(D) any and all manufacturers' or third party service replacement
programs relating to the Transferred BHC Assets;
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(iii) INVENTORIES.
(A) All work-in-process, finished goods and spare parts inventory
of Allegiance Products, other than (x) Allegiance Products transferred
to BWT or one of its Subsidiaries for distribution outside the United
States and (y) Allegiance Products manufactured by Baxter or one of
its Subsidiaries pursuant to the Manufacturing Contracts and with
respect to which title has not yet passed to Allegiance pursuant to
the terms of the Manufacturing Contracts;
(B) all raw materials inventory related to Allegiance Products
other than Allegiance Products manufactured by Baxter or one of its
Subsidiaries pursuant to the Manufacturing Contracts; and
(C) all supplies, packaging and other inventories related to the
Allegiance Business but excluding any such items in the possession of
Baxter or its Subsidiaries that relate to Allegiance Products
manufactured by Baxter or one of its Subsidiaries pursuant to the
Manufacturing Contracts.
(iv) OWNED REAL PROPERTY. Those certain parcels of land set forth on
SCHEDULE 4.2(iv) hereto, together with any and all buildings, plants and
other structures and improvements thereon, any and all rights and
privileges pertaining thereto or to any of such buildings, plants or other
structures or improvements, including, without limitation, ownership
interests, easements, permits, licenses, rights of way, leases, purchase
and option agreements with respect to real property, and, to the extent
constituting real property, any and all fixtures, machinery, equipment and
other property attached thereto or located thereon (other than equipment
and furniture located in property to be retained by Baxter or its
Subsidiaries hereunder) and all other rights and interests of any nature in
and to any other real estate of the Allegiance Business;
(v) REAL PROPERTY LEASES. Those certain real estate leases set forth
on SCHEDULE 4.2(v) hereto (the "Real Estate Leases") and any and all
improvements, fixtures, machinery, equipment and other property located on
the premises demised under such Real Estate Leases (other than equipment
and furniture located in property to be retained by Baxter or its
Subsidiaries hereunder);
(vi) VEHICLES. All vehicles used primarily in connection with the
Allegiance Business, including those set forth on SCHEDULE 4.2(vi) hereto,
whether owned or leased;
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(vii) TRADE SECRETS AND KNOW-HOW.
(A) All business and technical information, nonpatented
inventions, copyrights, discoveries, processes, formulations, trade
secrets, know-how and technical data to the extent used exclusively in
connection with the Allegiance Business including those set forth on
SCHEDULE 4.2(vii) hereto and the trade secrets and technical
documentation listed in SCHEDULE 8.1(a), and all rights which are
associated with the foregoing, including, without limitation: (1) the
right to sue, recover and retain such recoveries for infringement of
the foregoing prior to the Spin-Off Date; (2) the right to continue in
the name of Baxter and its Subsidiaries any pending actions relating
to the foregoing, and to recover and retain any damages therefrom,
provided, however, that to the extent that such recoveries relate to
infringements of both Baxter Products and Allegiance Products, such
recoveries shall be apportioned between Baxter and Allegiance on a
pro-rata basis based on the relative damages suffered by each, after
reimbursement of each Parties' costs and expenses incurred in
obtaining such recoveries; (3) the assignment of all business and
technical information, nonpatented inventions, discoveries, processes,
formulations, trade secrets, know-how and technical data made or
conceived by employees, consultants or contractors of Baxter or its
Subsidiaries as to which BHC or its Subsidiaries have rights under any
agreement or otherwise relating to the foregoing; (4) the assignment
of all business and technical information, nonpatented inventions,
discoveries, processes, formulations, trade secrets, know-how and
technical data made or conceived by third parties as to which BHC or
its Subsidiaries have rights pursuant to executory agreements with
said third parties relating to the foregoing; and (5) all permits,
grants, contracts, agreements and licenses running to or from BHC or
its Subsidiaries relating to the foregoing. As of the Spin-Off Date,
and except as permitted pursuant to the terms and conditions of
SECTION 8.1 herein, Baxter and its Subsidiaries shall cease all use of
the foregoing, and Baxter agrees to terminate any license granted to
its Subsidiaries with respect to the foregoing.
(B) An undivided joint ownership interest, without a right of
accounting, in all business and technical information, nonpatented
inventions, copyrights, discoveries, processes, formulations, trade
secrets, know-how and technical data to the extent used in connection
with the Allegiance Business, with the
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exception of the Licensed Allegiance Intellectual Property and the
Licensed Baxter Intellectual Property (hereinafter, the "Commonly Used
Business Information" or "CUBI"), including those set forth on
Schedule 4.2(vii) hereto (with the exception of those intellectual
property rights subject to SECTION 4.2(vii)(A)), and all rights which
are associated with the foregoing, including, without limitation: (1)
the right to sue, recover and retain such recoveries for infringement
in respect of the Allegiance Business of the foregoing prior to the
Spin-Off Date; (2) the right to continue in the name of Baxter and its
Subsidiaries any pending actions relating to the foregoing, and to
recover and retain any damages therefrom in respect of the Allegiance
Business, provided, however, that to the extent that such recoveries
relate to infringements of both Baxter Products and Allegiance
Products, such recoveries shall be apportioned between Baxter and
Allegiance on a pro-rata basis based on the relative damages suffered
by each, after reimbursement of each Parties' costs and expenses
incurred in obtaining such recoveries; (3) the assignment of an
undivided joint ownership interest, without a right of accounting, in
inventions and all business and technical information, nonpatented
inventions, discoveries, processes, formulations, trade secrets, know-
how and technical data made or conceived by employees, consultants or
contractors of Baxter or its Subsidiaries as to which BHC or its
Subsidiaries have rights under any agreement or otherwise relating to
the foregoing; (4) the assignment of an undivided joint ownership
interest, without a right of accounting, in all business and technical
information, nonpatented inventions, discoveries, processes,
formulations, trade secrets, know-how and technical data made or
conceived by third parties in connection with the Allegiance Business
as to which BHC or its Subsidiaries have rights pursuant to executory
agreements with said third parties; and (5) all permits, grants,
contracts, agreements and licenses running to or from BHC or its
Subsidiaries in connection with the Allegiance Business relating to
the foregoing. Because the CUBI is also used by Baxter or its
Subsidiaries in connection with businesses other than the Allegiance
Business, Allegiance acknowledges that Baxter retains an undivided
joint ownership interest, without a right of accounting, in the CUBI
to the extent such CUBI relates to businesses other than the
Allegiance Business.
(viii) CONTRACTS. All of the following contracts, agreements,
arrangements, leases (other than Real Estate
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Leases), manufacturers' warranties, memoranda, understandings and offers
open for acceptance of any nature, whether written or oral (the
"Contracts") (such Contracts being referred to as the "AHC Contracts"):
(A) all Contracts related to acquisitions or divestitures of
assets or stock related primarily to the Allegiance Business,
including Contracts related to the transactions set forth on
SCHEDULE 4.2(viii)(A) hereto, except to the extent any such
Contracts relate to the Retained Business and except to the
extent indicated on SCHEDULE 4.2(viii)(A);
(B) all Contracts with customers exclusive to the Allegiance
Business and all Contracts with customers in the categories set
forth on SCHEDULE 4.2(viii)(B) hereto;
(C) all customer leases under which the underlying equipment
is the primary marketing responsibility of Allegiance, including
those equipment categories set forth on SCHEDULE 4.2(viii)(C)
hereto;
(D) all government Contracts exclusive to the Allegiance
Business, including those set forth on SCHEDULE 4.2(viii)(D)
hereto;
(E) all supplier Contracts exclusive to the Allegiance
Business relating either to raw materials or distributed
products, including those in the categories set forth on SCHEDULE
4.2(viii)(E) hereto;
(F) all joint development and confidentiality Contracts
exclusive to the Allegiance Business, including those set forth
on SCHEDULE 4.2(viii)(F) hereto;
(G) all consulting Contracts exclusive to the Allegiance
Business;
(H) all dealer management Contracts and alternate
distribution Contracts, including those set forth on
SCHEDULE 4.2(viii)(H);
(I) all manufacturing Contracts exclusive to the Allegiance
Business;
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(J) the telecommunications Contracts exclusive to the Allegiance
Business, including those set forth on SCHEDULE 4.2(viii)(J) hereto;
(K) the Shared Contracts set forth on SCHEDULE 7.8 hereto that
are designated as being assigned to Allegiance; and
(L) all other Contracts exclusive to the Allegiance
Business.
(ix) PERMITS AND LICENSES. All permits, approvals, licenses,
franchises, authorizations or other rights granted by any federal, state,
local or foreign governmental authority held or applied for by Baxter and
its Subsidiaries and which are exclusively used in the Allegiance Business
or which relate exclusively to the Transferred BHC Assets or any of the
Transferred Subsidiaries, and all other consents, grants, and other rights
that are used exclusively, for the lawful ownership of the Transferred BHC
Assets or the operation of the Allegiance Business and that are legally
transferable to AHC;
(x) CLAIMS AND INDEMNITIES. All rights, claims, demands, causes of
action, judgments, decrees and rights to indemnity or contribution, whether
contractual or otherwise, in favor of BHC arising out of the Allegiance
Business, including those set forth on SCHEDULE 4.2(x) hereto;
(xi) SUBSIDIARIES, JOINT VENTURES AND MINORITY INTERESTS. All shares
of capital stock or equity or debt or other interests owned by Baxter or
its Subsidiaries in the Subsidiaries, joint ventures and minority
investments set forth on SCHEDULE 4.2(xi) hereto;
(xii) BOOKS AND RECORDS. All books and records (including all
records pertaining to customers, suppliers and personnel) wherever located,
that relate primarily to the operation of the Allegiance Business;
(xiii) SUPPLIES. All office supplies, production supplies, spare
parts, purchase orders, forms, labels, shipping material, art work,
catalogues, sales brochures, operating manuals and advertising and
promotional material and all other printed or written material that relate
primarily to the operation of the Allegiance Business;
(xiv) SOFTWARE. All (A) software installed on the mainframe computer
located in Building G at McGaw Park, Illinois, except for the software set
forth on SCHEDULE 4.2(xiv) hereto, (B) software based on AS400 and other
mid-
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range hardware included in the Transferred BHC Assets, (C) PC-based
software located on hardware included in the Transferred BHC Assets, (D)
Restrac software and the scanning equipment related thereto, (E) Compliance
Systems Software, and (F) any Contracts related to the aforementioned
software; and
(xv) OTHER ASSETS. All other assets, tangible or intangible,
including all goodwill, which are exclusive to the operations of, or
otherwise relate exclusively to, the Allegiance Business.
Section 4.3 ASSUMED LIABILITIES. Except as expressly limited in this
ARTICLE IV, Allegiance shall cause AHC to assume, effective as of the Spin-Off
Date, and pay, comply with and discharge all contractual and other obligations
and liabilities of BHC arising out of or relating to the Allegiance Business or
any Divested Business and/or any of the past or present facilities of BHC used
primarily in connection with the Allegiance Business or any Divested Business,
whether accrued, unrecorded, absolute, contingent or otherwise, and whether due
or to become due, including:
(i) All of the liabilities of BHC (excluding, except as provided in
SECTION 4.3(ii), Loans owed to Baxter or any of its Subsidiaries) which are
reflected, disclosed or reserved for on the Balance Sheet, as such
liabilities may be increased or reduced in the operation of the Allegiance
Business from the date of the Balance Sheet through the Spin-Off Date in
the ordinary course of business consistent with past practice;
(ii) The Loans of BHC held by BWT and the Loans of BHC held by Baxter
set forth on SCHEDULE 4.3(ii) hereto;
(iii) All liabilities and obligations of BHC in connection with
workers compensation claims relating to facilities transferred to AHC;
(iv) All liabilities and obligations of BHC under or related to the
Real Estate Leases and the AHC Contracts, such assumption to occur as (i)
assignee if such Real Estate Leases and AHC Contracts are assignable and
are assigned or otherwise transferred to AHC, or (ii) subcontractor,
sublessee or sublicensee as provided in SECTION 6.3 below if assignment of
such Real Estate Leases and AHC Contracts and/or the proceeds thereof is
prohibited by law, by the terms thereof or not permitted by the other
contracting party;
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(v) All warranty, performance and similar obligations entered into or
made by BHC prior to the Spin-Off Date with respect to the products or
services of the Allegiance Business;
(vi) All liabilities and obligations of BHC related to any and all
Actions asserting a violation of any law, rule or regulation related to or
arising out of the operations of the Allegiance Business, whether before or
after the Spin-Off Date and the liabilities relating to any Assumed
Actions;
(vii) All liabilities and obligations of BHC arising under (A) CERCLA
and any other federal, state or local laws regarding the management,
control and cleanup of hazardous materials (including off-site waste
disposal liabilities) or (B) the Occupational Safety and Health Act or
similar state laws or regulations, in either case relating to or arising
out of the operations of the Allegiance Business, whether before or after
the Spin-Off Date, including those set forth on SCHEDULE 4.3(vii) hereto;
(viii) All liabilities and obligations of BHC under any mortgage
interest subsidy program on behalf of any Allegiance Employee;
(ix) All liabilities associated with the transfer of assets from the
Baxter Savings Plan to the Allegiance Savings Plan;
(x) The inventory payables from Baxter's U.S. Distribution business
to Baxter's Cardiovascular Group and IV Systems division existing on the
Spin-Off Date; and
(xi) All other liabilities and obligations of BHC relating to the
Allegiance Business or any Divested Business, whether existing on the date
hereof or arising at any time or from time to time after the date hereof,
and whether based on circumstances, events or actions arising heretofore or
hereafter, whether or not such obligations shall have been disclosed
herein, and whether or not reflected on the books and records or Balance
Sheet.
The liabilities and obligations described in this SECTION 4.3 are
referred to in this Agreement collectively as the "Assumed BHC Liabilities."
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ARTICLE V. ORGANIZATION OF ALLEGIANCE CORPORATION
Section 5.1 ORGANIZATION OF ALLEGIANCE. Baxter and Allegiance shall
take any and all action necessary so that, at the Spin-Off Date, the Certificate
of Incorporation and By-laws of Allegiance shall be in the forms attached hereto
as EXHIBITS G and H, respectively. Prior to the Spin-Off Date, the Board of
Directors of Allegiance shall adopt a preferred share purchase rights plan in
substantially the form attached hereto as EXHIBIT I. At the Spin-Off Date, the
Allegiance Board of Directors shall consist of, and Baxter and Allegiance shall
take all actions which may be required to elect or otherwise appoint as
directors of Allegiance on or prior to the Spin-Off Date, the persons named on
EXHIBIT J. Following the transfers of Subsidiaries contemplated by SECTION 5.2,
Allegiance shall take appropriate action to be qualified as a foreign
corporation under the Business Corporation Act of Illinois.
Section 5.2 TRANSFER OF CERTAIN SUBSIDIARIES. Baxter and Allegiance
hereby agree to take, or cause to be taken, any and all actions necessary to
effect the following transactions, on or prior to the Spin-Off Date and at the
approximate times described in SCHEDULE 3.1:
(i) BWT shall distribute as a dividend to Baxter all of BWT's right,
title and interest in and to the common stock of AHII;
(ii) Baxter shall transfer to Allegiance all of Baxter's right, title
and interest in and to the common stock of AHII; and
(iii) BHC shall distribute as a dividend to Baxter all of BHC's right,
title and interest in and to the common stock of AHC; and
(iv) Baxter shall contribute to Allegiance all of Baxter's right,
title and interest in and to the common stock of AHC.
Section 5.3 TRANSFER OF ASSETS. Subject to the terms and conditions
of this Agreement, Baxter hereby agrees to convey, assign, transfer, contribute
and set over, or cause to be conveyed, assigned, transferred, contributed and
set over, to Allegiance on or prior to the Spin-Off Date, all of Baxter's right,
title and interest in and to the following assets:
(i) INTELLECTUAL PROPERTY. (A) The foreign and domestic Intellectual
Property Rights relating primarily to or used exclusively in the Allegiance
Business including the Intellectual Property Rights set forth below:
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(1) the patents and patent applications and invention
records set -forth on SCHEDULE 5.3(i)(A)(1) hereto, including any
continuations, continuations-in-part, divisions, renewals,
reissues and extensions thereof;
(2) the unregistered copyrights and copyright applications
and registrations set forth on SCHEDULE 5.3(i)(A)(2) hereto; and
(3) the trade names, trademarks, service marks and service
names, whether or not registered, including those set forth on
SCHEDULE 5.3(i)(A)(3) hereto and the goodwill associated with
each of the foregoing.
For completeness, the Parties recognize that certain items included on
SCHEDULES 5.3(i)(A)(1)-(3) have been transferred to third parties pursuant
to various divestitures. The inclusion of such items on such Schedules
does not imply that Baxter has retained any interest therein and reference
is made to SECTION 6.2 hereof.
All of the rights described in SECTION 4.2(vii)(A) and this SECTION
5.3(i)(A) are referred to collectively as the "Allegiance Assigned
Intellectual Property".
(B) The Allegiance Assigned Intellectual Property shall include,
without limitation: (1) the right to sue, recover and retain such
recoveries for infringement of the Allegiance Assigned Intellectual
Property prior to the Spin-Off Date; (2) the right to continue in the
name of Baxter any pending actions relating to the Allegiance Assigned
Intellectual Property, and to recover and retain any damages
therefrom; PROVIDED, HOWEVER, that to the extent that such recoveries
relate to infringements of both Baxter Products and Allegiance
Products, such recoveries shall be apportioned between Baxter and
Allegiance on a pro rata basis based on the relative damages suffered
by each, after reimbursement of each Parties' costs and expenses
incurred in obtaining such recoveries; (3) the assignment of
inventions and other Intellectual Property Rights made or conceived by
employees, consultants or contractors of Baxter or its Subsidiaries as
to which Baxter or its Subsidiaries have rights under any agreement or
otherwise relating to the Allegiance Assigned Intellectual Property;
(4) the assignment of inventions and other Intellectual Property
Rights made or conceived by third parties as to which Baxter or its
Subsidiaries have rights
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pursuant to executory agreements with said third parties relating to
the Allegiance Assigned Intellectual Property; and (5) all permits,
grants, contracts, agreements and licenses running to or from Baxter
or its Subsidiaries relating to the Allegiance Assigned Intellectual
Property. As of the Spin-Off Date, and except as permitted pursuant
to the terms and conditions of SECTION 8.1 herein, Baxter and its
Subsidiaries shall cease all use of the Allegiance Assigned
Intellectual Property, and Baxter agrees to terminate any licenses
granted to its Subsidiaries with respect to the Allegiance Assigned
Intellectual Property.
(ii) BALANCE SHEET ASSETS. All assets reflected or disclosed on the
Balance Sheet, subject to acquisitions, dispositions and adjustments in the
ordinary course of the Allegiance Business, consistent with past practice,
after June 30, 1996; and
(iii) OTHER ASSETS. All other assets, tangible or intangible,
including all goodwill, which are exclusive to the operations of the
Allegiance Business.
Section 5.4 TRANSFER OF LIABILITIES. Subject to the terms and
conditions of this Agreement, Allegiance shall assume, effective as of the Spin-
Off Date, and pay, comply with and discharge all contractual and other
obligations and liabilities of Baxter arising out of or relating to the
Allegiance Business or any Divested Business, and/or any of the past or present
facilities of Baxter relating to the Allegiance Business or any Divested
Business, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, including:
(i) all liabilities and obligations under each of the guarantees and
letters of credit set forth on SCHEDULE 5.4(i) hereto; and
(ii) all other liabilities and obligations of the Allegiance Business
or any Divested Business, whether existing on the date hereof or arising at
any time or from time to time after the date hereof, and whether based on
circumstances, events or actions arising heretofore or hereafter, whether
or not such obligations shall have been disclosed herein, and whether or
not reflected on the books and records of the Balance Sheet of Allegiance.
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ARTICLE VI. OTHER CLOSING MATTERS
Section 6.1 INSTRUMENTS OF CONVEYANCE. In order to effectuate the
transactions contemplated by ARTICLES III, IV and V, the Parties shall cause to
be executed and delivered prior to or as of the Spin-Off Date such deeds, bills
of sale, instruments of assumption, trademark and patent assignments, stock
powers, certificates of title and other documents of assignment, transfer,
assumption and conveyance (collectively, the "Conveyancing Instruments") as the
Parties shall reasonably deem necessary or appropriate to effect such
transactions.
Section 6.2 NO REPRESENTATIONS OR WARRANTIES. Subject to the
Operating Agreements, neither Baxter nor any of its Subsidiaries is, in this
Agreement or in any other agreement or document contemplated by this Agreement,
representing or warranting (a) as to the value or freedom from encumbrance of,
or any other matter concerning, any Transferred Assets or Transferred
Subsidiaries or (b) as to the legal sufficiency to convey title to any
Transferred Assets or Transferred Subsidiaries on the execution, delivery and
filing of the Conveyancing Instruments. SUBJECT TO SECTION 7.11 HEREOF AND THE
OPERATING AGREEMENTS, ALL SUCH ASSETS AND SUBSIDIARIES ARE BEING TRANSFERRED "AS
IS, WHERE IS" WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE
OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and Allegiance and
its Subsidiaries shall bear the economic and legal risk that any conveyances of
such assets and Subsidiaries shall prove to be insufficient or that Allegiance's
and its Subsidiaries' title to any such assets and Subsidiaries shall be other
than good and marketable and free of encumbrances. Neither Baxter nor any of
its Subsidiaries is, in this Agreement or in any other agreement or document
contemplated by this Agreement, representing or warranting that the obtaining of
the consents or approvals, the execution and delivery of any amendatory
agreements and the making of the filings and applications contemplated by this
Agreement shall satisfy the provisions of all applicable agreements or the
requirements of all applicable laws or judgments and, subject to SECTION 6.3,
Allegiance and its Subsidiaries shall bear the economic and legal risk that any
necessary consents or approvals are not obtained or that any requirements of law
or judgments are not complied with. Notwithstanding the foregoing, the Parties
shall fully cooperate and use reasonable efforts to obtain all consents and
approvals, to enter into all amendatory agreements and to make all filings and
applications which may be required for the consummation of the transactions
contemplated by this Agreement, including, without limitation, all applicable
regulatory filings or consents under federal or state environmental laws.
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Section 6.3 NON-ASSIGNABLE CONTRACTS. In the event and to the extent
that Baxter and its Subsidiaries are unable to obtain any consent, approval or
amendment to any Contract, lease, license, or other rights relating to the
Allegiance Business that would otherwise be transferred to Allegiance or one of
its Subsidiaries as contemplated by this Agreement or any other agreement or
document contemplated hereby, (i) Baxter and its Subsidiaries shall continue to
be bound thereby, and (ii) unless not permitted by the terms thereof or by law,
Allegiance or its Subsidiaries shall pay, perform and discharge fully all the
obligations of Baxter or its Subsidiaries thereunder from and after the Spin-Off
Date, or such earlier date as such transfer would otherwise have taken place,
and indemnify Baxter and its Subsidiaries for all Indemnifiable Losses arising
out of such performance by Allegiance or its Subsidiaries. Baxter and its
Subsidiaries shall, without further consideration therefor, pay and remit to
Allegiance or its Subsidiaries promptly all monies, rights and other
considerations received in respect of such performance. Baxter and its
Subsidiaries shall exercise or exploit its rights and options under all such
Contracts, leases, licenses and other rights and commitments referred to in this
SECTION 6.3 only as reasonably directed by Allegiance and at Allegiance's
expense. If and when any such consent shall be obtained or such Contract,
lease, license or other right shall otherwise become assignable or able to be
novated, Baxter or its Subsidiaries shall promptly assign and novate (to the
extent permissible) all its rights and obligations thereunder to Allegiance or
its Subsidiaries without payment of further consideration, and Allegiance or its
Subsidiaries shall, without the payment of any further consideration therefor,
assume such rights and obligations. To the extent that the assignment of any
Contract, lease, license or other right (or the proceeds thereof) pursuant to
this SECTION 6.3 is prohibited by law, the assignment provisions of this SECTION
6.3 shall operate to create a subcontract with Allegiance or its Subsidiaries to
perform each relevant unassignable Baxter Contract at a subcontract price equal
to the monies, rights and other considerations received by Baxter or its
Subsidiaries with respect to the performance by Allegiance or its Subsidiaries
under such subcontract.
Section 6.4 FURTHER ASSURANCES. (a) In addition to the actions
specifically provided for elsewhere in this Agreement, each of the Parties shall
use reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things, reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the other agreements and
documents contemplated hereby. Without limiting the foregoing, each Party shall
cooperate with the other Party, and execute and deliver, or use reasonable
efforts to cause to be executed and delivered, all
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instruments, including instruments of conveyance, assignment and transfer, and
to make all filings with, and to obtain all consents, approvals or
authorizations of, any governmental or regulatory authority or any other Person
under any permit, license, Contract or other instrument, and to take all such
other actions as such Party may reasonably be requested to take by the other
Party from time to time, consistent with the terms of this Agreement, in order
to confirm the title of Allegiance and its Subsidiaries to all of the Allegiance
Business, to put Allegiance or its Subsidiaries in actual possession and
operating control thereof and to permit Allegiance or its Subsidiaries to
exercise all rights with respect thereto and to effectuate the provisions and
purposes of this Agreement, the Tax Sharing Agreement, the Operating Agreements
and the other agreements and documents contemplated hereby or thereby.
(b) If as a result of mistake or oversight, any asset reasonably
necessary to the conduct of the Allegiance Business is not transferred to
Allegiance or one of its Subsidiaries, or any asset reasonably necessary to the
conduct of the Retained Business is transferred to Allegiance or one of its
Subsidiaries, Baxter and Allegiance shall negotiate in good faith after the
Spin-Off Date to determine whether such asset should be transferred to
Allegiance or one of its Subsidiaries or to Baxter or one of its Subsidiaries,
as the case may be, and/or the terms and conditions upon which such asset shall
be made available to Allegiance or one of its Subsidiaries or to Baxter or one
of its Subsidiaries, as the case may be. Unless expressly provided to the
contrary in this Agreement, the Tax Sharing Agreement or the Operating
Agreements, if as a result of a mistake or oversight, any liability or
obligation arising out of or relating to the Allegiance Business is retained by
Baxter or its Subsidiaries, or any liability or obligation arising out of or
relating to the Retained Business is assumed by Allegiance or its Subsidiaries,
Baxter and Allegiance shall negotiate in good faith after the Spin-Off Date to
determine whether such liability or obligation should be transferred to
Allegiance or one of its Subsidiaries or to Baxter or one of its Subsidiaries,
as the case may be, and/or the terms and conditions upon which any such
liability or obligation shall be transferred.
Section 6.5 EXCLUDED ASSETS. Notwithstanding anything to the
contrary herein, the following assets (the "Excluded Assets") are not, and shall
not be deemed to be, Transferred Assets;
(i) Cash and cash equivalents, any cash on hand or in bank accounts,
certificates of deposit, commercial paper and similar securities except for
(A) cash and cash equivalents of the Transferred Subsidiaries, (B) deposits
securing bonds, letters of credit, leases and all other obligations
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related to the Allegiance Business, and (C) petty cash and impressed funds
related to the Allegiance Business;
(ii) Except as otherwise provided in the Tax Sharing Agreement, any
right, title or interest of Baxter and its Subsidiaries in any U.S.
federal, state or local tax refund, credit or benefit (including any income
with respect thereto) relating to the U.S. operations of the Allegiance
Business prior to the Spin-Off Date;
(iii) Any amounts accrued on the books and records of Baxter and its
Subsidiaries or the Allegiance Business with respect to any Excluded
Liabilities;
(iv) Assets relating to the provision of pensions and benefits to
present or former employees of the Allegiance Business, but excluding
assets transferred from the Baxter Savings Plan to the Allegiance
Retirement Plan as described in ARTICLE IX;
(v) Any corporate allocations of non-Allegiance Business-related
assets heretofore made by Baxter or its Subsidiaries to the Allegiance
Business for internal management responsibility reporting purposes;
(vi) Any intellectual property rights in and to the name "Baxter" and
the related emblem design, and any variants thereof, and the trademarks and
trade names used by Baxter or its Subsidiaries in relation to the Retained
Business except as provided in ARTICLE VIII; and
(vii) The preferred stock of Dade International Inc. which is
restricted by agreement from transfer, exchange, assignment, pledge or
other disposal prior to December 20, 1996.
