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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 10/A1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ALLEGIANCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-4095179
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE BAXTER PARKWAY, DEERFIELD, ILLINOIS 60015
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange
Series A Junior Participating New York Stock Exchange
Preferred Stock Purchase Rights
(Currently traded with common stock)
Securities to be registered pursuant to Section 12(g) of the Act: None
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[LOGO]
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
847.948.2000
September 30, 1996
To all Baxter International Inc. Stockholders:
I am pleased to inform you that on September 16, 1996, Baxter's Board of
Directors declared a stock dividend to achieve a distribution of all the
outstanding shares of common stock of Allegiance Corporation to all Baxter
stockholders of record on September 26, 1996.
Allegiance Corporation is a new company, formed initially as a wholly owned
subsidiary of Baxter, that will own and operate the United States distribution,
surgical and respiratory therapy products and health-care cost management
services operations presently conducted by Baxter. When the distribution is
completed, Allegiance and Baxter will be able to focus more sharply on their
respective core businesses: high-tech medical specialties for Baxter; and
health-care distribution, products and cost management services for Allegiance.
Following the distribution, Allegiance Corporation will be an independent
publicly-owned company.
If you are a Baxter stockholder of record at the close of business on
September 26, 1996, the record date for the distribution, you will receive one
share of Allegiance common stock for every five shares of Baxter common stock
you own. Allegiance stock certificates will be distributed beginning October 1,
1996. No action is required on your part to receive your Allegiance stock.
The attached Information Statement, which is being mailed to all Baxter
stockholders, describes the distribution in detail and contains important
information about Allegiance, including financial statements.
We expect that Allegiance's common stock will be listed and traded on the
New York Stock Exchange and that its stock symbol will be "AEH."
Sincerely,
Vernon R. Loucks Jr.
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
ALLEGIANCE CORPORATION
1430 WAUKEGAN ROAD
MCGAW PARK, ILLINOIS 60085
September 30, 1996
Dear Stockholder:
It is my pleasure to welcome you as a stockholder of Allegiance Corporation.
We are America's largest provider of health-care products and cost-management
services. Our mission is to help hospitals and others throughout the health-care
field fulfill their mission of serving patients. We will succeed by focusing on
three things: providing high-quality products, excellent service and innovative
ways of managing costs.
I invite you to learn more about Allegiance in the attached Information
Statement. We are a new public company, but we have been serving health care for
more than 70 years. We bring to the marketplace a great base of experience,
breadth of capabilities, commitment to service, strong customer relationships
and financial strength. In 1995, we recorded net revenues of approximately $4.5
billion.
The health-care marketplace is increasingly competitive and cost-conscious.
This presents an opportunity for Allegiance, which enjoys leading positions in
the distribution and manufacturing of health-care products, and in providing a
range of cost-management services. More important, we are the only company that
integrates these capabilities to address one of the most significant challenges
facing health-care professionals: the need to control costs and improve the
quality of patient care at the same time.
Our management team is eager to distinguish Allegiance by continued
leadership and solid financial performance. We are pleased that you will
participate in our mission as a stockholder of Allegiance Corporation.
Sincerely,
Lester B. Knight
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
Subject to completion, dated August 22, 1996
INFORMATION STATEMENT
[LOGO]
ALLEGIANCE CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
This Information Statement is being furnished to stockholders of Baxter
International Inc. in connection with the Distribution by Baxter to its
stockholders of all the outstanding shares of common stock of its wholly-owned
subsidiary, Allegiance Corporation.
It is expected that the Distribution will be made on September 30, 1996, to
holders of record of Baxter common stock on September 26, 1996, on the basis of
one share of common stock of Allegiance Corporation for every five shares of
common stock of Baxter International Inc. No consideration will be required to
be paid by stockholders of Baxter for the shares of common stock of Allegiance
Corporation to be distributed, nor will they be required to surrender or
exchange shares of common stock of Baxter International Inc. or take any other
action in order to receive common stock of Allegiance Corporation. Application
has been made to list the common stock of Allegiance Corporation on the New York
Stock Exchange under the symbol "AEH."
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "RISK FACTORS." Neither Baxter nor
Allegiance will receive any cash or other proceeds from the Distribution.
------------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND OTHERWISE IN
COMPLIANCE WITH APPLICABLE LAW.
THE DATE OF THIS INFORMATION STATEMENT IS SEPTEMBER 30, 1996.
<PAGE>
AVAILABLE INFORMATION
Allegiance has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (as amended, the "Registration
Statement") under the Securities Exchange Act of 1934, as amended and the rules
promulgated thereunder (the "Exchange Act"), with respect to its common stock
and preferred stock purchase rights. This Information Statement does not contain
all of the information in the Registration Statement and the related exhibits
and schedule. Statements in this Information Statement as to the contents of any
contract, agreement or other document are summaries only and are not necessarily
complete. For complete information as to these matters, refer to the applicable
exhibit or schedule to the Registration Statement. The Registration Statement
and the related exhibits and schedule 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 schedule may
be accessed on the world wide web via the Commission's EDGAR database at its
website (http://www.sec.gov/edgarhp.htm).
Following the Distribution, Allegiance will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. Allegiance will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meeting of stockholders. Allegiance also intends to furnish quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information.
NO PERSON IS AUTHORIZED BY BAXTER OR ALLEGIANCE TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
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SUMMARY
THIS IS A SUMMARY. IT IS QUALIFIED BY THE MORE DETAILED INFORMATION
(INCLUDING FINANCIAL INFORMATION AND RELATED NOTES) IN THIS INFORMATION
STATEMENT, WHICH SHOULD BE READ IN ITS ENTIRETY. CAPITALIZED TERMS IN THIS
SUMMARY NOT DEFINED HERE ARE DEFINED ELSEWHERE IN THIS INFORMATION STATEMENT.
THE DISTRIBUTION
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<S> <C>
DISTRIBUTING COMPANY.............. Baxter International Inc., a Delaware corporation
("Baxter").
SHARES TO BE DISTRIBUTED.......... Approximately 54,400,000 shares of common stock, par
value $1.00 per share, of Allegiance Corporation, a
Delaware corporation ("Allegiance"), along with
associated preferred stock purchase rights. The
Allegiance common stock and such rights are collectively
referred to as the "Allegiance Stock", representing all
of the Allegiance Stock outstanding on the Record Date,
based on approximately 272 million shares of common
stock of Baxter ("Baxter Stock") expected to be
outstanding on the Record Date. See "DESCRIPTION OF
ALLEGIANCE CAPITAL STOCK."
ALLEGIANCE; BUSINESS OF
DISTRIBUTED COMPANY.............. Through its subsidiaries, Allegiance is America's
largest provider of health-care products and
cost-management services. On or before the Distribution
Date, Baxter will transfer to Allegiance specified
assets and liabilities that comprise the Allegiance
Business. On and after the Distribution Date, Allegiance
will be an independent publicly held company. See
"ALLEGIANCE BUSINESS" and "ALLEGIANCE PRO-FORMA
FINANCIAL INFORMATION."
REASONS FOR THE DISTRIBUTION...... The Distribution will enable Allegiance and Baxter each
to align its reporting structure, cost structure,
culture, and management process in support of its basic
mission. It will enable management of Allegiance to
focus more precisely on cost management service
initiatives, integrated with offerings of products
manufactured by Allegiance, Baxter and others. The
Distribution will enable Allegiance to more easily form
alliances with companies manufacturing products
competitive with Baxter products and to define its own
investment vision and raise capital without competition
for funds from Baxter's technology businesses. Meanwhile
Baxter management will focus on creating innovative
medical specialty products and on expanding sales
outside the United States. The Distribution will allow
investors to better evaluate the merits of Allegiance
and the remaining Baxter businesses, enhancing the
likelihood that each will achieve appropriate market
recognition for its performance.
DISTRIBUTION RATIO................ One share of Allegiance Stock for every five shares of
Baxter Stock. See "THE DISTRIBUTION -- MANNER OF
EFFECTING THE DISTRIBUTION."
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FRACTIONAL SHARES OF ALLEGIANCE
STOCK............................ No fractional shares of Allegiance Stock will be
distributed. A cash payment will be made to Baxter
stockholders otherwise entitled to a fractional share of
Allegiance Stock as a result of the Distribution. The
amount of such payment will depend upon the prices at
which the fractional shares are sold by the Distribution
Agent in the open market on or around the Distribution
Date. See "THE DISTRIBUTION -- MANNER OF EFFECTING THE
DISTRIBUTION."
RISK FACTORS...................... The businesses of Allegiance are subject to certain
risks, and Allegiance Stock will be subject to those
same risks. Stockholders should carefully consider the
matters described under "RISK FACTORS."
BUSINESSES RETAINED BY BAXTER..... After the Distribution, Baxter will continue to operate
its high-technology medical specialties products
businesses.
REGISTRAR, DISTRIBUTION AND
TRANSFER AGENT................... The First Chicago Trust Company of New York
RECORD DATE....................... The close of business on September 26, 1996 (the "Record
Date").
DISTRIBUTION DATE................. The close of business on September 30, 1996 (the
"Distribution Date"). On the Distribution Date, the
Distribution Agent will begin distribution of
certificates for Allegiance Stock to holders of Baxter
Stock on the Record Date. Baxter stockholders will not
be required to make any payment or to take any other
action to receive their Allegiance Stock. See "THE
DISTRIBUTION -- MANNER OF EFFECTING THE DISTRIBUTION."
FEDERAL INCOME TAX CONSEQUENCES... On August 8, 1996, Baxter received a tax ruling (the
"Tax Ruling") from the U.S. Internal Revenue Service
(the "IRS") to the effect, among other things, that the
receipt of Allegiance Stock by stockholders of Baxter in
the Distribution will qualify under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code").
See "THE DISTRIBUTION -- CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION."
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RELATIONSHIP BETWEEN BAXTER AND
ALLEGIANCE AFTER THE
DISTRIBUTION..................... Allegiance and Baxter will pursue independent but
mutually supportive courses. Each will have its own
strategies and interests, while recognizing the
advantages of working together. Allegiance will have
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 will
be Baxter's primary agent in distributing Baxter's
intravenous solutions, cardiovascular devices and other
products in the United States and will provide to Baxter
certain administrative services including credit and
collection, accounts payable, information technology and
telecommunications. Baxter will distribute Allegiance's
products in many countries around the world and will
provide various administrative services to Allegiance.
Neither company will have an ownership interest in the
other; Allegiance will be an independent public company.
See "ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE."
ALLEGIANCE DIVIDEND POLICY........ The payment and level of cash dividends by Allegiance
after the Distribution will be based upon a number of
factors, including the operating results, cash-flow and
financial requirements of Allegiance. It is anticipated
that, following the Distribution, Allegiance will pay
quarterly cash dividends which, on an annual basis, will
initially be approximately $.40 per share. Allegiance
expects that its initial dividend rate, combined with
Baxter's continuing dividend rate, will aggregate $1.21
per share, which equals Baxter's current quarterly
dividend rate, annualized. However, no formal action
with respect to any such dividend has been declared, and
the declaration and payment of dividends is at the
discretion of Allegiance's board of directors (the
"Allegiance Board"). See "THE DISTRIBUTION -- LISTING
AND TRADING OF ALLEGIANCE COMMON STOCK."
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ALLEGIANCE BORROWINGS............. Prior to the Distribution Date, Allegiance expects to
have revolving credit facilities amounting to $1,500
million. These facilities will enable Allegiance to
borrow funds on an unsecured basis at variable interest
rates. The banks participating in the facilities are
expected to commit to maintain a $1,200 million facility
for five years and a $300 million facility for one year.
Allegiance expects to incur indebtedness of
approximately $1,100 million from the five year facility
on or about the Distribution Date. Approximately $1,100
million of this indebtedness will be used to repay
intercompany debt to Baxter and fund distributions from
Allegiance's foreign operations to Baxter. Any remaining
proceeds, together with additional borrowings after the
Distribution Date, will be used for initial working
capital requirements. Under the Reorganization
Agreement, Allegiance may be required to pay Baxter or
Baxter may be required to pay Allegiance an amount to
adjust working capital, which payment will be based upon
specified operating factors as of the Distribution Date.
Allegiance anticipates that it will convert a
significant portion of its initial debt to longer term
fixed rate debt, contingent upon acceptable market
conditions. The debt that is not converted will be
managed as part of a short-term loan portfolio supported
by a long-term credit facility. Management expects that
Allegiance's senior debt will be investment grade.
ALLEGIANCE STOCK LISTING.......... Application has been made to list the Allegiance Stock
on the New York Stock Exchange under the symbol "AEH."
See "THE DISTRIBUTION -- LISTING AND TRADING OF
ALLEGIANCE COMMON STOCK."
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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 Information Statement. 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 Information Statement.
SELECTED HISTORICAL FINANCIAL DATA (A)
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<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
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."
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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.
SUPPLEMENTARY FINANCIAL DATA
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<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)
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(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."
8
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RISK FACTORS
Certain statements in this Information Statement 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.
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. Allegiance
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. Allegiance
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 below the Consumer Price Index, and industry trends and competition
may inhibit Allegiance's ability to increase prices, and may continue to depress
Allegiance's margins in the future. These trends are expected to continue.
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 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
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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 per cent and 16 per cent respectively in 1995, 23 per cent and
13 per cent respectively in 1994, and 23 per cent and 13 per cent respectively
in 1993. Loss of the contracts with either or both of these buying groups 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 of Allegiance
believes that its relationships with its larger customers are excellent. No
other buying group or single customer currently accounts for more than five per
cent of Allegiance's revenue. See "ALLEGIANCE BUSINESS -- CONTRACTUAL
ARRANGEMENTS; BUYING GROUPS."
POTENTIAL TAXABILITY
The Distribution, though intended to be free from United States federal
income tax as of the Distribution Date, could be rendered taxable as a result of
subsequent actions or events. Allegiance has agreed not to undertake specified
actions and has agreed that under specified circumstances it will indemnify
Baxter for taxes, liabilities and associated expenses incurred as a result of
any such actions or events. See "ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE --
REORGANIZATION AGREEMENT."
FINANCIAL LEVERAGE
In connection with the Distribution, Allegiance will borrow, on an unsecured
basis, approximately $1.2 billion. This indebtedness is reflected in the pro
forma financial information presented elsewhere in this Information Statement.
Such indebtedness may limit Allegiance's future financial flexibility. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- LIQUIDITY AND
CAPITAL RESOURCES" and "ALLEGIANCE PRO-FORMA FINANCIAL INFORMATION."
MUTUAL DISTRIBUTION ARRANGEMENTS
Allegiance and Baxter will enter into 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 will be 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 "ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE --
AGENCY SERVICES AND DISTRIBUTION AGREEMENTS."
DEPENDENCE ON ADMINISTRATIVE SERVICES
After the Distribution, Allegiance and Baxter will rely on each other for
the provision of certain administrative services. See "ARRANGEMENTS BETWEEN
BAXTER AND ALLEGIANCE." Such services will be 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
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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.
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."
NO PRIOR MARKET FOR ALLEGIANCE COMMON STOCK
There has been no prior trading market for Allegiance Stock and there can be
no assurance as to the prices at which the Allegiance Stock will trade before or
after the Distribution Date. Until the Allegiance Stock is fully distributed and
an orderly market develops, the prices at which the Allegiance Stock trades may
fluctuate significantly. Prices for the Allegiance Stock will be determined in
the trading markets and may be influenced by many factors, including the depth
and liquidity of the market for Allegiance Stock, investor perceptions of
Allegiance and its business, Allegiance's dividend policy, and general economic
and market conditions. See "THE DISTRIBUTION -- LISTING AND TRADING OF
ALLEGIANCE COMMON STOCK."
ALLEGIANCE DIVIDEND POLICY
The payment and level of cash dividends by Allegiance after the Distribution
will be based upon a number of factors, including the operating results,
cash-flow and financial requirements of Allegiance. However, no formal action
with respect to any such dividend has been declared, and the declaration and
payment of dividends is at the discretion of the Allegiance Board.
EFFECTS ON STOCK
After the Distribution, the Baxter Stock will continue to be listed and
traded on the NYSE and certain other stock exchanges. As a result of the
Distribution, the trading prices of Baxter Stock will likely be lower than the
trading prices of Baxter Stock immediately prior to the Distribution. The
combined trading prices of Baxter Stock and Allegiance Stock after the
Distribution may be less than, equal to or greater than the trading prices of
Baxter Stock immediately prior to the Distribution. Until the market has fully
analyzed the Allegiance Business, the prices at which the Allegiance Stock
trades may fluctuate significantly. In addition, until the market has fully
analyzed the operations of Baxter without the Allegiance Business, the prices at
which the Baxter Stock trades may fluctuate significantly.
CERTAIN ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation, By-laws and Rights Agreement and the
General Corporation Law of the State of Delaware ("Delaware Law") contain
several provisions that could make more difficult a change of control of
Allegiance in a transaction not approved by the Allegiance Board. These
provisions include (i) a classified Board of Directors, (ii) only the Allegiance
Board may fix the number of directors and a majority of directors then in office
may fill any vacancy in the Allegiance Board, (iii) removal of directors only
for cause, (iv) a prohibition against stockholder action by written consent, (v)
special meetings of stockholders may not be called by stockholders, (vi) advance
notice requirements for shareholder proposals to be brought before an annual
meeting and for shareholder nominations to the Allegiance Board, (vii) 66 2/3%
voting requirements for amendment of the By-laws and certain provisions of the
Certificate of Incorporation, (viii) the issuance of the Rights which will cause
substantial dilution to a person or group that attempts to acquire Allegiance on
terms not approved by the Allegiance Board and (ix) Section 203 of the Delaware
Law which makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. In
addition, Allegiance expects to adopt the Allegiance Change of Control Plan
providing for certain separation pay and benefits to several executive officers
following a change of control of Allegiance and a subsequent termination of
employment unless such termination is voluntary and unprovoked or results from
death, disability, retirement or cause. Pursuant to certain
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distribution agreements between a Baxter subsidiary and an Allegiance subsidiary
and several services agreements between Baxter and Allegiance, in the event of a
change in control of one of the parties to such an agreement 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. See "CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, BY-LAWS, AND STATE LAW," "DESCRIPTION OF
ALLEGIANCE CAPITAL STOCK," "ALLEGIANCE MANAGEMENT -- CHANGE OF CONTROL PLAN" and
"ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE."
PRODUCTS LIABILITY
Upon the Distribution, Allegiance will assume 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.
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. 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.
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. It is not expected that the outcome of these maters 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
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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 regulation and fluctuations in foreign
currency. See "-- GOVERNMENT REGULATION." 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.
BACKGROUND
On November 27, 1995, the Board of Directors of Baxter (the "Baxter Board")
authorized management to proceed with a plan to separate Baxter into two
companies by means of a spin-off of its Allegiance Business (as defined below).