Section 6.6 EXCLUDED LIABILITIES. Notwithstanding anything to the
contrary in this Agreement, neither Allegiance nor any of its Subsidiaries shall
assume any of the liabilities of Baxter of its Subsidiaries set forth on
SCHEDULE 6.6 hereto (the "Excluded Liabilities").
Section 6.7 RELEASE OF BAXTER. It is expressly understood and agreed
by the parties hereto that upon the assumption by Allegiance or its appropriate
Subsidiaries of the Assumed Liabilities, Baxter, its Subsidiaries, and their
respective officers, directors and employees shall be released by Allegiance and
its Subsidiaries from any and all liability, whether joint, several or joint and
several, for the discharge, performance or observance of any of the Assumed
Liabilities.
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Section 6.8 NOMINEE SHARES. Baxter agrees to use reasonable efforts
to cause to be transferred to, or as directed by, Allegiance all directors'
qualifying or other shares of capital stock of any of the Transferred
Subsidiaries (other than Euromedical) held as of the Spin-Off Date by persons
who are not Allegiance Employees. Allegiance agrees to use reasonable efforts
to cause to be transferred to, or as directed by, Baxter all director's
qualifying or other shares of capital stock of any Baxter Subsidiary other than
Allegiance and the Transferred Subsidiaries held as of the Spin-Off Date by
Allegiance Employees.
ARTICLE VII. CERTAIN COVENANTS
Section 7.1 CONDUCT OF ALLEGIANCE BUSINESS PENDING THE SPIN-OFF DATE.
Each of the Parties agrees that, from the date hereof until the Spin-Off Date,
except as otherwise expressly contemplated by this Agreement, it will take, or
cause to be taken, all reasonable efforts to carry on the Allegiance Business
diligently in the ordinary course and substantially in the same manner as
heretofore conducted and to preserve intact the business organization and
goodwill of the Allegiance Business.
Section 7.2 REGISTRATION AND LISTING. Prior to the Spin-Off Date:
(i) Baxter and Allegiance shall prepare a registration statement on
Form 10 (the "Registration Statement") to effect the registration of the
Allegiance Common Stock under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Exchange Act"), which Registration Statement shall include an information
statement to be sent by Baxter to its stockholders in connection with the
Spin-Off (the "Information Statement"). Allegiance shall file the
Registration Statement with the SEC and shall use reasonable efforts to
cause the Registration Statement to become effective under the Exchange Act
as soon as reasonably practicable. After the Registration Statement
becomes effective, Baxter shall mail the Information Statement to the
holders of Baxter Common Stock as of the Record Date.
(ii) The Parties shall use their reasonable efforts to take all such
action as may be necessary or appropriate under state and foreign
securities and "Blue Sky" laws in connection with the transactions
contemplated by this Agreement.
(iii) Baxter and Allegiance shall prepare, and Allegiance shall file
and seek to make effective, an
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application for the listing of the Allegiance Common Stock on the NYSE,
subject to official notice of issuance.
(iv) The Parties hereto shall cooperate in preparing, filing with the
SEC and causing to become effective any registration statements or
amendments thereto which are necessary or appropriate in order to effect
the transactions contemplated hereby or to reflect the establishment of, or
amendments to, any employee benefit plans contemplated hereby.
Section 7.3 FUNDS DISTRIBUTED TO BAXTER. On or prior to the Spin-Off
Date, Allegiance shall enter into a new credit facility or facilities with
commercial lenders (the "Allegiance Credit Facility") and use the proceeds of
the indebtedness incurred under the Allegiance Credit Facility to purchase ten
year debentures in the aggregate principal amount of $1,025.2 million from AHC
and $27.8 million from AHII. On the Spin-Off Date, (i) Allegiance shall cause
(1) AHC to use the proceeds from the sale of its ten year debentures to
Allegiance to pay its $1 billion and its $25.2 million intercompany debt to
Baxter and (ii) BWT shall repay $25.2 million of its intercompany indebtedness
to Baxter. The calculation of the amounts set forth in this SECTION 7.3 is set
forth on SCHEDULE 7.3.
Section 7.4 POST-SPIN-OFF TAX-RELATED RESTRICTIONS. (a) In order
to avoid potentially adverse tax consequences relating to the Spin-Off, for a
period of two years after the Spin-Off Date Allegiance shall not:
(i) cease to engage in the active conduct of a trade or business
within the meaning of Section 355 of the Code;
(ii) issue or redeem any share of stock of Allegiance, except for
issuances and redemptions
(1) for the benefit of Allegiance's employees or
(2) to effect acquisitions by Allegiance in the ordinary course
of business, or
(3) in connection with the issuance of any convertible debt by
Allegiance, or
(4) in accordance with the requirements for permitted purchases
of Allegiance stock as set forth in Section 4.05(l)(b) of Revenue
Procedure 96-30 issued by the IRS; or
(iii) liquidate or merge with any other corporation;
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unless, with respect to (i), (ii) or (iii) above, either (a) an opinion is
obtained from counsel to Baxter, or (b) a ruling is obtained from the IRS, in
either case to the effect that such act or event will not adversely affect the
federal income tax consequences of the Spin-Off to Baxter, its stockholders who
receive Allegiance Shares, or Allegiance.
(b) If, as a result of any transaction occurring after the Spin-Off
Date involving either the stock or assets of either Allegiance or any of its
Subsidiaries, or any combination thereof, the Spin-Off fails to qualify as tax
free under the provisions of Section 355 of the Code, Allegiance shall indemnify
Baxter for all taxes, liabilities and associated expenses, including penalties
and interest, incurred as a result of such failure of the Spin-Off to qualify
under Section 355 of the Code. If the Spin-Off fails to qualify as tax free
under the provisions of Section 355 of the Code other than as a result of a
transaction occurring after the Spin-Off Date involving either the stock or
assets of Allegiance or any of its Subsidiaries, or any combination thereof,
then Allegiance shall not be liable for such taxes, liabilities or expenses.
Section 7.5 INSURANCE POLICIES AND CLAIMS ADMINISTRATION.
(a) OWNERSHIP OF INSURANCE POLICIES AND PROGRAMS. Baxter or one or
more of its Subsidiaries shall continue to own all property, casualty and
liability insurance programs, including, without limitation, primary and excess
general liability, automobile, workers' compensation, property and crime
insurance policies in effect on or before the Spin-Off Date (collectively, the
"Baxter Policies" and individually, a "Baxter Policy"). Baxter shall use
reasonable efforts to maintain the Baxter Policies in full force and effect up
to and including the Spin-Off Date, and, subject to the provisions of this
Agreement, Baxter and its Subsidiaries shall retain all of their respective
rights, benefits and privileges, if any, under the Baxter Policies. Nothing
contained herein shall be construed to change the ownership of the Baxter
Policies.
(b) PROCUREMENT OF INSURANCE FOR ALLEGIANCE. To the extent not
already provided for by the terms of a Baxter Policy, Baxter shall use
reasonable efforts to cause Allegiance and the appropriate Allegiance
Subsidiaries to be named as additional insureds under Baxter Policies whose
effective policy periods include the Spin-Off Date, in respect of claims arising
or relating to periods prior to the Spin-Off Date; PROVIDED, HOWEVER, that
nothing contained herein shall be construed to require Baxter or any of its
Subsidiaries to pay any additional premium or other charges in respect to, or
waive or otherwise limit any of its rights, benefits or privileges under, any
Baxter
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Policy in order to effect the naming of Allegiance and its Subsidiaries as such
additional insureds.
(c) ACQUISITION AND MAINTENANCE OF POST SPIN-OFF ALLEGIANCE INSURANCE
POLICIES AND PROGRAMS. Commencing on and as of the Spin-Off Date, Allegiance
shall be responsible for establishing and maintaining separate property,
casualty and liability insurance policies and programs (including, primary and
excess general liability, automobile, workers' compensation, property, fire,
crime, surety and other similar insurance policies) for activities and claims
involving Allegiance or any of its Subsidiaries or Affiliates. Allegiance will
exercise reasonable efforts in securing liability insurance to avoid potential
gaps in coverage for claims arising from events prior to the Spin-Off Date which
gap would not exist had the Allegiance Business continued to be covered with the
same retroactive dates existing in the Baxter Policies in effect on the Spin-Off
Date. Allegiance and each of its Subsidiaries, as appropriate, shall be
responsible for all administrative and financial matters relating to insurance
policies established and maintained by Allegiance and its Subsidiaries or
Affiliates for claims relating to any period on or after the Spin-Off Date
involving Allegiance or any of its Subsidiaries or Affiliates. Notwithstanding
any other agreement or understanding to the contrary, except as set forth in
this SECTION 7.5 with respect to claims administration and financial
administration of the Baxter Policies, neither Baxter nor any of its
Subsidiaries shall have any responsibility for or obligation to Allegiance or
any of its Subsidiaries and Affiliates relating to property and casualty
insurance matters for any period, whether prior to, on or after the Spin-Off
Date.
(d) POST SPIN-OFF CLAIMS ADMINISTRATION. (i) Except as provided in
SECTION 7.5(d)(ii) concerning 1995-96 excess liability insurance policies,
Baxter and its Subsidiaries shall have the primary right, responsibility and
authority for claims and financial administration for claims that relate to or
affect the Baxter Policies. Upon notification by Allegiance or one of its
Subsidiaries of a claim relating to Allegiance or a Subsidiary or Affiliate
thereof under one or more of the Baxter Policies, Baxter shall cooperate with
Allegiance in asserting and pursuing coverage and payment for such claim by the
appropriate insurance carrier(s). In asserting and pursuing such coverage and
payment, Baxter shall have sole power and authority to make binding decisions,
determinations, commitments and stipulations on its own behalf and on behalf of
Allegiance and its Subsidiaries and Affiliates, which decisions, determinations,
commitments and stipulations shall be final and conclusive if made to maximize
the overall economic benefit of the Baxter Policies. Allegiance, and its
Subsidiaries and Affiliates, assume responsibility for, and shall pay to the
appropriate insurance carriers or otherwise, any premiums, retrospectively-
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rated premiums, defense costs, indemnity payments, deductibles, retentions or
other charges, as appropriate (collectively, "Insurance Charges"), whenever
arising, which shall become due and payable under the terms and conditions of
any applicable Baxter Policy in respect of any liabilities, losses, claims,
actions or occurrences, whenever arising or becoming known, involving or
relating to any of the assets, businesses, operations or liabilities of
Allegiance or any of its Subsidiaries or Affiliates, whether the same relate to
the period prior to, on or after the Spin-Off Date. To the extent that the
terms of any applicable Baxter Policy provide that Baxter or any of its
Subsidiaries shall have an obligation to pay or guarantee the payment of any
Insurance Charges relating to Allegiance or any of its Subsidiaries, Baxter
shall be entitled to demand that Allegiance make such payment directly to the
Person or entity entitled thereto. In connection with any such demand, Baxter
shall submit to Allegiance a copy of any invoice received by Baxter pertaining
to such Insurance Charges together with appropriate supporting documentation, to
the extent available. In the event that Allegiance fails to pay any such
Insurance Charges when due and payable, whether at the request of the party
entitled to payment or upon demand by Baxter, Baxter and its Subsidiaries may
(but shall not be required to) pay such insurance charges for and on behalf of
Allegiance and, thereafter, Allegiance shall forthwith reimburse Baxter for such
payment. Subject to the other provisions of this SECTION 7.5, the retention by
Baxter of the Baxter Policies and the responsibility for claims administration
and financial administration of the Policies are in no way intended to limit,
inhibit or preclude any right of Allegiance, Baxter or any other insured to
insurance coverage for any Insured Claims under the Baxter Policies.
(ii) Notwithstanding the foregoing SECTION 7.5(d)(i), Baxter grants
to Allegiance and its Subsidiaries the primary right and responsibility for
asserting and pursuing for its benefit (as an insured, successor or otherwise)
and for the benefit of Baxter, coverage under, and payment from the underwriters
of, the 1995 excess liability policies issued by Lexington Insurance Company,
Zurich Re (U.K.) Ltd., Gerling/Konzern Allegneine Versicherungs-
Aktiengesellschaft, American Excess Insurance Association, A.C.E. Insurance
Company (Bermuda) Ltd., X.L. Insurance Company, Ltd., and Starr Excess Liability
Insurance Company, Ltd., for claims concerning or arising from the use of
natural rubber latex gloves. Baxter and its Subsidiaries shall cooperate with
Allegiance and its Subsidiaries in asserting and pursuing such coverage and
payment. In asserting and pursuing such coverage and payment, Allegiance and
its Subsidiaries shall have sole power and authority to make binding decisions,
determinations, commitments and stipulations on its own behalf and on behalf of
Baxter and its Subsidiaries;
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provided, however, that Allegiance shall not affect, prejudice, limit, inhibit
or narrow any rights Baxter or its Subsidiaries may have under (a) the policies
issued by the foregoing identified underwriters for any periods other than the
1995-96 Policy Period, or relating to any claims or occurrences other than those
concerning natural rubber latex gloves, or (b) the other Baxter Policies. The
cost of claims administration pursuant to this SECTION 7.5(d)(ii) shall be borne
entirely by Allegiance and its Subsidiaries.
(e) PRE SPIN-OFF INSURANCE CLAIMS ADMINISTRATION. Allegiance and its
Subsidiaries and Affiliates acknowledge that Baxter has previously experienced
losses and received claims which were, or might have been, covered by one or
more Baxter Policies, and prior to the Spin-Off Date will have made decisions
and commitments regarding administration of such claims, and including reaching
agreements and stipulations regarding such claims (collectively "Pre Spin-Off
Claims Administration"). Allegiance and its Subsidiaries and Affiliates
covenant not to contest or challenge in any manner any action taken by Baxter
prior to the Spin-Off Date in connection with or relating to Pre Spin-Off Claims
Administration, or to interfere with the performance of any agreement,
commitment or stipulation so made by Baxter in connection with or relating to
Pre-Spin-Off Claims Administration.
(f) NON-WAIVER OF RIGHTS TO COVERAGE. An insurance carrier which
would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the provisions of
this SECTION 7.5, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurance carrier or any third party
shall be entitled to a windfall (I.E., a benefit they would not be entitled to
receive had no Spin-Off occurred, or in the absence of the provisions of this
SECTION 7.5) by virtue of the provisions hereof.
(g) SCOPE OF AFFECTED POLICIES OF INSURANCE. The provisions of this
SECTION 7.5 relate solely to matters involving liability, casualty and workers'
compensation insurance, and shall not be construed to affect any obligation of
or impose any obligation on the parties hereto with respect to any life, health
and accident, dental or medical insurance policies applicable to any of the
officers, directors, employees or other representatives of the Parties hereto or
their Affiliates.
Section 7.6 INTERCOMPANY RECEIVABLES AND PAYABLES AND CASH
MANAGEMENT.
(a) (i) All Intercompany Receivables and Payables between Baxter or
any of its Subsidiaries as they will exist
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after the Spin-Off, on the one hand, and any of Euromedical, Eurovac or the
Malaysia Silicath unit, on the other hand, shall be settled (A) as of 3:00
p.m., Chicago time, on August 26, 1996 if such Intercompany Receivables and
Payables are subject to Baxter's netting process and (B) as of August 28,
1996 if such Intercompany Receivables and Payables are not subject to
Baxter's netting process, in each case, in cash with such cash settlement
occurring on August 29, 1996. Commencing from the opening of business on
August 27, 1996, in the case of transactions subject to the netting
process, and August 29, 1996 in the case of transactions not subject to the
netting process, Intercompany Receivables and Payables between Baxter or
any of its Subsidiaries, on the one hand, and any of Euromedical, Eurovac
or the Malaysia Silicath unit shall be recorded for accounting purposes as
third party trade account receivables and payables.
(ii) All Intercompany Receivables and Payables between Baxter or any
of its Subsidiaries, on the one hand (except for Intercompany Receivables
and Payables owed by the Surgical Division of BHC to the Malaysian Glove
Branch) and the Malaysian Glove Branch, on the other hand, shall be settled
(A) as of 3:00 p.m., Chicago time, on September 23, 1996 if such
Intercompany Receivables and Payables are subject to Baxter's netting
process and (B) as of September 25, 1996 if such Intercompany Receivables
and Payables are not subject to Baxter's netting process, in each case, in
cash with such cash settlement occurring on September 26, 1996. Commencing
from the opening of business on September 24, 1996, in the case of
transactions subject to the netting process, and September 26, 1996 in the
case of transactions not subject to the netting process, Intercompany
Receivables and Payables between Baxter and its Subsidiaries, on the one
hand, and the Malaysian Glove Branch, on the other hand, shall be recorded
for accounting purposes as third party trade account receivables and
payables.
(iii) All Intercompany Receivables and Payables between any
Subsidiary of Baxter, on the one hand, and any Subsidiary of Allegiance
(other than any entity referred to in SECTION 7.6(a)(i) or SECTION
7.6(a)(ii) and other than Allegiance France and Allegiance Germany), on the
other hand, shall be settled (A) as of 3:00 p.m., Chicago time, on
September 23, 1996 if such Intercompany Receivables and Payables are
subject to Baxter's netting process and (B) as of September 25, 1996 if
such Intercompany Receivables and Payables are not subject to Baxter's
netting process, in each case, in cash with such cash settlement occurring
on September 26, 1996. Commencing from the opening of business on
September 24, 1996, in the case of transactions subject
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to the netting process, and September 26, 1996, in the case of transactions
not subject to the netting process, Intercompany Receivables and Payables
between any Subsidiary of Baxter, on the one hand, and any Subsidiary of
Allegiance (other than any entity referred to in SECTION 7.6(a)(i) or
SECTION 7.6(a)(ii) and other than Allegiance France and Allegiance
Germany), on the other hand, shall be recorded for accounting purposes as
third party trade account receivables and payables.
(b) As provided in SECTION 4.3(i), Baxter shall be entitled to all
cash bank balances (other than cash and cash equivalents of the Transferred
Subsidiaries) existing immediately prior to the Spin-Off Date relating to the
Allegiance Business, or otherwise utilized or maintained in connection with the
Allegiance Business, including, without limitation, cash balances representing
deposited checks or drafts for which only a provisional credit has been allowed
in depository accounts, which are to be transferred to Allegiance or any of its
Subsidiaries on or prior to the Spin-Off Date. Any such cash balances as of the
Spin-Off Date which have not been transferred to Baxter shall be paid to Baxter.
(c) All Loans owing by Allegiance or any of its Subsidiaries to
Baxter or any of its Subsidiaries after giving effect to the transactions
contemplated by ARTICLES III, IV, and V, shall be repaid no later than the Spin-
Off Date.
(d) Allegiance or an appropriate Subsidiary thereof shall be
responsible for payment of all checks or drafts issued up to the Spin-Off Date
against disbursement accounts transferred to Allegiance or such Subsidiary,
which checks or drafts have not been charged against such disbursement accounts
on or prior to the Spin-Off Date (other than with respect to payroll accounts,
which will be assumed by Baxter or its Subsidiaries).
(e) Baxter shall assist Allegiance and each of its Subsidiaries in
establishing a separate cash management system effective as of and immediately
after the Spin-Off Date.
(f) Each Party shall, and shall cause its respective Subsidiaries to,
promptly remit to the other any cash or other payment received by such Party or
its Subsidiaries in respect of accounts or notes receivables of the other Party.
Section 7.7 INTERCOMPANY DEBT TRUE-UP.
(a) CALCULATION OF OPERATIONAL CASH FLOW. As soon as practicable,
but in any event within 60 days after the Spin-Off Date, Baxter shall prepare a
statement of operational cash flow for its U.S. healthcare business excluding
the IV Systems
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Division (but including the respiratory therapy business unit within the IV
Systems Division), for the period January 1, 1996 through the Spin-Off Date.
The operational cash flow statement shall be prepared from the books and records
of Baxter relating to its U.S. healthcare business in a manner consistent with
the definition of operational cash flow. The statement shall also be consistent
with Baxter's historical cash flow allocation among its various business units,
except for the elimination of the one-month lag period in recording the payment
of certain liabilities such as payroll, payroll taxes, sales and use taxes, on
the Division's books. The effect of the elimination of this lag on operational
cash flow (the "lag adjustment") shall be included as a separate schedule
accompanying the statement of operational cash flow. The statement of
operational cash flow will also be adjusted (the "Unbudgeted Transfer
Adjustment") to eliminate the operational cash flow impact of any assets,
liabilities and reserves transferred to Allegiance pursuant to the Spin-Off but
that were not taken into account in the initial budgeting process upon which
this SECTION 7.7 was based. Any such adjustment shall be as mutually agreed by
the Parties. The Unbudgeted Transfer Adjustments shall not include the impact
of any expenses that Allegiance is required to pay under the terms of Section
12.1 or Section 12.2. The effect of these unbudgeted transfers on operational
cash flow shall be included as a separate schedule accompanying the statement of
operational cash flow. Subject to SECTION 7.7(c), the statement of operational
cash flow delivered by Baxter to Allegiance shall be final, binding and
conclusive on the Parties for all purposes of this Agreement and shall provide
the basis for determining the adjustments (if any) specified in SECTION 7.7(d).
(b) DEFINITION OF OPERATIONAL CASH FLOW. Operational cash flow for
each Baxter operating unit consists of net income plus depreciation and
amortization, increased or decreased, as appropriate, by cash restructuring
utilization and the net change in "managed capital" (as defined in Baxter
Finance Policy #1402) during the period, but excluding the effects of any non-
cash restructuring utilization and acquisitions and divestitures on managed
capital. The operational cash flow shall be computed in the same manner as
reflected in the Consco Management Report, "Cash Flow Trends", except for the
elimination of the one month lag for certain items, as described in SECTION
7.7(a).
(c) CASH FLOW TRUE-UP. In the event that the final determination of
the cash flow statement indicates that the operational cash flow is less than
$147 million plus or minus the lag adjustment and the Unbudgeted Transfer
Adjustment, the amount of the difference shall be paid by Allegiance to Baxter,
as an adjustment to intercompany debt assumed by Allegiance or its Subsidiaries
pursuant to SECTION 4.3(ii), within 10 days of the final determination of such
adjustment. In the event that the
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final determination of the cash flow statement indicates that the operational
cash flow is greater than $147 million plus or minus the lag adjustment and the
Unbudgeted Transfer Adjustment, the amount of the difference shall be paid by
Baxter to Allegiance, as an adjustment to intercompany debt assumed by
Allegiance pursuant to SECTION 4.3(ii), within 10 days of the final
determination of such adjustment.
(d) OFFSHORE CASH TRUE-UP. Within 30 days of the Spin-Off Date,
Baxter shall calculate the following and shall provide Allegiance prompt written
notice of such calculation:
(i) the amount by which U.S.$3,912,828.13 exceeds the U.S. dollar
equivalent of the purchase price paid by Allegiance France to Baxter France
to purchase the Chateaubriant Plant; plus
(ii) the amount by which US$83,919.73 exceeds the U.S. dollar
equivalent of the purchase price paid by Allegiance Germany to Baxter
Deutschland to purchase the German Business plus 100,000 DM; plus
(iii) the amount of any cash or cash equivalents of AHSB as of the
Spin-Off Date excluding the proceeds of the Euromedical Loan; plus
(iv) any amounts owing by Baxter or any of its Subsidiaries to
Allegiance or any of its Subsidiaries that were required to be settled
pursuant to SECTION 7.6(a)(i), (ii) or (iii) but which were legally
prohibited from being settled; minus
(v) any amounts owing by Allegiance or any of its Subsidiaries to
Baxter or any of its Subsidiaries that were required to be settled pursuant
to SECTION 7.6(a)(i), (ii) or (iii) but were legally prohibited from being
settled.
If the sum of the amounts in (i) through (v) above is a positive number,
Allegiance shall pay such amount to Baxter as an adjustment to intercompany debt
assumed by Allegiance pursuant to SECTION 4.3(ii) within 10 days of the final
determination of such amount. If the sum of the amounts in (i) through (v)
above is a negative number, Baxter shall pay such amount to Allegiance as an
adjustment to intercompany debt assumed by Allegiance or its Subsidiaries
pursuant to SECTION 4.3(ii) within 10 days of the final determination of such
amount.
(e) DISPUTES. Any disputes regarding the computation of operational
cash flow or the offshore cash true-up shall be resolved in accordance with
ARTICLE XIV of this Agreement.
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Section 7.8 AGREEMENTS RELATING TO BAXTER AND ALLEGIANCE. (a) Each
of Baxter and Allegiance shall use its reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate, make effective and perform its or its Subsidiaries' allocable
portion of all purchase, distribution, and other obligations under all Contracts
with customers, suppliers, vendors or other third parties relating to both the
Allegiance Business and the Retained Business (the "Shared Agreements"),
including those Shared Agreements set forth on SCHEDULE 7.8 hereto. Each of
Baxter and its Subsidiaries and Allegiance and its Subsidiaries shall be
entitled to the rights and privileges of its allocable portion of the Shared
Agreements.
(b) Each of Baxter and Allegiance shall use its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws,
regulations, and agreements to afford the rights and privileges of the allocable
portion of the Shared Agreements to the other.
(c) For purposes of this SECTION 7.8, the allocable portion shall be
the pro rata portion of the agreement of each party based on performance under
the agreement during the twelve-month period immediately prior to the Spin-Off
Date.
Section 7.9 CERTAIN RELEASES. Baxter or one or more of its
Subsidiaries is a guarantor of certain obligations of the Allegiance Business,
including those obligations set forth on SCHEDULE 5.4(i). Allegiance shall use
its reasonable efforts to release Baxter and its Subsidiaries from such
guarantees prior to the Spin-Off Date and shall indemnity Baxter and its
Subsidiaries and save it harmless from any liabilities relating to such
guarantees.
Section 7.10 LITIGATION. (a) On or as of the Spin-Off Date,
Allegiance or its Subsidiaries, as appropriate, shall assume and pay all
liabilities which may result from the Assumed Actions and all fees and costs
relating to the defense of the Assumed Actions, including attorneys' fees and
costs incurred after the Spin-Off Date. "Assumed Actions" shall mean those
cases, claims and investigations (on which Baxter or its Subsidiaries, other
than Allegiance and its Subsidiaries, is a defendant or the party against which
the claim or investigation is directed) related to the Allegiance Business,
including those listed on SCHEDULE 7.10(a).
(b) Baxter and its Subsidiaries shall transfer the Transferred
Actions to Allegiance and its Subsidiaries, and Allegiance and its Subsidiaries
shall receive and have the
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benefit of all of the proceeds of such Transferred Actions. "Transferred
Actions" shall mean those cases and claims (on which Baxter or its Subsidiaries
are plaintiffs or claimants) relating to the Allegiance Business and listed on
SCHEDULE 4.2(x).