The spin-off will be effected through a distribution (the "Distribution") to
holders of Baxter Stock of all of the outstanding shares of Allegiance Stock. At
the time of the Distribution, Allegiance and its subsidiaries will own the
assets, liabilities and operations, which prior to the date of the Distribution
(the "Distribution Date") comprised Baxter's United States health-care
distribution, surgical and respiratory therapy products and health-care cost
management businesses (the "Allegiance Business"). See "ALLEGIANCE BUSINESS." On
the Distribution Date, Baxter will effect the Distribution by delivering all of
the outstanding shares of Allegiance Stock to the First Chicago Trust Company of
New York, as the distribution agent (the "Distribution Agent") for distribution
to the holders of record of Baxter Stock at the close of business on
September 26, 1996 (the "Record Date"). Allegiance's principal executive offices
are located at One Baxter Parkway, Deerfield, Illinois 60015 until September 30,
1996 (thereafter, at 1430 Waukegan Road, McGaw Park, Illinois 60085). Unless the
context otherwise indicates, as used in this Information Statement the term
"Allegiance" means 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.
Stockholders of Baxter with inquiries relating to the Distribution prior to
the Distribution Date should contact the Distribution Agent, telephone number
(201) - or Baxter International Inc., Baxter Investor Relations
Department, One Baxter Parkway, Deerfield, Illinois 60015, telephone number
(847) 948-4550. After the Distribution Date, stockholders of Allegiance with
inquiries relating to the Distribution or their investment in Allegiance should
contact Allegiance, Corporate Secretary's Department, 1430 Waukegan Road, McGaw
Park, Illinois 60085, telephone number (847) - or First Chicago Trust
Company of New York, Allegiance's transfer agent and registrar, at
telephone number (201) - .
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ALLEGIANCE
Allegiance Corporation 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.
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.
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.
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THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Distribution is intended to increase the long-term value of Baxter
stockholders' investment.
The Distribution will enable each company to align its reporting structure,
cost structure, culture, and management processes in support of its basic
mission and strategy. For example, Allegiance will focus on its mission of
helping customers manage total costs and improving quality in the managed care
environment. Baxter, for example, will develop measurement and reward systems to
encourage intelligent risk-taking and reward entrepreneurship more comparably to
its technology competitors.
From an Allegiance perspective, the Distribution will enable its management
to more precisely focus on cost management and service initiatives while
building on strong positions within self-manufactured products and distribution.
Allegiance will provide integrated solutions that include many different product
offerings within the context of a comprehensive process that reduces overall
cost and improves total quality as defined by its customers. These products may
be Allegiance products, Baxter products or products of other health-care
companies. The Distribution will provide Allegiance with flexibility to serve a
broader range of customers, AS THEY WOULD LIKE TO BE SERVED. Baxter will be a
preferred supplier to Allegiance, and if customers want to continue buying the
total Baxter package of services and products, they can do so. If, however, a
customer does not want an offering integrated with Baxter products, that will be
available also. As a stand-alone company Allegiance will be able to more easily
form alliances with companies manufacturing products that compete with Baxter
products, without the competitive limitations imposed by ownership by Baxter.
Allegiance will also be able to define its own investment vision and raise
capital on an equal footing with its direct competitors, without competition for
funds from Baxter's technology businesses. This will allow Allegiance to make
investments in logistics, manufacturing, information systems, and cost
management processes required to succeed in the managed care environment.
From a Baxter perspective, the Distribution will enable its management to
better focus on creating innovative medical specialty products and on expanding
sales outside the United States. These two strategic thrusts are intended to
drive its growth. The common links among its businesses will be shared
technical, clinical and regulatory competencies; manufacturing and global sales
and distribution platforms; and market relationships.
From a market perspective, the Distribution will allow investors to better
evaluate the merits of Allegiance and the remaining Baxter businesses, enhancing
the likelihood that each will achieve appropriate market recognition for its
performance. The Distribution will afford stockholders of Baxter the option of
continuing their investment in either the Baxter Stock or Allegiance Stock or
both, depending on their investment objectives, and the separate reporting of
the results of the Allegiance Business and the remaining Baxter businesses
should create a framework for increased and more precisely focused equity
research coverage of both companies by the investment community.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution is expected to be declared by the Baxter Board on September
16, 1996 and will be made on the Distribution Date to stockholders of record of
Baxter as of the close of business on the Record Date. On or prior to the
Distribution Date, share certificates for Allegiance Stock will be delivered to
the Distribution Agent. Commencing on the Distribution Date, the Distribution
Agent will begin mailing such share certificates to holders of Baxter Stock as
of the close of business on the Record Date on the basis of one share of
Allegiance Stock for every five shares of Baxter Stock held on the Record Date.
All such shares of Allegiance Stock will be fully paid and non-assessable and
holders thereof will not be entitled to preemptive rights. See "DESCRIPTION OF
ALLEGIANCE CAPITAL STOCK -- ALLEGIANCE COMMON STOCK." No certificates or scrip
representing fractional shares of Allegiance Stock will be issued to Baxter
stockholders as part of the Distribution. The Distribution Agent will aggregate
fractional shares into whole shares of Allegiance Stock and sell
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them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional shares, and such persons will
receive instead a check in payment for the amount of their allocable share of
the total sale proceeds. See "-- CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION." Such sales are expected to be made as soon as practicable after
the mailing of the Allegiance Stock to Baxter stockholders. Baxter will bear the
cost of any commissions incurred in connection with such sales.
NO HOLDER OF BAXTER STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF ALLEGIANCE STOCK TO BE DISTRIBUTED OR TO
SURRENDER OR EXCHANGE SHARES OF BAXTER STOCK OR TO TAKE ANY OTHER ACTION IN
ORDER TO RECEIVE ALLEGIANCE STOCK.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Baxter has received a ruling (the "Tax Ruling") from the United States
Internal Revenue Service (the "IRS") to the effect, among other things, that the
Distribution will qualify under Section 355 of the Internal Revenue Code of
1986, as amended (the "Code") and, accordingly, that under United States federal
income tax law:
1. No income, gain or loss will be recognized by a holder of Baxter
Stock solely as a result of the receipt of Allegiance Stock pursuant to the
Distribution;
2. In general, no gain or loss will be recognized by Baxter or
Allegiance as a result of the Distribution;
3. The tax basis of Baxter Stock held by a Baxter stockholder
immediately prior to the Distribution will be apportioned (based upon
relative market values on the Distribution Date) between such Baxter Stock
and the Allegiance Stock received (including any fractional share interest
deemed received) by such stockholder pursuant to the Distribution; and
4. Assuming that Baxter Stock is held as a capital asset on the
Distribution Date, the holding period for the Allegiance Stock received
pursuant to the Distribution by a holder of Baxter Stock will include the
period during which such Baxter Stock has been held.
If the Distribution does not qualify under Section 355 of the Code, then:
(i) Baxter will recognize taxable gain on the Distribution and (ii) each holder
of Baxter Stock who receives shares of Allegiance Stock pursuant to the
Distribution will be treated as having received a taxable dividend.
The Distribution, though intended to be free from United States federal
income tax as of the Distribution Date, could be rendered taxable as a result of
subsequent actions or events, some of which are within Allegiance's control.
Allegiance has agreed not to undertake such actions and has agreed that under
specified circumstances it will indemnify Baxter for taxes, liabilities, and
associated expenses incurred as a result of specified actions or events. See
"ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE -- REORGANIZATION AGREEMENT."
A holder of Baxter Stock who receives cash in lieu of a fractional share
interest in Allegiance Stock will be treated as if such fractional share
interest had been received as part of the Distribution and then sold.
Accordingly, gain or loss will be recognized for United States federal income
tax purposes measured by the difference, if any, between the amount of cash
received and the tax basis allocable (as described above) to such holder's
fractional share interest. Such gain or loss will be capital gain or loss to the
holder, provided that the Baxter Stock has been held as a capital asset on the
Distribution Date.
Stockholders are urged to consult their own tax advisors as to the
particular consequences to them of the Distribution, including the application
of state, local and non-U.S. tax laws.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX
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ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND NON-U.S. TAX LAWS,
AND AS TO POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES
DESCRIBED ABOVE. THIS SUMMARY MAY NOT BE APPLICABLE TO STOCKHOLDERS WHO RECEIVED
THEIR ALLEGIANCE STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS
COMPENSATION (INCLUDING HOLDERS OF RESTRICTED STOCK) OR WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES.
LISTING AND TRADING OF ALLEGIANCE COMMON STOCK
An application has been filed for listing the Allegiance Stock on the NYSE.
Allegiance initially will have approximately 74,000 stockholders of record,
based on the number of record holders of Baxter Stock as of August 1, 1996. The
transfer agent and registrar for Allegiance Stock will be First Chicago Trust
Company of New York. For certain information regarding certain options to
purchase Allegiance Stock that will be granted after the Distribution, see
"ALLEGIANCE MANAGEMENT -- COMPENSATION OF EXECUTIVE OFFICERS."
Shares of Allegiance Stock distributed to Baxter stockholders in the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of Allegiance under the Securities Act of
1933, as amended, and the rules promulgated thereunder (the "Securities Act").
Persons who may be deemed to be affiliates of Allegiance after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, Allegiance, and may include certain officers and
directors of Allegiance as well as principal stockholders of Allegiance, if any.
Persons who are affiliates of Allegiance will be permitted to sell their shares
of Allegiance Stock only pursuant to an effective registration statement under
the Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Rule 144 promulgated
thereunder.
FUTURE MANAGEMENT OF ALLEGIANCE
Following the Distribution, Allegiance will have substantially the same
operating management as the Allegiance Business currently has. See "ALLEGIANCE
MANAGEMENT -- EXECUTIVE OFFICERS."
OPINIONS OF FINANCIAL ADVISOR
Baxter has engaged CS First Boston Corporation ("CS First Boston") as a
financial advisor in connection with the Distribution.
CS First Boston has delivered to the Baxter Board its written opinions,
dated , 1996 to the effect that: (i) the Distribution will not have
a material adverse effect on the financial viability of New Baxter (which term
shall be deemed to refer to Baxter as constituted immediately following the
Distribution) or Allegiance, as the case may be, during the period immediately
following the Distribution through the end of fiscal year 1998 (the period for
which CS First Boston was provided forecasts), and (ii) the Distribution is fair
to the stockholders of Baxter from a financial point of view.
The term "financial viability" for purposes of these opinions, means and
refers exclusively to the ability of New Baxter or Allegiance, as the case may
be, to finance its currently anticipated operating and capital requirements (as
projected in the financial forecasts provided to CS First Boston by Baxter and
Allegiance) following the Distribution.
Each of CS First Boston's opinions is based upon, among other things, CS
First Boston's review of (i) publicly available business and financial
information relating to Baxter, New Baxter and Allegiance and financial
information contained in the Information Statement in the form provided to it
which it deemed relevant to its review, (ii) financial forecasts provided to CS
First Boston, and other information provided by Baxter prior to the date of each
of the opinions, (iii) discussions with Baxter and Allegiance management
regarding the business and prospects of Baxter, New Baxter and Allegiance, (iv)
comparisons of financial and stock market data of Baxter, and financial data of
New Baxter and Allegiance with similar data for other publicly held companies in
similar businesses, (v) the financial
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terms of other transactions similar to the Distribution that have recently been
effected, (vi) prevailing market conditions, and (vii) other information,
financial studies, analyses and investigations and financial, economic and
market criteria that CS First Boston has deemed relevant.
In each opinion, CS First Boston states that it has not assumed any
responsibility for independent verification of any of the foregoing information
(including the information contained in the Information Statement in the form
provided to it) and has relied on its being complete and accurate in all
material respects. Each opinion further states that, with respect to the
financial forecasts reviewed by CS First Boston, the management of Baxter has
advised CS First Boston that such financial forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management as to the future financial performance of New Baxter and
Allegiance. CS First Boston has assumed no responsibility for, and has expressed
no view as to, such financial forecasts or the assumptions on which they were
based.
Each of CS First Boston's opinions states that CS First Boston has assumed
that (i) no income, gain or loss will be recognized to Baxter, New Baxter or
Allegiance for U.S. federal or state income tax purposes as a result of the
Distribution and (ii) with the exception of the receipt of (x) cash in lieu of
fractional shares of Allegiance Stock and (y) Allegiance Stock distributed with
respect to restricted shares of Baxter Stock held by Baxter employees, the
receipt of Allegiance Stock in the Distribution will be tax-free for U.S.
federal and state income tax purposes to the stockholders of Baxter.
Each CS First Boston opinion is subject to the limitations that CS First
Boston neither made any independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Baxter or Allegiance nor has CS First
Boston been furnished with any such appraisal and that each such opinion is
based on financial, economic, monetary and market conditions as they exist and
can be evaluated on the date of each such opinion. CS First Boston's opinions do
not represent an opinion as to what the market value of the securities of
Allegiance or New Baxter actually will be following the consummation of the
Distribution.
The full text of each of CS First Boston's opinions, each of which set forth
the assumptions made, matters considered and limits on the review undertaken,
will be filed as exhibits to the Registration Statement of which this
Information Statement is a part. The summary of the opinions of CS First Boston
set forth in this Information Statement is qualified in its entirety by
reference to the full text of such opinions.
In arriving at its financial opinions, CS First Boston did not attribute any
particular weight to any analysis or factor considered in reaching its
conclusions, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. CS First Boston's analyses included
review of other publicly held companies in businesses similar to New Baxter and
Allegiance. CS First Boston analyzed these companies primarily with respect to
operating and trading performance, including such factors as market valuation,
sales, operating income, cash flow and net income, and compared that information
with pro forma and projected operating information relating to Allegiance and
New Baxter. CS First Boston has also reviewed the financial terms of other
transactions similar to the Distribution that recently have been effected,
including (but not limited to) such factors as the debt to equity ratio, book
value and capital structure of the distributed companies, and compared that
information with pro forma data relating to Allegiance and New Baxter.
CS First Boston will receive customary fees, including reimbursement of
expenses, for its services as financial advisor related to the Distribution, a
portion of which is contingent upon the consummation of the Distribution. Baxter
also has agreed to indemnify CS First Boston against certain liabilities and
expenses in connection with its services as financial advisor.
CS First Boston and its affiliates have acted, and may in the future act, as
an underwriter for, and have participated as members of underwriting syndicates
with respect to, offerings of Baxter securities, and CS First Boston has
effected securities transactions for Baxter and performed financial
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advisory services in connection with certain acquisitions and dispositions by
Baxter. CS First Boston has received fees from Baxter in the past for these
services. CS First Boston may in the future serve as an underwriter of
Allegiance securities.
Lehman Brothers Inc. has also acted as a financial advisor to Baxter in
connection with the Distribution.
ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE
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, Baxter and Allegiance will enter into the various agreements
described in this section. The agreements summarized below have been, or will
be, filed as exhibits to the Registration Statement or an amendment thereto, of
which this Information Statement is a part, and the following summaries are
qualified in their entirety by reference to the agreements as filed.
It is expected that Allegiance and Baxter will pursue independent but
mutually supportive courses. Each will have its own strategies and interests,
while recognizing the advantages of working together. Allegiance, however, will
have 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 will be Baxter's primary
agent in distributing Baxter's intravenous solutions, cardiovascular devices and
other products in the United States and will provide to Baxter certain
administrative services including credit and collection, accounts payable,
information technology and telecommunications. Baxter will distribute
Allegiance's products in many countries around the world and will provide
various administrative services to Allegiance. Baxter will have no ownership
interest in Allegiance, and Allegiance will be an independent public company.
REORGANIZATION AGREEMENT
Baxter and Allegiance will enter into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") providing for, among other
things, the principal corporate transactions required to effect the separation
of the Allegiance Business from the remaining Baxter businesses and the
Distribution, and certain other agreements governing the relationship between
Baxter and Allegiance with respect to or in consequence of the Distribution.
Pursuant to the Reorganization Agreement, Baxter will transfer to Allegiance
substantially all of the assets, and Allegiance will assume substantially all of
the corresponding liabilities, of the Allegiance Business. See "ALLEGIANCE
BUSINESS." The assets of the Allegiance Business will be transferred to
Allegiance on an "as is, where is" basis and no representations or warranties
will be made by Baxter with respect thereto other than certain product-related
indemnities.
Subject to certain exceptions, the Reorganization Agreement will provide 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. See "LEGAL
PROCEEDINGS." 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.
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The Reorganization Agreement will also provide that Allegiance will assume
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 will provide, 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 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. See "THE DISTRIBUTION -- CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION."
The Reorganization Agreement will also provide 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 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 Distribution to qualify under
Section 355 of the Code. The Reorganization Agreement will further provide 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. See "THE DISTRIBUTION --
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION."
The Reorganization Agreement will also provide 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 three 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 will provide that prior to the Distribution
Date the Certificate of Incorporation and By-laws of Allegiance will be
substantially in the forms attached hereto as Annexes A and B, respectively, and
that as of the Distribution Date the directors of Allegiance will be the persons
named in " ALLEGIANCE MANAGEMENT -- BOARD OF DIRECTORS."
The Reorganization Agreement will also provide that each of Baxter and
Allegiance will be granted access to certain records and information in the
possession of the other, and requires the retention by Baxter and Allegiance,
for a period of ten years following the Distribution, of the information in its
possession relating to the other, and, thereafter, requires that prior notice of
the intention to dispose of such information be given by the party in possession
thereof.
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The Reorganization Agreement will also address 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").
These provisions of the Reorganization Agreement contemplate that Allegiance
will establish certain profit-sharing, retirement savings and welfare plans (the
"Allegiance Plans") effective on the Distribution Date. The Reorganization
Agreement will provide 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 will also generally provide that, after the
Distribution Date, 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 will provide 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.
Finally, the Reorganization Agreement provides that the Distribution will
not be made until all of the following conditions are satisfied or waived by the
Baxter Board in its sole discretion: (i) the receipt of the Tax Ruling or an
acceptable opinion of tax counsel as to the tax-free status of the Distribution;
(ii) final approval by the Baxter Board of the Distribution; (iii) receipt of
all material consents required to effect the Distribution; (iv) the Registration
Statement being declared effective; (v) the Allegiance Board, composed of the
persons identified herein as the Allegiance directors, being duly elected; (vi)
the receipt of the opinions of CS First Boston described under "THE DISTRIBUTION
- -- OPINIONS OF FINANCIAL ADVISOR"; (vii) the Allegiance Stock being approved for
listing on the NYSE; (viii) the transactions contemplated by the Reorganization
Agreement in connection with the organization of Allegiance and the separation
of the Allegiance Business and the Baxter remaining businesses being consummated
in all material respects; (ix) Baxter and Allegiance having entered into each of
the agreements, instruments, understandings, assignments and other arrangements
to be entered into in connection with the transactions contemplated by the
Reorganization Agreement, including, without limitation, any conveyance
documents, any Interim Services Agreement (as defined below), and the Tax
Sharing Agreement, and each such agreement being in full force and effect; (x)
the execution of definitive agreements relating to Allegiance's credit
facilities; and (xi) no action shall have been instituted or threatened before
any court or administrative body to restrain, enjoin or otherwise prevent the
Distribution and no order, injunction or decree having been issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Distribution being in effect. Even if all the conditions are
satisfied, the Reorganization Agreement may be terminated and the Distribution
abandoned by the Baxter Board, in its sole discretion, without the approval of
the Baxter stockholders, at any time prior to the Distribution Date.