Section 7.11 LIABILITY FOR PREVIOUSLY DELIVERED PRODUCTS. The
following provisions shall apply to all Baxter Products sold or transferred to
the Allegiance Business prior to the Spin-Off Date for distribution and to all
Allegiance Products sold or transferred to the Retained Business prior to the
Spin-Off Date for distribution (in each case, the "Products"):
(i) Each Party warrants to the other Party that, at the time of
delivery to the other Party or its Subsidiaries, the Products were not at
the time of delivery (A) adulterated or misbranded within the meaning of
the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
issued thereunder, or (B) products that may not under the provisions of
SECTIONS 404, 505, 514 or 515 of said Act be introduced into interstate
commerce, or (C) banned devices under Section 516 of said Act. THE
FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF ANY
KIND WITH RESPECT TO THE PRODUCTS, WHETHER STATUTORY, WRITTEN, ORAL,
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE AND MERCHANTABILITY. ANY LIABILITY OF A PARTY AND ITS SUBSIDIARIES
TO THE OTHER PARTY AND ITS SUBSIDIARIES UNDER THE FOREGOING WARRANTY SHALL
BE LIMITED TO THE TOTAL PRICE PAID BY SUCH PARTY AND ITS SUBSIDIARIES FOR
THE PRODUCTS WHICH ARE THE SUBJECT OF SUCH LIABILITY PLUS ALL COSTS FOR
TRANSPORTATION AND OTHER DIRECT EXPENSES INCURRED BY ALLEGIANCE AND ITS
SUBSIDIARIES WITH RESPECT TO SUCH PRODUCTS. A Party's and its
Subsidiaries' exclusive remedy against the other Party and its Subsidiaries
for any breach of the foregoing warranty shall be the right to require the
other Party or its Subsidiaries to repair or replace (at the other Party's
option and expense) any Product which proves not to be in conformity with
applicable labeling or specifications. The other Party or its Subsidiaries
shall pay the transportation and other costs incurred by a Party or its
Subsidiaries with respect to any Products returned to the other Party or
its Subsidiaries for repair or replacement under this Section, or, at the
other Party's option, reimburse a Party or its Subsidiaries for any such
costs. The foregoing right to require repair or replacement shall commence
on the date of receipt by a Party or its Subsidiaries of each Product from
the other Party or its Subsidiaries and expire six months after receipt by
the end-user customer (the "Repair or Replacement Period"), except that the
Repair or Replacement Period for each Product the use of which is subject
to an
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expiration date shall expire on the applicable expiration date, if sooner.
(ii) Each Party and its Subsidiaries warrants to the other Party and
its Subsidiaries that, at the time of delivery to the other Party or its
Subsidiaries, the Party or its Subsidiaries shall have good and marketable
title to all such Products free and clear of all liens or encumbrances
(other than any created by the other Party or its Subsidiaries).
(iii) Each Party and its Subsidiaries shall indemnify and hold the
Allegiance Indemnified Parties or the Baxter Indemnified Parties, as the
case may be, harmless from and against, and in respect of, any and all
Claims and Losses by any of the Allegiance Indemnified Parties or the
Baxter Indemnified Parties, as the case may be, which result from a third
party claim and which arise out of or relate to: (A) any actual or alleged
patent, copyright or trademark infringement, or violation of any other
proprietary right, arising out of the purchase, sale or use of the
Products; (B) defects in Products; (C) any actual or alleged breach of
warranty or obligation, if any, accompanying the Product or Products,
subject to the limitations in SECTION 7.11(i) to the extent provided
therein; and (D) any claim for personal injury, wrongful death or property
damage arising out of the use of a Product; PROVIDED that this SECTION
7.11(iii) shall not apply to any Claim or Loss (x) to the extent that the
Parties agree; (y) to any tort claim, including claims for personal injury,
wrongful death or property damage, to the extent such claims are based upon
any wrongful or negligent act or omission by the other Party or its
Subsidiaries or business units (but excluding Subsidiaries or business
units that become Subsidiaries or business units of the Party claiming
indemnification as a result of the Spin-Off), or their employees or other
agents, including, but not limited to, any Claims or Losses caused by any
such wrongful or negligent act or omission constituting a representation
concerning the characteristics or method of usage of Products, or relating
to the storage, handling, or delivery of Products or selection of Products
for use in Kits; or (z) to any actual or alleged patent, copyright or
trademark infringement, or violation of any other proprietary right,
arising out of any act or omission of the other Party, its Subsidiaries or
any of their Affiliates or business units (but excluding Subsidiaries of
business units that become Subsidiaries or business units of the Party
claiming indemnification as a result of the Spin-Off), in connection with
the sale of Kits or relating to any intellectual property owned by a Party,
its Subsidiaries or any of their Affiliates and used in connection with the
sale of Kits.
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Section 7.12 ALLEGIANCE BANK ACCOUNTS. On or prior to the Spin-Off
Date, Baxter and its Subsidiaries shall transfer the bank accounts set forth on
SCHEDULE 7.12 hereto to Allegiance or one of its Subsidiaries, as directed by
Allegiance. Allegiance shall cause any amounts received, by mistake or
otherwise, in such accounts after the Spin-Off Date on account of the Retained
Business to be promptly transferred to Baxter and its Subsidiaries, as
appropriate. Baxter shall cause any amounts received, by mistake or otherwise,
after the Spin-Off Date on account of the Allegiance Business to be promptly
transferred to Allegiance and its Subsidiaries, as appropriate.
Section 7.13 UNASSIGNED INDEMNIFIABLE CONTRACTS. (a) SCHEDULE
4.2(viii)(A) sets forth certain contracts noted as not being assigned to AHC but
subject to indemnity by Allegiance (the "UNASSIGNED INDEMNIFIABLE CONTRACTS").
(b) Allegiance or one of its Subsidiaries shall pay, perform and
discharge fully all the obligations of Baxter or its Subsidiaries under the
Unassigned Indemnifiable Contracts from and after the Spin-Off Date and
indemnify Baxter and its Subsidiaries for all Claims and Losses arising out of
such performance by Allegiance or its Subsidiaries. Baxter and its Subsidiaries
shall, without further consideration therefor, pay and remit to Allegiance or
its Subsidiaries promptly all monies, rights and other considerations received
with respect to the Unassigned Indemnifiable Contracts or otherwise received in
respect of performance thereunder.
(c) Baxter and its Subsidiaries shall perform and exploit their
rights and options and otherwise take action under the Unassigned Indemnifiable
Contracts as and only as reasonably directed by Allegiance.
Section 7.14 AD NOW PROGRAM. Baxter hereby agrees to cause BHC to
offer and administer the "Advantage Now" program for Baxter Products to the full
extent necessary to comply with Section 5(e)(12) of the Amended and Restated
Exclusive Distribution Agreement, dated as of September 15, 1995, by and between
Dade International Inc., a Delaware corporation ("Dade"), and BHC (the "Dade
Distribution Agreement").
Section 7.15 PRODUCTS AT COST TO DADE. (a) Baxter hereby agrees to,
and to cause its appropriate Subsidiaries to, provide laboratory supply products
manufactured by Baxter and its Subsidiaries at actual cost to Dade for Dade's
internal use only and not for resale in accordance with Section 5(r) of the Dade
Distribution Agreement.
(b) Allegiance hereby agrees to, and to cause its appropriate
Subsidiaries to, provide laboratory supply products
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manufactured by Allegiance and its Subsidiaries at actual cost to Dade for
Dade's internal use only and not for resale in accordance with the Amended and
Restated Exclusive Distribution Agreement, dated as of September 15, 1995, by
and between Dade and Baxter Sales and Distribution Corp., a Delaware
corporation.
Section 7.16 INFORMAL, NONDOCUMENTED REAL ESTATE LEASES. Each Party
and its Subsidiaries may continue to occupy, from and after the Spin-Off Date,
such space in the facilities of the other Party and its Subsidiaries as is
occupied immediately prior to the Spin-Off Date, or such other space therein as
may be mutually agreed to from time to time by Baxter and Allegiance, and which
occupancy is otherwise not documented by written leasing agreements, on the
following terms and conditions:
(a) The occupying Party shall pay to the other Party rent with
respect to such occupied space for the period from and after the Spin-Off Date
during which such space is so occupied, which rent shall be determined by the
other Party on the same basis on which the other Party allocates rent with
respect to the occupancy of space by business units of the other Party or as the
occupying Party presently is paying, whichever is lower. Such rent shall be
payable from time to time by the occupying Party (but not more frequently than
monthly) promptly following delivery by the other Party to the occupying Party
of a statement therefor.
(b) The occupying Party may, at any time, upon not less than 15 days'
prior written notice to Baxter's Director of Corporate Real Estate, with a copy
to Allegiance, terminate its occupancy of any or all of such space.
(c) The other Party may, at any time, upon not less than 30 days'
prior written notice to the occupying Party, require the occupying Party to
cease occupancy of any or all of such space as designated in such notice;
provided, however, that Allegiance shall not be required to cease occupancy of
any of the space at BHC's Deerfield facility prior to July 1, 1997.
Section 7.17 REXAM PAYMENT. Allegiance hereby agrees to cause AHC to
distribute to BHC promptly upon receipt by AHC fifty-two percent (52%) of the
payment to be received from Rexam Medical Packaging Inc. ("Rexam") on or about
January 1, 1997, pursuant to Section 2.5.2 of the Asset Purchase Agreement,
dated April 22, 1993 between Rexam and BHC. As soon as practical after May 1,
1997, Baxter and Allegiance agree to adjust this payment to reflect actual
purchases by BHC and AHC, respectively, from Rexam, consistent with the
methodology used to calculate the 52% set forth above and past practices for
allocating similar payments received from Rexam among operating units.
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Section 7.18 CLINTEC RECEIVABLES. From time to time after the Spin-
Off Date as accounts receivable held by AHC as of October 1, 1996 and which
arose from the sale of Clintec products are determined (consistent with past
practice) to be uncollectible, Allegiance shall give notice to Baxter of such
uncollectible accounts. Promptly following receipt of any such notice, Baxter
shall pay to Allegiance the amount of such accounts receivable so determined to
be uncollectible in the same manner in which uncollectible accounts receivable
were charged to Clintec Nutrition Company prior to the Spin-Off Date.
ARTICLE VIII. INTELLECTUAL PROPERTY
Section 8.1 LICENSE OF ALLEGIANCE INTELLECTUAL PROPERTY TO BAXTER.
(a) GRANT OF LICENSE. Allegiance and its Subsidiaries hereby grant,
and Baxter and its Subsidiaries hereby accept and retain, a perpetual,
nonexclusive, fully paid-up, worldwide right and license to use, manufacture,
make, have made for Baxter (provided that any disclosure to a third party
contract manufacturer of proprietary or confidential information of Allegiance
shall be pursuant to a confidentiality agreement in a form consistent with the
terms of SECTION 10.4 herein), sell and otherwise practice the patents, patent
applications, nonpatented inventions, copyrights, trade secrets, technical data,
know-how, and other Intellectual Property Rights set forth on SCHEDULE 8.1(a),
attached hereto and incorporated herein (hereinafter, the "Licensed Allegiance
Intellectual Property"), in connection with the Baxter Products Actually Using
the Licensed Allegiance Intellectual Property as of the Spin-Off Date, including
new products which are substitutes for, or line extensions of, such products.
For the purposes of this SECTION 8.1, Baxter will be deemed to be "Actually
Using" Licensed Allegiance Intellectual Property if as of the Spin-Off Date: (i)
it is manufacturing a product incorporating the Licensed Allegiance Intellectual
Property; or (ii) a product incorporating the Licensed Allegiance Intellectual
Property is under development and the use of other Intellectual Property Rights
by Baxter would require substantial additional expense; provided, however, that
Baxter will not be deemed to be "Actually Using" Licensed Allegiance
Intellectual Property if the sole use thereof is to manufacture a product for
Allegiance.
(b) OWNERSHIP OF THE LICENSED ALLEGIANCE INTELLECTUAL PROPERTY.
Baxter and its Subsidiaries acknowledge that, subject to the foregoing license,
Allegiance and its Subsidiaries, as the case may be, are the sole and exclusive
owner of all of right, title and interest in and to the Licensed Allegiance
Intellectual Property. Baxter and its Subsidiaries agree that they will do
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nothing inconsistent with Allegiance's or its Subsidiaries' ownership of, or
rights in, the Licensed Allegiance Intellectual Property. Allegiance and its
Subsidiaries, at their expense, agree to take all steps reasonably necessary to
protect, enforce or otherwise maintain in full force and effect the Licensed
Allegiance Intellectual Property, including, without limitation, the filing of
any required renewals and the payment of any required fees, taxes or other
payments that may become due. Baxter and its Subsidiaries shall cooperate with
Allegiance and its Subsidiaries in connection with such steps at Allegiance's
reasonable request and at Allegiance's expense, including, without limitation,
by obtaining execution by Baxter's and Baxter's Subsidiaries' employees,
consultants and agents of any papers Allegiance or its Subsidiaries consider
necessary to enable Allegiance and its Subsidiaries to protect the Licensed
Allegiance Intellectual Property. Baxter and its Subsidiaries shall make their
employees, consultants and agents, who have direct knowledge of facts pertaining
to an invention that is the subject of a patent application or another
Intellectual Property Right that is the subject of intellectual property
protection, available at Allegiance's expense to Allegiance and its Subsidiaries
for the purpose of disclosing sufficient facts for the preparation of necessary
documentation required for patent applications and other protection. At
Allegiance's or its Subsidiaries' reasonable request and expense, Baxter and its
Subsidiaries will assist Allegiance and its Subsidiaries in the preparation and
review of patent documents related to the Licensed Allegiance Intellectual
Property to the extent that such assistance is necessary for such preparation.
Baxter and its Subsidiaries do not represent that they are qualified to provide
any legal or other professional services, the providers of which must be
licensed or are otherwise subject to requirements of law establishing
educational, professional or similar qualifications for providers of such
service, and nothing contained in this Section shall be construed as requiring
Baxter and its Subsidiaries to provide any such services. Allegiance and its
Subsidiaries will procure all such professional service from its own employees
or third parties. Except to the extent provided otherwise in SECTION 6.4
herein, all reasonable expenses, including, without limitation, charges for
staff costs, including approved travel and other expenses incurred in connection
with any assistance requested by Allegiance or its Subsidiaries in the
preparation or prosecution of a patent will be reimbursed by Allegiance and will
not constitute a part of the payments for research and development work.
Allegiance and its Subsidiaries shall not allow the protection for any Licensed
Allegiance Intellectual Property to lapse without not less than three months'
prior written notice to Baxter. If Allegiance so notifies Baxter, (a) Baxter
and its Subsidiaries shall have the right, but not the obligation, to take such
steps to prevent such a lapse, at Baxter's expense and in Allegiance's and its
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Subsidiaries' names, if necessary, and (b) Allegiance and its Subsidiaries shall
cooperate with Baxter and its Subsidiaries at Baxter's or its Subsidiaries'
reasonable request and at Baxter's expense.
(c) MARKING AND NOTICES. Baxter and its Subsidiaries agree that any
products which are manufactured, made, offered, sold or otherwise distributed by
them pursuant to the license(s) granted hereunder shall bear a legal or
proprietary rights notice in such form as may be reasonably requested by and to
the extent directed by Allegiance from time to time.
(d) TERMINATION OF LICENSES. The licenses granted in SECTION 8.1 may
be terminated by Allegiance only under the following conditions:
(i) BREACH. If Baxter or its Subsidiaries are in breach or default
of a material term of this SECTION 8.1 which breach or default continues
for sixty (60) days after written notice thereof by Allegiance, Allegiance
may terminate the license granted pursuant to this SECTION 8.1, PROVIDED
that such termination shall be limited to those Licensed Allegiance
Intellectual Property rights that relate to the uncured breach.
(ii) DIVESTITURE. If Baxter or its Subsidiaries sell, assign,
transfer or otherwise divest themselves of ownership of any business units
or product lines that use or are manufactured under the Licensed Allegiance
Intellectual Property, the licenses granted in this SECTION 8.1 may be
assigned, but only with respect to the divested products or new products
that are substitutes for or line extensions of such products, and only with
the written consent of Allegiance, which consent shall not be unreasonably
withheld. Allegiance shall have no obligation to consent to the transfer
of such license to any entity that is a competitor of Allegiance or any of
its Subsidiaries in the field in which Allegiance uses the Intellectual
Property that is the subject of the license.
(iii) CHANGE OF CONTROL. If more than 30% of the voting stock of
Baxter or any Affiliate thereof is acquired, directly or indirectly, by a
competitor of Allegiance in the field in which Allegiance or its
Subsidiaries are then using the Licensed Allegiance Intellectual Property,
then by written notice to Baxter Allegiance may (A) in the case of the
acquisition of the voting stock of Baxter, terminate the license granted
pursuant to this SECTION 8.1 in its entirety, or (B) in the case of the
acquisition of the voting stock of an Affiliate terminate the license
granted
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pursuant to this SECTION 8.1 only with respect to such Affiliate.
Section 8.2 LICENSE OF BAXTER INTELLECTUAL PROPERTY TO ALLEGIANCE.
(a) GRANT OF LICENSE. Baxter and its Subsidiaries hereby grant, and
Allegiance and its Subsidiaries hereby accept and retain, a perpetual,
nonexclusive, fully paid-up, worldwide right and license to use, manufacture,
make, have made for Allegiance (provided that any disclosure to a third party
contract manufacturer of proprietary or confidential information of Baxter shall
be pursuant to a confidentiality agreement in a form consistent with the terms
of SECTION 10.4 herein), sell and otherwise practice the patents, patent
applications, nonpatented inventions, copyrights, trade secrets, technical data,
know-how, and other Intellectual Property Rights set forth on SCHEDULE 8.2(a),
attached hereto and incorporated herein (hereinafter, the "Licensed Baxter
Intellectual Property") in connection with the Allegiance Products Actually
Using the Licensed Baxter Intellectual Property as of the Spin-Off Date,
including new products which are substitutes for, or line extensions of, such
products. For the purposes of this SECTION 8.2, Allegiance will be deemed to be
"Actually Using" Licensed Baxter Intellectual Property if as of the Spin-Off
Date: (i) it is manufacturing a product incorporating the Licensed Baxter
Intellectual Property; or (ii) a product incorporating the Licensed Baxter
Intellectual Property is under development and the use of other Intellectual
Property Rights by Allegiance would require substantial additional expense;
provided, however, that Allegiance will not be deemed to be "Actually Using"
Licensed Baxter Intellectual Property if the sole use thereof is to manufacture
a product for Baxter.
(b) OWNERSHIP OF THE LICENSED BAXTER INTELLECTUAL PROPERTY.
Allegiance and its Subsidiaries acknowledge that, subject to the foregoing
license, Baxter and its Subsidiaries are the sole and exclusive owner of all of
right, title and interest in and to the Licensed Baxter Intellectual Property.
Allegiance and its Subsidiaries agree that they will do nothing inconsistent
with Baxter's and its Subsidiaries' ownership of, or rights in, the Licensed
Baxter Intellectual Property. Baxter and its Subsidiaries, at their expense,
agree to take all steps reasonably necessary to protect, enforce or otherwise
maintain in full force and effect the Licensed Baxter Intellectual Property,
including, without limitation, the filing of any required renewals and the
payment of any required fees, taxes or other payments that may become due.
Allegiance and its Subsidiaries shall cooperate with Baxter and its Subsidiaries
in connection with such steps at Baxter's reasonable request and at Baxter's
expense, including, without limitation, by obtaining execution by
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Allegiance's and its Subsidiaries' employees, consultants and agents of any
papers Baxter or its Subsidiaries consider necessary to enable Baxter and its
Subsidiaries to protect the Licensed Baxter Intellectual Property. Allegiance
and its Subsidiaries shall make their employees, consultants and agents, who
have direct knowledge of facts pertaining to an invention that is the subject of
a patent application or another Intellectual Property Right that is the subject
of intellectual property protection, available to Baxter and its Subsidiaries at
Baxter's expense for the purpose of disclosing sufficient facts for the
preparation of necessary documentation required for patent applications and
other protection. At Baxter's or its Subsidiaries' reasonable request and
expense, Allegiance and its Subsidiaries will assist Baxter and its Subsidiaries
in the preparation and review of patent documents related to the Licensed Baxter
Intellectual Property to the extent that such assistance is necessary for such
preparation. Allegiance and its Subsidiaries do not represent that they are
qualified to provide any legal or other professional services, the providers of
which must be licensed or are otherwise subject to requirements of law
establishing educational, professional or similar qualifications for providers
of such service. Nothing contained in this Section shall be construed as
requiring Allegiance and its Subsidiaries to provide any such services. Baxter
and its Subsidiaries will procure all such professional service from its own
employees or third parties. Except to the extent provided otherwise in SECTION
6.4 herein, all reasonable expenses, including, without limitation, charges for
staff costs, including approved travel and other expenses incurred in connection
with any assistance requested by Baxter or its Subsidiaries in the preparation
or prosecution of a patent will be reimbursed by Baxter and will not constitute
a part of the payments for research and development work. Baxter and its
Subsidiaries shall not allow the protection for any Licensed Baxter Intellectual
Property to lapse without not less than three months' prior written notice to
Allegiance. If Baxter so notifies Allegiance, (a) Allegiance shall have the
right, but not the obligation, to take such steps to prevent such a lapse, at
Allegiance's expense and in Baxter's and its Subsidiaries' name, if necessary,
and (b) Baxter and its Subsidiaries shall cooperate with Allegiance and its
Subsidiaries at Allegiance's and its Subsidiaries' reasonable request and at
Allegiance's expense.
(c) MARKING AND NOTICES. Allegiance and its Subsidiaries agree that
any products which are manufactured, made, offered, sold or otherwise
distributed by them pursuant to the license(s) granted hereunder shall bear a
legal or proprietary rights notice in such form as may be reasonably requested
by and to the extent directed by Baxter from time to time.
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(d) TERMINATION OF LICENSES. The licenses granted in SECTION 8.2 may
be terminated by Baxter only under the following conditions:
(i) BREACH. If Allegiance or its Subsidiaries are in breach or
default of a material term of this SECTION 8.2 which breach or default
continues for sixty (60) days after written notice thereof by Baxter,
Baxter may terminate this Agreement, PROVIDED that such termination shall
be limited to those Licensed Baxter Intellectual Property rights that
relate to the uncured breach.
(ii) DIVESTITURE. If Allegiance or its Subsidiaries sell, assign,
transfer or otherwise divest themselves of ownership of any business units
or product lines that use the Licensed Baxter Intellectual Property, the
licenses granted in this SECTION 8.2 may be assigned, but only with respect
to the divested products or new products that are substitutes for or line
extensions of such products, and only with the written consent of Baxter,
which consent shall not be unreasonably withheld. Baxter shall have no
obligation to consent to the transfer of such license to any entity that is
a competitor of Baxter or any of its Subsidiaries in the field in which
Baxter uses the Intellectual Property that is the subject of the license.
(iii) CHANGE OF CONTROL. If more than 30% of the voting stock of
Allegiance or any Affiliate thereof is acquired, directly or indirectly, by
a competitor of Baxter in the field in which Baxter or its Subsidiaries are
then using the Licensed Baxter Intellectual Property, then by written
notice to Allegiance Baxter may (A) in the case of the acquisition of the
voting stock of Allegiance, terminate the license granted pursuant to this
SECTION 8.2 in its entirety, or (B) in the case of the acquisition of the
voting stock of an Affiliate, terminate the license granted pursuant to
this SECTION 8.2 only with respect to such Affiliate.
Section 8.3 USE OF BAXTER TRADE NAMES AND TRADEMARKS. (a) Allegiance
and its Subsidiaries shall discontinue use of the names "Baxter," "Baxter
Healthcare," "Baxter International Inc." and all other trademarks, service marks
and trade names owned by or licensed to Baxter (the "Baxter Marks") as follows:
(i) Allegiance and its Subsidiaries will cease use of the Baxter
Marks on or in connection with materials other than labels of Allegiance
Products, including, by way of example and not limitation, signs,
stationery, trucks, and customer brochures, on or before December 31, 1997.
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(ii) Allegiance and its Subsidiaries will cease use of the Baxter
Marks on or in connection with Allegiance Products containing latex as soon
as practical, but in no event later than March 31, 1997 with respect to
gloves manufactured after that date and June 30, 1997 with respect to other
products containing, as a significant component, natural rubber latex
manufactured after that date.
(iii) Allegiance and its Subsidiaries will cease use of the Baxter
Marks on or in connection with products of the type subject to regulation
under Section 351 of the Public Health Service Act ("Biologics"), if any,
as soon as practical, but in no event later than March 31, 1997 with
respect such products manufactured after that date.
(iv) Allegiance and its Subsidiaries will cease use of the Baxter
Marks on or in connection with high volume products, namely, those products
which constitute 80% of Allegiance's product volume and a minimum of 80% of
the total number of product code product labels, as of December 31, 1997.
(v) Allegiance and its Subsidiaries will cease use of the Baxter
marks on or in connection with all other products as of June 30, 1998, in
that neither Allegiance nor its Subsidiaries shall quality control release
any products bearing any of the Baxter Marks after such date.
(b) Any use of the Baxter Marks by Allegiance or its Subsidiaries
pursuant to the above terms and conditions shall be in the same form as existed
prior to the Spin-Off Date and any products or processes offered by Allegiance
or its Subsidiaries for sale under the Baxter Marks shall meet the same product
specifications and quality assurance standards as existed prior to the Spin-Off
Date. Any new label copy created after the Spin-Off Date or the development of
which is in progress as of the Spin-Off Date, shall not bear any of the Baxter
Marks.
ARTICLE IX. EMPLOYEES AND EMPLOYEE BENEFITS
Section 9.1 ALLEGIANCE EMPLOYEES. SCHEDULE 9.1 describes or
otherwise identifies all Allegiance Employees. The Parties recognize that
SCHEDULE 9.1 includes Inactive Employees other than persons with a "PD" status
code.
Section 9.2 EMPLOYMENT OF ALLEGIANCE EMPLOYEES. On the Spin-Off
Date, Allegiance shall, or shall cause its Subsidiaries to, employ or continue
to employ each Allegiance Employee. Allegiance and Baxter (and their
Subsidiaries) shall use their reasonable efforts to accomplish any transfers of
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employment required by this SECTION 9.2 in a timely manner. Active Allegiance
Employees shall be paid by Allegiance or one of its Subsidiaries at the salary
and wage rate levels (including but not limited to bonus programs) paid by
Baxter or its Subsidiaries as of the Spin-Off Date; PROVIDED, HOWEVER, that
Allegiance (or the applicable Allegiance Subsidiary) retains the right to
determine the compensation of Allegiance Employees after the Spin-Off Date.
Section 9.3 TERMINATIONS/LAYOFF/SEVERANCE. (a) Allegiance
Employees shall not be eligible for any severance benefits from Baxter or its
Subsidiaries or Affiliates as a result of either their employment by Allegiance
or its Subsidiaries or Affiliates or their subsequent termination of employment
with Allegiance or its Subsidiaries or Affiliates. Notwithstanding the
foregoing, Baxter and Allegiance have agreed on the payment of certain severance
costs as provided in SECTION 9.3(d).
(b) Any Allegiance Employee who receives a written notice prior to
the Spin-Off Date regarding such employee's termination of employment on a fixed
date between the Spin-Off Date and January 31, 1997 from Allegiance or any of
its Subsidiaries shall be eligible to receive from Allegiance (or the applicable
Allegiance Subsidiary) severance pay which is calculated with the formula used
under the Baxter Severance Pay Plan. No Allegiance business unit shall notify
any Allegiance Employee prior to the Spin-Off Date that such person shall
terminate employment with Allegiance or any of its Subsidiaries on a fixed date
which is after January 31, 1997. The manner in which this SECTION 9.3(b) is
implemented shall be governed by the terms of the Allegiance Severance Pay Plan.
(c) Effective as of the Spin-Off Date, Allegiance (or the applicable
Allegiance Subsidiary) shall have the obligation to reimburse Baxter for the
severance benefits paid by Baxter under the Baxter Severance Pay Plan to any
employee who was terminated by Baxter prior to the Spin-Off Date while employed
in any Allegiance Business unit who is receiving severance benefits under the
Baxter Severance Pay Plan as of the Spin-Off Date. Allegiance (or the applicable
Allegiance Subsidiary) shall have the obligation to pay severance benefits to
any employee terminated by Allegiance after the Spin-Off Date who is eligible to
receive severance benefits under the Allegiance Severance Pay Plan.