TAX SHARING AGREEMENT
Baxter and Allegiance will enter 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 will also allocate consolidated alternative minimum tax and
other tax credit carry-forwards as of the Distribution Date between Baxter and
Allegiance.
AGENCY, SERVICES AND DISTRIBUTION AGREEMENTS
As of October 1, 1996, Baxter's principal domestic operating subsidiary,
Baxter Healthcare Corporation ("BHC"), and an Allegiance subsidiary will enter
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 will
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supply products to Allegiance, and Allegiance, as agent or distributor for
Baxter, will provide 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
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 will approximate or be 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 are to
remain as they were prior to the date of the Distribution.
In addition to the Domestic Distribution Agreements, Baxter and Allegiance
will enter into agreements pursuant to which Baxter will agree 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 will enter into several services agreements, to be
effective from and after the Distribution Date, pursuant to which Baxter will
provide to Allegiance, and Allegiance will provide to Baxter, certain
administrative services that may be necessary for the conduct of Baxter's and
Allegiance's businesses. Services to be provided to Baxter by Allegiance include
credit, collection and
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cash application, accounts payable, telecommunications, and information
technology services. Services to be 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 will be for 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 (see "--
AGENCY, SERVICES AND DISTRIBUTION AGREEMENTS" above) 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 will lease 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 will sublease 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 will be for the remainder of the current term of Baxter's 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.
ALLEGIANCE FINANCING
Prior to the Distribution Date, Allegiance expects to have revolving credit
facilities amounting to $1,500 million. These facilities will enable Allegiance
to borrow funds on an unsecured basis at variable interest rates. The banks
participating in the facilities are expected to commit to maintain a $1,200
million facility for five years and a $300 million facility for one year.
Allegiance expects to incur indebtedness of approximately $1,100 million from
the five year facility on or about the Distribution Date. Approximately $1,100
million of this indebtedness will be used to repay intercompany debt to Baxter
and fund distributions from Allegiance's foreign operations to Baxter. Any
remaining proceeds, together with additional borrowings after the Distribution
Date, will be used for initial working capital requirements. Under the
Reorganization Agreement, Allegiance may be required to pay Baxter or Baxter may
be required to pay Allegiance an amount to adjust working capital, which payment
will be based upon specified operating factors as of the Distribution Date.
Allegiance anticipates that it will convert a significant portion of its initial
debt to longer term fixed rate debt, contingent upon acceptable market
conditions. The debt that is not converted will be managed as part of a
short-term loan portfolio supported by a long-term credit facility. Management
expects that Allegiance's senior debt will be investment grade.
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ALLEGIANCE BUSINESS
OVERVIEW
Allegiance Corporation 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, and improve its distribution returns.
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. In 1995, Allegiance generated more than
$200 million of documented savings for its customers, which include hospitals,
health systems and other providers. 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 can furnish up to 80 percent of a
hospital's total supply needs, excluding pharmaceuticals. Allegiance operates
more than 60 distribution centers across the country, delivering products to
more than 6,000 locations, 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
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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. In these accounts, 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. Allegiance has arranged $1.5 billion of unsecured credit and expects to
receive investment-grade ratings on its senior debt. 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 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.
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 its 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
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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.
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 more than 880,000 boxes of products to more than 6,000
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 the
industry's broadest 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. Allegiance has helped hospitals save an average
of $500,000 in one-time inventory reductions and another $450,000 in annual
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 133
ValueLink-Registered Trademark- accounts, compared with 108 in 1994 and 53 at
the end of 1993. In 1995, sales in ValueLink-Registered Trademark- accounts
increased 28 percent to more than $650 million.
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.
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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 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. In total, Allegiance can furnish up to 80 percent
of a hospital's supply needs, excluding pharmaceuticals.
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
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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.
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. V. Mueller 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
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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.
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 34 hospitals, or
approximately 1.5 per cent of all "adjusted beds in operation", a measure of
U.S. hospital inpatient and outpatient activity. 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 percent 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
29
<PAGE>
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.
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 per cent and 16 per cent
respectively in 1995, 23 per cent and 13 per cent respectively in 1994, and 23
per cent and 13 per cent 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 five per
cent 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's subsidiary 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 United
States, Allegiance products are distributed through Baxter. See "ARRANGEMENTS
BETWEEN BAXTER AND ALLEGIANCE".
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." See
"ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE" for a description of certain
continuing supply arrangements between Baxter and Allegiance.
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. Allegiance management believes it can help its customers achieve
savings in the total health-care system by automating supply-ordering
procedures, optimizing
30
<PAGE>
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. Allegiance
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 United States health-care system that may ultimately occur.
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
Upon the Distribution, Allegiance will assume 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
31
<PAGE>
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.
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. Capital expenditures by Baxter
related to the Allegiance Business were $112 million in 1995, $122 million in
1994 and $273 million in 1993.
32
<PAGE>
ALLEGIANCE PRO FORMA FINANCIAL INFORMATION
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
AND CONDENSED BALANCE SHEET
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 the beginning of each fiscal year presented for
the statements of income and as of June 30, 1996 for the balance sheet.
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 Information Statement. 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, "Adoption of New Accounting
Standards and Policies" on page 42.
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
-------------
-------------
</TABLE>
33
<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
-------------
-------------
</TABLE>
34
<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
-------------
-------------
</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) one
to five year agreements under which Baxter will distribute Allegiance
products in various countries around the world and provide export services.
For more information describing business arrangements between the companies,
see "ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE" elsewhere in the
Information Statement.
(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 an estimated $1.2 billion of debt at a
weighted average interest rate of 7.5 percent. An increase or decrease of
0.125 percent 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 to be 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 common
shares of Allegiance Stock, estimated to be issuable in the Distribution,
based on an assumed exchange ratio of one for five, had been outstanding for
the periods presented.
35
<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)
<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
Investment by and advances from Baxter
International Inc............................. 2,560 -- 2,560 (1,400)(b) --
(1,000)(a)
(160)(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 planned incurrence of an estimated $1.2 billion of debt to
fund (i) the repayment of approximately $1,000 million of intercompany
notes, (ii) distributions to Baxter of approximately $160 million from
Allegiance's foreign operations and (iii) approximately $40 million of
Allegiance's initial working capital requirements. Working capital of $40
million represents the best estimate of the level of working capital
required related to negotiated agreements with Baxter. As of the
Distribution Date, a final working capital amount will be determined
pursuant to various operational factors.
(b) To reflect the anticipated distribution of approximately 54,472,353 million
shares of common stock at $1.00 par value per share (at an assumed
distribution ratio of one share of Allegiance Stock for every five shares of
Baxter Stock held on the Record Date) and the elimination of Baxter's equity
investment effected by the anticipated distribution of all outstanding
shares of Allegiance Stock to Baxter stockholders.
36
<PAGE>
ALLEGIANCE 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 as described in the Notes below. This information should be read in
conjunction with the historical 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
Long-term debt........................................................... $ -- $ 1,200(a) $ 1,200
Equity
Investment by and advances from Baxter International Inc................. 2,560 (1,400)(b) --
(1,000)(a)
(160)(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 planned incurrence of an estimated $1.2 billion of debt to
fund (i) the repayment of approximately $1,000 million of intercompany
notes, (ii) distributions to Baxter of approximately $160 million from
Allegiance's foreign operations and (iii) approximately $40 million of
Allegiance's initial working capital requirements. Working capital of $40
million represents the best estimate of the level of working capital
required related to negotiated agreements with Baxter. As of the
Distribution Date, a final working capital amount will be determined
pursuant to various operational factors.
(b) To reflect the anticipated distribution of approximately 54,472,353 shares
of common stock at $1.00 par value per share (at an assumed distribution
ratio of one share of Allegiance Stock for every five shares of Baxter Stock
held on the Record Date) and the elimination of Baxter's equity investment
effected by the anticipated distribution of all outstanding shares of
Allegiance Stock to Baxter stockholders.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis presents 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 Information Statement.
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 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,
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 United States hospitals are resulting in
increased out-patient and alternate-site health-care service delivery and a
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, Allegiance
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. Allegiance 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 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 was sold in September 1995 and the diagnostics
manufacturing businesses were sold in December 1994. See Notes 1 and
38
<PAGE>
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
% increase (decrease)..................... (2)% 6% 1%
International............................... 149 141 291 271 248
% increase................................ 6% 7% 9%
----------- --------- ----------- ----------- ---------
Total net sales............................... $ 2,201 $ 2,244 $ 4,575 $ 4,314 $ 4,249
% 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
transitioning its surgical supply purchases for certain product lines in early
1994 and continued to transition 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 surgical supply contract.
39
<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 percentage points 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 percentage points 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 percentage point 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
40
<PAGE>
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. 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 exceeding $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
% decrease......................................... (14)% (5)% (3)%
</TABLE>
Pretax income in the first quarter 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
41
<PAGE>
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. 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 has followed the accounting policies
established by Baxter for its consolidated group. Allegiance management believes
that the market value of Allegiance, as a stand-alone company, could be
substantially below its stockholders' equity. While neither Allegiance or Baxter
can forecast Allegiance's market value, Allegiance 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. Allegiance
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 per cent 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
42
<PAGE>
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.
DEBT AND FINANCIAL INSTRUMENTS
Prior to the Distribution Date, Allegiance expects to have revolving credit
facilities amounting to $1,500 million. These facilities will enable Allegiance
to borrow funds on an unsecured basis at variable interest rates. The banks
participating in the facilities are expected to commit to maintain a $1,200
million facility for five years and a $300 million facility for one year.
Allegiance expects to incur indebtedness of approximately $1,100 million from
the five year facility on or about the Distribution Date. Approximately $1,100
million of this indebtedness will be used to repay intercompany debt to Baxter
and fund distributions from Allegiance's foreign operations to Baxter. Any
remaining proceeds, together with additional borrowings after the Distribution
Date, will be used for initial working capital requirements. Under the
Reorganization Agreement, Allegiance may be required to pay Baxter or Baxter may
be required to pay Allegiance an amount to adjust working capital, which payment
will be based upon specified operating factors as of the Distribution Date.
Allegiance anticipates that it will convert a significant portion of its initial
debt to longer term fixed rate debt, contingent upon acceptable market
conditions. The debt that is not converted will be managed as part of a
short-term loan portfolio supported by a long-term credit facility. Management
expects that Allegiance's senior debt will be investment grade.
Assuming a debt level of $1.2 billion, Allegiance's long-term debt as a
percent of total capital 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 prinicpally 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.
43
<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 reuslt 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
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
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. Allegiance 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.
LITIGATION
See Note 12 to "Notes to Combined Financial Statements" for a detailed
description of the status of Allegiance's litigation.
44
<PAGE>
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.
45
<PAGE>
ALLEGIANCE MANAGEMENT
BOARD OF DIRECTORS
Immediately after the Distribution Date, the Allegiance Board is expected to
consist of the individuals named in the table below. The Allegiance Board will
be divided into three classes. Each director will serve for a term expiring at
the annual meeting of stockholders in the year indicated below. See "CERTAIN
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BY-LAWS AND STATE LAW -- CERTIFICATE OF INCORPORATION AND BY-LAWS."
<TABLE>
<CAPTION>
NAME; AGE TERM AS DIRECTOR BACKGROUND
- -------------------------- --------------------- --------------------------------------------------------------
<S> <C> <C>
Lester B. Knight Expires 1999 Mr. Knight will be the chairman of the board and chief
Age 38 executive officer of Allegiance. At Baxter, he has been
executive vice president, responsible for the U.S. Healthcare
business since 1992, and a director of Baxter since 1995. He
was elected a corporate vice president of Baxter in 1990. Mr.
Knight joined Baxter in 1981.
Joseph F. Damico Expires 1998 Mr. Damico will be the president and chief operating officer
Age 42 of Allegiance. At Baxter, he has been group vice president,
responsible for the Field Sales, Health Systems, and
Distribution organizations in the U.S. Healthcare business
since 1993. He was elected a corporate vice president of
Baxter in 1992. He was president of Baxter's Pharmaseal
division in 1992, and prior thereto, was president of the
Convertors/Custom Sterile business since 1989. Mr. Damico
joined Baxter in 1979.
Silas S. Cathcart Expires 1997 Mr. Cathcart is a director of General Electric Company and The
Age 70 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 Expires 1999 Since 1968, Mr. Grainger has been chairman of the board of W.
Age 68 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 Expires 1998 Since 1978, Mr. Golden has been a partner of Davis, Polk &
Age 50 Wardwell, a general practice law firm. He is a director of
Esco Electronics Corporation and Borg Warner Security
Corporation.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NAME; AGE TERM AS DIRECTOR BACKGROUND
- -------------------------- --------------------- --------------------------------------------------------------
Michael D. O'Halleran Expires 1997 Since 1995, Mr. O'Halleran has been president of Aon Group,
Age 46 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.
<S> <C> <C>
Kenneth D. Bloem Expires 1999 Since 1994, Mr. Bloem has been the chief executive officer of
Age 50 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, Ed.D. Expires 1998 Since 1995, Ms. Curran has been president of CurranCare, Inc.,
Age 49 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.
</TABLE>
Messrs. Knight, Cathcart and Grainger are currently directors of Baxter, and
will resign such positions shortly prior to the Distribution Date.
COMMITTEES OF THE BOARD OF DIRECTORS
Allegiance will be managed under the direction of its Board of Directors.
The Allegiance Board will meet on a regular basis to review Allegiance's
operations, strategic and business plans, acquisitions and dispositions, and
other significant developments affecting Allegiance, and to act on matters
requiring Allegiance Board approval. It will also hold special meetings when
important matters require Allegiance Board action between scheduled meetings.
Members of senior management will be invited to Allegiance Board meetings to
discuss the progress of and future plans relating to their areas of
responsibility.
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Allegiance By-laws establish
various committees, including those described below. The Allegiance Board is
permitted to establish other committees from time to time as it deems
appropriate.
THE AUDIT AND PUBLIC POLICY COMMITTEE
The Audit and Public Policy Committee will review the scope of the audit by
the independent auditors, inquire into the effectiveness of Allegiance's
accounting and internal control functions, and recommend 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 will also assist the Allegiance Board in establishing and monitoring
compliance with the ethical standards of Allegiance. The Audit and Public Policy
Committee will also review 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 shall consist solely of directors who are independent of management.
Members of this committee are expected to be Mr. O'Halleran (Chairman), Mr.
Cathcart, Mr. Grainger, Mr. Golden, Mr. Bloem and Ms. Curran.
THE COMPENSATION AND NOMINATING COMMITTEE
The Compensation and Organization Committee will determine the compensation
of officers, other than the chairman of the board and chief executive officer,
exercise the authority of the Allegiance Board concerning employee benefit
plans, serve as the administration committee of Allegiance's stock option plans,
and advise the Allegiance Board on other compensation and employee benefit
matters. In addition, the committee will make recommendations to the Allegiance
Board regarding candidates for election as directors of Allegiance. The
committee will also advise the Board
47
<PAGE>
on board committee structure and membership. The committee shall consist solely
of directors who are independent of management. Members of this committee are
expected to be Mr. Cathcart (Chairman), Mr. Grainger, Mr. Golden, Mr.
O'Halleran, Mr. Bloem and Ms. Curran.
COMPENSATION OF DIRECTORS
Cash compensation of non-employee directors will consist of a $1,000 fee for
each board and each committee meeting attended. Chairpersons of committees will
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 will
receive an annual retainer in the form of 10,000 Allegiance Stock Options.
EXECUTIVE OFFICERS
Set forth below is information with respect to those individuals who are
expected to serve as executive officers of Allegiance immediately following the
Distribution. Those individuals named below who are currently officers or
employees of Baxter will resign from all such positions prior to or as of the
Distribution Date.
LESTER B. KNIGHT, 38, will be chairman of the board and chief executive
officer of Allegiance. At Baxter, he has been executive vice president,
responsible for the U.S. Healthcare business since 1992. Mr. Knight joined
Baxter in 1981 and served in several manufacturing, research-and-development and
management positions before being named general manager of the company'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. Mr. Knight is a member of the Board of Directors of Baxter,
but will resign from that board shortly prior to the Distribution Date.
JOSEPH F. DAMICO, 42, will be president and chief operating officer of
Allegiance. At Baxter, he has been group vice president, responsible for the
Field Sales, Health Systems, and Distribution organizations in the U.S.
Healthcare business since 1993. Mr. Damico joined Baxter in 1979 as a sales
representative and served in a variety of management positions before being
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 and
named group vice president in 1993.
PETER B. MCKEE, 58, will be senior vice president and chief financial
officer of Allegiance. He joined Baxter in May 1996 from FoxMeyer Health
Corporation, a leading pharmaceutical distributor, where he had been senior vice
president and chief financial officer 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, 46, will be senior vice president and chief
information officer of Allegiance. At Baxter, she has been corporate vice
president and chief information officer 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, 46, will be a corporate vice president of Allegiance,
responsible for human resources. At Baxter, he has been vice president of human
resources for the U.S. Distribution organization 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.
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MARK J. EHLERT, 42, will be a corporate vice president of Allegiance,
responsible for quality assurance and regulatory affairs. At Baxter, he has been
vice president, quality and regulatory affairs, for the 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, 44, will be a corporate vice president of a subsidiary of
Allegiance, responsible for strategy and business development as well as cost
management services. At Baxter, she has been president of marketing, strategy
and business development for the 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, 39, will be a group vice president of a subsidiary of
Allegiance. He will lead the regional companies and health systems organizations
of Allegiance. At Baxter, he has been president, 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, 38, will be a corporate vice president and controller of
Allegiance. He has been vice president of finance for the 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, 49, will be senior vice president general counsel and
secretary of Allegiance and will head its law function. At Baxter, he has been
associate general counsel for the 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, 38, will be a corporate vice president and treasurer of
Allegiance. He will also supervise its tax function. At Baxter, he has been vice
president, capital markets, in a 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 the company's U.S. Distribution business in 1992.
1995 COMPENSATION OF EXECUTIVE OFFICERS
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 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.
49
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------------------- RESTRICTED SECURITIES PAYOUTS
OTHER ANNUAL STOCK UNDERLYING ------------- ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ---------------------------- --------- --------- --------- ------------- ----------- ----------- ------------- -------------
<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) As permitted by the Commission's rules regarding disclosure of executive
compensation, this column excludes perquisites and other personal benefits
for the named executive officer if their total cost in 1995 did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the named executive officer for such year.
(3) 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.
(4) No Stock Appreciation Rights ("SARs") were granted by Baxter in 1995, and
there are no outstanding SARs held by any employee or director of
Allegiance. The number shown represents the number of shares of Baxter Stock
for which Baxter options were granted to the named executive officer.