(d) Baxter and Allegiance shall each be responsible for the payment
of one-half of the severance of Allegiance Employees who currently provide IV
customer service functions in field locations who are terminated without cause
within six months following the Spin-Off Date.
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Section 9.4 INTERNATIONAL ALLEGIANCE EMPLOYEES. All issues relating
to any person who, immediately prior to the Spin-Off Date, is employed by a
Transferred Subsidiary in a foreign jurisdiction shall be addressed in
connection with the transactions applicable to such Transferred Subsidiary and
are outside the scope of this Agreement.
Section 9.5 EMPLOYMENT SOLICITATION. During the period beginning on
the Spin-Off Date and ending one year after the Spin-Off Date, neither Baxter
nor Allegiance shall, or shall permit any of their respective Subsidiaries or
agents to, directly or indirectly, without the prior written consent of the
other, actively solicit or recruit for employment any then current employee of
the other or of any of the other's Subsidiaries. However, nothing contained in
this clause shall (a) prohibit the hiring of any employee who in good faith is
believed to be actively seeking employment on his or her own initiative without
prior contact initiated by any employee or agent of the company where employment
is sought, or any of such company's Affiliates, provided that such employee has
obtained authorization from an officer (or a direct report to a current officer)
of his or her current employer; or (b) prohibit Baxter or Allegiance or any of
their respective Subsidiaries from hiring any person who has terminated
employment with the other company. After one year after the Spin-Off Date, the
foregoing restriction shall not apply.
Section 9.6 WARN ACT. Allegiance and its Subsidiaries agree that
they shall not, at any time during the 90-day period following the Spin-Off
Date, effectuate (i) a "plant closing" as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act") affecting any site of
employment or operating units within any site of employment of the Allegiance
Business or (ii) take any action to precipitate a "mass layoff" as defined in
the WARN Act affecting any site of employment of the Allegiance Business,
except, in either case, after complying fully with the notice and other
requirements of the WARN Act. Allegiance agrees to indemnify Baxter and its
Subsidiaries and to defend and hold Baxter and its Subsidiaries harmless from
and against any and all claims, losses, damages, expenses, obligations and
liabilities (including attorney's fees and other costs of defense) which Baxter
and its Subsidiaries may incur in connection with any suit or claim of violation
brought against Baxter under the WARN Act, which relate in whole or in part to
actions taken by Allegiance or its Subsidiaries with regard to any site of
employment of Allegiance or operating units within any site of employment of the
Allegiance Business.
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Section 9.7 LEAVE OF ABSENCE POLICIES. (a) Through the Spin-Off
Date, Baxter and its Subsidiaries shall be responsible for administering
compliance with the Baxter leave of absence policies with respect to Allegiance
Employees.
(b) Effective immediately after the Spin-Off Date: (i) Allegiance
shall adopt, and shall cause each Allegiance Subsidiary to adopt, its own leave
of absence policies; (ii) Allegiance shall honor, and shall cause each
Allegiance Subsidiary to honor, all terms and conditions of leaves of absence
which have been granted to any Allegiance Employee under a Baxter leave of
absence policy before the Spin-Off Date by Baxter or any of its Subsidiaries,
including such leaves that are to commence after the Spin-Off Date where Baxter
or any of its Subsidiaries has approved such leave or where an employee has
submitted appropriate paperwork to Baxter or any of its Subsidiaries for such
leave prior to the Spin-Off Date; (iii) Allegiance and its Subsidiaries shall be
solely responsible for administering leaves of absence policies and compliance
with all applicable laws with respect to their employees; and (iv) Allegiance
and its Subsidiaries shall recognize all periods of service of Allegiance
Employees with Baxter or any of its Subsidiaries, as applicable, to the extent
such service is recognized by Baxter or its Subsidiaries for the purpose of
eligibility for leave entitlement under the Baxter leave of absence policies;
PROVIDED, HOWEVER, that no duplication of benefits shall be required by the
foregoing.
(c) As soon as administratively possible after the Spin-Off Date and
upon request to Baxter's Senior Vice President of Human Resources, Baxter shall
provide to Allegiance copies of all records pertaining to the Baxter leave of
absence policies with respect to all Allegiance Employees to the extent such
records have not been provided previously to Allegiance or one of its
Subsidiaries.
Section 9.8 WITHDRAWAL FROM PARTICIPATION IN BAXTER PLANS AND
ESTABLISHMENT OF ALLEGIANCE PLANS. (a) Effective as of the Spin-Off Date,
Allegiance and its Subsidiaries shall cease to be participating employers in the
Baxter Plans and shall take any and all action necessary to effectuate their
withdrawal as participating employers under the terms of such plans. Each
Allegiance Employee shall cease accruing benefits under the Baxter Plans as of
the Spin-Off Date (other than imputed compensation taken into account under the
Baxter Pension Plan from the Spin-Off Date through December 31, 1996).
(b) Effective as of the Spin-Off Date, Allegiance or any Allegiance
Subsidiary shall establish its own employee benefit plans for the benefit of
eligible employees of Allegiance and its Subsidiaries, including but not limited
to the Allegiance
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Retirement Plan, the Allegiance Welfare Plans and the Allegiance 1996 Incentive
Compensation Program, as described in the Registration Statement.
Section 9.9 TRANSFER OF SAVINGS PLAN ACCOUNT BALANCES. Subject to
applicable law and the provisions of the Baxter Savings Plan, effective as of
the first day of the first calendar month following the Spin-Off, or effective
as of any other date as agreed to in writing by the plan administrator for the
Baxter Savings Plan and the plan administrator for the Allegiance Retirement
Plan, the account balances (including outstanding loans) of all Baxter Savings
Plan participants who are Allegiance Employees shall be spun off from the Baxter
Savings Plan and merged into the Allegiance Retirement Plan (the "Transferred
Accounts"). The plan administrator for the Allegiance Retirement Plan shall
distribute any amounts from such Transferred Accounts which may be necessary in
order for the Baxter Savings Plan to satisfy any requirements of applicable law
(including, but not limited to, nondiscrimination rules) as instructed by the
plan administrator for the Baxter Savings Plan. The plan administrator for the
Allegiance Retirement Plan shall take any other action reasonably requested by
the plan administrator for the Baxter Savings Plan which is necessary or
advisable, in the opinion of the plan administrator for the Baxter Savings Plan,
to maintain the tax-qualified status of the Baxter Savings Plan or to avoid the
imposition of any penalties with respect to such plan.
Section 9.10 ENTITLEMENT TO DISTRIBUTIONS UNDER PENSION PLAN. Each
Allegiance Employee shall be treated as having terminated employment with an
"Employer" as defined in the Baxter Pension Plan effective as of the Spin-Off
Date and shall be fully vested in his or her accrued benefit under the Baxter
Pension Plan as of such date; PROVIDED, HOWEVER, that no such employee shall be
treated as terminated for purposes of eligibility to receive plan distributions
until such employee is no longer eligible to have compensation with Allegiance
(or the applicable Allegiance Subsidiary) count for purposes of determining
benefits under the Baxter Pension Plan.
Section 9.11 WELFARE BENEFITS PROVIDED UNDER ALLEGIANCE PLANS. (a)
Each employee of Allegiance or any of its Subsidiaries who is eligible to
participate in the Allegiance Welfare Plans shall be credited with (1)
deductibles and co-payments paid by such employee during the plan year
commencing April 1, 1996 under the Baxter Medical Plan (including dental
benefits) and (2) periods of service with any Baxter Group member for all
purposes under such plan. Amounts paid under the Baxter Medical Plan which are
taken into account for purposes of determining each Allegiance Employee's
lifetime maximum under such plan shall be taken into account for purposes of
determining
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such Allegiance Employee's lifetime maximum benefits under the Allegiance
Medical Plan.
(b) Baxter (or the applicable Baxter Subsidiary) shall pay all costs
associated with the provision of disability benefits to any employee or former
employee of Allegiance or any of its Subsidiaries who as of the Spin-Off Date is
totally and permanently disabled. Allegiance (or the applicable Allegiance
Subsidiary) shall pay all costs associated with the provision of disability
benefits to any employee or former employee of Allegiance or any of its
Subsidiaries other than the persons described in the first sentence of this
SECTION 9.11(b); Allegiance (or the applicable Allegiance Subsidiary) shall
provide benefits to any such persons who on the Spin-Off Date are entitled to
receive disability benefits in an amount equal to the benefits such persons
would have received if they had remained covered under the Baxter Plans during
the period of such disability leave. Notwithstanding the foregoing, any
Allegiance Employee receiving benefits under the Baxter Long-Term Disability
Insurance Plan on the Spin-Off Date shall continue to receive benefits under the
terms of such plan and the insurance contract used to fund such plan, and
neither Allegiance nor any Allegiance Subsidiary shall be charged for the
payment of such benefits. As of the Spin-Off Date, Allegiance (or the
applicable Allegiance Subsidiary) shall assume all liabilities determined under
FAS 112 relating to all Allegiance Employees.
(c) Baxter (or the applicable Baxter Subsidiary) shall pay all claims
under the Baxter Medical Plan (including dental benefits) which as of the Spin-
Off Date have been incurred but not paid relating to employees of Allegiance and
its Subsidiaries, but only if claims for such costs are submitted in written
form to the authorized agents of Baxter (or the applicable Baxter Subsidiary)
during the nine-month period beginning on the Spin-Off Date.
(d) Baxter (or the applicable Baxter Subsidiary) shall pay all costs
associated with the provision of benefits under the terms of the Baxter Retiree
Welfare Plan for all persons who as of the Spin-Off Date have satisfied the age
and service eligibility requirements for receiving benefits under such plan.
Allegiance (or the applicable Allegiance Subsidiary) shall assume and pay all
costs associated with the provision of retiree welfare benefits for all
employees of Allegiance and its Subsidiaries who after the Spin-Off Date satisfy
the age and service eligibility requirements under the corresponding Allegiance
plan, if any, for receiving such benefits.
(e) Effective as of the Spin-Off Date, the account balances
(including assets and liabilities) of all participants in the Baxter Cafeteria
Plans who are Allegiance Employees shall
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be spun off from the Baxter Cafeteria Plans and merged into the corresponding
cafeteria plans which are established by Allegiance or the applicable Allegiance
Subsidiary.
Section 9.12 STOCK PURCHASE PLAN. Except as otherwise provided in
the plan, on the Spin-Off Date, employees of Allegiance and its Subsidiaries
shall not be eligible to purchase Baxter Common Stock under the terms of the
Baxter Stock Purchase Plan.
Section 9.13 WORKERS' COMPENSATION. As soon as administratively
practicable following the Spin-Off Date but in no event later than December 31,
1996, a Senior Vice President of each of the Parties shall agree upon the
allocation between the Parties of responsibility and liability for workers'
compensation claims and expenses relating to employees and former employees of
the Parties and their respective Subsidiaries.
Section 9.14 VACATION PAY POLICY. After the Spin-Off Date, it is
expected that Allegiance shall maintain for its employees and employees of its
Subsidiaries a vacation pay policy and Allegiance (or the applicable Allegiance
Subsidiary) shall be responsible for costs incurred to provide vacation pay to
employees of Allegiance and its Subsidiaries following such date. Allegiance
(or the applicable Allegiance Subsidiary) shall assume any and all Baxter
liabilities to provide to Allegiance Employees vacation which such persons
accrued under the Baxter vacation pay policy as of the Spin-Off Date, and no
payment of such accrued vacation pay shall be made by Baxter (or the applicable
subsidiary) on the Spin-Off Date.
Section 9.15 NON-QUALIFIED DEFERRED COMPENSATION PLANS. Baxter (or
the applicable Baxter Subsidiary) shall assume the liability to provide benefits
accrued as of the Spin-Off Date under the Baxter and Subsidiaries Supplemental
Pension Plan with respect to all Allegiance Employees. Allegiance (or the
applicable Subsidiary) shall assume the liability to provide benefits accrued
under the Baxter and Subsidiaries Incentive Investment Excess Plan and the
Baxter and Subsidiaries Deferred Compensation Plan with respect to Allegiance
Employees. No assets shall be transferred between the Parties with respect to
the plans listed in this SECTION 9.16; PROVIDED, HOWEVER, that Baxter shall
receive a balance sheet credit for the amounts assumed in the first sentence of
this Section.
Section 9.16 INFORMATION TO BE PROVIDED TO BAXTER. Allegiance (or
the applicable Allegiance Subsidiary) shall provide any information which Baxter
(or any Baxter Subsidiary) may reasonably request, including but not limited to
information relating to dates of termination of employment, in order to provide
benefits to any eligible employee of Allegiance or any of
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its Subsidiaries under the terms and conditions described herein or under the
applicable Baxter Plans. Any information relating to an employee's termination
of employment shall be provided by Allegiance (or the applicable Allegiance
Subsidiary) to Baxter as soon as available to Allegiance or any of its
Subsidiaries, but in any event no later than 30 days after such information is
made available to Allegiance or any such Subsidiaries. Allegiance (or the
applicable Allegiance Subsidiary) shall, as necessary, update the system used to
keep such information in such timely manner as is required to administer the
Baxter Plans.
Section 9.17 CORPORATE ACTION; DELEGATION OF AUTHORITY. Any action
taken by the Senior Vice President of Human Resources shall be considered to be
action taken by either Baxter or Allegiance or their respective Subsidiaries for
purposes of this ARTICLE IX. Without limiting the foregoing, the Chief
Executive Officer of Baxter or Allegiance or their respective Subsidiaries may
delegate in writing to any other person the authority to act on behalf of Baxter
or Allegiance, respectively, or their respective Subsidiaries, with respect to
actions required under the terms of this ARTICLE IX.
Section 9.18 SPLIT-DOLLAR LIFE INSURANCE. Effective as of the Spin-
Off Date, Baxter (or the applicable Baxter Subsidiary) shall transfer to
Allegiance (or the applicable Allegiance Subsidiary) all split-dollar life
insurance policies relating to, and Allegiance (or the applicable Allegiance
Subsidiary) shall assume all liabilities associated with the provision of such
split-dollar life insurance to, any Allegiance Employee who as of such date had
met the eligibility requirements under such policies (I.E., any Allegiance
Employee who has accumulated 65 points for purposes of determining the amount of
benefits accrued under the Baxter Pension Plan).
ARTICLE X. ACCESS TO INFORMATION
Section 10.1 ACCESS TO INFORMATION.
(a) ACCESS TO FINANCIAL INFORMATION. At all times from and after the
Spin-Off Date for a period of ten years, (1) Baxter, upon reasonable notice,
shall afford Allegiance, its Subsidiaries and their authorized accountants,
counsel and other designated representatives reasonable access during normal
business hours to, or, at Allegiance's expense, provide copies of, all records,
books, contracts, instruments, data, documents and other information
(collectively, "Information") relating to Allegiance or any of its Subsidiaries,
the Allegiance Business or the Allegiance Employees within Baxter's possession
or control immediately following the Spin-Off Date, insofar as such access or
copies are required by Allegiance, and (2) Allegiance, upon
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reasonable notice, shall afford to Baxter, its Subsidiaries and their authorized
accountants, counsel and other designated representatives reasonable access
during normal business hours to, or, at Baxter's expense, provide copies of,
Information relating to Baxter or any of its Subsidiaries, the Retained Business
or any employees of Baxter or any of its Subsidiaries within Allegiance's
possession or control immediately following the Spin-Off Date insofar as such
access or copies are required by Baxter. Information may be requested under
this SECTION 10.1(a) for audit, accounting, claims defense, regulatory filings,
litigation and tax purposes, for purposes of fulfilling disclosure and reporting
obligations, for compensation, benefit or welfare plan administration and for
other proper business purposes but not for competitive purposes. Baxter and
Allegiance shall maintain the Information in the same way that Baxter maintains
similar material relating to the ongoing business of Baxter. The provisions of
this ARTICLE X shall not prejudice the rights or obligations of the Parties
under the Tax Sharing Agreement or any of the Operating Agreements.
(b) ACCESS TO TECHNICAL INFORMATION AND DATA. Prior to the Spin-Off
Date, Allegiance and its Subsidiaries had access to technical information and
data compilations including, without limitation, the materials testing registry
("MTR"), the Chemical and Toxicology data and the Baxter Materials Database,
concerning, INTER ALIA, materials and formulations accumulated and maintained by
Baxter and its Subsidiaries. For the period beginning on the Spin-Off Date and
ending on the earlier to occur of the tenth anniversary of the Spin-Off Date or
the termination of the license granted pursuant to SECTION 8.2(d), Allegiance
and its Subsidiaries shall have reasonable access to the technical information
and data compilations of Baxter and its Subsidiaries in existence on the Spin-
Off Date, and services available therethrough, reasonably necessary for the
Allegiance Products and products under development by Allegiance or its
Subsidiaries, including the right to make copies and abstracts thereof for its
business purposes in relation to such products.
(c) LIMITATIONS. Baxter makes no representations or warranties,
express or implied, about the accuracy, completeness, adequacy or sufficiency of
the financial and technical information and data compilations and EXPRESSLY
DISCLAIMS ALL WARRANTIES WHATSOEVER, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS
OR IMPLIED, AND EXPRESSLY DISCLAIMS EACH SUCH WARRANTY, INCLUDING ANY WARRANTY
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSES. The rights of access
pursuant to this SECTION 10.1 shall not include, however, such information of
Baxter and its Subsidiaries relating to (1) products, materials and components
under development by Baxter and its Subsidiaries; (2) information pertaining to
potential acquisitions, divestitures and other business arrangements of Baxter
and its Subsidiaries; (3) studies
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and investigations being undertaken by Baxter and its Subsidiaries for its or
their own benefit or for the benefit of a third party; and (4) information and
data Baxter and its Subsidiaries are obligated to a third-party to maintain in
confidence. Allegiance and its Subsidiaries agree to abide by and adhere to all
reasonable requirements and limitations imposed by Baxter and its Subsidiaries
in respect of the information and data compilations and access thereto and
utilization of services available through such compilations. Neither Allegiance
nor any of its Subsidiaries shall have any right to, and Allegiance agrees and
agrees to cause of each of its Subsidiaries not to, make, have made, use or sell
any products incorporating the technical information and data accessible to
Allegiance and its Subsidiaries pursuant to SECTION 10.1(b) hereof, unless
expressly conveyed pursuant to SECTION 4.2(vii), 5.3(i) or 8.2(a).
Section 10.2 PRODUCTION OF WITNESSES. At all times from and after
the Spin-Off Date, each Party shall use its reasonable efforts to make available
to the other Party (without cost (other than reimbursement of actual out-of-
pocket expenses) to, and upon prior written request of, the other Party) its
officers, directors, employees and agents as witnesses to the extent that the
same may reasonably be required by the other Party in connection with any legal,
administrative or other proceedings in which the requesting Party may from time
to time be involved with respect to the Allegiance Business, the Retained
Business, the Spin-Off or any related transactions.
Section 10.3 PROVISION OF CORPORATE RECORDS. Prior to or as promptly
as practicable after the Spin-Off Date, Baxter shall deliver to Allegiance or
one or more of its Subsidiaries all corporate books and records of Allegiance
and its Subsidiaries and copies of all corporate books and records of Baxter
relating to the Allegiance Business, including in each case all active
agreements, litigation files and government filings. From and after the Spin-
Off Date, all books, records and copies so delivered shall be the property of
Allegiance or such Subsidiaries.
Section 10.4 CONFIDENTIALITY. (a) From and after the Spin-Off Date,
each of Baxter and Allegiance shall hold, and shall cause its Subsidiaries and
its and their officers, employees, agents, consultants, advisors and other
representatives to hold, in strict confidence all non-public information
concerning the other Party or any of its Subsidiaries or Affiliates obtained by
it prior to the Spin-Off Date, accessed by it pursuant to SECTION 10.1 hereof,
or furnished to it by the other Party or any of its Subsidiaries or Affiliates
pursuant to this Agreement or any agreement or document contemplated hereby,
including, without limitation, any trade secrets, technology, know-how-and other
non-public, proprietary intellectual property
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rights licensed pursuant to SECTIONS 8.1 and 8.2 herein, and shall not release
or disclose such information to any other Person, except its representatives,
who shall be bound by the provisions of this SECTION 10.4; PROVIDED, HOWEVER,
that Baxter and Allegiance and their respective Subsidiaries, officers,
employees, agents, consultants, advisors and representatives may disclose such
information if, and only to the extent that, (a) a disclosure of such
information is compelled by judicial or administrative process or, in the
opinion of such Party's counsel, by other requirements of law (in which case the
disclosing party will provide, to the extent practicable under the
circumstances, advance written notice to the other Party of its intent to make
such disclosure), or (b) such Party can show that such information (i) is
published or is or otherwise becomes available to the general public as part of
the public domain without breach of this Agreement; (ii) has been furnished or
made known to the recipient without any obligation to keep it confidential by a
third party under circumstances which are not known to the recipient to involve
a breach of the third party's obligations to a Party hereto; (iii) was developed
independently of information furnished to the recipient under this Agreement; or
(iv) in the case of information furnished after the Spin-Off Date, was known to
the recipient at the time of receipt thereof from the other Party.
(b) Each Party (the "first Party") acknowledges that the other Party
would not have an adequate remedy at law for the breach by the first Party of
any one or more of the covenants contained in this SECTION 10.4 and agrees that,
in the event of such breach, the other Party may, in addition to the other
remedies which may be available to it, apply to a court for an injunction to
prevent breaches of this SECTION 10.4 and to enforce specifically the terms and
provisions of this Section. Notwithstanding SECTION 13.1 hereof, the provisions
of this SECTION 10.4 shall survive the Spin-Off Date indefinitely.
Section 10.5 PRIVILEGED MATTERS. (a) Each of Baxter and Allegiance
agree to maintain, preserve and assert all privileges, including, without
limitation, privileges arising under or relating to the attorney-client
relationship (which shall include without limitation the attorney-client and
work product privileges), not heretofore waived, that relate to the Allegiance
Business and the Transferred Services for any period prior to the Spin-Off Date
("Privilege" or "Privileges"). Each Party agrees that it shall not waive any
Privilege that could be asserted under applicable law without the prior written
consent of the other Party. The rights and obligations created by this SECTION
10.5 shall apply to all information relating to the Allegiance Business as to
which, but for the Spin-Off, either Party would have been entitled to assert or
did assert the protection of a Privilege ("Privileged Information"), including
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without limitation, any and all information generated prior to the Spin-Off Date
but which, after the Spin-Off, is in the possession of either Party; and (2) all
information generated, received or arising after the Spin-Off Date that refers
to or relates to Privileged Information generated, received or arising prior to
the Spin-Off Date.
(b) Upon receipt by either Party of any subpoena, discovery or other
request that may call for the production or disclosure of Privileged Information
or if either Party obtains knowledge that any current or former employee of
Baxter or Allegiance has received any subpoena, discovery or other request that
may call for the production or disclosure of Privileged Information, such Party
shall notify promptly the other Party of the existence of the request and shall
provide the other Party a reasonable opportunity to review the information and
to assert any rights it may have under this SECTION 10.5 or otherwise to prevent
the production or disclosure of Privileged Information. Each Party agrees that
it will not produce or disclose any information that may be covered by a
Privilege under this SECTION 10.5 unless (1) the other Party has provided its
written consent to such production or disclosure (which consent will not be
unreasonably withheld), or (2) a court of competent jurisdiction has entered a
final, nonappealable order finding that the information is not entitled to
protection under any applicable Privilege.
(c) Baxter's transfer of books and records and other information to
Allegiance, and Baxter's agreement to permit Allegiance to possess Privileged
Information occurring or generated prior to the Spin-Off Date, are made in
reliance on Allegiance's agreement, as set forth in this SECTION 10.5, to
maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The access to information being granted
pursuant to SECTION 10.1, the agreement to provide witnesses and individuals
pursuant to SECTION 10.2 and the transfer of Privileged Information to
Allegiance pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this SECTION 10.5 or otherwise.
Nothing in this Agreement shall operate to reduce, minimize or condition the
rights granted to Baxter in, or the obligations imposed upon Allegiance by, this
SECTION 10.5.
ARTICLE XI. CONDITIONS PRECEDENT TO SPIN-OFF
The obligation of Baxter to effect the Spin-Off is subject to the
satisfaction or the waiver by Baxter (if permissible) at or prior to the Spin-
Off Date of each of the following conditions:
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Section 11.1 TAX RULING. Baxter shall have received a ruling from
the United States Internal Revenue Service or, at Baxter's discretion, an
opinion of tax counsel, substantially to the effect that no income, gain or loss
will be recognized by Baxter or its stockholders (other than with respect to
cash received in lieu of fractional shares) upon the distribution to Baxter's
stockholders of shares of Allegiance Common Stock.
Section 11.2 NO ACTIONS. No action shall have been instituted or
threatened by or before any court or administrative body to restrain, enjoin or
otherwise prevent the Spin-Off or the other transactions contemplated hereby
(including but not limited to a stop order with respect to the effectiveness of
the Registration Statement), and no order, injunction or decree issued by any
court of competent jurisdiction shall be in effect restraining the Spin-Off or
such other transactions.
Section 11.3 NYSE LISTING. The Allegiance Shares shall have been
approved for listing on the NYSE, subject to official notice of issuance.
Section 11.4 OPINIONS OF FINANCIAL ADVISOR. The Board of Directors
of Baxter shall have received written opinions of CS First Boston Corporation to
the effect that (i) the Spin-Off will not have a material adverse effect on the
financial viability of Baxter after the Spin-Off or of Allegiance through the
period ending December 31, 1998 and (ii) the Spin-Off is fair to the
stockholders of Baxter from a financial point of view, which opinions shall not
have been withdrawn or modified.
Section 11.5 CONSENTS. All material authorizations, consents,
approvals and clearances of all federal, state, local and foreign governmental
agencies required to permit the valid consummation of the transactions
contemplated herein shall have been obtained without any conditions being
imposed that would have a material adverse effect on Allegiance.
Section 11.6 REGISTRATION STATEMENT. The Registration Statement
shall have become effective and no stop order shall have been issued or
threatened.
Section 11.7 NEW CREDIT FACILITY. The definitive agreements
governing the Allegiance Credit Facility shall have been executed.
Section 11.8 PRE-SPIN-OFF TRANSACTIONS. The pre-Spin-Off
transactions contemplated by ARTICLES III, IV and V of this Agreement shall have
been consummated in all material respects.
Section 11.9 ANCILLARY AGREEMENTS. Each of the Tax Sharing Agreement
and the Operating Agreements shall have been
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executed and each of such agreements shall be in full force and effect.
Section 11.10 RESIGNATIONS. Baxter shall cause all of its designees
to resign or to be removed as officers and from all Boards of Directors or
similar governing bodies of Allegiance and its Affiliates and any Transferred
Subsidiary on which they serve.
Section 11.11 BOARD APPROVAL. The Board of Directors of Baxter shall
have approved the declaration of the Spin-Off.
Section 11.12 ELECTION OF ALLEGIANCE BOARD. The Board of Directors
of Allegiance as set forth on EXHIBIT J shall have been duly elected.
Section 11.13 SATISFACTION OF CONDITIONS. The satisfaction of such
conditions shall not create any obligations on the part of Baxter or any other
party hereto to effect the Spin-Off or in any way limit Baxter's power of
termination set forth in SECTION 15.9.