(5) The Commission's rules regarding disclosure of executive compensation allow
awards of restricted stock that are subject to performance-based conditions
on vesting, in addition to lapse of time and/or continued service with
Baxter, to be reported as awards under a long-term incentive plan ("LTIP"),
instead of as restricted stock awards. The rules define an LTIP as a plan
providing compensation intended to serve as incentive for performance to
occur over a period longer than one fiscal year. Restricted stock awards
which are earned based on annual financial performance cannot be reported as
LTIP awards, even if, as in the case of the restricted stock awards
identified in the "Restricted Stock Awards" column, the stock may not be
earned and vested until the end of at least two years.
(6) 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 $94.
Of the named executive officers, Mr. Zollars and Ms. Gaumer are eligible to
receive a special incentive payment equal to one times annual base salary. The
payment will be made three months after the Distribution Date as long as they
have not voluntarily resigned, been terminated for cause, or have accepted a
position outside of the Allegiance organization.
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STOCK OPTION GRANTS
The following table contains information relating to the Baxter stock option
grants made in 1995 under Baxter's 1994 Incentive Compensation Program to the
named executive officers.
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR (1)(6)(7)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES IN EXERCISE OR PRICE APPRECIATION FOR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION ------------------------------------------
NAME GRANTED (#) YEAR (2) ($/SH)(3) DATE 0% ($) 5% ($)(4) 10% ($)(4)
- ----------------------------- ----------- ------------- ----------- ----------- --------- -------------- ---------------
<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 (5)................ 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
All Stockholders............. N/A N/A N/A N/A $ -0- $6,369,603,169 $16,141,840,341
All Optionees................ 5,200,000 100.0 % $ 37.25 7/29/05 $ -0- $ 121,816,760 $ 308,707,880
Optionee Gain as % of All
Stockholders Gain........... N/A N/A N/A N/A N/A 1.9% 1.9%
</TABLE>
- ------------------------------
(1) No SARs were granted by Baxter in 1995.
(2) In 1995, Baxter granted options on approximately 5.2 million shares of
Baxter Stock to approximately 6,400 employees.
(3) 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.
(4) 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.
(5) 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.
(6) 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 $50
per share. The exercise price may be paid in cash or shares of Baxter Stock.
Baxter's 1994 Program provides that if specified corporate control changes
occur, all outstanding options will become exercisable immediately.
(7) It is expected that the Compensation Committee of the Board of Directors of
Baxter will adopt an equitable adjustment formula applicable to all options
to purchase Baxter Stock which are outstanding as of the Distribution Date.
The formula, which is consistent with tax and accounting rules, is intended
to preserve the value of the options after the Distribution Date.
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<PAGE>
STOCK OPTION EXERCISES
The following table contains information relating to the exercise of Baxter
stock options by the named executive officers in 1995 as well as the number and
value of their unexercised Baxter options as of December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END (#)(2) AT FISCAL YEAR END ($)(3)
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) No Baxter SARs were exercised by any Allegiance employee in 1995, and there
are no outstanding Baxter SARs held by any employee or director of
Allegiance.
(2) The sum of the numbers under the Exercisable and Unexercisable columns of
this heading represents each named executive officer's total outstanding
Baxter options.
(3) The dollar amounts shown under the Exercisable and Unexercisable columns of
this heading 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.
52
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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 Allegiance Board of
Directors or its Compensation Committee.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
Allegiance's philosophy will be 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 will
be 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.
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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 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
Allegiance expects to adopt the Allegiance Corporation 1996 Incentive
Compensation Program ("Program"). The 1996 Program will be approved by Baxter as
sole stockholder of Allegiance prior to the Distribution.
GENERAL
The 1996 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 will be administered by the Compensation Committee of Allegiance
("Committee"). The Committee must consist of two or more directors who qualify
as non-employee directors under Rule 16b-3 of the Securities Exchange Act of
1934 and as outside directors under Section 162(m) of the Code. 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 number of shares of Allegiance Stock authorized for issuance under the
Program will not exceed 17.8% of the outstanding shares of Allegiance Stock as
of the Distribution Date.
STOCK OPTIONS
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
54
<PAGE>
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. No person may receive, in any calendar
year, stock options which, in the aggregate, represent more than 1,000,000
shares of Allegiance Stock. The initial option grant to the named executive
officers will be as follows: Mr. Knight, shares; Mr. Damico,
shares; Ms. White, shares; Mr. Zollars, shares; and Ms. Gaumer,
shares.
STOCK APPRECIATION RIGHTS
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. No person may receive,
in any calendar year, SARs which, in the aggregate, represent more than
1,000,000 shares of Allegiance Stock.
RESTRICTED STOCK
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 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. All shares
of restricted stock may be subject to the attainment of performance goals under
Section 162(m) of the Code and other restrictions as the Committee may
determine. Subject to these restrictions and the other requirements of the
Program, a participant receiving restricted stock will have the rights of a
stockholder (including voting and dividend rights) as to those shares only to
the extent the Committee designates such rights at the time of the grant. Not
more than 750,000 shares of Allegiance Stock may be issued in the form of
restricted stock under the Program.
STOCK AWARDS
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. Stock awards
are subject to the following limitations: No person subject to Section 16(a) of
the Exchange Act (executive officers of Allegiance) may receive a stock award,
and no person eligible to receive a stock award may receive a stock award
representing more than 2,500 shares of Allegiance Stock in any calendar year.
PERFORMANCE SHARES
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 to the extent
performance goals set forth in the grant are achieved. All grants of performance
shares will be subject to the attainment of performance goals under Section
162(m) of the Code. The number of shares granted and the performance goals will
be determined by the Committee.
OTHER INCENTIVES
Other incentives may consist of a payment in cash or stock by Allegiance to
an eligible employee as additional compensation for his or her services to
Allegiance or a subsidiary of Allegiance. The form, amount and the terms and
conditions of other incentives will be determined by the Committee.
SECTION 162(M) PERFORMANCE GOALS
Under the Program, grants of restricted stock, performance shares, and other
incentives (as defined in the Program) may be subject to the attainment of
performance goals under Section 162(m) of the Code. The regulations under
Section 162(m) require the performance goals related to grants
55
<PAGE>
under the Program to be approved separately by Allegiance's stockholders.
Performance goals for performance based grants may include, but are not limited
to stock price, sales, return on equity, cash flow, market share, earnings per
share and/or costs.
NON-TRANSFERABILITY OF INCENTIVES
Unless otherwise determined by the Committee, no stock option, SAR,
restricted stock, performance share or other incentive granted under the Program
will be transferable by its holder, except in the event of the holder's death,
by will or the laws of descent and distribution. During an employee's lifetime,
an incentive may be exercised only by the employee or the employee's guardian or
legal representative. The Committee may allow the limited transfer of an
incentive to the immediate family of an employee to facilitate estate planning.
AMENDMENT OF THE PROGRAM
The Board of Directors may amend or discontinue the Program at any time.
However, no amendment or discontinuance may adversely affect an incentive
previously granted. In addition, the Board of Directors may not amend the
Program without approval of Allegiance's stockholders to the extent such
approval is required by law, agreement or any exchange on which Allegiance Stock
is traded.
ACCELERATION OF INCENTIVES
In the event of a change in control of Allegiance (as specified in the
Program), the restrictions on all outstanding shares of restricted stock will
lapse immediately, all outstanding stock options and SARs will become
exercisable immediately and all performance goals will be deemed to be met and
payment made immediately.
CHANGE OF CONTROL PLAN
Allegiance expects to adopt the Allegiance Change of Control Plan ("Change
of Control Plan"). Pursuant to agreements entered into under this Plan,
employees selected to participate (including each of the named executive
officers) will be entitled 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 will
continue for three years from the distribution date and automatically renew
every three years from that date unless the participants receive written notice
of termination at least ninety days prior to the renewal date.
Under this Plan, the separation pay will equal either three years' anualized
base salary and target cash bonus or one years' annualized based salary and
target cash bonus (as determined by the Committee in its discretion depending on
the employee's position) plus the value of all deferred or unvested awards under
all incentive compensation plans per the terms of the 1996 Incentive
Compensation Program.
In the event that any payments would be subject to an excise tax under the
Code, the Company will pay 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 will adopt a qualified defined contribution retirement plan (the
"Allegiance Retirement Plan") for its United States employees effective on the
Distribution date. This plan will include a section 401(k) deferred compensation
account ("401(k) account"), a company matching contribution 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, will be transferred to the Allegiance Retirement
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Plan. The Allegiance Retirement Plan will establish a fund to hold the Baxter
stock currently held on behalf of Allegiance employees in the Baxter Incentive
Investment Plan. The Allegiance Retirement Plan will allow 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 will be eligible to contribute to the Allegiance
401(k) account on or after the Distribution Date. 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.
PERFORMANCE ACCOUNT
Subject to the terms of the Allegiance Retirement Plan, employees of
Allegiance will be eligible to receive contributions to their performance
accounts under such plan. Allegiance will make annual contributions to each
performance account equal to three percent of a participant's annual base
compensation.
In addition, 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.
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
Allegiance's Retirement Plan will be provided 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 on page 49) 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 Allegiance may contribute to the
accounts of certain highly compensated participants under the Allegiance
Retirement Plan. Federal income tax laws also limit the amount participants may
contribute to their accounts under the Allegiance Retirement Plan. Allegiance
will adopt an unfunded non-qualified excess plan (the "Allegiance Excess Plan")
that will credit 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.
BAXTER PENSION PLAN
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
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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.
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 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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OWNERSHIP OF ALLEGIANCE COMMON STOCK BY CERTAIN BENEFICIAL OWNERS
Until the Distribution Date, Baxter will own all of the outstanding shares
of Allegiance Stock. No person or group is anticipated to be the beneficial
owner of more than five per cent of Allegiance Stock outstanding as of the
Distribution Date based upon the number of outstanding shares of Baxter Stock on
June 1, 1996. The following table sets forth information, as of June 1, 1996,
with respect to the expected beneficial ownership of Allegiance Stock by each
director and named executive officer of Allegiance and by all directors and
executive officers of Allegiance as a group. The information relating to
directors and named executive officers is furnished by the respective directors
and officers. No director or named executive officer of Allegiance beneficially
owned more than one per cent of the outstanding Baxter Stock. All Allegiance
directors and executive officers as a group own less than one per cent of the
outstanding Baxter Stock. It is not expected that any director or executive
officer of Allegiance will own more than one per cent of the outstanding
Allegiance Stock.
<TABLE>
<CAPTION>
BAXTER STOCK
BENEFICIALLY RIGHT TO
NAME OF BENEFICIAL OWNER OR GROUP OWNED ACQUIRE
- ------------------------------------------------------------------------------ ---------------- ---------------
<S> <C> <C>
Lester B. Knight.............................................................. 281,742(1) 46,757
Joseph F. Damico.............................................................. 195,416(1) 32,140
Silas S. Cathcart............................................................. 7,334(1) --
David W. Grainger............................................................. 32,500(1) --
Arthur F. Golden.............................................................. -- --
Michael D. O'Halleran......................................................... -- --
Kenneth D. Bloem.............................................................. -- --
Connie Curran, Ed.D........................................................... -- --
Kathy Brittain White.......................................................... 19,400 (1) 10,000
Gail Gaumer................................................................... 86,832 (1) 20,320
Robert J. Zollars............................................................. 90,711 (1) 28,451
All Directors and Executive Officers.......................................... 941,260 (1) 22,203
</TABLE>
- ------------------------
(1) Amounts to less than one per cent; total includes all shares listed under
right to acquire.
CERTAIN TRANSACTIONS
Allegiance has in the past engaged in numerous transactions with Baxter.
Such transactions have included, among other things, the extension of
inter-company loans, the provision of various other types of financial support
by or to Baxter, and the sharing of services and administration and the costs
thereof. See "ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE -- REORGANIZATION
AGREEMENT."
HART-SCOTT-RODINO FILING REQUIREMENT
Any person receiving shares of Allegiance Stock pursuant to the Distribution
and meeting the criteria set forth below may be required to file a Pre-merger
Notification and Report pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). In general, if (i) a person receiving
shares of Allegiance Stock pursuant to the Distribution would own, upon
consummation of the Distribution, Allegiance Stock that exceeds $15 million in
value, (ii) certain jurisdictional requirements are met and (iii) no exemption
applies, then the HSR Act would require that such person file a Pre-merger
Notification and Report Form and observe the applicable waiting periods under
the HSR Act prior to acquiring Allegiance Stock pursuant to the Distribution.
If such waiting periods have not expired or been terminated at the
Distribution Date with respect to such recipient, Baxter may be required to
deliver such recipient's shares of Allegiance Stock into an escrow facility
pending the expiration or termination of such waiting period. Holders of Baxter
Stock are urged to consult their legal counsel to determine whether the
requirements of the HSR Act will apply to the receipt by them of shares of
Allegiance Stock in the Distribution.
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DESCRIPTION OF ALLEGIANCE CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Allegiance will consist of 200,000,000
shares of Allegiance Stock and 20,000,000 shares of preferred stock, par value
$.01 per share (the "Allegiance Preferred Stock"). No shares of Allegiance
Preferred Stock will be issued in connection with the Distribution. Based on the
number of shares of Baxter Stock outstanding as of June 1, 1996, up to
approximately 54.4 million shares of Allegiance Stock will be issued to
stockholders of Baxter in the Distribution. All of the shares of Allegiance
Stock issued in the Distribution will be validly issued, fully paid and
non-assessable. The following summary description of the capital stock of
Allegiance is qualified in its entirety by reference to the proposed forms of
the Certificate of Incorporation and By-laws of Allegiance, forms of which are
attached hereto as Annexes A and B, respectively.
ALLEGIANCE STOCK
Holders of Allegiance Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and, except with respect to the
election of directors which requires a plurality of the votes cast, and except
as described under "CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, BY-LAWS AND STATE LAW -- CERTIFICATE OF
INCORPORATION, BY-LAWS AND STATE LAW -- AMENDMENT OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS", a majority of the votes cast is
required for all action to be taken by stockholders. Holders of Allegiance Stock
do not have cumulative voting rights in the election of directors and have no
preemptive, subscription, redemption, sinking fund or conversion rights. Subject
to preferences that may be applicable to holders of any outstanding shares of
any Allegiance Preferred Stock, holders of Allegiance Stock are entitled to such
dividends as may be declared by the Allegiance Board out of funds legally
available therefor. Upon any liquidation, dissolution or winding-up of
Allegiance, the assets legally available for distribution to stockholders are
distributable ratably among the holders of Allegiance Stock at that time
outstanding, subject to prior distribution rights of creditors of Allegiance and
to the preferential rights of any outstanding shares of Allegiance Preferred
Stock.
ALLEGIANCE PREFERRED STOCK
Under the Certificate of Incorporation the Allegiance Board is authorized to
provide for the issuance of Allegiance Preferred Stock, in one or more series,
and to determine, with respect to any such series, the designations, voting
powers, preferences and rights of such series, and such qualifications,
limitations or restrictions thereof, as the Allegiance Board shall determine.
See "CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BY-LAWS AND STATE LAW -- CERTIFICATE OF INCORPORATION AND
BY-LAWS." In connection with the Rights Agreement to be adopted by Allegiance,
the Allegiance Board will designate a series of Preferred Stock (the "Preferred
Shares"). See "-- Allegiance Rights Agreement."
ALLEGIANCE RIGHTS AGREEMENT
Prior to the Distribution, it is expected that the Allegiance Board will
adopt a Rights Agreement (the "Rights Agreement") between Allegiance and
, N.A. (the "Rights Agent") and cause to be
issued one preferred share purchase right (a "Right") with each share of
Allegiance Stock issued to holders of Baxter Stock at the close of business on
the Record Date.
Each Right will entitle the registered holder to purchase from Allegiance
one one-hundredth of a share of the Series A Junior Participating Preferred
Stock (a "Preferred Share") at a price of $ per one one-hundredth of a
Preferred Share (the "Purchase Price") subject to adjustment. The terms of the
Rights will be set forth in the Rights Agreement. The description set forth
below is intended as a summary only and is qualified in its entirety by
reference to the Rights Agreement, which is attached hereto as Annex C.
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Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons has acquired
beneficial ownership of 15% or more of the outstanding shares of Allegiance
Stock (an "Acquiring Person") or (ii) 10 business days (or such later date as
may be determined by action of the Allegiance Board prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement of a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Allegiance Stock (the earlier of (i) and (ii) being the
"Rights Distribution Date"), the Rights will be evidenced, with respect to any
shares of Allegiance Stock outstanding as of the Record Date, by such Allegiance
Stock certificates with a copy of a summary of rights attached thereto.
The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the shares of Allegiance Stock. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), new Allegiance Stock
certificates issued after the Record Date upon transfer or new issuance of
Allegiance Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Rights Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Allegiance Stock outstanding, even without such notation or a copy of the
summary of rights being attached thereto, will also constitute the transfer of
the Rights associated with the Allegiance Stock represented by such certificate.
As soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of Allegiance Stock as of the close of business on the Rights
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on October 1, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by Allegiance, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares 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
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness,
cash (other than a regular quarterly cash dividend out of the earnings or
retained earnings of Allegiance), assets (other than a dividend payable in
Preferred Shares) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of Allegiance Stock or a stock dividend
on Allegiance Stock payable in Allegiance Stock or subdivisions, consolidations
or combinations of Allegiance Stock occurring, in any such case, prior to the
Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per share of Allegiance Stock. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share. Each Preferred
Share will have 100 votes, voting together with the Allegiance Stock. Finally,
in the event of any merger, consolidation or other transaction in which shares
of Allegiance Stock are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per share of Allegiance Stock. The Rights
are protected by customary anti-dilution provisions.
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Because of the nature of the dividend, liquidation and voting rights, the
value of the one one-hundredth interest in a Preferred Share purchasable upon
exercise of each Right should approximate the value of one share of Allegiance
Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Allegiance Stock having a market value of two
times the exercise price of the Right. In the event that Allegiance is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right.
At any time after any person or group of affiliates or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Allegiance Stock, the Allegiance
Board 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 Allegiance Stock, or one one-hundredth of a Preferred Share (or of a
share of a class or series of Allegiance Preferred Stock having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% in such Purchase
Price. No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of Allegiance, be evidenced by depositary receipts) and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
In general, Allegiance may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (payable in cash, Allegiance Stock or other
consideration deemed appropriate by the Allegiance Board) at any time until ten
days following the first public announcement that a person or group of
affiliated or associated persons has become an Acquiring Person. Immediately
upon the action of the Allegiance Board authorizing any redemption, the Rights
will terminate and the only right of the holders of Rights will be to receive
the redemption price.
The terms of the Rights may be amended by the Allegiance Board without the
consent of the holders of the Rights, including an amendment to lower certain
thresholds described above to not less than 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.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Allegiance, including, without limitation, the right to vote
or to receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Allegiance on
terms not approved by the Allegiance Board. The Rights should not interfere with
any merger or other business combination approved by the Allegiance Board
because the Rights may be redeemed by Allegiance until the tenth day following
the first public announcement that a person or group has become an Acquiring
Person.