ARTICLE XII. EXPENSES; TAXES
Section 12.1 ALLOCATION OF EXPENSES. (a) Except as otherwise
provided in this Agreement or any other agreement contemplated hereby, or as
otherwise agreed to in writing by the Parties, all fees and expenses incurred in
connection with the transactions contemplated hereby or thereby shall be paid by
Baxter. Specifically, (i) Baxter shall absorb all costs associated with the
dedication of internal resources and personnel to such transactions at all times
prior to the Spin-Off Date, (ii) Baxter will pay all fees and expenses which are
directly related to the implementation of the Spin-Off transactions on or prior
to the Spin-Off Date, and certain agreed software contractor fees and expenses
after the Spin-Off, and (iii) Allegiance will pay all fees and expenses with
respect to services for which Allegiance procures and receives the primary
benefit prior to and after the Spin-Off Date.
(b) Notwithstanding SECTION 12.1(a) above, Baxter shall be solely
responsible for the following costs incurred in connection with the transactions
contemplated hereby: (i) the reasonable fees and expenses of Sidley & Austin in
connection with its representation of Baxter; (ii) the reasonable fees and
expenses of Skadden, Arps, Slate, Meagher & Flom in connection with its
representation of Baxter relating to the tax ruling and the opinion of counsel
on tax matters; (iii) the reasonable fees and expenses of Goldman Sachs & Co.,
First Chicago Bank and Bank of America, N.A. relating to their financial
advisory services
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rendered to Baxter; (iv) the reasonable fees and expenses of CS First Boston
Corporation and Lehman Brothers Inc. relating to their financial advisory
services rendered to Baxter; (v) the reasonable fees and expenses of Price
Waterhouse LLP in connection with its audit and tax services rendered to Baxter;
(vi) the reasonable fees and expenses of Towers, Perrin and Hewitt Associates in
connection with their consulting services relating to benefits plans rendered to
Baxter; (vii) all SEC registration and "blue sky" filing fees associated with
the Registration Statement; (viii) the printing, mailing and distributing the
Information Statement to Baxter's stockholders; (ix) the reasonable fees and
expenses of Allegiance's transfer agent and registrar relating to the initial
issuance of Allegiance Shares as a dividend to Baxter's stockholders, (x) the
NYSE listing fees for the Allegiance Shares; (xi) the design and initial
printing of certificates of the Allegiance Shares; (xii) the initial
distribution of the certificates of Allegiance Common Stock as a dividend to
Baxter stockholders; (xiii) the development, search and registration of the name
"Allegiance"; (xiv) third party vendors for software licenses; (xv) retention
bonuses to employees in the amount of $5,271,174; (xvi) employee relocation
expenses in an amount not to exceed $3,500,000; and (xvii) various international
professional services directly related to the Spin-Off transactions.
(c) Notwithstanding SECTION 12(a)(i) above, Allegiance shall be
solely responsible for all fees, expenses and other costs incurred in connection
with the transactions contemplated hereby related to: (i) the reasonable fees
and expenses of McDermott, Will & Emery in connection with its representation of
Allegiance relating to the creation of benefits plans; (ii) the reasonable fees
and expenses of Bank of America, N.A. relating to their syndication and
arrangement of revolving credit facilities for Allegiance; (iii) the reasonable
fees and expenses of Goldman Sachs & Co. for advisory services rendered to
Allegiance; and (iv) the reasonable fees or expenses of any financial advisors
retained by Allegiance in connection with any "road shows" or presentations to
investors.
Section 12.2 TAXES. Baxter will determine the amount of sales,
transfer, V.A.T. or other similar taxes or fees (including, without limitation,
all real estate, patent, copyright and trademark transfer taxes and real estate
recording fees but not patent, copyright and trademark recording fees) payable
in connection with the transactions contemplated by this Agreement (the
"Transaction Taxes"). Baxter and/or Allegiance as the case may be, agree to
file promptly and timely the returns for such Transaction Taxes with the
appropriate taxing authorities and remit payment of the Transaction Taxes.
Subject to exceptions, if any, agreed to in the Tax Sharing Agreement,
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Baxter shall be responsible for the payment of the Transaction Taxes.
Section 12.3 DIRECTORS' AND OFFICERS' INSURANCE. Baxter shall use
reasonable efforts to cause the persons currently serving as officers and/or
directors of Baxter or any of its Subsidiaries to be covered for a period of six
years from the Spin-Off Date by the directors' and officers' liability insurance
policy maintained by Baxter (including corporate reimbursement) (PROVIDED that
Baxter may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not less advantageous than
such policy) with respect to matters covered under the existing policy occurring
prior to the Spin-Off Date which were committed by such officers and/or
directors in their capacity as such; PROVIDED, HOWEVER, that in no event shall
Baxter be required to expend with respect to any year more than 200% of the
current annual premium expended by Baxter (the "Insurance Amount") to maintain
or procure insurance coverage pursuant hereto; and PROVIDED, FURTHER, that if
Baxter is unable to maintain or obtain the insurance called for by this SECTION
12.3, Baxter shall use reasonable efforts to obtain as much comparable insurance
as available for the Insurance Amount. In the event Baxter or any of its
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Baxter assume the obligations set forth in this SECTION 12.3. The
provisions of this SECTION 12.3 are intended to be for the benefit of, and shall
be enforceable by, each such officer and director and his or her heirs and
representatives. As provided in SECTION 13.5, any amount Allegiance is required
to pay to Baxter as an indemnity under this Agreement is reduced to the extent
Baxter receives insurance proceeds from the above coverage, but only to the
extent such proceeds are actually received by Baxter.
ARTICLE XIII. SURVIVAL, INDEMNIFICATION,
CLAIMS AND OTHER MATTERS
Section 13.1 SURVIVAL. All covenants and agreements of Baxter and
Allegiance contained in this Agreement shall survive the Spin-Off Date
indefinitely, unless a specific survival or other applicable period is expressly
set forth therein.
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Section 13.2 INDEMNIFICATION. (a) Baxter shall indemnify, defend
and hold harmless Allegiance and each of its Affiliates, directors, officers,
employees and agents (collectively, "Allegiance Indemnified Parties") from and
against any and all Claims and Losses incurred or suffered by Allegiance (and/or
one or more of the Allegiance Indemnified Parties) in connection with or arising
out of or due to, directly or indirectly:
(i) any claim that the information included in the Registration
Statement or the Information Statement which relates to Baxter or the
Retained Business is false or misleading with respect to any material fact
or omits to state any 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, regardless of
whether the occurrence, action or other event giving rise to the applicable
matter took place prior or subsequent to the Spin-Off;
(ii) the business (other than the Allegiance Business) conducted by
Baxter or its Subsidiaries, Affiliates or predecessors on or at any time
prior to the Spin-Off Date (including, but not limited to, any
environmental liabilities associated with such business);
(iii) the assets owned by Baxter or its Subsidiaries other than the
Transferred Assets;
(iv) the liabilities and obligations (including the Excluded
Liabilities) of Baxter or its Subsidiaries other than the Assumed
Liabilities;
(v) the breach by Baxter or any of its Subsidiaries of any covenant
or agreement set forth in this Agreement or any Conveyancing Instruments,
regardless of when or where the loss, claim, accident, occurrence, event or
happening giving rise to the Claim or Loss took place, or whether any such
loss, claim, accident, or occurrence, event or happening is known or
unknown, or reported or unreported;
(vi) Baxter's reduction, elimination or failure to provide any
benefit previously provided to its employees (or employees of its
Subsidiaries) and any act or omission by Baxter in connection with the
transfer of assets and liabilities from the Baxter Savings Plan to the
Allegiance Retirement Plan;
(vii) the indemnifiable matters set forth in SECTION 7.11(iii).
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(b) Allegiance shall indemnify, defend and hold harmless Baxter and
each of its Affiliates, directors, officers, employees and agents (collectively,
"Baxter Indemnified Parties") from and against any and all Claims and Losses
incurred or suffered by Baxter (and/or one or more of the Baxter Indemnified
Parties) in connection with or arising out of or due to, directly or indirectly:
(i) any claim that the information included in the Registration
Statement or Information Statement which relates to the Allegiance Business
is false or misleading with respect to any material fact or omits to state
any 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, regardless or whether the occurrence, action or
other event giving rise to the applicable matter took place prior to or
subsequent to the Spin-Off Date;
(ii) the Allegiance Business as conducted by Baxter or its
Subsidiaries, Affiliates or predecessors on or at any time prior to the
Spin-Off Date;
(iii) the Transferred Assets;
(iv) the Assumed Liabilities;
(v) the Transferred Subsidiaries;
(vi) the breach by Allegiance or any of its Subsidiaries of any
covenant or agreement set forth in this Agreement or any Conveyancing
Instrument, regardless of when or where the loss, claim, accident,
occurrence, event or happening giving rise to the Claim or Loss took place,
or whether any such loss, claim, accident, occurrence, event or happening
is known or unknown, or reported or unreported;
(vii) the employee benefits provided or the actions taken or omitted
to be taken with respect thereto in connection with this Agreement or
otherwise relating to the provision of employee benefits to employees or
former employees of Allegiance (or its Subsidiaries), their beneficiaries,
alternate payees or any other person claiming benefits through them (except
to the extent such Claims or Losses are specifically allocated to Baxter
pursuant to SECTION 13.2(a)(vi)), including without limitation Claims or
Losses arising in connection with (1) Allegiance's reduction, elimination
or failure to provide any benefit previously provided to its employees or
employees of any of its Subsidiaries and (2) the transfer of account
balances from the Baxter Savings Plan to the Allegiance Retirement
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Plan where such Claims or Losses are incurred as a result of (1) any act or
omission by Allegiance (or Allegiance's representative) or (2) a
determination by the Internal Revenue Service that the Allegiance
Retirement Plan is not a tax-qualified plan;
(viii) the indemnifiable matters set forth in SECTIONS 6.3, 7.4 and
7.11(iii);
(ix) any use of, access to or reliance upon the technical information
or data made available to Allegiance or its Subsidiaries pursuant to
SECTION 10.1(b); or
(x) the Unassigned Indemnifiable Contracts.
(c) EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE INDEMNITY OBLIGATION
UNDER THIS SECTION 13.2 SHALL APPLY NOTWITHSTANDING ANY INVESTIGATION MADE BY OR
ON BEHALF OF ANY INDEMNIFIED PARTY AND SHALL APPLY WITHOUT REGARD TO WHETHER THE
LOSS, LIABILITY, CLAIM, DAMAGE, COST OR EXPENSE FOR WHICH INDEMNITY IS CLAIMED
HEREUNDER IS BASED ON STRICT LIABILITY, ABSOLUTE LIABILITY OR ARISES AS AN
OBLIGATION FOR CONTRIBUTION.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL BAXTER BE LIABLE TO ALLEGIANCE (OR ANY ALLEGIANCE INDEMNIFIED
PARTY), OR ALLEGIANCE BE LIABLE TO BAXTER (OR ANY BAXTER INDEMNIFIED PARTY),
UNDER THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL
(EXCEPT WITH RESPECT TO LIABILITY UNDER SECTION 7.11 HEREOF) OR PUNITIVE
DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF ANTICIPATED PROFITS OR LOSS OR
DIMINUTION OF REVENUES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT,
TORT OR OTHERWISE, EXCEPT TO THE EXTENT THAT SUCH LIABILITY HAS BEEN ASSERTED BY
A THIRD PARTY AGAINST A PARTY ENTITLED TO INDEMNIFICATION HEREUNDER.
Section 13.3 PROCEDURE FOR INDEMNIFICATION. (a) If any third party
shall make any claim or commence any arbitration proceeding or suit against any
one or more of the Indemnified Parties with respect to which an Indemnified
Party intends to make any claim for indemnification against Allegiance under
SECTION 13.2(b) or against Baxter under SECTION 13.2(a), such Indemnified
Parties shall promptly give written notice to the Indemnifying Party of such
third party claim, arbitration proceeding or suit and the following provisions
shall apply.
(b) The Indemnifying Party shall have 20 business days after receipt
of the notice referred to in SECTION 13.3(a) to notify the Indemnified Party
that it elects to conduct and control the defense of such claim, proceeding or
suit. If the Indemnifying Party does not give the foregoing notice, the
Indemnified Party shall have the right to defend, contest, settle
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or compromise such claim, proceeding or suit in the exercise of its exclusive
discretion subject to the provisions of SECTION 13.3(c), and the Indemnifying
Party shall, upon request from any of the Indemnified Parties, promptly pay to
such Indemnified Parties in accordance with the other terms of this SECTION
13.3(b) the amount of any Claim or Loss resulting from their liability to the
third party claimant. If the Indemnifying Party gives the foregoing notice, the
Indemnifying Party shall have the right to undertake, conduct and control,
through counsel reasonably acceptable to the Indemnified Party, and at its sole
expense, the conduct and settlement of such claim, proceeding or suit, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith, PROVIDED that (i) the Indemnifying Party shall not thereby permit any
lien, encumbrance or other adverse charge to thereafter attach to any asset of
any Indemnified Party; (ii) the Indemnifying Party shall not thereby permit any
injunction against any Indemnified Party; (iii) the Indemnifying Party shall
permit the Indemnified Party and counsel chosen by the Indemnified Party and
reasonably acceptable to the Indemnifying Party to monitor such conduct or
settlement and shall provide the Indemnified Party and such counsel with such
information regarding such claim, proceeding or suit as either of them may
reasonably request (which request may be general or specific), but the fees and
expenses of such counsel shall be borne by the Indemnified Party unless (1) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (2) the named parties to any such claim, proceeding
or suit include the Indemnified Party and the Indemnifying Party and in the
reasonable opinion of counsel to the Indemnified Party representation of both
parties by the same counsel would be inappropriate due to actual or likely
conflicts of interest between them, in either of which cases the reasonable fees
and disbursements of counsel for such Indemnified Party shall be reimbursed by
the Indemnifying Party to the Indemnified Party); and (iv) the Indemnifying
Party shall agree promptly to reimburse to the extent required under this
ARTICLE XIII the Indemnified Party for the full amount of any Claim or Loss
resulting from such claim, proceeding or suit and all related expenses incurred
by the Indemnified Party. In no event shall the Indemnifying Party without the
prior written consent of the Indemnified Party, settle or comprise any claim or
consent to the entry of any judgment that does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Indemnified
Party a release from all liability in respect of such claim.
If the Indemnifying Party shall not have undertaken the conduct and
control of the defense of any claim, suit or proceeding as provided above, the
Indemnifying Party shall nevertheless be entitled through counsel chosen by the
Indemnifying Party and reasonably acceptable to the Indemnified
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Party to monitor the conduct or settlement of such claim by the Indemnified
Party, and the Indemnified Party shall provide the Indemnifying Party and such
counsel with such information regarding such action or suit as either of them
may reasonably request (which request may be general or specific), but all costs
and expenses incurred in connection with such monitoring shall be borne by the
Indemnifying Party.
(c) So long as the Indemnifying Party is contesting any such claim,
suit or proceeding in good faith, the Indemnified Party shall not pay or settle
any such claim, proceeding or suit. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim,
proceeding or suit, PROVIDED that in such event the Indemnified Party shall
waive any right to indemnity therefor by the Indemnifying Party, and no amount
in respect thereof shall be claimed as a Claim or Loss under this SECTION
13.3(c).
If the Indemnifying Party shall have undertaken the conduct and
control of the defense of any claim, suit or proceeding as provided above, the
Indemnified Party, on not less than 30 days' prior written notice to the
Indemnifying Party, may make settlement (including payment in full) of such
claim and such settlement shall be binding upon the Parties hereto for the
purposes hereof, unless within said 30-day period the Indemnifying Party shall
have requested the Indemnified Party to contest such claim at the expense of the
Indemnifying Party. In such event, the Indemnified Party shall promptly comply
with such request and the Indemnifying Party shall have the right to direct the
defense of such claim or any litigation based thereon subject to all of the
conditions of SECTION 13.3(b). Anything in this SECTION 13.3(c) to the contrary
notwithstanding, if the Indemnified Party, in the belief that a claim may
materially and adversely affect it other than as a result of money damages or
other money payments, advises the Indemnifying Party that it has determined to
make settlement of a claim, the Indemnified Party shall have the right to do so
at its own cost and expense, without any requirement to contest such claim at
the request of the Indemnifying Party, but without any right under the
provisions of this SECTION 13.3(c) for indemnification by the Indemnifying
Party.
Section 13.4 DIRECT CLAIMS. Any claim for indemnity on account of a
Claim or Loss made directly by the Indemnified Party against the Indemnifying
Party and which does not result from a third party claim shall be asserted by
written notice from the Indemnified Party to the Indemnifying Party specifically
claiming indemnification hereunder. Such Indemnifying Party shall have a period
of 30 business days within which to respond thereto. If such Indemnifying Party
does not respond within such 30 business-day period, such Indemnifying Party
shall be deemed
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to have accepted responsibility to make payment and shall have no further right
to contest the validity of such claim. If such Indemnifying Party does respond
within such 30 business-day period and rejects such claim in whole or in part,
such Indemnified Party shall be free to pursue resolution as provided in ARTICLE
XIV.
Section 13.5 ADJUSTMENT OF INDEMNIFIABLE LOSSES. (a) The amount
which an Indemnifying Party is required to pay to an Indemnified Party shall be
reduced (including, without limitation, retroactively) by any insurance proceeds
and other amounts actually recovered by such Indemnified Party in reduction of
the related Claim or Loss. If an Indemnified Party shall have received an
Indemnity Payment in respect of a Claim or Loss and shall subsequently actually
receive insurance proceeds or the other amounts in respect of such Claim or
Loss, then such Indemnified Party shall pay to such Indemnifying Party a sum
equal to the lesser of (1) the amount of such insurance proceeds or other
amounts actually received and (2) the net amount of Indemnity Payments actually
received previously. The Indemnified Party agrees that the Indemnifying Party
shall be subrogated to such Indemnified Party under any insurance policy. An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (I.E., a benefit they would not be
entitled to receive in the absence of the indemnification provisions) by virtue
of the indemnification provisions hereof.
(b) If any Indemnified Party realizes a Tax benefit or detriment in
one or more Tax periods by reason of having incurred a Claim or Loss for which
such Indemnified Party receives an Indemnity Payment from an Indemnifying Party
(or by reason of the receipt of any Indemnity Payment), then such Indemnified
Party shall pay to such Indemnifying Party an amount equal to the Tax benefit or
such Indemnifying Party shall pay to such Indemnified Party an additional amount
equal to the Tax detriment (taking into account, without limitation, any Tax
detriment resulting from the receipt of such additional amounts), as the case
may be. The amount of any Tax benefit or any Tax detriment for a Tax period
realized by an Indemnified Party by reason of having incurred a Claim or Loss
(or by reason of the receipt of any Indemnity Payment) shall be deemed to equal
the product obtained by multiplying (i) the amount of any deduction or loss or
inclusion in income for such period resulting from such Claim or Loss (or the
receipt of any Indemnity Payment or additional amount), as the case may be
(without regard to whether such deduction or loss or such inclusion in income
results in any actual decrease or increase in Tax liability for such period), by
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(ii) the highest applicable marginal Tax rate for such period (PROVIDED,
HOWEVER, that the amount of any Tax benefit attributable to an amount that is
creditable shall be deemed to equal the amount of such creditable item). Any
payment due under this SECTION 13.5(b) with respect to a Tax benefit or Tax
detriment realized by an Indemnified Party in a Tax period shall be due and
payable within 30 days from the time the return for such Tax period is due,
without taking into account any extension of time granted to the Party filing
such return.
(c) In the event that an Indemnity Payment shall be denominated in a
currency other than United States dollars, the amount of such payment shall be
translated into United States dollars using the Foreign Exchange Rate for such
currency determined in accordance with the following rules:
(i) with respect to a Claim or Loss arising from payment by a
financial institution under a guarantee, comfort letter, letter of credit,
foreign exchange contract or similar instrument, the Foreign Exchange Rate
for such currency shall be determined as of the date on which such
financial institution shall have been reimbursed;
(ii) with respect to a Claim or Loss covered by insurance, the
Foreign Exchange Rate for such currency shall be the Foreign Exchange Rate
employed by the insurance company providing such insurance in settling such
Claim or Loss with the Indemnifying Party; and
(iii) with respect to a Claim or Loss not covered by clause (i) or
(ii) above, the Foreign Exchange Rate for such currency shall be determined
as of the date that notice of the claim with respect to such Claim or Loss
shall be given to the Indemnified Party.
Section 13.6 CONTRIBUTION. If the indemnification provided for in
SECTION 13.2 is unavailable to an Indemnified Party in respect of any Claim or
Loss arising out of or related to information contained in the Registration
Statement or the Information Statement, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Claim or Loss in such
proportion as is appropriate to reflect the relative fault of Allegiance or the
Allegiance Indemnified Parties (an "Allegiance Party"), on the one hand, or
Baxter or the Baxter Indemnified Parties (a "Baxter Party"), on the other hand,
in connection with the statements or omissions which resulted in such Claim or
Loss. The relative fault of any Allegiance Party, on the one hand, and of any
Baxter Party, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
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material fact or the omission or alleged omission of a material fact or the
omission or alleged omission of a material fact relates to information about or
supplied by the Allegiance Business or an Allegiance Party, on the one hand, or
about or by the Retained Business or a Baxter Party, on the other hand.
Section 13.7 NO THIRD PARTY BENEFICIARIES. Except to the extent
expressly provided otherwise in this ARTICLE XIII, the indemnification provided
for in this Agreement, the Tax Sharing Agreement or any Operating Agreement
shall not inure to the benefit of any third party or parties and shall not
relieve any insurer or other third party who would otherwise be obligated to pay
any claim or the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, provide any subrogation rights with respect
thereto, and each Party agrees to waive such rights against the other to the
fullest extent permitted.
Section 13.8 RELEASE OF PRE-DIVESTITURE LIABILITIES. Each of Baxter
and Allegiance does hereby for itself, its Affiliates, successors and assigns,
remise, release and forever discharge each other Party, its Affiliates,
successors and assigns and all Persons who at any time prior to the Spin-Off
Date have been shareholders, directors, officers, agents or employees of any
such other Party or Affiliate, their heirs, executors, administrators and
assigns, any and all claims, debts, demands, actions, causes of action, suits,
sum or sums of money, accounts, reckonings, bonds, specialties, indemnities,
exonerations, covenants, contracts, controversies, agreements, obligations,
promises, doings, omissions, variances, damages, executions and liabilities
whatsoever, both at law and in equity, arising from any events in the ordinary
course of business on or prior to the Spin-Off Date and relating to the
operations of the Retained Business or the Allegiance Business, including the
transactions and all other activities to implement the Spin-Off (each of the
foregoing being hereinafter referred to as a "liability"), PROVIDED, HOWEVER,
that nothing in this SECTION 13.8 shall release (a) any Party from (i) any
liability, contingent or otherwise, transferred, assigned or allocated and
assumed, or retained in accordance with this Agreement, the Tax Sharing
Agreement or any Operating Agreement, or (ii) any liability provided in or
resulting from this Agreement, the Tax Sharing Agreement, any Operating
Agreement or any agreement between any of Baxter and its Subsidiaries, on the
one hand, and Allegiance and its Subsidiaries, on the other hand, not terminated
pursuant to the Spin-Off or any other agreement between any of the Parties
entered into in contemplation that such agreement would remain in effect after
the Spin-Off, or (b) any Party from any liability for unpaid amounts for the
sale, lease, construction or receipt of goods, property or services purchased,
obtained or used by it in the ordinary course of
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business prior to the Spin-Off Date, or (c) any Party from any liability for
unpaid amounts for products or services or refunds owing on products or services
due on a value-received basis for work done at one Party's request or done on
such Party's behalf, or (d) any Party from any liability the release of which
would result in the release of any party other than a Person released pursuant
to this SECTION 13.8.
ARTICLE XIV. DISPUTE RESOLUTION
Section 14.1 ESCALATION. The Parties agree that they will attempt to
settle any claim or controversy arising out of this Agreement through good faith
negotiations in the spirit of mutual cooperation between business executives
with authority to resolve the controversy. Subject to the provisions set forth
in SECTION 7.7, prior to taking action as provided in SECTION 14.2, the Parties
first shall submit such claim or controversy to an appropriate corporate officer
of each Party for resolution, and if such corporate officers are unable to
resolve such claim or controversy, either Party may request that their
respective chief executive officers, or their respective delegees, attempt to
resolve the dispute. The officers or delegees to whom any such claim or
controversy is submitted shall attempt to resolve the dispute through good faith
negotiations over a reasonable period, not to exceed 30 days in the aggregate
unless otherwise agreed. Such 30 day period shall be deemed to commence on the
date of a notice from either Party describing the particular claim or
controversy. If any claim or controversy relates to invoiced services and
products, a late payment fee equal to 1% per month will accrue on all
outstanding balances. The late payment fee shall accrue from date when such
services and products are due for payment until the time when such payment is
actually made or settled upon resolution of the dispute.
Section 14.2 ARBITRATION. Subject to the provisions set forth in
SECTION 7.7, any dispute that is not resolved by negotiations pursuant to
SECTION 14.1 will, upon the written request of either Party, be resolved by
binding arbitration conducted in accordance with the Rules of the CPR Institute
for Dispute Resolution by a sole arbitrator who is a former federal judge or
other mutually agreed upon individual. Such arbitrator shall set a schedule for
determination of such dispute that is reasonable under the circumstances. Such
arbitrator shall determine the dispute in accordance with this Agreement and the
substantive rules of law (but not the rules of procedure) that would be applied
by a federal court sitting in Illinois. The arbitration shall take place in
Lake County, Illinois. The arbitration will be governed by the United States
Arbitration Act, 9 U.S.C. Sections 1-16 and the Patent Arbitration Act, 35
U.S.C. Section 294. Judgment upon the award rendered by the arbitrator may be
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entered by any court having jurisdiction. Where this Agreement provides for
future agreement by the parties, failure to reach such agreement shall not
constitute a dispute subject to the provisions of this SECTION 14.2 except as
expressly provided otherwise.
Section 14.3 INJUNCTIVE RELIEF. Nothing contained in this ARTICLE
XIV shall prevent either Party from resorting to judicial process if injunctive
or other equitable relief from a court is necessary to prevent serious and
irreparable injury to one Party or to others. The use of arbitration procedures
will not be construed under the doctrine of laches, waiver or estoppel to affect
adversely either Party's right to assert any claim or defense.
ARTICLE XV. MISCELLANEOUS PROVISIONS
Section 15.1 ENTIRE AGREEMENT. This Agreement, the Tax Sharing
Agreement, the Operating Agreements and the Conveyancing Instruments constitute
the only agreements between the Parties with respect to the subject matter
hereof, there being no prior written or oral promises or representations not
incorporated herein or therein.
Section 15.2 CHOICE OF LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Illinois and
the federal laws of the United States of America applicable therein, as though
all acts and omissions related hereto occurred in Illinois. Any lawsuit arising
from or related to this Agreement shall only be brought in the United States
District Court for the Northern District of Illinois or the Circuit Court of
Lake County, Illinois. To the extent permissible by law, the Parties hereby
consent to the jurisdiction and venue of such courts. Each Party hereby waives,
releases and agrees not to assert, and agrees to cause its Affiliates to waive,
release and not assert, any rights such Party or its Affiliates may have under
any foreign law or regulation that would be inconsistent with the terms of this
Agreement as governed by Illinois law.
Section 15.3 AMENDMENT; WAIVER. No amendment or modification of the
terms of this Agreement shall be binding on either Party unless reduced to
writing and signed by an authorized representative of the Party to be bound.
The waiver by either Party of any particular default by the other Party shall
not affect or impair the rights of the Party so waiving with respect to any
subsequent default of the same or a different kind; nor shall any delay or
omission by either Party to exercise any right arising from any default by the
other affect or impair
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any rights which the nondefaulting Party may have with respect to the same or
any future default.
Section 15.4 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be ineffective in such
jurisdiction to the extent of such prohibition or unenforceability without
affecting, impairing or invalidating the remaining provisions or the
enforceability of this Agreement.
Section 15.5 COUNTERPARTS. For convenience of the Parties, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original for all purposes.
Section 15.6 RECORDS RETENTION. Each Party will retain all
information obtained or created in the course of performance hereunder in
accordance with the records retention guidelines of the other Party existing
from time to time; PROVIDED, HOWEVER, that such information shall be retained
for a period of at least ten years following the date hereof. Each Party has
advised the other of its respective guidelines as in effect on the Spin-Off Date
and will advise the other Party of any subsequent changes therein. Each Party
shall provide 30 days' prior notice to the other Party before destroying any
such information. The provisions of this SECTION 15.6 shall not prejudice the
rights or alter the obligations of the Parties under the Tax Sharing Agreement
or any of the Operating Agreements with respect to records retention.
Section 15.7 BENEFICIARIES. Except for the provisions of SECTIONS
12.3 and 13.2 hereof, this Agreement is solely for the benefit of the Parties
and their respective Affiliates, successors and permitted assigns and shall not
confer upon any other Person any remedy, claim, liability, reimbursement or
other right in excess of those existing without reference to this Agreement.
Nothing in this Agreement shall obligate Baxter, Allegiance or any of their
respective direct or indirect Subsidiaries to assist any Allegiance Employee to
enforce any rights such employee may have with respect to any of the employee
benefits described in this Agreement.
Section 15.8 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, telex, facsimile or other standard form of telecommunications, or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
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If to Baxter:
Baxter International Inc.
One Deerfield Parkway
Deerfield, IL 60015
Attention: General Counsel
Facsimile: (847) 948-4000
If to Allegiance:
Allegiance Corporation
1430 Waukegan Road
McGaw Park, IL 60085
Attention: General Counsel
Facsimile: (847) 689-6812
Section 15.9 TERMINATION. Notwithstanding any provision hereof, this
Agreement may be terminated and the Spin-Off abandoned at any time prior to the
Spin-Off Date by and in the sole discretion of the Board of Directors of Baxter
without the approval of any Person. In the event of such termination, no Party
shall have any liability to any Person by reason of this Agreement, except that
Baxter shall be liable for any costs and expenses, including attorneys' fees,
incurred by Allegiance or its Subsidiaries prior to or arising out of such
termination.
Section 15.10 PERFORMANCE. Each Party shall cause to be performed,
and hereby guarantee the performance of, all actions, agreements and obligations
set forth herein to be performed by any Subsidiary or Affiliate of such Party.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be signed by their authorized representatives as of the date first above
written.
BAXTER INTERNATIONAL INC.
By:
--------------------------------------
Vernon R. Loucks Jr.
Chairman and Chief Executive Officer
ALLEGIANCE CORPORATION
By:
--------------------------------------
Lester B. Knight
Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT A
THE TRANSFERRED BUSINESS
The marketing, sales and distribution of healthcare, surgical,
patient-care and clinical laboratory products for various manufacturers to
hospitals and non-hospital customers in the United States, including without
limitation Hospital Supply/Scientific Products, Hospitex, network sales and
support services and specialized distribution (the "Distribution Business").
The research, development, testing and manufacture of surgical and
medical products of the type manufactured by the following Baxter business
units: Converters/Custom Sterile, Respiratory, Gloves, Medi-Vac, Special
Procedures, Thermal, V. Mueller and Urology (the "Surgical Business").
Health care cost-containment and management programs for medical and
related supplies and services, including without limitation ValueLink-Registered
Trademark- services, risk sharing, PBDS Service, sterile processing, textile
cost management and clinical consulting (the "Cost Management Business").
The Surgical Business, the Cost Management Business and the
Distribution Business shall be known as the "Transferred Business."
<PAGE>
EXHIBIT B
TRANSFERRED SERVICES
The services provided by Allegiance or its Subsidiaries under the
agreements listed as items A1, A2 and A3 in EXHIBIT D hereto.
<PAGE>
EXHIBIT C
TRANSFERRED SUBSIDIARIES
Alco, Inc.
Eurovac Ltd.
Euromedical Industries Senderihan Berhad
Cirmex de Chihuahua S.A. de C.V.
Cirpro de Delicios S.A. de C.V.
Convertors de Mexico S.A. de C.V.
Quiroproductos de Cuauhtemoc S.A. de C.V.
Productos Urologos de Mexico S.A. de C.V.
Allegiance Healthcare Sdn. Bhd.
Allegiance Sante , S.A.
Allegiance Healthcare Deutschland Gmbh
Allegiance Healthcare Canada Inc.
Allegiance Healthcare Corporation
Allegiance Healthcare International Inc.
<PAGE>
EXHIBIT D
OPERATING AGREEMENTS
I. SERVICES AGREEMENTS
A. ALLEGIANCE PROVIDED SERVICES
1. Administrative Services Agreement (Albuquerque U.S.)
2. Communication and Information Services Agreement
B. BAXTER PROVIDED SERVICES
1. Transition Services Agreement (U.S.)
2. Transition Services Agreement (International)
3. Research and Development Agreement
4. Information Services Agreement
C. INTERNATIONAL SERVICES
1. France Services Agreement
2. Germany Services Agreement
3. Administrative Services Agreement (Albuquerque Canada)
4. Malta Services Agreement
II. DISTRIBUTION AGREEMENTS
A. DOMESTIC DISTRIBUTION AGREEMENTS
1. Agency, Services and Distribution Agreement (IV Systems)
2. Agency, Services and Distribution Agreement (Renal)
3. Services and Distribution Agreement (CVG)
4. Agency, Services and Distribution Agreement (Biotech)
5. Sales Services Agreement (Flip)
6. Replenishment Center Distribution Agreement
<PAGE>
7. Agency Model Fixed Fee Cost Management Letter
8. Replenishment Center Letter Agreement
B. INTERNATIONAL DISTRIBUTION AGREEMENTS
1. International Distribution Agreement (Distribution)
2. International Distribution Agreement ("Profit Split")
3. International Distribution Agreement (France)
4. International Distribution Agreement (Germany)
5. International Distribution Agreement (Canada)
6. International Sales Promotion Agreement (France)
7. International Sales Promotion Agreement (Germany)
C. OPERATING AGREEMENT: CANADA
III. CONTRACT MANUFACTURING AGREEMENTS
1. Manufacturing Agreement (Baxter Manufactured Products/Baxter
Owned Specifications-Domestic)
2. Manufacturing Agreement (Baxter Manufactured Products/Allegiance
Owned Specifications-Domestic)
3. Manufacturing Agreement (Allegiance Manufactured
Products/Allegiance Owned Specifications)
4. Manufacturing Agreement (Allegiance Manufactured Products/Baxter
Owned Specifications)
5. Manufacturing Agreement (Baxter Manufactured Products/Allegiance
Owned Specifications-Puerto Rico)
6. Manufacturing Agreement (Baxter Manufactured Products/Allegiance
Owned Specifications-Moscow)
IV. LEASES
1. Sublease by BHC to AHC of space at Lake-Cook Road facility.
2. Sublease by AHC to BHC of space in Romulus, Michigan facility.
<PAGE>
3. Lease by AHC to BHC of Building R in McGaw Park.
4. Lease by BHC to AHC of 17111 Red Hill Avenue, Irvine, California
(leased premises to be transferred to AHC upon municipal approval
of subdivision).
<PAGE>
EXHIBIT E
TAX SHARING AGREEMENT
See attached.
<PAGE>
EXHIBIT F
JUNE 30, 1996 BALANCE SHEET
See attached.
<PAGE>
EXHIBIT G
CERTIFICATE OF INCORPORATION OF ALLEGIANCE
See attached.
<PAGE>
EXHIBIT H
BY-LAWS OF ALLEGIANCE
See attached.
<PAGE>
EXHIBIT I
ALLEGIANCE PREFERRED SHARE
PURCHASE RIGHTS PLAN
See attached.
<PAGE>
EXHIBIT J
ALLEGIANCE BOARD OF DIRECTORS
Kenneth D. Bloem
Silas S. Cathcart
Connie Curran, Ph.D.
Joseph F. Damico
Arthur F. Golden
David W. Grainger
Lester B. Knight
Michael D. O'Halleran
<PAGE>
ANNEX A
GLOBE BUILDING MATERIALS, INC.
"Miscellaneous" Stockholders
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ ---------------
<S> <C> <C>
Steven Shipley 75 shares (3%)
Rodney Pensinger 12 shares (Greater than 1%)
George Stinson 34 shares (1%)
Jacob Pollock 41 shares (2%)
John McMahon 6 shares (Greater than 1%)
James Strain 18 shares (1%) 5,748 shares (23.5%)
Kim and Mary Angelo 16 shares (1%)
John Kinsella 2 shares (Greater than 1%)
Michael Ferguson 5 shares (Greater than 1%)
Roger Ferguson 1,534 shares (6.3%)
Greg Feldman 34 shares (1%)
North Atlantic Life 17 shares (1%) 2,199 shares (9.0%)
Insurance Company of
America
Northwest National 48 shares (2%) 4,398 shares (18.0%)
Life Insurance
Company
Northern Life 28 shares (1%) 3,665 shares (15.0%)
Insurance Co.
Northwest National 18 shares (1%) 4,398 shares (18.0%)
Life Insurance Co.
(#5)
Martin Bernstein 9 shares (Greater than 1%)
Nathan Bernstein 9 shares (Greater than 1%)
Janet Kirschner 1 share (Greater than 1%) 236 shares (1.0%)
Ben Reid 1 share (Greater than 1%)
Thomas Clarke 119 shares (5%)
George Kunath
----------------- ---------------------
491 shares (20%) 22,178 shares (90.8%)
</TABLE>
<PAGE>
ANNEX B
GLOBE BUILDING MATERIALS, INC.
"Miscellaneous" Stockholders
<TABLE>
<CAPTION>
Class A (Nonvoting)
Common Stock Preferred Stock
------------ ---------------
<S> <C> <C>
Phillip Roman 177 shares (6.7%)
Thomas Clarke 260 shares (9.9%)
Steven Shipley 173 shares (6.6%)
Rodney Pensinger 60 shares (2.3%)
Rodney Ruess 60 shares (2.3%)
PJR Associates 1,684.44 shares (38.5%)
Defined Benefit
Plan No. 1
Karen Roman IRS 1,684.44 shares (38.5%)
------------------ -----------------------
730 shares (27.8%) 3,368.88 shares (77.0%)
</TABLE>
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<PAGE>
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ALLEGIANCE CORPORATION
TO
PNC BANK, KENTUCKY, INC.
TRUSTEE
--------------
INDENTURE
DATED AS OF OCTOBER 1, 1996
--------------
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<PAGE>
TABLE OF CONTENTS
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PAGE
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RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions:
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate; control. . . . . . . . . . . . . . . . . . . . . 2
Attributable Debt . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent. . . . . . . . . . . . . . . . . . . . 3
Board of Directors. . . . . . . . . . . . . . . . . . . . . 3
Board Resolution. . . . . . . . . . . . . . . . . . . . . . 3
Business Day. . . . . . . . . . . . . . . . . . . . . . . . 3
Commission. . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request; Company Order. . . . . . . . . . . . . . . 3
Consolidated Net tangible Assets. . . . . . . . . . . . . . 3
Corporate Trust Office. . . . . . . . . . . . . . . . . . . 4
corporation . . . . . . . . . . . . . . . . . . . . . . . . 4
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 4
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest. . . . . . . . . . . . . . . . . . . . . 4
Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . 4
Depositary. . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default. . . . . . . . . . . . . . . . . . . . . . 4
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . 4
Expiration Date . . . . . . . . . . . . . . . . . . . . . . 5
Global Security . . . . . . . . . . . . . . . . . . . . . . 5
Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 5
interest. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . . . . . . . . 5
Investment Company Act. . . . . . . . . . . . . . . . . . . 5
Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Nonrecourse Obligation. . . . . . . . . . . . . . . . . . . 5
Notice of Default . . . . . . . . . . . . . . . . . . . . . 6
Officers' Certificate . . . . . . . . . . . . . . . . . . . 6
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . 6
Original Issue Discount Security. . . . . . . . . . . . . . 6
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 6
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . 7
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NOTE: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
PAGE
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Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Place of Payment. . . . . . . . . . . . . . . . . . . . . . 7
Predecessor Security. . . . . . . . . . . . . . . . . . . . 7
Principal Property. . . . . . . . . . . . . . . . . . . . . 8
Redemption Date . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Price. . . . . . . . . . . . . . . . . . . . . . 8
Regular Record Date . . . . . . . . . . . . . . . . . . . . 8
Restricted Security . . . . . . . . . . . . . . . . . . . . 8
Sale and Lease-Back Transaction . . . . . . . . . . . . . . 8
Securities. . . . . . . . . . . . . . . . . . . . . . . . . 8
Securities Act. . . . . . . . . . . . . . . . . . . . . . . 8
Security Register and Security Registrar. . . . . . . . . . 8
Special Record Date . . . . . . . . . . . . . . . . . . . . 9
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . 9
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . 9
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 9
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 9
U.S. Government Obligation. . . . . . . . . . . . . . . . . 9
Vice President. . . . . . . . . . . . . . . . . . . . . . . 9
Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . 9
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . . 10
SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . . . . 10
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . 11
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . 13
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . 14
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . 14
SECTION 108. Effect of Headings and Table of Contents. . . . . . . . . . 14
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . . . 14
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . 15
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . 15
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 202. Form of Face of Security. . . . . . . . . . . . . . . . . . 16
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . 16
SECTION 204. Form of Legend for Global Securities. . . . . . . . . . . . 23
SECTION 205. Form of Trustee's Certificate of Authentication . . . . . . 23
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ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series. . . . . . . . . . . . 24
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 303. Execution, Authentication, Delivery and Dating. . . . . . . 27
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . . . . 28
SECTION 305. Registration, Registration of Transfer and Exchange . . . . 29
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . 31
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . . 32
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . 33
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . 34
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . 34
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . . 35
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . 35
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . . 37
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . . . 39
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 39
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities . . . . . . . . . . . . . . . . . . . . . 40
SECTION 506. Application of Money Collected. . . . . . . . . . . . . . . 40
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . 41
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest. . . . . . . . . . . . . . . . . . 41
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . . 42
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . 42
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<PAGE>
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SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . 42
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . 42
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 43
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . 43
SECTION 515. Waiver of Usury, Stay or Extension Laws . . . . . . . . . . 43
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . 44
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 44
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . 44
SECTION 604. Not Responsible for Recitals or Issuance of Securities. . . 45
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . 46
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . 46
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . . . . 46
SECTION 608. Conflicting Interests . . . . . . . . . . . . . . . . . . . 47
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . 47
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . 47
SECTION 611. Acceptance of Appointment by Successor. . . . . . . . . . . 49
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 613. Preferential Collection of Claims Against Company . . . . . 50
SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . 50
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses
of Holders. . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 702. Preservation of Information; Communication
to Holders. . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . 53
SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . . . . 53
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<PAGE>
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms . . . . . . . . . . . . . . . . . . . . . 54
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . 55
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders. . . . . 55
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . 57
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . . 58
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . 58
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . 58
SECTION 906. Reference in Securities to Supplemental Indentures. . . . . 58
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest. . . . . . . . . 59
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . 59
SECTION 1003. Money for Securities Payments to Be Held in Trust . . . . . 59
SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . 61
SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . 61
SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . 61
SECTION 1008. Limitation on Liens . . . . . . . . . . . . . . . . . . . . 62
SECTION 1009. Limitation on Sale and Lease-Back Transactions. . . . . . . 64
SECTION 1010. Limitation on Subsidiary Debt . . . . . . . . . . . . . . . 64
SECTION 1011. Waiver of Certain Covenants . . . . . . . . . . . . . . . . 65
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article. . . . . . . . . . . . . . . . . . 65
SECTION 1102. Election to Redeem; Notice to Trustee . . . . . . . . . . . 66
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SECTION 1103. Selection by Trustee of Securities to Be Redeemed . . . . . 66
SECTION 1104. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 67
SECTION 1105. Deposit of Redemption Price . . . . . . . . . . . . . . . . 67
SECTION 1106. Securities Payable on Redemption Date . . . . . . . . . . . 68
SECTION 1107. Securities Redeemed in Part . . . . . . . . . . . . . . . . 68
SECTION 1108. Right of Repayment. . . . . . . . . . . . . . . . . . . . . 68
SECTION 1109. Form of Option to Elect Repayment . . . . . . . . . . . . . 69
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article. . . . . . . . . . . . . . . . . . 70
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities . . . 70
SECTION 1203. Redemption of Securities for Sinking Fund . . . . . . . . . 71
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance . . . . . . . . . . . . . . . . . . 71
SECTION 1302. Defeasance and Discharge. . . . . . . . . . . . . . . . . . 71
SECTION 1303. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 72
SECTION 1304. Conditions to Defeasance or Covenant Defeasance . . . . . . 72
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Miscellaneous Provisions . . . . . 74
SECTION 1306. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 75
..............................................................
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . 608
610
Section 311(a) . . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . 613
-vi-
<PAGE>
Section 312(a) . . . . . . . . . . . . . . . . . . . . 701
702
(b) . . . . . . . . . . . . . . . . . . . . 702
(c) . . . . . . . . . . . . . . . . . . . . 702
Section 313(a) . . . . . . . . . . . . . . . . . . . . 703
(b) . . . . . . . . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . . . . . . . . 703
Section 314(a) . . . . . . . . . . . . . . . . . . . . 704
(a)(4) . . . . . . . . . . . . . . . . . . . . 101
1004
(b) . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . 502
512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . 104
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . 107
- --------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
-viii-
<PAGE>
INDENTURE, dated as of October 1, 1996, between Allegiance Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 1430 Waukegan
Road, McGaw Park, Illinois 60085, and PNC Bank, Kentucky, Inc., a corporation
duly organized and existing under the laws of Kentucky, as Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting prin-
<PAGE>
ciples" with respect to any computation required or permitted hereunder shall
mean such accounting principles as are generally accepted at the date of such
computation;
(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" when used in connection with a Sale and Lease-Back
Transaction involving a Principal Property means, at the time of determination,
the lesser of: (a) the fair value of such property (as determined in good faith
by the Board of Directors of the Company); or (b) the present value of the total
net amount of rent required to be paid under such lease during the remaining
term thereof (including any renewal term or period for which such lease has been
extended), discounted at the rate of interest set forth or implicit in the terms
of such lease or, if not practicable to determine such rate, the weighted
average interest rate per annum (in the case of Original Issue Discount
Securities, the imputed interest rate) borne by the Securities of each series
outstanding pursuant to the Indenture compounded semi-annually. For purposes of
the foregoing definition, rent shall not include amounts required to be paid by
the lessee, whether or not designated as rent or additional rent, on account of
or contingent upon maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall be the lesser of the
net amount determined assuming termination upon the first date such lease may be
terminated (in which case the net amount shall also include the amount of the
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) and the net
amount determined assuming no such termination.
-2-
<PAGE>
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee. In the event the Board of Directors
shall delegate to any director or officer of the Company or any group consisting
of directors of the Company, officers of the Company or directors and officers
of the Company the authority to take any action which under the terms of this
Indenture may be taken by "Board Resolution," then any action so taken by, and
set forth in a resolution adopted by, the director, officer or group within the
scope of such delegation shall be deemed to be a "Board Resolution" for purposes
of this Indenture.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.
"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Net Tangible Assets" means, as of any particular time, total
assets (excluding applicable reserves and other properly deductible items) less:
(a) total current liabilities, except for (1) notes and loans payable,
(2) current maturities of long-term debt, and (3) current maturities of
obligations under capital leases; and (b) goodwill, patents and trademarks, to
the extent included in total assets; all as set forth on the most
-3-
<PAGE>
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
and computed in accordance with generally accepted accounting principles.
"Corporate Trust Office" means the principal office of the Trustee in
Louisville, Kentucky at which at any particular time its corporate trust
business shall be administered.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) the maximum fixed redemption or repurchase
price of redeemable stock of such Person at the time of determination, (vi)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Lease-back Transaction to which such Person is a party
and (vii) every obligation of the type referred to in Clauses (i) through (vi)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
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"Expiration Date" has the meaning specified in Section 104.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 204 (or such
legend as may be specified as contemplated by Section 301 for such Securities).
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring"
shall have the meanings correlative to the foregoing); PROVIDED, HOWEVER, that a
change in generally accepting accounting principles that results in an
obligation of such Person that exists at such time becoming Debt shall not be
deemed an Incurrence of such Debt.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively. The term "Indenture" shall also include the terms of particular
series of Securities established as contemplated by Section 301.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an instalment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any
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Restricted Subsidiary or (ii) the financing of a project involving the
development or expansion of properties of the Company or any Restricted
Subsidiary, as to which the obligee with respect to such indebtedness or
obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
"Notice of Default" means a written notice of the kind specified in
Section 501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, EXCEPT:
(1) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Securities; PROVIDED that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 1302; and
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(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands such Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502,
(B) if, as of such date, the principal amount payable at the Stated Maturity of
a Security is not determinable, the principal amount of such Security which
shall be deemed to be Outstanding shall be the amount as specified or determined
as contemplated by Section 301, (C) the principal amount of a Security
denominated in one or more foreign currencies or currency units which shall be
deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of
such date in the manner provided as contemplated by Section 301, of the
principal amount of such Security (or, in the case of a Security described in
Clause (A) or (B) above, of the amount determined as provided in such Clause),
and (D) Securities owned by the Company or any other obligor upon the Securities
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment", when used with respect to the Securities of any
series, means the place or places where the principal of and any premium and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security;
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and, for the purposes of this definition, any Security authenticated and
delivered under Section 306 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.
"Principal Property" means the land, land improvements, buildings and
fixtures (to the extent they constitute real property interests), (including any
leasehold interest therein) constituting the principal corporate office, any
manufacturing facility, or any distribution center (whether now owned or
hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is
located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 1.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"Restricted Subsidiary" means any Subsidiary which owns any Principal
Property.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property which property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
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"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of principal thereof or interest thereon, means the date specified in
such Security as the fixed date on which the principal of such Security or such
instalment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding voting stock having the power to elect a majority of the board of
directors of such corporation is at the time owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; PROVIDED, HOWEVER, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligation" has the meaning specified in Section 1304.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel
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may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by
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the Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, PROVIDED that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; PROVIDED that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of
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Outstanding Securities of the relevant series on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities of the relevant series in the manner
set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day PROVIDED that no Expiration Date shall be later than the 180th day
after the applicable record date; and PROVIDED, FURTHER, that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the other party hereto in writing, and to each Holder of Securities of the
relevant series in the manner set forth in Section 106, on or prior to the
existing Expiration Date. If an Expiration Date is not designated with respect
to any record date set pursuant to this Section, the party hereto which set such
record date shall be deemed to have initially designated the 180th day after
such record date as the Expiration Date with respect thereto, subject to its
right to change the Expiration Date as provided in this paragraph.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to
or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company addressed
to it at the address of its principal office specified in the first paragraph
of this instrument or at any other address previously furnished in writing to
the Trustee by the Company.
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SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
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SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
(other than a provision of any Security which specifically states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and premium, if any) need not be made at such Place of Payment on such date,
but may be made on the next succeeding Business Day at such Place of Payment
with the same force and effect as if made on the Interest Payment Date or
Redemption Date, or at the Stated Maturity.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or
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permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution thereof. If the form
of Securities of any series is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by
Section 303 for the authentication and delivery of such Securities.
The definitive Securities shall be typewritten, printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. FORM OF FACE OF SECURITY.
[INSERT ANY LEGEND REQUIRED BY THE INTERNAL REVENUE CODE AND THE
REGULATIONS THEREUNDER.]
..........................................................
..........................................................................
No. ......... $ ........
.........................., a corporation duly organized and existing
under the laws of ............... (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to
..............................................., or registered assigns, the
principal sum of ...................................... Dollars on
........................................................ [IF THE SECURITY IS TO
BEAR INTEREST PRIOR TO MATURITY, INSERT -- , and to pay interest thereon from
............. or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on ............ and
............ in each year, commencing ........., at the rate of ....% per annum,
until the principal hereof is paid or made available for payment [IF APPLICABLE,
INSERT -- , PROVIDED that any principal and premium, and any such instalment of
interest, which is overdue shall bear interest at the rate of ...% per annum (to
the extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date
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for such interest, which shall be the ....... or ....... (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than
10 days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture].
[IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption[, repayment]
or at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of ....% per annum (to the extent that
the payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. [Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of ......% per annum (to the extent that the payment of such
interest on interest shall be legally enforceable), from the date of such demand
until the amount so demanded is paid or made available for payment. Interest on
any overdue interest shall be payable on demand.]]
Payment of the principal of (and premium, if any) and [if applicable,
insert ___ any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in ............, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts [IF APPLICABLE, INSERT -- ;
PROVIDED, HOWEVER, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register].
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
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Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
..................................................
By................................................
Attest:
.........................................
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or
more series under an Indenture, dated as of ............... (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and ..................., as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof [IF APPLICABLE,
INSERT -- , limited in aggregate principal amount to $...........].
[IF APPLICABLE, INSERT -- The Securities of this Series are subject to
repayment on or after ________, ____, at the option of the Holder upon not less
than 30 days' (but not more than 60 days') notice by mail to the Paying Agent
prior to the repayment date including (a) appropriate wire instructions and (b)
either (i) the Security with the form entitled Option to Elect Repayment (as set
forth below) attached to the Security duly completed or (ii) a telegram, telex,
facsimile transmission or letter from a member of a national securities exchange
or the National Association of Securities Dealers, Inc. or a commercial bank or
trust company in the United States setting forth the name of the Holder of such
Security, the principal amount of such Debenture, the portion of the principal
amount of such Security to be repaid, the certificate number or a description
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of the tenor and terms of such Security, a statement that the option to elect
repayment is being exercised thereby and a guarantee that such Security to be
repaid with the form entitled Option to Elect Repayment (substantially in the
form set out in the Indenture) attached to such Security duly completed will be
received by the Paying Agent not later than five Business Days after the date of
such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable. The repayment option may be exercised by the Holder of such
Security for less than the entire principal amount of the Security provided that
the principal amount of the Security remaining outstanding after repayment is an
authorized denomination. No registration of, transfer or exchange of such
Security (or, in the event that such Security is to be repaid in part, the
portion of the Security to be repaid) will be permitted after exercise of a
repayment option.]
[IF APPLICABLE, INSERT -- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, [IF APPLICABLE, INSERT --
(1) on ........... in any year commencing with the year ...... and ending with
the year ...... through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)] at any time [IF
APPLICABLE, INSERT -- on or after .........., 19..], as a whole or in part, at
the election of the Company, at the following Redemption Prices (expressed as
percentages of the principal amount): If redeemed [IF APPLICABLE, INSERT -- on
or before ..............., ...%, and if redeemed] during the 12-month period
beginning ............. of the years indicated,
Redemption Redemption
Year Price Year Price
- ---- ---------- ---- ----------
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
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[IF APPLICABLE, INSERT -- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, (1) on ............ in
any year commencing with the year .... and ending with the year .... through
operation of the sinking fund for this series at the Redemption Prices for
redemption through operation of the sinking fund (expressed as percentages of
the principal amount) set forth in the table below, and (2) at any time [IF
APPLICABLE, INSERT -- on or after ............], as a whole or in part, at the
election of the Company, at the Redemption Prices for redemption otherwise than
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below: If redeemed during the 12-month period
beginning ............ of the years indicated,
Redemption Price
For Redemption Redemption Price For
Through Operation Redemption Otherwise
of the Than Through Operation
Year Sinking Fund of the Sinking Fund
- ---- ----------------- ----------------------
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]
[IF APPLICABLE, INSERT -- Notwithstanding the foregoing, the Company may
not, prior to ............., redeem any Securities of this series as
contemplated by [IF APPLICABLE, INSERT -- Clause (2) of] the preceding paragraph
as a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an interest cost to the
Company (calculated in accordance with generally accepted financial practice) of
less than .....% per annum.]