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CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, BY-LAWS AND STATE LAW
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the By-laws of Allegiance contain
certain provisions that could make more difficult the acquisition of Allegiance
by means of a tender offer, proxy contest or otherwise. The description set
forth below is intended as a summary only and is qualified in its entirety by
reference to the Certificate of Incorporation and the By-laws, forms of which
are attached hereto as Annex A and Annex B, respectively.
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 Shares under specified circumstances), will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. Immediately after the Distribution, the Allegiance Board will consist
of the persons referred to in "ALLEGIANCE MANAGEMENT -- DIRECTORS." The
Certificate of Incorporation provides that the term of office of the first class
will expire at the 1997 annual meeting of stockholders, the term of office of
the second class will expire at the 1998 annual meeting of stockholders and the
term of office of the third class will expire at the 1999 annual meeting of
stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Allegiance Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Allegiance Board. Such a delay
may help ensure that Allegiance's directors, if confronted by a holder
attempting to force a proxy contest, a tender or exchange offer or an
extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Allegiance Board would
be beneficial to Allegiance and its stockholders and whether or not a majority
of Allegiance's stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Allegiance, even though such an attempt might be
beneficial to Allegiance and its stockholders. The classification of the
Allegiance Board could thus increase the likelihood that incumbent directors
will retain their position. In addition, because the classification provisions
may discourage accumulations of large blocks of Allegiance's stock by purchasers
whose objective is to take control of Allegiance and remove a majority of the
Allegiance Board, the classification of the Allegiance Board could tend to
reduce the likelihood of fluctuations in the market price of Allegiance Stock
that might result from accumulations of large blocks. Accordingly, stockholders
could be deprived of certain opportunities to sell their shares of Allegiance
Stock at a higher market price than might otherwise be obtainable.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL.
The Allegiance Certificate of Incorporation provides that, subject to any
rights of holders of Allegiance Preferred Stock to elect additional directors
under specific circumstances, the number of directors will be the number from
time to time fixed by the Allegiance Board. In addition, the Certificate of
Incorporation provides that, subject to any rights of holders of Allegiance
Preferred Shares, any vacancy that results from an increase in the number of
directors or for any other reason, may be filled by a majority of directors then
in office. Accordingly, absent an amendment to the Allegiance Certificate of
Incorporation, the Allegiance Board could prevent any stockholder from enlarging
the Allegiance Board and filling the new directorships created thereby with such
stockholder's own nominees. Under the Delaware Law, unless otherwise provided in
the Certificate of Incorporation, directors serving on a classified board may
only be removed by the stockholders for cause.
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NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS.
The Allegiance Certificate of Incorporation prohibits stockholder action by
written consent in lieu of a meeting. The By-laws provide that special meetings
of the stockholders may be called only (a) by the chairman of the board or the
secretary, and shall be called upon a request signed by a majority of the
directors or (b) by resolution of the directors.
The provisions of the Certificate of Incorporation of Allegiance prohibiting
stockholder action by written consent may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting unless a
special meeting is called at the request of a majority of the Board. These
provisions would also prevent the holders of a majority of the voting power of
the Voting Stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Allegiance Board by
calling a special meeting of stockholders prior to the time a majority of the
Board believes such consideration to be appropriate.
ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS REQUIRED.
The Allegiance By-laws establish an advance notice procedure for
stockholders to make nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders of Allegiance (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Allegiance Board, or by a stockholder
who has given timely written notice to the Secretary of Allegiance prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of Allegiance. The Stockholder Notice Procedure provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Allegiance Board or by a stockholder
who has given timely written notice to the Secretary of Allegiance of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, for notice of stockholder nominations to be made
at an annual meeting to be timely, such notice must be received by Allegiance
not less than 60 days nor more than 90 days prior to the first anniversary of
the previous year's annual meeting (if the date of any other annual meeting is
advanced by more than 30 days from such anniversary date, not later than the
10th day after the notice of the date of the annual meeting was mailed or public
announcement of the date of such meeting was made). Under the Stockholder Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by Allegiance not earlier than the 90th day before such meeting and not
later than the 10th day after the notice of the date of the special meeting was
mailed or public announcement of the date of such meeting was made. For the
purpose of determining whether a stockholder's notice is timely delivered in
connection with the 1997 annual meeting, the first anniversary of the previous
year's annual meeting is deemed to be May 1, 1997.
Under the Stockholder Notice Procedure, a stockholder's notice to Allegiance
proposing to nominate a person for election as a director must contain certain
information including, without limitation, the name and address of the
nominating stockholder, the class and number of shares of stock of Allegiance
which are owned by such stockholder, and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing stockholders, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of
Allegiance beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the Chairman of the Board or
other officer presiding at a meeting
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determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director, or such business will
not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Allegiance Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Allegiance Board, to inform Stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Allegiance Board, will provide the Allegiance Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Board's position regarding action to be taken with respect to such
business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although the By-laws do not give the Allegiance Board any power to approve
or disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to Allegiance and its stockholders.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS
Under Delaware Law, the stockholders have the right to adopt, amend or
repeal the by-laws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, under Delaware Law,
if the certificate of incorporation so provides, the by-laws may be adopted,
amended or repealed by the board of directors. The Certificate of Incorporation
provides that the affirmative vote of the holders of at least 66 2/3% of the
voting power of the outstanding shares of Voting Stock, voting together as a
single class, is required to amend provisions of the Certificate of
Incorporation relating to the prohibition of stockholder action without a
meeting; the number, election and term of Allegiance's directors; and the
issuance of rights. The By-laws may be amended by the Allegiance Board or by the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class. These
66 2/3% voting requirements will have the effect of making more difficult any
amendment by stockholders of the By-laws or of any of the provisions of the
Certificate of Incorporation described above, even if a majority of Allegiance's
stockholders believe that such amendment would be in their best interests.
STATE LAW
ANTITAKEOVER LEGISLATION
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested stockholder for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares); or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the Delaware Law, an
"interested stockholder" is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the
65
<PAGE>
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate of Incorporation does not exclude Allegiance from
the restrictions imposed under Section 203 of the Delaware Law. It is
anticipated that the provisions of Section 203 of the Delaware Law may encourage
companies interested in acquiring Allegiance to negotiate in advance with the
Allegiance Board, since the stockholder approval requirement would be avoided if
a majority of the directors then in office approves either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS
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. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. 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.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
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.
Allegiance intends to obtain directors and officers liability insurance
providing coverage to its directors and officers.
ADDITIONAL INFORMATION
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of
Allegiance in which indemnification would be required or permitted by the
Certificate of Incorporation.
66
<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
Schedule II -- Valuation and Qualifying Accounts........................................................... F-19
</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 Form
10. 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
Investment by and advances from Baxter International Inc...................... 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
Advances from (payments to) Baxter International Inc., net.... (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>
Investment by and advances from Baxter International Inc.
Beginning balance................................................. $ 2,578 $ 3,069 $ 3,256 $ 3,443
Net income........................................................ 57 273 215 (68)
Advances from (payments to) Baxter International Inc., net........ (75) (764) (402) (119)
------------- --------- --------- ---------
Ending balance...................................................... $ 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>
F-7
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 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>
F-8
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 "Investment By and Advances
From Baxter" account.
F-9
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
F-10
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING CHARGES (CONTINUED)
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.
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 "Investment By and Advances From
Baxter" 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 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,
F-17
<PAGE>
ALLEGIANCE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. LEGAL PROCEEDINGS (CONTINUED)
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, 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>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER FROM AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (A) RESERVES PERIOD
- ---------------------------------------------------- ------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Accounts receivable............................... $ 17 $ 3 $ -- $ (2) $ 18
-- --
-- --
--- --- ---
--- --- ---
Year ended December 31, 1994:
Accounts receivable............................... $ 13 $ 7 $ 1 $ (4) $ 17
-- --
-- --
--- --- ---
--- --- ---
Year ended December 31, 1993:
Accounts receivable............................... $ 12 $ 3 $ -- $ (2) $ 13
-- --
-- --
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(A) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
F-19
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------------------------------------------- -----
<S> <C>
AVAILABLE INFORMATION.......................... 2
SUMMARY........................................ 3
SELECTED HISTORICAL FINANCIAL DATA............. 7
SUPPLEMENTARY FINANCIAL DATA................... 8
RISK FACTORS................................... 9
UNITED STATES HEALTH-CARE ENVIRONMENT........ 9
UNITED STATES COMPETITION.................... 9
REVENUES FROM CUSTOMERS PURCHASING THROUGH
BUYING GROUPS............................... 10
POTENTIAL TAXABILITY......................... 10
FINANCIAL LEVERAGE........................... 10
MUTUAL DISTRIBUTION ARRANGEMENTS............. 10
DEPENDENCE ON ADMINISTRATIVE SERVICES........ 10
NO OPERATING HISTORY AS AN INDEPENDENT
COMPANY..................................... 11
NO PRIOR MARKET FOR ALLEGIANCE COMMON
STOCK....................................... 11
ALLEGIANCE DIVIDEND POLICY................... 11
EFFECTS ON STOCK............................. 11
CERTAIN ANTI-TAKEOVER EFFECTS................ 11
PRODUCTS LIABILITY........................... 12
ENVIRONMENTAL CONTINGENCIES.................. 12
GOVERNMENT REGULATION........................ 12
INTERNATIONAL EXPANSION...................... 13
BACKGROUND..................................... 13
ALLEGIANCE..................................... 14
THE DISTRIBUTION............................... 15
REASONS FOR THE DISTRIBUTION................. 15
MANNER OF EFFECTING THE DISTRIBUTION......... 15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE DISTRIBUTION............................ 16
LISTING AND TRADING OF ALLEGIANCE COMMON
STOCK....................................... 17
FUTURE MANAGEMENT OF ALLEGIANCE.............. 17
OPINIONS OF FINANCIAL ADVISOR................ 17
ARRANGEMENTS BETWEEN BAXTER AND ALLEGIANCE..... 19
REORGANIZATION AGREEMENT..................... 19
TAX SHARING AGREEMENT........................ 21
AGENCY, SERVICES AND DISTRIBUTION
AGREEMENTS.................................. 21
SERVICES AGREEMENTS.......................... 22
ALLEGIANCE FINANCING........................... 23
ALLEGIANCE BUSINESS............................ 24
OVERVIEW..................................... 24
STRATEGIC PROFILE............................ 24
STRATEGIC PRIORITIES......................... 25
DISTRIBUTION SERVICES........................ 26
PRODUCT OFFERING............................. 27
COST-MANAGEMENT SERVICES..................... 29
CONTRACTUAL ARRANGEMENTS; BUYING GROUPS...... 30
SALES AND MARKETING.......................... 30
RAW MATERIALS SUPPLIERS...................... 30
PATENTS AND TRADEMARKS....................... 30
COMPETITION.................................. 30
<CAPTION>
DESCRIPTION PAGE
- ----------------------------------------------- -----
<S> <C>
QUALITY CONTROL.............................. 31
GOVERNMENT REGULATION........................ 31
EMPLOYEES.................................... 31
LEGAL PROCEEDINGS.............................. 31
PROPERTIES..................................... 32
ALLEGIANCE PRO FORMA FINANCIAL INFORMATION..... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 38
OVERVIEW..................................... 38
RESULTS OF OPERATIONS........................ 38
LIQUIDITY AND CAPITAL RESOURCES.............. 42
ALLEGIANCE MANAGEMENT.......................... 46
BOARD OF DIRECTORS........................... 46
COMMITTEES OF THE BOARD OF DIRECTORS......... 47
THE AUDIT AND PUBLIC POLICY COMMITTEE........ 47
THE COMPENSATION AND NOMINATING COMMITTEE.... 47
COMPENSATION OF DIRECTORS.................... 48
EXECUTIVE OFFICERS........................... 48
1995 COMPENSATION OF EXECUTIVE OFFICERS...... 49
STOCK OPTION GRANTS.......................... 51
STOCK OPTION EXERCISES....................... 52
BAXTER PENSION PLAN.......................... 52
BAXTER STOCK HELD BY ALLEGIANCE EMPLOYEES.... 53
COMPENSATION OF EXECUTIVE OFFICERS........... 53
COMPENSATION PHILOSOPHY FOR EXECUTIVE
OFFICERS ................................... 53
COMPENSATION ELEMENTS........................ 54
1996 INCENTIVE COMPENSATION PROGRAM.......... 54
CHANGE OF CONTROL PLAN....................... 56
ALLEGIANCE RETIREMENT PLAN................... 56
COMPENSATION COMMITTEE INTERLOCKS DISCLOSURE
AND INSIDER PARTICIPATION................... 58
OWNERSHIP OF ALLEGIANCE COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS............................. 59
DISCRIPTION OF ALLEGIANCE CAPITAL STOCK........ 60
AUTHORIZED CAPITAL STOCK..................... 60
ALLEGIANCE STOCK............................. 60
ALLEGIANCE PREFERRED STOCK................... 60
ALLEGIANCE RIGHTS AGREEMENT.................. 60
CERTAIN ANTI-TAKEOVER EFFECTS.................. 63
CERTIFICATE OF INCORPORATION AND BY-LAWS..... 63
STATE LAW.................................... 65
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS...................................... 66
LIMITATION OF LIABILITY OF DIRECTORS......... 66
INDEMNIFICATION OF DIRECTORS AND OFFICERS.... 66
INDEX TO COMBINED FINANCIAL STATEMENTS......... F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
E X H I B I T I N D E X
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
* 2 Form of Reorganization Agreement
** 3.1 Form of Amended and Restated Certificate of Incorporation
of Allegiance Corporation
** 3.2 Form of Amended and Restated Bylaws of Allegiance Corporation
4.1 Form of Certificate of Common Stock of Allegiance Corporation
* 4.2 Form of Rights Agreement, by and between Allegiance
Corporation and the rights agent named therein
* 10.1 Form of Allegiance Corporation 1996 Outside Director Incentive
Compensation Plan
* 10.2 Form of Allegiance Corporation 1996 Incentive Compensation Plan
* 10.3 Form of Allegiance Change of Control Plan
* 10.4 Retention Agreement for Mr. Zollars
* 10.5 Retention Agreement for Ms. Gaumer
* 10.6 Agency, Services and Distribution Agreement
* 22 Subsidiaries of Allegiance Corporation
* 23.1 Consent of CS First Boston
** 27 Financial Data Schedule
* 99.1 Form of Fairness Opinion of CS First Boston as to Baxter
* 99.2 Form of Viability Opinion of CS First Boston as to Baxter
* 99.3 Form of Viability Opinion of CS First Boston as to Allegiance
NOTE:
* Filed herewith
** Previously filed
<PAGE>
PART II-1
S I G N A T U R E
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this amendment to its
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALLEGIANCE CORPORATION
By: /s/ Lester B. Knight
--------------------------
Lester B. Knight
Chairman of the Board and
Chief Executive Officer
DATE: August 22, 1996
Page 2
<PAGE>
PART II-2
I N D E X T O E X H I B I T S
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE
- -------------- ----------------------- ----
* 2 Form of Reorganization Agreement
** 3.1 Form of Amended and Restated Certificate of
Incorporation of Allegiance Corporation
** 3.2 Form of Amended and Restated Bylaws of
Allegiance Corporation
4.1 Form of Certificate of Common Stock of
Allegiance Corporation
* 4.2 Form of Rights Agreement, by and between
Allegiance Corporation and the rights agent
named therein
* 10.1 Form of Allegiance Corporation 1996 Outside
Director Incentive Compensation Plan
* 10.2 Form of Allegiance Corporation 1996 Incentive
Compensation Plan
* 10.3 Form of Allegiance Change of Control Plan
* 10.4 Retention Agreement for Mr. Zollars
* 10.5 Retention Agreement for Ms. Gaumer
* 10.6 Agency, Services and Distribution Agreement
* 22 Subsidiaries of Allegiance Corporation
* 23.1 Consent of CS First Boston
** 27 Financial Data Schedule
* 99.1 Form of Fairness Opinion of CS First Boston as
to Baxter
* 99.2 Form of Viability Opinion of CS First Boston as
to Baxter
* 99.3 Form of Viability Opinion of CS First Boston as
to Allegiance
NOTE:
* Filed herewith
** Previously filed
Page 3
<PAGE>
DRAFT 8/19/96
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF ___________ 1996
BY AND BETWEEN
BAXTER INTERNATIONAL INC.
AND
ALLEGIANCE CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND INTERPRETATIONS...................................2
Section 1.1 Definitions..................................................2
Section 1.2 Rules of Construction........................................9
ARTICLE II. THE SPIN-OFF....................................................10
Section 2.1 Delivery of Allegiance Shares...............................10
Section 2.2 Spin-Off of Allegiance Shares...............................10
Section 2.3 Treatment of Fractional Shares..............................10
Section 2.4 Baxter Board Action.........................................11
Section 2.5 Additional Approvals........................................11
ARTICLE III. TRANSFERS TO AHII..............................................11
Section 3.1 General.....................................................11
Section 3.2 Malaysian Glove Factory.....................................11
Section 3.3 Euromedical.................................................12
Section 3.4 France......................................................13
Section 3.5 Germany.....................................................13
Section 3.6 Malta.......................................................13
Section 3.7 Mexico......................................................14
Section 3.8 Canada......................................................14
Section 3.9 Restrictions on Intercompany Debt...........................15
Section 3.10 Transfer of Assets.........................................16
Section 3.11 Transfer of Liabilities....................................16
ARTICLE IV. TRANSFERS TO AHC................................................16
Section 4.1 Organization of AHC.........................................16
Section 4.2 Transferred Assets..........................................16
Section 4.3 Excluded BHC Assets.........................................21
Section 4.4 Assumed Liabilities.........................................22
Section 4.5 Excluded Liabilities........................................23
Section 4.6 Release of Baxter...........................................23
ARTICLE V. ORGANIZATION OF ALLEGIANCE CORPORATION...........................23
Section 5.1 Organization of Allegiance..................................23
Section 5.2 Transfer of Certain Subsidiaries............................24
Section 5.3 Transfer of Assets..........................................24
Section 5.4 Transfer of Liabilities.....................................26
Section 5.5 Excluded Liabilities........................................26
Section 5.6 Intracompany Agreements.....................................26
ARTICLE VI. DELIVERIES AT CLOSING...........................................26
Section 6.1 Instruments of Conveyance...................................26
Section 6.2 No Representations or Warranties............................27
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Section 6.3 Non-Assignable Contracts....................................27
Section 6.4 Further Assurances..........................................28
ARTICLE VII. CERTAIN COVENANTS..............................................29
Section 7.1 Conduct of Allegiance Business
Pending the Spin-Off Date.................................29
Section 7.2 Registration and Listing....................................29
Section 7.3 New Credit Facilities.......................................30
Section 7.4 Post-Spin-Off Tax-Related Restrictions......................30
Section 7.5 Insurance Policies and Claims
Administration............................................31
Section 7.6 Intercompany Receivables and
Cash Management...........................................34
Section 7.7 Intercompany Debt True-Up...................................35
Section 7.8 Agreements Relating to Baxter
and Allegiance............................................36
Section 7.9 Certain Releases............................................36
Section 7.10 Litigation.................................................37
Section 7.11 Liability for Previously
Delivered Products........................................37
Section 7.12 Allegiance Bank Accounts...................................39
Section 7.13 Subsidized Customer Leases.................................39
Section 7.14 Ad Now Program.............................................39
Section 7.15 Services to Dade...........................................39
Section 7.16 Products at Cost to Dade...................................40
ARTICLE VIII. INTELLECTUAL PROPERTY.........................................40
Section 8.1 License of Allegiance
Intellectual Property to Baxter...........................40
Section 8.2 License of Baxter Intellectual
Property to Allegiance....................................42
Section 8.3 Use of Baxter Trade Names and Trademarks....................44
ARTICLE IX. EMPLOYEES AND EMPLOYEE BENEFITS.................................46
Section 9.1 Domestic and International
Allegiance Employee.......................................46
Section 9.2 Employment of Domestic Allegiance
Employees.................................................46
Section 9.3 Terminations/Layoff/Severance...............................46
Section 9.4 International Allegiance Employees..........................47
Section 9.5 Employment Solicitation.....................................47
Section 9.6 WARN Act....................................................48
Section 9.7 Leave of Absence Policies...................................48
Section 9.8 Withdrawal From Participation in
Baxter Plans and Establishment
of Allegiance Plans.......................................49
Section 9.9 Transfer of Savings Plan Account Balances...................49
Section 9.10 Entitlement to Distributions
Under Pension Plan........................................50
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Section 9.11 Welfare Benefits Provided
Under Allegiance Plans....................................50
Section 9.12 Stock Purchase Plan........................................51
Section 9.13 Workers' Compensation......................................51
Section 9.14 Vacation Pay Policy........................................51
Section 9.15 Non-Qualified Deferred Compensation
Plans.....................................................51
Section 9.16 Information to Be Provided to Baxter.......................52
Section 9.17 Corporate Action; Delegation
of Authority..............................................52
Section 9.18 Split-Dollar Life Insurance................................52
ARTICLE X. ACCESS TO INFORMATION............................................53
Section 10.1 Access to Information......................................53
Section 10.2 Production of Witnesses....................................53
Section 10.3 Provision of Corporate Records.............................53
Section 10.4 Confidentiality............................................53
Section 10.5 Privileged Matters.........................................54
ARTICLE XI. CONDITIONS PRECEDENT TO SPIN-OFF................................55
Section 11.1 Tax Ruling.................................................56
Section 11.2 No Actions.................................................56
Section 11.3 NYSE Listing...............................................56
Section 11.4 Opinions of Financial Advisor..............................56
Section 11.5 Consents...................................................56
Section 11.6 Registration Statement.....................................56
Section 11.7 New Credit Facility........................................56
Section 11.8 Pre-Spin-Off Transactions..................................56
Section 11.9 Ancillary Agreements.......................................57
Section 11.10 Resignations..............................................57
Section 11.11 Board Approval............................................57
Section 11.12 Election of Allegiance Board..............................57
Section 11.13 Satisfaction of Conditions................................57
ARTICLE XII. EXPENSES; TAXES................................................57
Section 12.1 Allocation of Expenses.....................................57
Section 12.2 Taxes......................................................58
Section 12.3 Directors' and Officers' Insurance.........................58
ARTICLE XIII. SURVIVAL, INDEMNIFICATION, CLAIMS AND OTHER MATTERS...........59
Section 13.1 Survival...................................................59
Section 13.2 Indemnification............................................59
Section 13.3 Procedure for Indemnification..............................62
Section 13.4 Direct Claims..............................................64
Section 13.5 Adjustment of Indemnifiable Losses.........................64
Section 13.6 Contribution...............................................66
Section 13.7 No Third Party Beneficiaries...............................66
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Section 13.8 Release of Pre-Divestiture Liabilities.....................66
ARTICLE XIV. DISPUTE RESOLUTION.............................................67
Section 14.1 Escalation.................................................67
Section 14.2 Arbitration................................................67
Section 14.3 Injunctive Relief..........................................68
ARTICLE XV. MISCELLANEOUS PROVISIONS........................................68
Section 15.1 Entire Agreement...........................................68
Section 15.2 Choice of Law..............................................68
Section 15.3 Amendment; Waiver..........................................69
Section 15.4 Severability...............................................69
Section 15.5 Counterparts...............................................69
Section 15.6 Records Retention..........................................69
Section 15.7 Beneficiaries..............................................69
Section 15.8 Notices....................................................69
Section 15.9 Termination................................................70
Section 15.10 Performance................................................70
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List of Exhibits
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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 31, 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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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
______________, 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.
"AHFI" has the meaning set forth in SECTION 3.3.
"AHII" has the meaning set forth in SECTION 3.1.
"AHSB" has the meaning set forth in SECTION 3.2.
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"Allegiance Business" 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 the number of, or fractional,
Allegiance Shares which the Board of Directors of Baxter determines shall be
distributed with respect to each share of Baxter Common Stock pursuant to the
Spin-Off.
"Allegiance Employee" means any Domestic or International Allegiance
Employee.
"Allegiance Foreign Entity" means any Subsidiary of Baxter that is
located or incorporated in jurisdiction outside of the United States and will,
upon consummation of the transactions contemplated by this Agreement, become a
Subsidiary of Allegiance.
"Allegiance Indemnified Party" has the meaning set forth in SECTION
13.2.
"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).
"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 4.4.
"Balance Sheet" has the meaning set forth in SECTION 4.2(i).
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"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 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 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 Party" has the meaning set forth in SECTION 13.2.
"Baxter Panama" has the meaning set forth in SECTION 3.2.
"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 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.
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"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.
"Board of Directors" means the board of directors of the referenced
corporation or any duly authorized committee thereof.
"BWT" has the meaning set forth in SECTION 3.1.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
"Chateaubriant Plant" has the meaning set forth in SECTION 3.4.
"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.
"Contracts" has the meaning set forth in SECTION 4.2(viii).
"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.
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"Domestic Allegiance Employee" has the meaning set forth in SECTION
9.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euromedical" has the meaning set forth in SECTION 3.3.
"Eurovac" has the meaning set forth in SECTION 3.6.
"Exchange Act" has the meaning set forth in SECTION 7.2.
"Excluded Baxter Liabilities" has the meaning set forth in SECTION
5.5.
"Excluded BHC Assets" has the meaning set forth in SECTION 4.3.
"Excluded BHC Liabilities" has the meaning set forth in SECTION 4.5.
"Foreign Closing Date" means [August 31, 1996].
"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.
"German Business" has the meaning set forth in SECTION 3.5.
"Inactive Allegiance Employee" means any employee of Baxter or one of
its Subsidiaries who becomes an employee of Allegiance or one of its
Subsidiaries on the Spin-Off Date and 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.
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"Indemnity Payment" means the amount an Indemnifying Party is required
to pay an Indemnified Party pursuant to ARTICLE XIII hereof.
"Information Statement" has the meaning set forth in SECTION 7.2.
"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.
"Intercompany Receivables" means any intercompany receivables or
payables (other than Loans) arising in the ordinary course of business.
"International Allegiance Employee" has the meaning set forth in
SECTION 9.1.
"IRS" means the Internal Revenue Service.
"Loan" means any intercompany indebtedness for borrowed money.
"Malaysian Glove Branch" has the meaning set forth in SECTION 3.2.
"Manufacturing Contracts" means the agreements set forth in EXHIBIT D
under the caption "Contract Manufacturing Agreements."
"New Sub" has the meaning set forth in SECTION 3.8.
"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.
"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.
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"Policies" has the meaning set forth in SECTION 7.5.
"Privilege" has the meaning set forth in SECTION 10.5.
"Privileged Information" has the meaning set forth in SECTION 10.5.
"Real Property Leases" has the meaning set forth in SECTION 4.2(v).
"Receivables" has the meaning set forth in SECTION 4.2(ii).
"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.
"Retained Business" means those portions of the business of Baxter and
its current Subsidiaries which are not part of the Allegiance Business.
"SEC" means the United States Securities and Exchange Commission.
"Shared Agreements" has the meaning set forth in
SECTION 7.8.
"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.
"Tax Sharing Agreement" means the Tax Sharing Agreement 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,
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or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind.
"Transferred Actions" has the meaning set forth in SECTION 7.10(b).
"Transferred Assets" means any of the assets transferred to
Allegiance, AHC or AHII as contemplated by ARTICLES III, IV and V hereof.
"Transferred BHC Assets" has the meaning set forth in SECTION 4.2.
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 or
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Schedules hereto, the provisions of the body of this Agreement shall
control; and
(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, Baxter shall distribute the Allegiance Shares as
follows:
Section 2.1 DELIVERY OF ALLEGIANCE SHARES. 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 cancel and reissue 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 the Allegiance Shares, pro rata, to all holders of record of Baxter
Common Stock as of the Record Date on the basis of one Allegiance Share for each
_______ shares of Baxter Common Stock outstanding 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 Allegiance
shall instruct the Agent to determine the number of whole Allegiance Shares and
fractional Allegiance Shares
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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.
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 prior to the Spin-Off Date and at the approximate times
and in the order described in SCHEDULE 3.1.
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
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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 million dividend payable
to BWT on or before January 31, 1997;
(iii) AHSB shall borrow 10 million ringgits from Euromedical;
(iv) Baxter Panama shall transfer to AHSB all of its right, title and
interest in and to the Malaysian Glove Branch plus-million ringgits in cash
in return for AHSB stock and the assumption, by AHSB of __ million ringgits
of intercompany debt due on the Spin-Off Date and owed to Baxter Panama;
(v) AHII shall borrow U.S.$1,000 from BHC;
(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 _____ shares of AHII
common stock and U.S.$1,000 in cash; and
(viii) Contemporaneously with or immediately following the Spin-Off
(1) AHII shall repay U.S.$1,000 to BHC, and (2) AHSB shall borrow from
Allegiance __ million ringgits 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 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 merged with and into BWT; and
(ii) BWT shall transfer to AHII all of BWT's right, title and
interest in or to 75% of the outstanding common stock of Euromedical.
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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 France S.A.] ("Allegiance France") as
a French corporation and a wholly-owned Subsidiary of AHII;
(ii) BWT shall contribute ____________FF to AHII, which shall be due
________;
(iii) AHII shall contribute ___________ to Allegiance France as
equity; and
(iv) Allegiance France shall purchase from Baxter France the
Chateaubriant Plant for a purchase price equal to the book value of the
Chateaubriant Plant, as determined in accordance with U.S. generally
accepted accounting principles, to be paid in cash and in United States
currency.
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 Health Deutschland GmbH
("Allegiance Germany") will 58,000 DM as equity; and
(ii) Allegiance Germany shall acquire from Baxter Deutschland the
German Business and 100,000 DM.
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) Baxter shall loan _____ Maltese lira to Allegiance, which shall
be due on the Spin-Off Date;
(ii) Allegiance shall loan _______ Maltese lira to Eurovac;
(iii) Eurovac shall pay _______ Maltese lira to [Baxter Malta] to pay
off a loan; and
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(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; and
(vii) Allegiance shall repay _____ Maltese lira 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 wholly-owned Subsidiary of BWT ("Mexicali"), to AHII in
exchange for ______ shares of AHII voting common stock , _____ shares of
AHII non-voting common stock and U.S.$1,000 in cash;
(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;
(iii) Baxter shall transfer all of its right, title and interest in
the capital stock of the Mexican BHC Subsidiaries to BWT in exchange for
U.S. $4,000 in cash; and
(iv) BWT shall transfer all of its right, title and interest in the
capital stock of the Mexican BHC Subsidiaries to AHII in exchange for
______ shares of AHII voting common stock, _______ shares of AHII non-
voting common stock and U.S.$4,000 in cash.
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
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Allegiance Business held by Baxter Corporation, a Canada corporation and a
wholly owned Subsidiary of BWT ("Baxter Canada"), as follows:
(i) Baxter Canada shall form NewSub ("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 the Can $______ of
intercompany indebtedness owed by Baxter Canada to BWTSA;
(ii) Baxter Canada shall adopt a new [charter] pursuant to which
Baxter Canada will exchange all of its outstanding capital stock held by
BWT for new shares of Class A Common Stock and Class B Common Stock, [with
the Class B Common Stock equaling the value of the capital stock of New
Sub];
(iii) BWT shall transfer to AHII all of BWT's holdings of Class B
Common Stock in exchange for _____ shares of AHII voting common stock and
_______ shares of AHII non-voting common stock;
(iv) AHII shall form Allegiance Canada under the laws of Canada
("Allegiance Canada") and shall transfer to Allegiance Canada all of the
Class B Common Stock in exchange for ______ shares of Allegiance Canada
common stock;
(v) Baxter Canada shall transfer to Allegiance Canada all of the
outstanding capital stock of New Sub in exchange for ____ shares of
Allegiance Canada's non-voting Series A Preferred Stock;
(vi) Allegiance Canada shall redeem all of its outstanding non-voting
Series A Preferred in exchange for its promissory note in the principal
amount of U.S.$_____ (the "Canadian Note"), and Baxter Canada shall redeem
all of its outstanding Class B Common Stock from Allegiance Canada in
exchange for the cancellation of the Canadian Note;
(vii) New Sub shall amalgamate with Allegiance Canada; and
(viii) Contemporaneously with or immediately following the Spin-Off,
Allegiance Canada shall borrow Can $_______ from Allegiance 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.
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
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Foreign Entity from the Foreign Closing Date 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
and/or its past or present facilities, 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
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 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,
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furniture and other tangible personal property (other than equipment and
furniture located in properties to be retained by Baxter or its
Subsidiaries hereunder), 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 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;
(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 being manufactured by Baxter
pursuant to the Manufacturing Contracts;
(B) all raw materials inventory related to Allegiance Products;
(C) all supplies, packaging and other inventories related to the
Allegiance Business; and
(D) all finished goods and spare parts inventory of Baxter
Products transferred to the Allegiance Business for distribution
within the United States as shown on the accounting records of Baxter
on the Spin-Off Date; and
(E) Baxter manufactured products in Allegiance's inventory
system which will be purchased at Baxter's distributor list price
until such time when Baxter will convert to a consignment supplier;
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(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 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;
(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;
(vii) INTELLECTUAL PROPERTY. All nonpatented inventions,
discoveries, processes, formulations, trade secrets, know-how and technical
data to the extent such intellectual property is used primarily in
connection with the Allegiance Business including those set forth on
SCHEDULE 4.2(vii) hereto, and all rights which are associated with such
intellectual property, 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 inventions and
other intellectual properties made or conceived by employees, consultants
or contractors of Baxter and its Subsidiaries as to which BHC and its
Subsidiaries have rights under any agreement or otherwise relating to the
foregoing; (4) the assignment of inventions and other intellectual
properties made or conceived by third parties as to which BHC and its
Subsidiaries have rights pursuant to executory agreements with said third
parties relating to the foregoing; and (5) all permits, grants, contracts,
agree-
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ments and licenses running to or from BHC and 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.
(viii) CONTRACTS. All of the following contracts, agreements,
arrangements, leases (other than Real Estate 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 exclusive 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 exclusive to the Allegiance
Business, including those set forth on SCHEDULES 4.2(viii)(C) and
7.13 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, including those set forth on SCHEDULE 4.2(viii)(G)
hereto;
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(H) all dealer management Contracts and alternate
distribution Contracts set forth on SCHEDULE 4.2(viii)(H);
(I) all manufacturing Contracts exclusive to the Allegiance
Business; and
(J) 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 and
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,
which 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 which relate
primarily to the operation of the Allegiance Business;
(xiv) SOFTWARE. All (A) software installed on the mainframe computer
located in Building __ at McGaw Park, Illinois, except for the software set
forth on SCHEDULE 4.2(xiv) hereto, (B) software based on AS400 and other
mid-range hardware included in the Transferred BHC Assets, (C) PC-based
software located on hardware included in the
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Transferred BHC Assets, and (D) 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 the
Allegiance Business.
Section 4.3 EXCLUDED BHC ASSETS. Notwithstanding anything to the
contrary herein, the following assets (the "Excluded BHC Assets") are not, and
shall not be deemed to be, Transferred BHC 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 [as of the
Spin-Off Date], (B) deposits securing bonds, letters of credit, leases and
all other obligations 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,
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assignment, pledge or other disposal prior to December 20, 1996.
Section 4.4 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
and/or any of the past or present facilities of Baxter or any of its
Subsidiaries used primarily in connection with the Allegiance 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 4.4(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 4.4(ii) hereto;
(iii) All liabilities and obligations of BHC in connection with the
industrial revenue bond financings set forth on SCHEDULE 4.4(iii);
(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;
(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;
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(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 4.4(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; and
(x) All other liabilities and obligations of BHC relating to the
Allegiance 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 4.4 are
referred to in this Agreement collectively as the "Assumed BHC Liabilities."
Section 4.5 EXCLUDED LIABILITIES. Notwithstanding anything to the
contrary in this Agreement, neither Allegiance nor any of its Subsidiaries shall
assume any of the liabilities set forth on SCHEDULE 4.5 hereto (the "Excluded
BHC Liabilities").
Section 4.6 RELEASE OF BAXTER. It is expressly understood and agreed
by the parties hereto that upon the assumption by AHC of the Assumed BHC
Liabilities, [Baxter,] its Subsidiaries, and its 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 BHC Liabilities.
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
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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. Following the
consummation of the transactions contemplated by ARTICLES III and IV, Baxter and
Allegiance hereby agree to take, or cause to be taken, any and all actions
necessary to effect the following transactions prior to the Spin-Off Date:
(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 exclusively to the Allegiance Business including
the intellectual property rights set forth below:
(1) the patents and patent applications set forth on
SCHEDULE 5.3(i)(A)(1) hereto, including any continuations,
continuations-in-part, divisions, renewals, reissues and
extensions thereof;
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(2) the 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 (all of the rights described in 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; (3) the assignment of inventions and other intellectual
properties made or conceived by employees, consultants or contractors
of Baxter as to which Baxter has rights under any agreement or
otherwise relating to the Allegiance Assigned Intellectual Property;
(4) the assignment of inventions and other intellectual properties
made or conceived by third parties as to which Baxter has rights
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
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.
(C) The parties recognize that as of the Spin-Off Date all of
the Allegiance Assigned Intellectual Property may not have been
identified on the appropriate schedules referred to hereinabove. The
parties agree that they shall take such other steps as may be
necessary or appropriate in order to complete, ensure and perfect the
conveyance, assignment, transfer, recordation, registration and/or
delivery of all right, title and interest in and to any of the
Allegiance Assigned Intellectual Property.
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(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, and/or any of the past or present facilities of Baxter or
any of its Subsidiaries relating to the Allegiance 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, 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.
Section 5.5 EXCLUDED LIABILITIES. Notwithstanding anything to the
contrary in this Agreement, Allegiance shall not assume any of the Baxter
liabilities set forth in SCHEDULE 5.5 hereto (the "Excluded Baxter
Liabilities").