[IF APPLICABLE, INSERT -- The sinking fund for this series provides for
the redemption on ............ in each year beginning with the year ....... and
ending with the year ...... of [IF APPLICABLE, INSERT -- not less than
$.......... ("mandatory sinking fund") and not
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more than] $......... aggregate principal amount of Securities of this series.
Securities of this series acquired or redeemed by the Company otherwise than
through [IF APPLICABLE, INSERT -- mandatory] sinking fund payments may be
credited against subsequent [IF APPLICABLE, INSERT -- mandatory] sinking fund
payments otherwise required to be made [IF APPLICABLE, INSERT -- , in the
inverse order in which they become due].]
[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT -- In the
event of redemption of this Security in part only, a new Security or Securities
of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.]
[IF APPLICABLE, INSERT -- The Indenture contains provisions for defeasance
at any time of [the entire indebtedness of this Security] [or] [certain
restrictive covenants and Events of Default with respect to this Security] [, in
each case] upon compliance with certain conditions set forth in the Indenture.]
[IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]
[IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an
Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE
AMOUNT. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer of this Security or in exchange for
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or in lieu of this Security, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $....... and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
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Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES.
Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificates of authentication shall be in substantially the
following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
..........................................,
AS TRUSTEE
By.........................................
AUTHORIZED OFFICER
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ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the first
issuance of a Security of any series,
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest;
(4) the date or dates on which the principal of any Securities of the
series is payable;
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any such interest payable on any
Interest Payment Date;
(6) the place or places where the principal of and any premium and
interest on any Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or
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in part, at the option of the Company and, if other than by a Board
Resolution, the manner in which any election by the Company to redeem the
Securities shall be evidenced;
(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous provisions
or at the option of the Holder thereof and the period or periods within
which, the price or prices at which and the terms and conditions upon which
any Securities of the series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;
(11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and the
manner of determining the equivalent thereof in the currency of the United
States of America for any purpose, including for purposes of the definition
of "Outstanding" in Section 101;
(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those
in which such Securities are stated to be payable, the currency, currencies
or currency units in which the principal of or any premium or interest on
such Securities as to which such election is made shall be payable, the
periods within which and the terms and conditions upon which such election is
to be made and the amount so payable (or the manner in which such amount
shall be determined);
(13) if other than the entire principal amount thereof, the portion of
the principal amount of any Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 502;
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or which
shall be deemed to be Outstanding as of any date prior
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to the Stated Maturity (or, in any such case, the manner in which such amount
deemed to be the principal amount shall be determined);
(15) if applicable, that the Securities of the series, in whole or any
specified part, shall be defeasible pursuant to Section 1302 or Section 1303
or both such Sections and, if other than by a Board Resolution, the manner in
which any election by the Company to defease such Securities shall be
evidenced;
(16) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in such
case, the respective Depositaries for such Global Securities, the form of any
legend or legends which shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 204 and any circumstances
in addition to or in lieu of those set forth in Clause (2) of the last
paragraph of Section 305 in which any such Global Security may be exchanged
in whole or in part for Securities registered, and any transfer of such
Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global Security or a nominee
thereof;
(17) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or
the requisite Holders of such Securities to declare the principal amount
thereof due and payable pursuant to Section 502;
(18) any addition to or change in the covenants set forth in Article Ten
which applies to Securities of the series; and
(19) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture, except as permitted by Section
901(5)).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 303) set forth, or
determined in the manner provided, in the Officers' Certificate referred to
above or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
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SECTION 302. DENOMINATIONS.
The Securities of each series shall be issuable only in registered form
without coupons and only in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such specified denomination
with respect to the Securities of any series, the Securities of such series
shall be issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture; and
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(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are typewritten, printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions,
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omissions, substitutions and other variations as the officers executing such
Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged, the temporary Securities of
any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of any authorized denominations and of like tenor and aggregate
principal amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the
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same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
If the Securities of any series (or of any series and specified tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of any
such Securities selected for redemption under Section 1103 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and
no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or
a nominee thereof unless (A) such Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (C) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have
been specified for this purpose as contemplated by Section 301.
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(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Security or any portion thereof shall be registered
in such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or
1107 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture
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equally and proportionately with any and all other Securities of that series
duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Except as otherwise provided as contemplated by Section 301 with respect
to any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to each Holder of Securities of such series in the
manner set forth in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special
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Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may
be listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 307) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so
delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
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SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose money in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal and any premium
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and interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for a
period of 30 days; or
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(2) default in the payment of the principal of or any premium on any
Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as due
by the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with or which has expressly been included in this Indenture solely for
the benefit of series of Securities other than that series), and continuance
of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in principal amount of
the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company (including a default with
respect to Securities of any series other than that series), or under any
mortgage, indenture or instrument (including this Indenture) under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company having an aggregate principal
amount outstanding of at least $10 million, whether such indebtedness now
exists or shall hereafter be created, which default (A) shall constitute a
failure to pay any portion of the principal of such indebtedness when due and
payable after the expiration of any applicable grace period with respect
thereto or (B) shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without, in the case of Clause (A), such indebtedness
having been discharged or without, in the case of Clause (B), such
indebtedness having been discharged or such acceleration having been
rescinded or annulled, in each such case, within a period of 10 days after
there shall have been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
10% in principal amount of the Outstanding Securities of that series a
written notice specifying such default and requiring the Company to cause
such indebtedness to be discharged or cause such acceleration to be rescinded
or annulled, as the case may be, and stating that such notice is a "Notice of
Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any of its Restricted
Subsidiaries in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law
or (B) a decree or order adjudging the Company or any of its Restricted
Subsidiaries a bankrupt or insolvent, or approving
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as properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company or any of its Restricted
Subsidiaries under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any of its Restricted Subsidiaries or of
any substantial part of its property (or that of any such Restricted
Subsidiary), or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive days;
or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company or any of its Restricted Subsidiaries in
an involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
or the filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any of its Restricted Subsidiaries or of
any substantial part of its property ( or that of any such Restricted
Subsidiary), or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by the
Company or any of its Restricted Subsidiaries in furtherance of any such
action; or
(8) any other Event of Default provided with respect to Securities of
that series.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount of all the Securities of that
series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in Section 501(6)
or 501 (7) with respect to Securities of any series at the time Outstanding
occurs, the principal amount of all the Securities of that series (or, if any
Securities of that series are Original Issue Discount
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Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) shall automatically, and without any declaration
or other action on the part of the Trustee or any Holder, become immediately due
and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue interest on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal and premium and on any overdue interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
and
SECOND: To the payment of the amounts then due and unpaid for principal
of and any premium and interest on the Securities in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable
on such Securities for principal and any premium and interest, respectively.
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SECTION 507. LIMITATION ON SUITS.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
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(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on any
Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company.
SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or
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impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
If a default occurs hereunder with respect to Securities of any series,
the Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default of the character specified in
Section 501(4) with respect to Securities of such series, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to Securities of such series.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
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(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be
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accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
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SECTION 608. CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be one (and only one) Trustee hereunder with
respect to the Securities of each series, which may be Trustee hereunder for
Securities of one or more other series. Each Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such has a combined
capital and surplus of at least $50,000,000 and has its Corporate Trust Office
in Louisville, Kentucky. If any such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of its supervising or
examining authority, then for the purposes of this Section and to the extent
permitted by the Trust Indenture Act, the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. If at any time the Trustee
with respect to the Securities of any series shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.
The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
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If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Securities
of that or those series (it being understood that any such successor Trustee may
be appointed with respect to the Securities of one or more or all of such series
and that at any time there shall be only one Trustee with respect to the
Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
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The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities of such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts
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and duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to
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authenticate Securities of such series issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
........................................,
AS TRUSTEE
By......................................,
AS AUTHENTICATING AGENT
By.......................................
AUTHORIZED OFFICER
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than January 15 and July 15 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of Securities of each series as of the
preceding December 31 or June 30, as the case may be, and
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(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner
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provided pursuant to such Act; PROVIDED that any such information, documents or
reports required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act shall be filed with the Trustee within 15 days after the
same is so required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of and any premium and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a mortgage, pledge, lien, security interest or other
encumbrance which would not be permitted by this Indenture, the Company or
such successor Person, as the case may be, shall take
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such steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) all indebtedness secured thereby; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely
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for the benefit of such series) or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such additional Events of
Default are to be for the benefit of less than all series of Securities,
stating that such additional Events of Default are expressly being included
solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the issuance
of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, PROVIDED that any
such addition, change or elimination (A) shall neither (i) apply to any
Security of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (ii) modify the
rights of the Holder of any such Security with respect to such provision or
(B) shall become effective only when there is no such Security Outstanding;
or
(6) to secure the Securities pursuant to the requirements of Section
1008 or otherwise; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series
and to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of
Section 611; or
(9) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, PROVIDED that such action pursuant to this Clause (9) shall
not adversely affect the interests of the Holders of Securities of any
series.
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SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; PROVIDED, HOWEVER,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original
Issue Discount Security or any other Security which would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change any Place of Payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1010, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1010, or the
deletion of this proviso, in accordance with the requirements of Sections 611
and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the Securities of that series in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of that series and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or
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otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of or any
premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will (1) comply with the provisions of
the Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York City,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
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SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and
(2) all lawful claims for labor, materials and
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supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1008. LIMITATION ON LIENS.
The Company will not issue, incur, create, assume or guarantee, and will
not permit any Restricted Subsidiary to issue, incur, create, assume or
guarantee, any debt for borrowed money secured by a mortgage, security interest,
pledge, lien, charge or other encumbrance ("mortgages") upon any Principal
Property of the Company or any Restricted Subsidiary or upon any shares of stock
or indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares or indebtedness are now existing or owned or hereafter created or
acquired) without in any such case effectively providing concurrently with the
issuance, incurrence, creation, assumption or guarantee of any such secured
debt, or the grant of a mortgage with respect to any such indebtedness, that the
Securities (together with, if the Company shall so determine, any other
indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Securities) shall be secured equally and ratably with
(or, at the option of the Company, prior to) such secured debt. The foregoing
restriction, however, will not apply to:
(1) mortgages on property existing at the time of acquisition thereof by
the Company or any Subsidiary, provided that such mortgages were in existence
prior to the contemplation of such acquisition;
(2) mortgages on property, shares of stock or indebtedness or other
assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary;
(3) mortgages on property, shares of stock or indebtedness existing at
the time of acquisition thereof by the Company or a Restricted Subsidiary or
mortgages thereon to secure the payment of all or any part of the purchase
price thereof, or mortgages on property, shares of stock or indebtedness to
secure any indebtedness for borrowed money incurred prior to, at the time of
or within 270 days after, the latest of the acquisition thereof, or, in the
case of property, the completion of construction, the completion of
improvements, or the commencement of substantial commercial operation of such
property for the purpose of financing all or any part of the purchase price
thereof, such construction, or the making of such improvements;
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(4) mortgages to secure indebtedness owing to the Company or to a
Restricted Subsidiary;
(5) mortgages existing at the date of this Indenture;
(6) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation as an entirety or substantially as an entirety to
the Company or a Restricted Subsidiary, provided that such mortgage was not
incurred in anticipation of such merger or consolidation or sale, lease or
other disposition;
(7) mortgages in favor of the United States or any State, territory or
possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States or any State,
territory or possession thereof (or the District of Columbia), to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of constructing or
improving the property subject to such mortgages;
(8) mortgages created in connection with the acquisition of assets or a
project financed with, and created to secure, a Nonrecourse Obligation; and
(9) extensions, renewals, refinancings or replacements of any mortgage
referred to in the foregoing clauses (1), (2), (3), (5), (6), (7) and (8)
provided, however, that any mortgages permitted by any of the foregoing
clauses (1), (2), (3), (5), (6), (7) and (8) shall not extend to or cover any
property of the Company or such Restricted Subsidiary, as the case may be,
other than the property, if any, specified in such clauses and improvements
thereto, and provided further that any refinancing or replacement of any
mortgages permitted by the foregoing clauses (7) and (8) shall be of the type
referred to in such clauses (7) or (8), as the case may be.
Notwithstanding the restrictions set forth in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise by subject
to such restrictions, without equally and ratably securing the Securities,
provided that after giving effect thereto, the aggregate amount of all debt so
secured by mortgages (not including mortgages permitted under clauses (1)
through (9) above) does not exceed 10% of the Consolidated Net Tangible Assets
of the Company as most recently determined on or prior to such date.
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SECTION 1009. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS.
The Company will not, nor will it permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction with respect to any Principal
Property, other than any such transaction involving a lease for a term of not
more than three years or any such transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, unless: (1) the
Company or such Restricted Subsidiary would be entitled to incur indebtedness
secured by a mortgage on the Principal Property involved in such transaction at
least equal in amount to the Attributable Debt with respect to such Sale and
Lease-Back Transaction, without equally and ratably securing the Securities,
pursuant to Section 1008; or (2) the Company shall apply an amount equal to the
greater of the net proceeds of such sale or the Attributable Debt with respect
to such Sale and Lease-Back Transaction within 180 days of such sale to either
(or a combination of) the retirement (other than any mandatory retirement,
mandatory prepayment or sinking fund payment or by payment at maturity) of debt
for borrowed money of the Company or a Restricted Subsidiary that matures more
than 12 months after the creation of such indebtedness or the purchase,
construction or development of other comparable property.
SECTION 1010. LIMITATION ON SUBSIDIARY DEBT.
The Company shall not permit any Subsidiary of the Company to Incur or suffer
to exist any Debt except:
(1) Debt outstanding on the date of this Indenture;
(2) Debt issued to and held by the Company or a Wholly Owned Subsidiary of
the Company (provided that such Debt is at all times held by the Company or a
Person which is a Wholly Owned Subsidiary of the Company);
(3) Debt Incurred by a Person prior to the time (a) such Person became a
Subsidiary of the Company, (b) such Person merges into or consolidates with a
Subsidiary of the Company or (c) another Subsidiary of the Company merges into
or consolidates with such Person (in a transaction in which such Person becomes
a Subsidiary of the Company), which Debt was not Incurred in anticipation of
such transaction and was outstanding prior to such transaction;
(4) Debt which is exchanged for, or the proceeds of which are used to
refinance or refund, any Debt permitted to be outstanding pursuant to Clauses
(1) through (3) hereof (or any extension or renewal thereof), in an aggregate
principal amount not to exceed the principal amount of the Debt so exchanged,
refinanced or refunded and provided such refinancing or refunding Debt by its
terms, or by the terms of any agreement or instrument pursuant to which such
Debt is issued (x) does not provide for payments of principal at the stated
maturity of such Debt or by way of a sinking fund applicable to
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such Debt or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the stated maturity of the Debt being
refinanced or refunded and (y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the Company) of such Debt at
the option of the holder thereof prior to the stated maturity of the Debt being
refinanced or refunded, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to purchase
made by the Company) which is conditioned upon the change of control of the
Company; and
(5) Debt having a principal amount and liquidation value not in excess of
20% of the Consolidated Net Tangible Assets of the Company in the aggregate.
SECTION 1011. WAIVER OF CERTAIN COVENANTS.
Except as otherwise specified as contemplated by Section 301 for
Securities of such series, the Company may, with respect to the Securities of
any series, omit in any particular instance to comply with any term, provision
or condition set forth in any covenant provided pursuant to Section 301(18),
901(2) or 901(7) for the benefit of the Holders of such series or in any of
Sections 1008 to 1010, inclusive, if before the time for such compliance the
Holders of at least 66 2/3% in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
ARTICLE ELEVEN
REDEMPTION OR REPAYMENT OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable or repayable before their
Stated Maturity shall be redeemable or repayable in accordance with their terms
and (except as otherwise specified as contemplated by Section 301 for such
Securities) in accordance with this Article.
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SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution or in another manner specified as contemplated by Section 301
for such Securities. In case of any redemption at the election of the Company of
less than all the Securities of any series (including any such redemption
affecting only a single Security), the Company shall, at least 60 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the
principal amount of Securities of such series to be redeemed and, if applicable,
of the tenor of the Securities to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security of such series, PROVIDED that
the unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
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For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series consisting
of more than a single Security are to be redeemed, the identification (and,
in the case of partial redemption of any such Securities, the principal
amounts) of the particular Securities to be redeemed and, if less than all
the Outstanding Securities of any series consisting of a single Security are
to be redeemed, the principal amount of the particular Security to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where each such Security is to be surrendered
for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and
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hold in trust as provided in Section 1003) an amount of money sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that, unless otherwise specified as
contemplated by Section 301, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
SECTION 1107. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
SECTION 1108. RIGHT OF REPAYMENT.
In order for any Security that is subject to repayment at the option of
the Holder to be repaid, the Paying Agent must receive at least 30 days but not
more than 60 days prior to the repayment date (a) appropriate wire instructions
and (b) either (i) the Security
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with the form entitled Option to Elect Repayment (as set forth below) attached
to the Security duly completed or (ii) a telegram, telex, facsimile transmission
or letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of such Security, the
principal amount of such Debenture, the portion of the principal amount of such
Security to be repaid, the certificate number or a description of the tenor and
terms of such Security, a statement that the option to elect repayment is being
exercised thereby and a guarantee that such Security to be repaid with the form
entitled Option to Elect Repayment attached to such Security duly completed will
be received by the Paying Agent not later than five Business Days after the date
of such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable, except as otherwise provided in the Board Resolution establishing
the term of the Security. The repayment option may be exercised by the Holder of
such Security for less than the entire principal amount of the Security provided
that the principal amount of the Security remaining outstanding after repayment
is an authorized denomination. No registration of, transfer or exchange of such
Security (or, in the event that such Security is to be repaid in part, the
portion of the Security to be repaid) will be permitted after exercise of a
repayment option. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Security for repayment will be determined by
the Company, whose determination will be final, binding and non-appealable.
SECTION 1109. FORM OF OPTION TO ELECT REPAYMENT
The following text shall be attached to each Security to which the
provisions of Section 1108 apply:
FORM OF OPTION TO ELECT REPAYMENT ON ___________, __________
I or we hereby irrevocably elect to exercise the option to have the
principal sum of together with accrued
interest thereon to __________, ___ repaid by the Company on ________________,
______. If less than the entire principal amount of the Security is to be
repaid specify the denomination or denominations (which shall be in authorized
denominations) of the Securities to be issued to the Holder for the portion of
the within Security not being repaid (in the absence of any such specification,
one such Security will be issued for the portion not being repaid.
- --------------------------------------------------------------------------------
Dated:
-------------------------------------------------------------------------
Signed:
------------------------------------------------------------------------
Signature Guarantee:
----------------------------------------------
(Signature must be guaranteed by
an eligible institution within
the meaning of Rule 17A(d)-15
under the Securities Exchange
Act of 1934, as amended)
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ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities is herein referred to as a "mandatory sinking fund payment",
and any payment in excess of such minimum amount provided for by the terms of
such Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to any Securities of such series required to be made pursuant to the terms of
such Securities as and to the extent provided for by the terms of such
Securities; PROVIDED that the Securities to be so credited have not been
previously so credited. The Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption Price, as specified
in the Securities so to be redeemed, for redemption through operation of the
sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
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SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 30 days prior to each sinking fund payment date for any
Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash and the portion thereof, if
any, which is to be satisfied by delivering and crediting Securities pursuant to
Section 1202 and will also deliver to the Trustee any Securities to be so
delivered. Not less than 20 days prior to each such sinking fund payment date,
the Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may elect, at its option at any time, to have Section 1302 or
Section 1303 applied to any Securities or any series of Securities, as the case
may be, designated pursuant to Section 301 as being defeasible pursuant to such
Section 1302 or 1303, in accordance with any applicable requirements provided
pursuant to Section 301 and upon compliance with the conditions set forth below
in this Article. Any such election shall be evidenced by a Board Resolution or
in another manner specified as contemplated by Section 301 for such Securities.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, the
Company shall be deemed to have been discharged from its obligations with
respect to such Securities as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Securities and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
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same), subject to the following which shall survive until otherwise
terminated or discharged hereunder: (1) the rights of Holders of such Securities
to receive, solely from the trust fund described in Section 1304 and as more
fully set forth in such Section, payments in respect of the principal of and any
premium and interest on such Securities when payments are due, (2) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article. Subject to compliance with this Article, the
Company may exercise its option (if any) to have this Section applied to any
Securities notwithstanding the prior exercise of its option (if any) to have
Section 1303 applied to such Securities.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be,
(1) the Company shall be released from its obligations under Section 801(3),
Sections 1006 through 1010, inclusive, and any covenants provided pursuant to
Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such
Securities and (2) the occurrence of any event specified in Sections 501(4)
(with respect to any of Section 801(3), Sections 1006 through 1010, inclusive,
and any such covenants provided pursuant to Section 301(18), 901(2) or 901(7)),
501(5) and 501(8) shall be deemed not to be or result in an Event of Default, in
each case with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 1304 are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that, with respect to such Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section (to the extent so specified
in the case of Section 501(4)), whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document, but the
remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of Section 1302
or Section 1303 to any Securities or any series of Securities, as the case may
be:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee which satisfies the
requirements contemplated by Section 609 and agrees to comply with the
provisions of this Article applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefits of the Holders of such
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Securities, (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof, in
each case sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or any such other qualifying trustee) to pay and discharge, the
principal of and any premium and interest on such Securities on the
respective Stated Maturities, in accordance with the terms of this Indenture
and such Securities. As used herein, "U.S. Government Obligation" means
(x) any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United
States of America is pledged or (ii) an obligation of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
(i) or (ii), is not callable or redeemable at the option of the issuer
thereof, and (y) any depositary receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S.
Government Obligation which is specified in Clause (x) above and held by such
bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, PROVIDED that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depositary receipt from any
amount received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal or interest evidenced by such depositary
receipt.
(2) In the event of an election to have Section 1302 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this instrument, there has
been a change in the applicable Federal income tax law, in either case (A) or
(B) to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Securities will not recognize gain or loss for Federal
income tax purposes as a result of the deposit, Defeasance and discharge to
be effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.
(3) In the event of an election to have Section 1303 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit and
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Covenant Defeasance to be effected with respect to such Securities and will
be subject to Federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit and Covenant
Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that neither such Securities nor any other
Securities of the same series, if then listed on any securities exchange,
will be delisted as a result of such deposit.
(5) No event which is, or after notice or lapse of time or both would
become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit
or, with regard to any such event specified in Sections 501(6) and (7), at
any time on or prior to the 90th day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.
(9) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee or other qualifying trustee (solely for purposes of this Section and
Section 1306, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 1304 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any such Paying Agent (including the Company acting as its
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own Paying Agent) as the Trustee may determine, to the Holders of such
Securities, of all sums due and to become due thereon in respect of principal
and any premium and interest, but money so held in trust need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1304 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Securities.
SECTION 1306. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and such Securities from which the Company has been discharged or
released pursuant to Section 1302 or 1303 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1305 with respect to such Securities
in accordance with this Article; PROVIDED, HOWEVER, that if the Company makes
any payment of principal of or any premium or interest on any such Security
following such reinstatement of its obligations, the Company shall be subrogated
to the rights (if any) of the Holders of such Securities to receive such payment
from the money so held in trust.
-----------------------------
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This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ALLEGIANCE CORPORATION
By......................................
Attest:
......................................
PNC BANK, KENTUCKY, INC.
By......................................
Attest:
......................................
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State of )
) ss.:
County of )
On the ___ day of _____________________, ______, before me personally
came _____________________________, to me known, who, being by me duly sworn,
did depose and say that he is ____________________ of Allegiance Corporation,
one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that he signed
his name thereto by like authority.
__________________________________________
State of )
) ss.:
County of )
On the ___ day of _____________________, ______, before me personally
came _____________________________, to me known, who, being by me duly sworn,
did depose and say that he is ____________________ of PNC Bank, Kentucky,
Inc., one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that he signed
his name thereto by like authority.
__________________________________________
\<PAGE>
Allegiance Corporation
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
--------------------
Rights Agent
Rights Agreement
Dated as of September 30, 1996
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
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Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . .1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . .5
Section 3. Issue of Rights Certificates. . . . . . . . . . . . . . .6
Section 4. Form of Rights Certificates . . . . . . . . . . . . . . .8
Section 5. Countersignature and Registration . . . . . . . . . . . .9
Section 6. Transfer, Split Up, Combination and
Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen
Rights Certificates . . . . . . . . . . . . . . . . . . 10
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8. Cancellation and Destruction of Rights Certificates . . 13
Section 9. Reservation and Availability of Capital
Stock . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10. Preferred Stock Record Date . . . . . . . . . . . . . . 16
Section 11. Adjustment of Purchase Price, Number
and Kind of Shares or Number of Rights. . . . . . . . . 16
Section 12. Certificate of Adjusted Purchase
Price or Number of Shares . . . . . . . . . . . . . . . 27
Section 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power . . . . . . . . . . 28
Section 14. Fractional Rights and Fractional Shares . . . . . . . . 31
Section 15. Rights of Action. . . . . . . . . . . . . . . . . . . . 32
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . 33
Section 17. Rights Certificate Holder Not Deemed a Stockholder. . . 34
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . 34
Section 19. Merger or Consolidation or Change of
Name of Rights Agent. . . . . . . . . . . . . . . . . . 34
Section 20. Duties of Rights Agent. . . . . . . . . . . . . . . . . 35
Section 21. Change of Rights Agent. . . . . . . . . . . . . . . . . 38
Section 22. Issuance of New Rights Certificates . . . . . . . . . . 39
Section 23. Redemption and Termination. . . . . . . . . . . . . . . 40
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 25. Notice of Certain Events. . . . . . . . . . . . . . . . 42
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 27. Supplements and Amendments. . . . . . . . . . . . . . . 44
Section 28. Successors. . . . . . . . . . . . . . . . . . . . . . . 45
Section 29. Determination and Actions by the
Board of Directors, etc . . . . . . . . . . . . . . . . 45
Section 30. Benefits of this Agreement. . . . . . . . . . . . . . . 45
Section 31. Severability. . . . . . . . . . . . . . . . . . . . . . 45
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . 46
Section 33. Counterparts. . . . . . . . . . . . . . . . . . . . . . 46
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SECTION PAGE
------- ----
Section 34. Descriptive Headings. . . . . . . . . . . . . . . . . . 46
-ii-
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of September 30, 1996 (the "Agreement"),
between Allegiance Corporation, a Delaware corporation (the "Company"), and
First Chicago Trust Company of New York, a New York corporation (the "Rights
Agent").
W I T N E S E T H:
WHEREAS, on September 16, 1996 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of Common Stock (as hereinafter
defined) of the Company outstanding at the close of business on September 30,
1996, after giving effect to the distribution of shares of Common Stock (the
"Spin-off") by Baxter International Inc. to its stockholders (the "Record
Date"), each Right initially representing the right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company having the rights, powers and preferences set forth in the form of
Certificate of Designation, Preferences and Rights attached hereto as Exhibit A,
upon the terms and subject to the conditions hereinafter set forth (the
"Rights"), and has further authorized the issuance of one Right (as such number
may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof)
for each share of Common Stock of the Company issued between the Record Date and
the Distribution Date (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, or any Person organized, appointed or established by
the Company for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by
the Company which, by
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reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of the
shares of Common Stock then outstanding; PROVIDED, HOWEVER, that if a
Person shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding by reason of share purchases by the Company
and shall, after such share purchases by the Company, become the Beneficial
Owner of any additional shares of Common Stock, then such Person shall be
deemed to be an "Acquiring Person". Notwithstanding the foregoing, if the
Board of Directors of the Company determines in good faith that a Person
who would otherwise be an "Acquiring Person" (as defined pursuant to the
foregoing provisions of this paragraph (a)) has become such inadvertently,
and such Person divests as promptly as practicable a sufficient number of
shares of Common Stock so that such Person would no longer be an "Acquiring
Person" (as defined pursuant to the foregoing provisions of this paragraph
(a)), then such Person shall not be deemed to be an "Acquiring Person" for
any purposes of this Agreement.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and
in effect on the date of this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right
to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise
of conversion rights, exchange rights, rights, warrants or
options, or otherwise; PROVIDED, HOWEVER, that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (B) securities issuable upon
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exercise of Rights at any time prior to the occurrence of a Triggering
Event, or (C) securities issuable upon exercise of Rights from and
after the occurrence of a Triggering Event which Rights were acquired
by such Person or any such Person's Affiliates or Associates prior to
the Distribution Date or pursuant to Section 3(a) or Section 22 hereof
(the "Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under
the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing;
PROVIDED, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from
a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding
(whether or not in writing), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph
(d)) or disposing of any voting securities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall cause a Person
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of, or to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
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<PAGE>
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Illinois
are authorized or obligated by law or executive order to close.