Section 5.6 INTRACOMPANY AGREEMENTS. Effective as of the Spin-Off
Date, Allegiance shall enter into the agreements with its Subsidiaries described
on SCHEDULE 5.6 hereto, providing for cost sharing, management services and
licensing of intellectual property between Allegiance and its Subsidiaries.
ARTICLE VI. DELIVERIES AT CLOSING
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,
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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 BHC Assets or Transferred
Subsidiaries or (b) as to the legal sufficiency to convey title to any
Transferred BHC Assets or Transferred Subsidiaries on the execution, delivery
and filing of the Conveyancing Instruments. SUBJECT TO 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 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.
Section 6.3 NON-ASSIGNABLE CONTRACTS. In the event and to the extent
that Baxter or its Subsidiaries are unable to obtain any consent, approval or
amendment to any Contract, lease, license, or other rights relating to the
Allegiance Business, (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 and indemnify Baxter
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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 (or their
proceeds) 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. 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 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
Allegiance's title 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 transactions contemplated
hereby or thereby.
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(b) If as a result of mistake or otherwise, any asset reasonably
necessary to the conduct of the Allegiance Business has been omitted from the
Transferred BHC Assets or is not held by a Transferred Subsidiary, or any asset
reasonably necessary to the conduct of the Retained Business has been included
in the Transferred BHC Assets or is held by a Transferred Subsidiary, 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.
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 use its
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 (including using its reasonable efforts to cause its respective
Subsidiaries to take such actions).
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.
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(iii) Baxter and Allegiance shall prepare, and Allegiance shall file
and seek to make effective, an 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 NEW CREDIT FACILITIES. 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 $1,027,000,000 from AHC. On the
Spin-Off Date, (i) Allegiance shall cause AHC to use the proceeds from the sale
of its ten year debentures to Allegiance to pay its [$400 million] intercompany
debt to BWT and its [$627 million] [less assumed industrial revenue bonds
pursuant to SECTION 4.4(iii)] intercompany debt to Baxter, and (ii) Baxter shall
cause BWT to pay its [$125 million] intercompany debt to Baxter and to
distribute as a dividend to Baxter the remaining [$275 million].
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 an active trade or business within the meaning of the Code, (ii) issue
or redeem any share of stock of Allegiance, except for 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(l)(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 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
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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 shall continue to own all
property and casualty 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
SECTION 7.5, Baxter and its Subsidiaries shall retain all of their respective
rights, benefits and privileges, if any, under the Baxter Policies. Allegiance
shall assume any liabilities or reserves recorded which relate to Allegiance or
any of its Subsidiaries as of the Spin-Off Date, including but not limited to
workers' compensation. Nothing contained herein shall be construed to change
the ownership of the Baxter Policies.
(b) PROCUREMENT OF INSURANCE BY 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 Policy in order to effect the naming of Allegiance and its Subsidiaries
as such additional insureds.
(c) POST SPIN-OFF ALLEGIANCE POLICIES AND PROGRAMS. Commencing on
and as of the Spin-Off Date, Allegiance shall be responsible for establishing
and maintaining its own separate property and casualty insurance (including,
without limitation, 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
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will exercise reasonable efforts in securing casualty insurance to avoid
potential gaps in coverage for claiming arising prior to the Spin-Off Date which
would not exist had the Transferred Businesses continued to be covered with the
same retroactive and inception 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, to the extent
such claims administration does not effect or relate to the Baxter Policies.
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 liability and casualty
insurance matters for any period, whether prior to, on or after the Spin-Off
Date.
(d) POST SPIN-OFF CLAIMS ADMINISTRATION. Baxter shall have sole
responsibility for claims and financial administration for claims which relate
to or affect the Baxter Policies. Upon notification by Allegiance 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. 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 power and authority Baxter shall use 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-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, as appropriate, shall have an obligation to
pay or guarantee the payment of any Insurance Charges, 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,
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Baxter shall submit to Allegiance a copy of any invoice received by Baxter
pertaining to such Insurance Charges together with appropriate supporting
documentation, if available. In the event that Allegiance fails to pay any
Insurance Charges when due and payable, whether at the request of the party
entitled to payment or upon demand by Baxter, Baxter 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. 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 to insurance coverage for any
Insured Claims of an insured under the Baxter Policies.
(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 such 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 EFFECTED POLICIES OF INSURANCE. The provisions of this
SECTION 7.5 relate solely to matters involving property and casualty insurance
programs including, without limitation, primary and excess general liability,
automobile, workers' compensation, property and crime insurance policies, 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.
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Section 7.6 INTERCOMPANY RECEIVABLES AND CASH MANAGEMENT.
(a) (i) All Intercompany Receivables between Baxter or any of its
Subsidiaries as they will exist after the Spin-Off, on the one hand, and
any of Euromedical, Eurovac or [Malaysia Silicath], on the other hand,
shall be settled as of 3:00 p.m., Chicago time, on August 26, 1996 in cash,
with such cash settlement occurring on August 29, 1996. Commencing from
the opening of business on August 27, 1996, Intercompany Receivables
between Baxter or any of its Subsidiaries, on the one hand, and any of
Euromedical, Eurovac or [Malaysia Silicath] shall be recorded for
accounting purposes as third party trade account receivables and payables.
(ii) All Intercompany Receivables between Baxter or any of its
Subsidiaries, on the one hand, and the Malaysian Glove Branch, on the other
hand, shall be settled as of 3:00 p.m., Chicago time, on September 23, 1996
in cash, with such cash settlement occurring on September 26, 1996.
Commencing from the opening of business on September 24, 1996, Intercompany
Receivables 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 between any domestic Subsidiary of
Baxter or Allegiance and any entity outside of Baxter's United States
consolidated tax return group shall be settled as of 3:00 p.m., Chicago
time, on September 23, 1996 in cash with such cash settlement occurring on
September 26, 1996. Commencing from the opening of business on September
24, 1996, Intercompany Receivables between any domestic Subsidiary of
Baxter or Allegiance and any entity outside of Baxter's United States
consolidated tax return group 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
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Spin-Off Date which have not been transferred to Baxter shall be paid to Baxter.
(c) 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.
[(d) 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. Commencing immediately after the Spin-Off Date, any
advances or other payments by Baxter or any of its Subsidiaries to or on behalf
of Allegiance or any of its Subsidiaries, or otherwise in connection with the
Allegiance Business or the Allegiance Employees, shall be recorded in the
accounts of Allegiance or its Subsidiaries, as appropriate, as a payable to
Baxter or of its Subsidiaries, as the case may be, and shall be paid to Baxter
on or prior to the Spin-Off Date.]
(e) 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 __ 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 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. 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).
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(b) DEFINITION OF OPERATIONAL CASH FLOW. Operational cash flow for
each Baxter operating unit represents 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) DISPUTES. Any disputes regarding the computation of operational
cash flow shall be resolved in accordance with ARTICLE XIV of this Agreement.
(d) TRUE-UP. In the event that the final determination of the Cash
Flow Statement indicates that the operational cash flow is less than
$___________ plus the lag 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 4.4(ii), within 10 days of
the final determination of such adjustment. In the event that the final
determination of the Cash Flow Statement indicates that the operational cash
flow is greater than $ _____________ plus the lag 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 4.4(ii), within 10
days of the final determination of such adjustment.
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 and make effective its or its Subsidiaries' pro rata portion of
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 pro rata portion of the
Shared Agreements.
(b) Each of Baxter and Allegiance agree to perform, or cause to be
performed, their respective pro rata portions of all purchase, distribution, and
other obligations under the Shared Agreements.
Section 7.9 CERTAIN RELEASES. Baxter or one or more of its
Subsidiaries is a guarantor of certain obligations of the
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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 and its Subsidiaries 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 and 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 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
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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
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 of business
units
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that become Subsidiaries or business units of the initial party 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 a 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 initial party 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].
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.
Section 7.13 SUBSIDIZED CUSTOMER LEASES. Allegiance hereby agrees
that, with respect to the lease agreements set forth on SCHEDULE 7.13 hereto
(the "Subsidized Customer Leases"), it shall cause AHC, from time to time as
such Subsidized Customer Leases are in effect, to make payments to BHC in
amounts sufficient to offset the reduction in rental payments given to the
customer resulting from purchases of Allegiance Products. Such payments shall
be in amounts calculated in a manner consistent with past practice with respect
to such Subsidized Customer Leases.
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 SERVICES TO DADE. If the Dade Transition Services
Agreement is assigned to Allegiance, Baxter will need to agree to provide those
services to Dade for which Allegiance does not have the capability. If the
agreement remains with Baxter, Allegiance will need to agree to do the same.
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Section 7.16 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 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.
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, sell and otherwise practice the patents, patent applications,
copyrights, trade secrets, technology, 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 as of the Spin-Off Date, including new products which
are substitutes for, or line extensions of, such products.
(b) OWNERSHIP OF THE 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 nothing
inconsistent with Allegiance's 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
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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 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. All expenses, including, without limitation,
charges for staff costs, including travel and other expenses incurred in
connection with any assistance requested by Allegiance 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
Subsidiaries' names, if necessary, and (b) Allegiance and its Subsidiaries shall
cooperate with Baxter and its Subsidiaries at Baxter's 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 Baxter only under the following conditions:
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(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, Allegiance may terminate the license granted
pursuant to this SECTION 8.1 by written notice to Baxter as to the Licensed
Allegiance Intellectual Property rights with exception of any Licensed
Allegiance Intellectual Property consisting of patents, patent
applications, or inventions covering manufacturing processes which are
being transferred in connection with such divestiture.
(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
or Persons other than Baxter or an Affiliate of Baxter, then by written
notice to Baxter Allegiance may terminate the license granted pursuant to
this SECTION 8.1 in its entirety, in the case of the acquisition of the
voting stock of Baxter, or as to such Affiliate in the case of the
acquisition of the voting stock of an 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, sell and otherwise practice the patents, patent applications,
copyrights, trade secrets, technology, 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 as of the Spin-Off Date, including new products which
are substitutes for, or line extensions of, such products.
(b) OWNERSHIP OF THE 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
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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 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 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. All expenses, including,
without limitation, charges for staff costs, including travel and other expenses
incurred in connection with any assistance requested by Baxter and 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 prior written
notice to Allegiance. If Baxter so notifies Allegiance, (a) Allegiance 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 shall cooperate with Allegiance at Allegiance's and its
Subsidiaries' reasonable request and at Allegiance's expense.
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(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.
(d) TERMINATION OF LICENSES. The licenses granted in SECTION 8.2 may
be terminated by Allegiance 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, Baxter
may terminate the license granted pursuant to this SECTION 8.2 on written
notice to Allegiance as to the Licensed Baxter Intellectual Property rights
with the exception of any Licensed Baxter Intellectual Property consisting
of patents, patent applications or inventions covering manufacturing
processes which are being transferred in connection with such divestiture.
(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:
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(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.
(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/by the Center for
Biologic Evaluation Review (CBER) ("Biologics"), if any, as soon as
practical, but in no event later than [June 30, 1997/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/complete specifications to remove the Baxter
Marks from] 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.
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ARTICLE IX. EMPLOYEES AND EMPLOYEE BENEFITS
Section 9.1 DOMESTIC AND INTERNATIONAL ALLEGIANCE EMPLOYEES.
SCHEDULE 9.1 describes or otherwise identifies all Domestic and International
Allegiance Employees including all such employees who are then Inactive
Employees. An "International Allegiance Employee" means any Active or Inactive
Allegiance Employee who, immediately prior to the Spin-Off Date is employed by a
Transferred Subsidiary in a foreign jurisdiction. A "Domestic Allegiance
Employee" shall mean any Active or Inactive Allegiance Employee who is not an
International Allegiance Employee.
Section 9.2 EMPLOYMENT OF DOMESTIC ALLEGIANCE EMPLOYEES. On the
Spin-Off Date, Allegiance shall, or shall cause its Subsidiaries to, employ or
continue to employ each Domestic Allegiance Employee. Allegiance and Baxter
(and their Subsidiaries) shall use their reasonable efforts to accomplish any
transfers of employment required by this SECTION 9.2 in a timely manner. Active
Domestic Allegiance Employees shall be paid by Allegiance or one of its
Subsidiaries at the salary and wage rate levels 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 Domestic Allegiance Employees after the Spin-Off Date.
Section 9.3 TERMINATIONS/LAYOFF/SEVERANCE. (a) Domestic 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 9.12.
(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. Allegiance (or the applicable Allegiance
Subsidiary) shall have the obligation to pay the severance benefits as provided
under the Baxter Severance Pay formula to any employee terminated by Baxter
prior to the Spin-Off Date while employed in any Allegiance Business
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unit who is receiving severance benefits under the Baxter Severance Pay Plan and
to pay the severance benefits to any employee terminated by Allegiance after the
Spin-Off Date who is receiving severance benefits under the Allegiance Severance
Pay Plan. The manner in which this SECTION 9.3(b) is implemented shall be
governed by the terms of the Allegiance Severance Pay Plan.
(c) Allegiance shall be responsible, and shall reimburse Baxter and
its Subsidiaries, for the payment of the severance and related costs and
expenses of any employee of Baxter and its Subsidiaries employed by a Subsidiary
or other entity which is included in the Allegiance Business and who receives
severance payments from Baxter or one of its Subsidiaries. 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 three
months following the Spin-Off Date.
Section 9.4 INTERNATIONAL ALLEGIANCE EMPLOYEES. On the Spin-Off
Date, or as soon thereafter as administratively practicable, Allegiance shall,
or shall cause its Subsidiaries to, employ or continue to employ each
International Allegiance Employee. Allegiance and Baxter (and their
Subsidiaries) shall use their reasonable efforts to accomplish any transfers of
employment required by this SECTION 9.4 in a timely manner. Allegiance and its
Subsidiaries shall ensure that International Allegiance Employees transferring
from Baxter or its international Subsidiaries to Allegiance or its international
Subsidiaries shall transfer their relationship to the relevant Allegiance
Subsidiary in accordance with applicable country law, including, without
limitation, laws regarding transfer of business assets and employee benefits.
On the Spin-Off Date, Allegiance shall assume all employment-related liabilities
arising from or incurred in connection with the International Allegiance
Employees, including but not limited to all liabilities relating to any employee
benefit plan as defined in Section 3(3) of ERISA but which is not covered by
ERISA pursuant to ERISA Section 4(b)(4), and Allegiance shall cause its
Subsidiaries to assume all such liabilities with respect to International
Allegiance Employees transferring from Baxter or its Subsidiaries to Allegiance
or its Subsidiaries on the Spin-Off Date.
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
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Subsidiaries. If an employee of Baxter or Allegiance intends to seek employment
from the other company, the employee must receive prior written consent from the
employee's current employer prior to seeking the employment and prior to the
other company hiring the employee. An employee who voluntarily resigns his/her
employment, or whose employment is terminated would also be eligible for
employment consideration in the other company. After the one-year period
beginning on 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.
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 Domestic
and International 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)
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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 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
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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 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.
(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. 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 reported 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
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applicable Baxter Subsidiary) during the six-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 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, a Senior Vice President of each of the
Parties shall agree upon the allocation between the Parties of responsibility
for workers' compensation claims 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.
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
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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 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 associate with the provision of such
split-dollar life insurance to, any Allegiance Employee who as of such date had
attained 65 points as determined under the split-dollar life insurance policy
maintained by Baxter (or the applicable Baxter Subsidiary) with respect to such
person on such date.
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ARTICLE X. ACCESS TO INFORMATION
Section 10.1 ACCESS TO 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 and its 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 relating to the Allegiance
Business or the Allegiance Employees (collectively, "Information") within
Baxter's possession or control, insofar as such access or copies are required by
Allegiance, and (2) Allegiance, upon reasonable notice, shall afford to Baxter
and its authorized accountants, counsel and other designated representatives
reasonable access during normal business hours to, or, at Baxter's expense,
provide copies of, Information within Allegiance's possession or control insofar
as such access or copies are required by Baxter. Information may be requested
under this SECTION 10.1 for audit, accounting, claims defense, 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.
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 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 officers,
employees, agents, consultants,
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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 or furnished to it by such other Party
pursuant to this Agreement including, without limitation, any trade secrets,
technology, know-how-and other non-public, proprietary intellectual property
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 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
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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 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
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permissible) at or prior to the Spin-Off Date of each of the following
conditions:
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.
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Section 11.9 ANCILLARY AGREEMENTS. Each of the Tax Sharing Agreement
and the Operating Agreements shall have been 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 given final approval 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 McDermott, Will &
Emery in connection with its
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representation of Allegiance relating to the creation of benefits plans; (iv)
the reasonable fees and expenses of Goldman Sachs & Co., First Chicago Bank and
Bank of America, N.A. relating to their financial advisory services rendered to
Baxter; (v) the reasonable fees and expenses of CS First Boston Corporation and
Lehman Brothers Inc. relating to their financial advisory services rendered to
Baxter; (vi) the reasonable fees and expenses of Price Waterhouse LLP in
connection with its audit and tax services rendered to Baxter; (vii) the
reasonable fees and expenses of [Towers, Perrin] and Hewitt Associates in
connection with their consulting services relating to benefits plans rendered to
Baxter and Allegiance; (viii) all SEC registration and "blue sky" filing fees
associated with the Registration Statement; (ix) the printing, mailing and
distributing the Information Statement to Baxter's stockholders; (x) 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, (xi) the NYSE listing fees for the Allegiance Shares; (xii) the
design and initial printing of certificates of the Allegiance Shares; (xiii) the
initial distribution of the certificates of Allegiance Common Stock as a
dividend to Baxter stockholders; (xiv) the development, search and registration
of the name "Allegiance"; (xv) third party vendors for software licenses;
(xvi) retention bonuses to Allegiance employees in the amount of $5,271,174;
(xvii) office moving expenses in an amount not to exceed $3,500,000; and
(xviii) 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) any and all retention
bonuses in excess of $5,271,174; and (ii) any and all moving expenses in excess
of $3,500,000.
Section 12.2 TAXES. Baxter and Allegiance agree to cooperate to
determine the amount of sales, transfer or other similar taxes or fees
(including, without limitation, all real estate, patent, copyright and trademark
transfer taxes and 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 the Tax Sharing Agreement, 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 who will become, effective as of the Spin-Off Date, officers
and/or
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directors of Allegiance 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 (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.
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.
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
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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 Excluded BHC Assets;
(iv) the Excluded BHC Liabilities and the Excluded Baxter
Liabilities;
(v) the breach by Baxter 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).
(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
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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 BHC Liabilities;
(v) the Transferred Subsidiaries;
(vi) the breach by Allegiance 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 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); or
(ix) the Contracts set forth on SCHEDULE 4.2(viii)(A) and noted as
being subject to indemnity by Allegiance.
(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
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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 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 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
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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 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
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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 an
Indemnifiable 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.