(f) "Close of business" on any given date shall mean 5:00 P.M.,
Chicago time, on such date, PROVIDED, HOWEVER, that if such date is
not a Business Day it shall mean 5:00 P.M., Chicago time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the common stock, par value $1.00
per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct
the management, of such Person.
(h) "Person" shall mean any individual, firm, limited liability
company, corporation, partnership or other entity.
(i) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the
Company, and, to the extent that there is not a sufficient number of
shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred
Stock, par value $.01 per share, of the Company designated for such
purpose containing terms substantially similar to the terms of the
Series A Junior Participating Preferred Stock.
(j) "Section 11(a)(ii) Event" shall mean the event described in
Section 11(a)(ii) hereof.
(k) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(l) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to
elect at least a majority of the directors of such corporation is
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<PAGE>
beneficially owned, directly or indirectly, by such Person, or otherwise
controlled by such Person.
(n) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
In addition, for purposes of this Agreement, the following terms have
the meanings indicated in specified sections of this Agreement: (i) "Adjustment
Shares" shall have the meaning set forth in Section 11(a)(ii) hereof; (ii)
"common stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof; (iii) "current market price" shall have the meanings
set forth in Section 11(d) hereof; (iv) "Current Value" shall have the meaning
set forth in Section 11(a)(iii) hereof; (v) "Distribution Date" shall have the
meaning set forth in Section 3(a) hereof; (vi) "equivalent preferred stock"
shall have the meaning set forth in Section 11(b) hereof; (vii) "NASDAQ" shall
have the meaning set forth in Section 11(d)(i) hereof; (viii) "Principal Party"
shall have the meaning set forth in Section 13(b) hereof; (ix) "Purchase Price"
shall have the meaning set forth in Section 4(a) hereof; (x) "Redemption Price"
shall have the meaning set forth in Section 23(a) hereof; (xi) "Rights
Certificates" shall have the meaning set forth in Section 3(a) hereof; (xii)
"Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section
11(a)(iii) hereof; (xiii) "Spread" shall have the meaning set forth in Section
11(a)(ii) hereof; (xiv) "Substitution Period" shall have the meaning set forth
in Section 11(a)(iii) hereof; (xv) "Summary of Rights" shall have the meaning
set forth in Section 3(b) hereof; and (xvi) "Trading Day" shall have the meaning
set forth in Section 11(d)(i) hereof.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall, prior to the Distribution
Date, also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the close of business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth business day (or such
later date as may be determined by action of the Board of Directors of the
Company prior to such time as any Person becomes an Acquiring Person) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company,
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<PAGE>
any employee benefit plan of the Company or of any Subsidiary of the Company, or
any Person organized, appointed or established by the Company for or pursuant to
the terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange
Act, if upon consummation thereof, such Person would be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding (the earlier of (i)
and (ii) being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of paragraph (b) of this Section 3)
by the certificates for the Common Stock registered in the names of the holders
of the Common Stock (which certificates for Common Stock shall be deemed also to
be certificates for Rights) and not by separate certificates and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will send by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, one or more Rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in
the number of Rights per share of Common Stock has been made pursuant to Section
11(p) hereof, at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of the Common Stock
as of the close of business on the Record Date, at the address of such holder
shown on the records of the Company. With respect to certificates for the
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
Until the earlier of the Distribution Date or the Expiration Date (as such term
is defined in Section 7 hereof), the surrender for transfer of any certificate
representing shares of Common Stock in respect of which Rights have been issued,
with or without a copy of the Summary of Rights attached thereto, shall also
constitute the transfer of the Rights associated with such shares of Common
Stock.
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(c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates representing such shares of Common
Stock shall also be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Allegiance
Corporation (the "Company") and First Chicago Trust Company of New
York (the "Rights Agent") dated as of September 30, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. The Company will
mail to the holder of this certificate a copy of the Rights Agreement,
as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or held by, any
Person who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the surrender
for transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be
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required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one-hundredths of a
share of Preferred Stock as shall be set forth therein at the price set forth
therein (such exercise price per one one-hundredth of a share, the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by any Person know to be:
(i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person,
(ii) a transferee or an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose of effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of such Agreement.
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Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board and Chief Executive Officer, its President
or any Vice President, either manually or by facsimile signature, and shall have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Rights Certificates shall be
countersigned manually or by facsimile signature by the Rights Agent and shall
not be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Rights Certificates shall cease to
be such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the certificate number and the date of
each of the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the close of business on the Distribution Date, and at or
prior to the close of business on the Expiration Date, any Rights Certificate or
Certificates (other than Rights Certificates representing Rights that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former
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holder in the case of a transfer) to purchase. Any registered holder desiring
to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Rights Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section
14 and Section 24 hereof, countersign and deliver to the Person entitled thereto
a Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificates if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then
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exercisable, at or prior to the earliest of (i) the close of business on
September 30, 2006 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof or (iii) the time at which
such Rights are exchanged pursuant to Section 24 hereof (the earliest of (i),
(ii) and (iii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $65, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-hundredths of a share of Preferred Stock to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected to deposit the total
number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the
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Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock would be
issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a) (ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or any of its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights
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Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof, except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificates purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement, including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Act with respect to the securities
purchasable upon exercise of the Rights on an
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appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, and a Section 11(a)(ii) Event has not
occurred, the Company may temporarily suspend the exercisability of Rights until
such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or a registration statement shall not have
been declared effective.
(d) The Company covenants and agrees that it will take all such
actions as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay, when
due and payable, any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of one one-hundredths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be)
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights
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Certificates evidencing Rights surrendered for exercise or to issue or deliver
any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each person in whose name
any certificate for a number of one one-hundredths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES
OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Stock (including any such
reclassification in
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connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), except as otherwise provided in this
Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of
shares of Preferred Stock or capital stock, as the case may be, issuable on
such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive, upon payment
of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if
such Right had been exercised immediately prior to such date and at a time
when the Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. If
an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company, or any Person organized, appointed
or established by the Company for or pursuant to the terms of any such
plan), alone or together with its Affiliates and Associates, shall, at
any time after the Rights Dividend Declaration Date, become an
Acquiring Person, then each holder of a Right (except as provided
below and in Section 7(e) hereof) shall thereafter have the right to
receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a number of
one one-hundredths of a share of Preferred Stock, such number of
shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the
then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event and (y) dividing that product
(which, following such first occurrence shall thereafter be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined pursuant to
Section 11(d) hereof) per share of Common Stock on the
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date of such first occurrence (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock which
are authorized by the Company's certificate of incorporation, but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights, is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall: (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B) with
respect to each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or units
of shares, of preferred stock, such as the Preferred Stock, which the Board
of Directors of the Company has deemed to have the same value or economic
rights as shares of Common Stock (such shares of preferred stock, "common
stock equivalents")), (4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing, having an aggregate value equal to
the Current Value (less the amount of any reduction in the Purchase Price),
where such aggregate value has been determined by the Board of Directors of
the Company based upon the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company; PROVIDED,
HOWEVER, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the
date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. For purposes of the preceding sentence, the term
"Spread" shall mean the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board of Directors of the Company shall determine
in good faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the Rights,
the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for
the authorization of such additional shares (such thirty (30) day period,
as
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it may be extended, the "Substitution Period"). To the extent that action
is to be taken pursuant to the first and/or third sentences of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof,
that such action shall apply uniformly to all outstanding Rights, and (y)
may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek such stockholder approval for such
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of each Adjustment Share shall be the current
market price (as determined pursuant to Section 11(d) hereof) per share of
the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any
"common stock equivalent" shall be deemed to equal the Current Market Price
per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders
of Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record
date) Preferred Stock (or shares having the same rights, privileges
and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or
equivalent preferred stock at a price per share of Preferred stock or
per share of equivalent preferred stock (or having a conversion price
per share, if a security convertible into Preferred Stock or
equivalent preferred stock) less than the current market price (as
determined pursuant to Section 11(d) hereof) per share of Preferred
Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus
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the number of shares of Preferred Stock which the aggregate offering price
of the total number of shares of Preferred Stock and/or equivalent
preferred stock so to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at
such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/ or equivalent preferred
stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part
or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights. Shares of Preferred Stock owned by or
held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that
such rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other
than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof), the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall
be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per
share of Preferred Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such
distribution is not so made,
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the Purchase Price shall be adjusted to be the Purchase Price which would
have been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of such Common
Stock for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes
of computations made pursuant to Section 11(a)(iii) hereof, the
"current market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of such
Common Stock for the ten (10) consecutive Trading Days immediately
following such date; PROVIDED, HOWEVER, that in the event that the
current market price per share of the Common Stock is determined
during a period following the announcement by the issuer of such
Common Stock of (A) a dividend or distribution on such Common Stock
payable in shares of such Common Stock or securities convertible into
shares of such Common Stock (other than the Rights), or (B) any
subdivision, combination or reclassification of such Common Stock, and
the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification shall not
have occurred prior to the commencement of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above, then,
and in each such case, the "current market price" shall be properly
adjusted to take into account any trading during the period prior to
such ex-dividend date or record date. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if
the shares of Common Stock are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as
reported by
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the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") or such other system then in use, or, if on any such date
the shares of Common Stock are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock selected by the Board of
Directors of the Company. If on any such date no market maker is making a
market in the Common Stock, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be
used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are listed
or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "current market price" per share
shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of
this Section 11(d) (other than the last sentence thereof). If the
current market price per share of Preferred Stock cannot be determined
in the manner provided above, or if the Preferred Stock is not
publicly held or listed or traded in a manner described in clause (i)
of this Section 11(d), the "current market price" per share of
Preferred Stock shall be conclusively deemed to be an amount equal to
100 (as such number may be appropriately adjusted for such events as
stock splits, stock dividends and recapitalizations with respect to
the Common Stock occurring after the date of this Agreement)
multiplied by the current market price per share of the Common Stock.
If neither the Common Stock nor the Preferred Stock is publicly held
or so listed or traded, "current market price" per share of the
Preferred Stock shall mean the fair value per share as determined in
good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the
Rights. For all purposes of this Agreement, the "current market
price" of one one-hundredth of a share of Preferred Stock shall be
equal to the "current
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market price" of one share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one
percent (1%) in the Purchase Price; PROVIDED, HOWEVER, that any
adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall
be made to the nearest cent or to the nearest one ten-thousandth of a
share of Common Stock or other share or one one-millionth of a share
of Preferred Stock, as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three (3)
years from the date of the transaction which mandates such adjustment,
or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock
other than Preferred Stock, thereafter the number of such other shares
so receivable upon exercise of any Right and the Purchase Price
thereof shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the
right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a share of Preferred Stock purchasable from time to
time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price
as a result of the calculations made in Sections 11(b) and (c), each
Right outstanding immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number
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of one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated
to the nearest one-ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date
for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. If Rights Certificates have
been issued, upon each adjustment of the number of Rights pursuant to
this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights Certificates on
such record date Rights Certificates evidencing, subject to Section 14
hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof,
if required by the Company, new Rights Certificates evidencing all the
Rights to which such holders shall be entitled after such adjustment.
Rights Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted
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Purchase Price) and shall be registered in the names of the holders of
record of Rights Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-hundredth of a share and the number of
one one-hundredths of a share which were expressed in the initial
Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of
the number of one one-hundredths of a share of Preferred Stock
issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Preferred Stock at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right
exercised after such record date the number of one one-hundredths of a
share of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the number
of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares (fractional or
otherwise) or securities upon the occurrence of the event requiring
such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that the Board of Directors of the
Company, in its good faith judgment, shall determine to be advisable
in order that any (i)
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consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
for cash of any shares of Preferred Stock at less than the current market
price, (iii) issuance wholly for cash of shares of Preferred Stock or
securities which by their terms are convertible into or exchangeable for
shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), (ii) merge with or into any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or (iii) sell or transfer (or
permit any Subsidiary to sell or transfer), in one transaction, or a
series of related transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x)
at the time of or immediately after such consolidation, merger, sale
or transfer there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to
be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger, sale or transfer, the
stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or
Section 27 hereof, take (or permit any Subsidiary to take) any action
if at the time such action is taken it is reasonably foreseeable that
such action will diminish substantially or otherwise eliminate the
benefits intended to be afforded by the Rights.
(p) In the event that the Company shall at any time after the
Rights Dividend Declaration Date and
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prior to the Distribution Date (i) declare a dividend on the outstanding
shares of Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding shares of Common Stock, or (iii) combine the outstanding
shares of Common Stock into a smaller number of shares, the number of
Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated
with each share of Common Stock following any such event shall equal the
result obtained by multiplying the number of Rights associated with each
share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of such adjustment unless
and until it shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or
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other securities of any other Person or cash or any other property, or (z) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary of the Company in one or more transactions
each of which complies with Section 11(o) hereof), then, and in each such case
(except as may be contemplated by Section 13(d) hereof), proper provision shall
be made so that: (i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, nonassessable and
freely tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by (l)
multiplying the then current Purchase Price by the number of one one-hundredths
of a share of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of such one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by (2) 50% of the current market price
(determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock
of such Principal Party on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall
be of no effect following the first occurrence of any Section 13 Event.
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(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
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(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported to the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions
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which are integral multiples of one one-hundredth of a share of Preferred Stock)
upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock). Fractions of
shares of Preferred Stock in integral multiples of one-hundredth of a share may,
at the election of the Company, be evidenced by depositary receipts pursuant to
an appropriate agreement between the Company and a depositary selected by it;
PROVIDED, HOWEVER, that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences to
which they are entitled as beneficial owners of the shares represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-hundredth of a share of Preferred Stock, the
Company shall pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value
of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company shall
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For purposes of this
Section 14(c), the current market value of one share of Common Stock shall be
the closing price of one share of Common Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, other than rights of action vested in the Rights Agent pursuant
to Section 18 hereof, are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered holders
of the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of the
Rights Agent or of the holder
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of any other Rights Certificate (or, prior to the Distribution Date, of the
Common Stock), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his or her right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Rights Certificates or the associated
Common Stock certificates made by anyone other than the Company or the
Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent, subject to the last sentence of Section 7(e) hereof,
shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason
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of any preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such
obligation; PROVIDED, HOWEVER, the Company must use reasonable efforts to
have any such order, decree or ruling lifted or otherwise overturned as
soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the number of one
one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
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Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, HOWEVER, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at the time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed, and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case, at that time, any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in
accordance with such opinion.
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(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "current market price") be
proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recital contained in this Agreement or in
the Rights Certificates or be required to verify the same (except as
to its countersignature on such Rights Certificates), but all such
statements and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent)
or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof); nor shall it be responsible for
any breach by the Company of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor shall it be
responsible for any adjustment required under the provisions of
Section 11, Section 13 or Section 24 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except
with respect to the exercise of Rights evidenced by Rights
Certificates after actual notice of any such adjustment); nor shall it
by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock
or Preferred Stock to be issued
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pursuant to this Agreement or any Rights Certificate or as to whether any
shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect
or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act, default, neglect or misconduct;
PROVIDED, HOWEVER, that reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable
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grounds for believing that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured to
it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative
response to clause 1 and/or 2 thereof, the Rights Agent shall not take
any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then any registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of Illinois (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of Illinois), in good standing, having an office or agency in the State of
New York, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
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transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further reasonable assurance, conveyance,
act or deed necessary for the purpose. Not later than the effective date of any
such appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21 or any defect therein shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded prior to the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing an
appropriate number of Rights in connection with such issuance or sale; PROVIDED,
HOWEVER, that (i) no such Rights Certificate shall be issued if, and to the
extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
the Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the close of business on the tenth day
following the Record Date), or (ii) the Final Expiration Date, redeem all but
not less than all of the then outstanding Rights at a redemption price of $.01
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend
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or similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Section 11(a)(ii) Event until such
time as the Company's right of redemption hereunder has expired. The Company
may, at its option, pay the Redemption Price in cash, shares of Common Stock
(based on the "current market price", as defined in Section 11(d)(i) hereof, of
the Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board of Directors. The redemption of the Rights by
the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at each holder's last address as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for shares
of Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person organized, appointed or established by the Company for or
pursuant to the terms of any such plan), together with all Affiliates and
Associates of such
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Person, becomes the Beneficial Owner of fifty percent (50%) or more of the
Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Stock for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange will be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute shares of Preferred Stock (or equivalent preferred stock,
as such term is defined in paragraph (b) of Section 11 hereof) for shares of
Common Stock exchangeable for Rights, at the initial rate of one one-hundredth
of a share of Preferred Stock (or equivalent preferred stock) for each share of
Common Stock, as appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Stock pursuant to the terms thereof, so that the
fraction of a share of Preferred Stock delivered in lieu of each share of Common
Stock shall have the same voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such actions as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the registered holders of the Rights Certificates with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the
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current market value of a whole share of Common Stock. For the purposes of this
subsection (e), the current market value of a whole share of Common Stock shall
be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock, whichever shall be the earlier.
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(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then, in any such case, (i) the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, to the extent feasible
and in accordance with Section 26 hereof, a notice of the occurrence of such
event, which shall specify the event and the consequences of the event to
holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the
preceding paragraph to Preferred Stock shall be deemed thereafter to refer to
Common Stock and/or, if appropriate, other securities.
Section 26. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Allegiance Corporation
1430 Waukegan Road
McGaw Park, Illinois 60085-6788
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
First Chicago Trust Company of New York
P.O. Box 2507
Suite 4660
Jersey City, New Jersey 07303-2507
Attention: Tenders & Exchanges Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Rights Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a
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writing signed by the Company and the Rights Agent; PROVIDED, HOWEVER, that from
and after such time as any Person becomes an Acquiring Person, this Agreement
shall not be amended in any manner which would adversely affect the interests of
the holders of Rights. Prior to the Distribution Date, the interest of the
holders of Rights shall be deemed coincident with the interests of the holders
of Common Stock. Without limiting the foregoing, the Company may at any time
prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) to a
percentage that (subject to exceptions for specified Persons or Groups excepted
from the definition of "Acquiring Person") is not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding shares of Common
Stock then known by the Company to be beneficially owned by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, any Person organized, appointed
or established by the Company for or pursuant to the terms of any such plan or,
to the extent excepted from the definition of "Acquiring Person", other
Specified Persons or Groups) and (ii) 10.0%.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board of Directors of the Company
or to the Company, or as may be necessary or advisable in the administration of
this Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including, but not limited to, a determination to redeem or not redeem the
Rights or to amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors of the Company in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board of
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Directors of the Company to any liability to the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors of
the Company.
Section 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate
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seals to be hereunto affixed and attested, all as of the day and year first
above written.
Attest: ALLEGIANCE CORPORATION
By: By:
----------------- -----------------
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: By:
----------------- -----------------
Name: Name:
Title: Title:
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Exhibit A
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
ALLEGIANCE CORPORATION
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned do hereby certify that the following resolution was
duly adopted by the Board of Directors of Allegiance Corporation, a Delaware
corporation (the "Corporation"), at a meeting duly convened and held on
September 16, 1996, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Certificate of Incorporation, the board of
directors does hereby create, authorize and provide for the issue of a series of
Preferred Stock, par value $.01 per share, of the Corporation, to be designated
"Series A Junior Participating Preferred Stock" (hereinafter referred to as the
"Series A Preferred Stock"), initially consisting of 2,000,000 shares, and to
the extent that the designations, powers, preferences and relative and other
special rights and the qualifications, limitations or restrictions of the Series
A Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 2,000,000.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first business day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $1.00 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after September 30, 1996 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a small number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); PROVIDED, HOWEVER, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking prior to and
superior to the shares of Series A Preferred Stock with respect to dividends, a
dividend of $.01 per share on the Series A
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Preferred Stock shall nevertheless by payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Data next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
Section 3. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote collectively as one class on
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all matters submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of
a period (herein called a "default period") which shall extend until
such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period
on all shares of Series A Preferred Stock then outstanding shall have
been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series
A Preferred Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of
series, shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(c) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting rights. At any meeting at which the holders
of Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors
as may then exist up to two (2) Directors or, if such right is exercised at
an annual meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders
of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or PARI PASSU with the Series A
Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised
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their right to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of special meeting of the
holders of Preferred Stock, which meeting shall thereupon be called by the
Chairman of the Board, the President, a Vice-President or the Secretary of
the Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him or her at his or her last address as
the same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 10 days and not later than 50 days after
such order or request, or in default of the calling of such meeting within
50 days after such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no
such special meeting shall be called during the period within 50 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and, if
applicable, other classes of capital stock of the Corporation, shall
continue to be entitled to elect the whole number of Directors until the
holders of Preferred Stock shall have exercised their right to elect two
(2) Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which
elected the Director whose office shall have become vacant. References in
this paragraph (C) to Directors elected by the holders of a particular
class of stock shall include Directors appointed by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be
such number as may be provided for in the certificate of
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incorporation or by-laws irrespective of any increase made pursuant to the
provisions of paragraph (C)(ii) of this Section 3 (such number being
subject, however, to change thereafter in any manner provided by law or in
the certificate of incorporation or by-laws). Any vacancies in the Board
of Directors effected by the provisions of clauses (y) and (z) in the
preceding sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any capital stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any capital stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
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<PAGE>
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of capital stock ranking on
a parity with the Series A Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES.
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of capital stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such number
in clause (ii),
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<PAGE>
the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Preferred Stock and Common Stock, respectively,
and the payment of liquidation preferences of all other shares of capital stock
which rank prior to or on a parity with Series A Preferred Stock, holders of
Series A Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock
and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of capital stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or
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<PAGE>
(iii) combine the outstanding Common Stock into a smaller number of shares, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION.
The shares of Series A Preferred Stock shall not be redeemable.
Section 9. RANKING.
The Series A Preferred Stock shall rank junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.
Section 10. AMENDMENT.
The Certificate of Incorporation of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
Section 11. FRACTIONAL SHARES.
Series A Preferred Stock may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock.
A-9
<PAGE>
IN WITNESS WHEREOF, Allegiance Corporation has caused its corporate
seal to be hereunto affixed and this certificate to be signed by _____________
________, its _______, and the same to be attested to by ___________, its
_________, this ____ day of September, 1996.
ALLEGIANCE CORPORATION
By: _____________________________
Name:
Title:
(Corporate Seal)
Attest:
- ------------------------
A-10
<PAGE>
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER SEPTEMBER 30, 2006 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]
- -------------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Rights Certificate
ALLEGIANCE CORPORATION
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of September 30, 1996 (the "Rights Agreement"), between
Allegiance Corporation, a Delaware corporation (the "Company"), and First
Chicago Trust Company of New York , a New York corporation (the "Rights
Agent"), to purchase from the Company at any time prior to 5:00 P.M. (Chicago
time) on September 30, 2006 at the office or offices of the Rights Agent
designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a fully paid, nonassessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $65 per one one-hundredth of a share (the "Purchase Price"),
upon presentation and surrender of this Rights Certificate with the Form of
Election to Purchase and related Certificate duly executed. The number of
Rights evidenced by this Rights Certificate (and the number of shares which may
be purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of September 30,
1996, based on the Preferred Stock as constituted at such date. The Company
reserves the right to require prior to the occurrence of a Triggering Event (as
such term is defined in the Rights Agreement) that, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Preferred Stock
will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person or an Affiliate or Associate of such Person, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification
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<PAGE>
and adjustment upon the happening of certain events, including Triggering
Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificates surrendered shall have
entitled such holder to purchase. If this Rights Certificate shall be exercised
in part, the holder shall be entitled to receive upon surrender hereof another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may, in each case at the option of the Company, be
(i) redeemed by the Company at its option at a redemption price of $.01 per
Right or (ii) exchanged in whole or in part for shares of Common Stock or other
securities of the Company. Immediately upon the action of the Board of
Directors of the Company authorizing redemption, the Rights will terminate and
the only right of the holders of Rights will be to receive the redemption price.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise
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<PAGE>
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or, to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned manually or by facsimile
signature by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of _______ __, 19__
ATTEST: ALLEGIANCE CORPORATION
_________________________ By: ________________________
Secretary Name:
Title:
Countersigned:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: ____________________
Authorized Signature
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<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ________________________________________
hereby sells, assigns and transfers unto __________________
___________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ___________________, _____
_____________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person.
Dated: _______, _____ ____________________________
Signature
Signature Guaranteed:
NOTICE
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<PAGE>
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
TO: ALLEGIANCE CORPORATION
The undersigned hereby irrevocably elects to exercise ______ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares (or other securities) be
issued in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
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<PAGE>
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: _____________, ____
________________________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated: _________, ___ __________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
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Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On September 16, 1996, the Board of Directors of Allegiance
Corporation (the "Company") declared a dividend distribution of one Right for
each outstanding share of the Company's common stock, $1.00 par value per share
("Common Stock"), to stockholders of record at the close of business on
September 30, 1996. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at a Purchase Price of $65 per Unit, subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") dated as of September 30, 1996 between the Company and First
Chicago Trust Company of New York, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
certificates will be distributed. The Rights will separate from the Common
Stock and the Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group becomes an Acquiring Person) following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 15% or more of such outstanding shares of Common
Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued on or after
September 30, 1996 will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.
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The Rights are not exercisable until the Distribution Date and will
expire at the close of business on September 30, 2006, unless earlier redeemed
by the Company as described below.
As soon as practicable after the Distribution Date, Rights
certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
certificates alone will represent the Rights. Except as otherwise provided in
the Rights Agreement, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, a
person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock having a value
equal to two times the exercise price of the Right. If an insufficient number
of shares of Common Stock is authorized for issuance, then the Board would be
required to substitute cash, property or other securities of the Company for the
Common Stock. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph, all rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of the event set forth in this paragraph until such
time as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $65 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase $130
worth of Common Stock (or other consideration, as noted above) for $65.
Assuming that the Common Stock had a per share value of $26 at such time,
the holder of each valid Right would be entitled to purchase five shares of
Common Stock for $65.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation, or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights which previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the exercise price of
the Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Triggering Events." In addition, the Rights
may be exchanged, in whole or in part, for shares of the Common Stock, or shares
of Preferred Stock
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having essentially the same value or economic rights as such shares.
The purchase price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one share of
Common Stock, or one one-hundredth of a share of Preferred Stock (or of a share
of a class or series of the Company's preferred stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment).
In general, the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors) at any time until
ten days following the Stock Acquisition Date. Immediately upon the action of
the Board of Directors authorizing any redemption, the Rights will terminate and
the only right of the holders of Rights will be to receive the redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
result in the recognition of taxable income by stockholders or the Company,
stockholders may, depending upon the circumstances, recognize taxable income in
the event that the Rights become exercisable for Common Stock (or other
consideration of the
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Company) or for common stock of the acquiring company as set forth above.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
shares of Common Stock then known to the Company to be beneficially owned by any
person or group of affiliated or associated persons and (ii) 10%, except that
from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Rights.
A copy of the Rights Agreement is available free of charge from the
Rights Agent. This description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
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