Such Indemnifying Party shall have a period of 20 business days within which to
respond thereto. If such Indemnifying Party does not respond within such 20
business-day period, such Indemnifying Party shall be deemed 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 20
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
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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,
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 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 shall be deemed to equal the product obtained by multiplying (i) the amount
of any deduction or inclusion in income for such period resulting from such
Claim or Loss or the payment thereof, as the case may be, by (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
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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 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
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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 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 for 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
business prior to the Spin-Off Date, or (c) 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 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 the appropriate [divisional or
business unit chief executives] of each Party for resolution, and if such
[divisional or business unit chief executives] 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.
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
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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 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 and the Operating Agreements constitute the only agreements between
the Parties with respect to the subject matters 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.
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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 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 policy 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 policy 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.
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
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registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Baxter:
Baxter International Inc.
One Deerfield Parkway
Deerfield, IL 60015
Attention: General Counsel
Facsimile: (847) 948-4000
with copies to:
______________________________
______________________________
______________________________
______________________________
If to Allegiance:
Allegiance Corporation
1450 Waukegan Road
McGaw Park, IL 60085
Attention: General Counsel
Facsimile: (847) 689-6812
with copies to:
______________________________
______________________________
______________________________
______________________________
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: ______________________________
Name:
Title:
ALLEGIANCE CORPORATION
By: ______________________________
Name:
Title:
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DRAFT 08/19/96
- --------------------------------------------------------------------------------
ALLEGIANCE CORPORATION
and
---------------------------------
Rights Agent
--------------------
Rights Agreement
Dated as of ____________, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . .2
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . 10
Section 3. Issue of Rights Certificates. . . . . . . . . . . . . . . . 10
Section 4. Form of Rights Certificates . . . . . . . . . . . . . . . . 14
Section 5. Countersignature and Registration . . . . . . . . . . . . . 16
Section 6. Transfer, Split Up, Combination and
Exchange of Rights Certificates; . . . . . . . . . . . . . 17
Mutilated, Destroyed, Lost or Stolen
Rights Certificates . . . . . . . . . . . . . . . . . . . . 17
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights . . . . . . . . . . . . . . . . . 19
Section 8. Cancellation and Destruction of Rights Certificates . . . . 24
Section 9. Reservation and Availability of Capital
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10. Preferred Stock Record Date . . . . . . . . . . . . . . . . 28
Section 11. Adjustment of Purchase Price, Number
and Kind of Shares or Number of Rights. . . . . . . . . . . 29
Section 12. Certificate of Adjusted Purchase
Price or Number of Shares . . . . . . . . . . . . . . . . . 50
Section 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power . . . . . . . . . . . . 51
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . 56
Section 15. Rights of Action. . . . . . . . . . . . . . . . . . . . . . 59
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . 60
Section 17. Rights Certificate Holder Not Deemed a Stockholder. . . . . 62
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . 63
Section 19. Merger or Consolidation or Change of
Name of Rights Agent. . . . . . . . . . . . . . . . . . . . 63
Section 20. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . 65
Section 21. Change of Rights Agent. . . . . . . . . . . . . . . . . . . 70
Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . 72
Section 23. Redemption and Termination. . . . . . . . . . . . . . . . . 73
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 25. Notice of Certain Events. . . . . . . . . . . . . . . . . . 78
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 27. Supplements and Amendments. . . . . . . . . . . . . . . . . 81
Section 28. Successors. . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 29. Determination and Actions by the
Board of Directors, etc . . . . . . . . . . . . . . . . . . 83
Section 30. Benefits of this Agreement. . . . . . . . . . . . . . . . . 84
Section 31. Severability. . . . . . . . . . . . . . . . . . . . . . . . 84
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 85
Section 33. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 85
Section 34. Descriptive Headings. . . . . . . . . . . . . . . . . . . . 85
-i-
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RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of ___________ , 1996 (the "Agreement"),
between Allegiance Corporation, a Delaware corporation (the "Company"), and
______________________________, a _______ (the "Rights Agent").
W I T N E S E T H
WHEREAS, on __________, 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 , 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
<PAGE>
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 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
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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
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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 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
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<PAGE>
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
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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.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking
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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
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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
beneficially owned, directly or indirectly, by such Person, or
otherwise controlled by such Person.
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(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
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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, 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
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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
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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, 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.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued (whether originally issued or from
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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 ______________________ (the "Rights
Agent") dated as of ___________, 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
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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 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 of 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.
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(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
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become null and void in the circumstances specified in Section 7(e) of
such Agreement.
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
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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 an 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
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assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder (or former 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.
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(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
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of Preferred Stock (or other securities, cash or other assets, as the case may
be) as to which such surrendered Rights are then exercisable, at or prior to the
earliest of (i) the close of business on _______, 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 $ ____,
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
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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
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distribute other property pursuant to Section 11(a) hereof, the 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
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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
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election to purchase set forth on the reverse side of the Rights 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
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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
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the securities purchasable upon exercise of the Rights on an 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
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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
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other than that of, the registered holder of the Rights 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
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(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
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Preferred Stock (including any such reclassification in 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, he 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.
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(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
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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
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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 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
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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
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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
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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.
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(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
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of Preferred Stock shall be equal to the "current 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 Purchased 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
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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
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purchase, at the adjusted Purchase Price, that number 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
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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
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may bear, at the option of the Company, the adjusted 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.
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(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
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determine to be advisable in order that any (i) 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
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(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.
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(p) In the event that the Company shall at any time after the
Rights Dividend Declaration Date and 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 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
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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
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consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or 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
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(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
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provisions of Section 11(a)(ii) hereof shall be of no effect following the first
occurrence of any Section 13 Event.
(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,
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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
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meeting the requirements of the Act) until the Expiration Date; and
(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
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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.
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(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions 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.
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(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
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Stock), without the consent of the Rights Agent or of the holder 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;
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(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
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other Person as a result of its inability to perform any of its obligations
under this Agreement by reason 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
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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
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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
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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 of 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
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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 less 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 Right 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 of 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
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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 transfers 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 $100,000,000. 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 of 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
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Common Stock so issued or sold pursuant to the exercise of stock options or
under an 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 of 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 the then outstanding Rights at a redemption
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price of $.01 per Right, as such amount may be appropriately adjusted to reflect
any stock split, stock dividend 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
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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
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established by the Company for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such 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
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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
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the registered holders of the Right 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 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 holder 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
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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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<PAGE>
(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
_____________________________
_____________________________
_____________________________
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
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<PAGE>
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
_____________________________
_____________________________
_____________________________
_____________________________
Attention: _________________
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 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
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<PAGE>
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
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<PAGE>
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
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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.
Attest: ALLEGIANCE CORPORATION
By: By:
--------------------- ----------------------
Name: Name:
Title: Title:
Attest: [RIGHTS AGENT]
By: By:
--------------------- ----------------------
Name: Name:
Title: Title:
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<PAGE>
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
, 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, [WITHOUT] par value, of the Corporation, to be designated
"Series A Junior Participating Preferred Stock" (hereinafter referred to as the
"Series A Preferred Stock"), initially consisting of 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 .
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
<PAGE>
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 day of , , and 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
, 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 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
A-2
<PAGE>
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 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
A-3
<PAGE>
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 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
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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 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
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<PAGE>
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
(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-6
<PAGE>
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), 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
A-7
<PAGE>
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 (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
A-8
<PAGE>
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, _______________________ 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 ____________, 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 __________, 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 __________, 1996 (the "Rights Agreement"), between
Allegiance Corporation, a Delaware corporation (the "Company"), and ____________
___________, a _______________ corporation (the "Rights Agent"), to purchase
from the Company at any time prior to 5:00 P.M. (Chicago time) on _____________,
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 $___ 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 ______________, ____, 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
B-2
<PAGE>
Agreement) that 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 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,
B-3
<PAGE>
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.
B-4
<PAGE>
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 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
B-5
<PAGE>
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.
B-6
<PAGE>
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:
[RIGHTS AGENT]
By:
--------------------
Authorized Signature
B-7
<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
B-8
<PAGE>
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
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.
B-9
<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:
B-10
<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:
B-11
<PAGE>
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.
B-12
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On __________, 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, $___ par value per share
("Common Stock"), to stockholders of record at the close of business on
__________, 1996. Each Right entitles the registered holder to purchase from
Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A
Junior Participating Preferred Stock, without par value (the "Preferred Stock"),
at a Purchase Price of $___ 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 _______________, 1996 between the Company and [RIGHTS
AGENT], 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 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) and Common Stock certificates issued after ,
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.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on __________, 2006, unless earlier redeemed by
the Company as described below.
<PAGE>
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 the beneficial owner of 15% or more of the then
outstanding shares of Common Stock (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 $___ 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 $___
worth of Common Stock (or other consideration, as noted above) for $___.
Assuming that the Common Stock had a per share value of $___ at such time, the
holder of each valid Right would be entitled to purchase ___ shares of Common
Stock for $___.
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 having essentially the same value or economic rights as such
shares.
C-2
<PAGE>
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
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 hereof, 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 Company or for Common Stock of the acquiring company as set
forth above.
C-3
<PAGE>
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.
C-4
<PAGE>
ALLEGIANCE CORPORATION
1996 OUTSIDE DIRECTOR INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of the Allegiance Corporation 1996 Outside Director
Incentive Compensation Plan (the "Plan") is to foster and promote the
long-term financial success of Allegiance Corporation (the "Company") by
(i) more closely aligning the personal interests of the directors with
those of the Company's stockholders and (ii) attracting and retaining
outstanding persons to serve as directors by enabling them to participate
in the Company's growth through stock ownership.
2. SHARES RESERVED.
2.1 NUMBER OF SHARES RESERVED. There is hereby reserved for issuance
under the Plan an aggregate of 350,000 shares of Common Stock of the
Company ("Common Stock") which may be authorized and unissued or
treasury shares. If the Company shall at any time change the number
of issued shares of Common Stock without new consideration to the
Company (such as by stock dividend or stock split), the number of
shares reserved for issuance under this Plan shall be correspondingly
changed.
2.2 REUSAGE OF SHARES. In the event of the termination (by reason of
expiration, cancellation, surrender, or otherwise) of any Annual
Option under the Plan, that number of shares of Common Stock that was
subject to the Annual Option but not delivered shall be available
again for an Annual Option under the Plan.
2.3 ADJUSTMENTS TO SHARES RESERVED. In the event of any merger,
consolidation, reorganization, recapitalization, spinoff, stock
dividend, stock split, reverse stock split, exchange, or other
distribution with respect to shares of Common Stock or other change in
the corporate structure or capitalization affecting the Common Stock,
the type and number of shares of stock which are or may be subject to
Annual Options under the Plan and the terms of any outstanding Annual
Option (including the Option Price ) shall be equitably adjusted by
the Board of Directors to preserve the value of the Annual Options
awarded or to be awarded under the Plan.
3. PARTICIPATION. Participation in this Plan is limited to members of the
Board of Directors of the Company (a "Director") who are not salaried
officers or employees of the Company or any subsidiary (an "Outside
Director"). Each Outside Director shall
<PAGE>
begin participation in the Plan on the first day of his or her first term as
a Director and participation shall continue until the Outside Director no
longer serves as a Director.
4. ADMINISTRATION. This Plan is intended to be self-governing. All grants of
options to Outside Directors under the Plan shall be automatic and
nondiscretionary and shall be made strictly in accordance with the terms of
the Plan. To the extent that questions of administration arise, they shall
be resolved by the entire Board of Directors and the Board of Directors
shall comply with all applicable law in administering the Plan.
5. PAYMENT OF ANNUAL RETAINER IN OPTIONS. As soon as practicable after the
first day of each Term Year (as defined below), in lieu of an annual cash
retainer, each Outside Director shall be granted an option to purchase
shares of Common Stock (an "Annual Option"). The terms of each Annual
Option shall be as follows:
5.1 TERM. The term of the Annual Option shall be ten (10) years.
5.2 EXERCISE. Except as provided in subsection 6.2 below, the Annual
Option shall be exercisable only while the Outside Director
remains a Director of the Company.
5.3 OPTION PRICE. The exercise price per share of Common Stock (the
"Option Price") shall equal the Fair Market Value of a share of
Common Stock determined on the date the Annual Option is granted.
5.4 VESTING. Subject to subsection 6.2 below, the Annual Option
shall become exercisable as to all of the shares subject to the
option on the last day of the Term Year in which the Annual
Option is granted.
5.5 NUMBER OF SHARES. Each Annual Option shall be to purchase
10,000 shares of Common Stock; provided, that in the case of
a Term Year which is other than 12 months in duration, the
Annual Option shall be to purchase that number of shares of
Common Stock which is equal to 10,000 multiplied by a
fraction the numerator of which is the number of months in
the Term Year and the denominator of which is 12.
For purposes of this Section 5, a "Term Year" shall mean the period
beginning on the first day following the annual meeting of the Company's
stockholders, or if later, the
-2-
<PAGE>
first day a person first serves as an Outside Director, and ending on the
day of the succeeding annual meeting; provided, that with respect to the
Outside Directors serving on the effective date of the Plan, the first Term
Year for such Outside Directors shall mean the period beginning October 1,
1996 and ending on the day of the annual meeting of the Company's
stockholders occurring in 1998.
6. OPTION EXERCISES.
6.1 MANNER AND EFFECT OF EXERCISE. An Annual Option may be exercised
by written notice to the Company specifying the number of shares
of Common Stock to be purchased and shall be accompanied by
payment of the option price by check or by the delivery of shares
of Common Stock then owned by the Outside Director or
certification of such ownership. Payment may also be made by
delivering a properly-executed exercise notice to the Company,
together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan
proceeds to pay the exercise price. The exercise notice shall
include such other documentation as the Company or broker or
transfer agent, if applicable, shall require to effect an
exercise of the Annual Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price. An
Annual Option may not be exercised for a fraction of a share. A
share certificate for the number of shares of Common Stock
acquired shall be issued to the Outside Director as soon as
practicable after exercise of an Annual Option. No adjustment
shall be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except
as provided in Section 2. An exercise of an Annual Option in any
manner shall result in a decrease in the number of shares of
Common Stock which thereafter may be available, both for purposes
of the Plan and for sale under the Annual Option, by the number
of shares of Common Stock as to which the Annual Option is
exercised.
6.2 TERMINATION OF OUTSIDE DIRECTOR. In the event an Outside
Director's status as a Director terminates for any reason, all of
the Outside Director's Annual Options shall become fully
exercisable and all such Annual Options shall remain exercisable
for a period of twelve (12) months following the date the Outside
Director's status as a Director terminates (but in no event later
than the expiration of the ten (10) year term of any Annual
Option). To the extent that the terminating Outside Director
does not exercise any Annual Option within the time specified
herein, the Annual Option shall terminate.
-3-
<PAGE>
7. GENERAL
7.1 EFFECTIVE DATE. The Plan will become effective upon its approval by
Baxter International, Inc., the Company's sole stockholder.
7.2 DURATION. The Plan shall remain in effect until all Annual Options
granted under the Plan have been satisfied by the issuance of shares
of Common Stock, or have been terminated in accordance with the terms
of the Plan. No option may be granted under the Plan after the tenth
anniversary of its effective date.
7.3 NON-TRANSFERABILITY OF OPTION. No Annual Option granted under the
Plan may be transferred, pledged, or assigned by an Outside Director
except by will or the laws of descent and distribution in the event of
death, and the Company shall not be required to recognize any
attempted assignment of such rights by any Outside Director. During
an Outside Director's lifetime, options may be exercised only by the
Outside Director or by the Outside Director's guardian or legal
representative. Notwithstanding the foregoing, an Outside Director
may transfer an Annual Option to members of the Director's immediate
family or trusts or family partnerships for the benefit of such
persons, subject to such terms and conditions as may be established by
the Board of Directors.
7.4 COMPLIANCE WITH APPLICABLE LAW. The award of any Annual Option under
the Plan may also be made subject to such other provisions as may be
appropriate to comply with federal and state securities laws or stock
exchange requirements. If, at any time, the Company determines that
the listing, registration, or qualification of any Annual Option, or
the shares of Common Stock issuable pursuant thereto, is necessary on
any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable, the issuance of shares of
Common Stock pursuant to any Annual Option, or the removal of any
restrictions imposed on shares subject to an Annual Option, may be
delayed until such listing, registration, qualification, consent, or
approval is effected.
7.5 NO CONTINUED RETAINER. Participation in the Plan will not give any
Outside Director the right to be retained as a Director of the Company
or any right or claim to any benefit under the Plan unless such right
or claim has specifically accrued under the terms of the Plan.
7.6 TREATMENT AS A STOCKHOLDER. No Annual Option granted to an Outside
Director under the Plan shall create any rights in such Outside
Director as a stockholder of the Company until shares of Common Stock
are registered in the name of the Outside Director.
-4-
<PAGE>
7.7 AMENDMENT OR DISCONTINUATION OF THE PROGRAM. The Board of
Directors may amend, suspend or discontinue the Plan at any time;
provided, however, that no amendment, suspension or discontinuance
shall adversely affect any outstanding Annual Option and if any
law, agreement or exchange on which the Company's Common Stock is
traded requires stockholder approval for an amendment to become
effective, no such amendment shall become effective unless approved by
vote of the Company's stockholders.
7.8 FAIR MARKET VALUE. Except as otherwise determined by the Board of
Directors, the Fair Market Value of a share of Common Stock as of any
date shall be equal to the closing sale price of a share of Common
Stock on that date as reported on the New York Stock Exchange
Composite Reporting Tape.
-5-
<PAGE>
ALLEGIANCE CORPORATION
1996 INCENTIVE COMPENSATION PROGRAM
1. PURPOSE. The purpose of the Allegiance Corporation 1996 Incentive
Compensation Program ("Program") is to increase stockholder value and to
advance the interests of Allegiance Corporation ("Allegiance") and its
subsidiaries (collectively, the "Company") by providing a variety of
economic incentives designed to attract, retain, and motivate officers and
other key employees and by strengthening the mutuality of interest between
such employees and the Company's stockholders. As used in this Program,
the term "subsidiary" means any business, whether or not incorporated, in
which Allegiance has a direct or indirect ownership interest.
2. ADMINISTRATION.
2.1 ADMINISTRATION BY COMMITTEE. The Program shall be administered by the
Compensation Committee of the Allegiance Board of Directors
("Committee"), which shall consist of two or more non-employee
directors within the meaning of Rule 16b-3 of the Securities Exchange
Act of 1934, as amended ("Exchange Act") who also qualify as outside
directors within the meaning of Section 162(m) and the related
regulations under the Internal Revenue Code of 1986, as amended. The
Chief Executive Officer of the Company may exercise any or all
authority otherwise delegated to the Committee under the terms of the
Program with respect to the grant or administration of incentives made
to or held by persons who, at the time of the exercise of such
authority, are not subject to Section 16(a) of the Exchange Act.
2.2 AUTHORITY. Subject to the provisions of the Program, the Committee
shall have the authority to (a) interpret the provisions of the
Program, and prescribe, amend, and rescind rules and procedures
relating to the Program, (b) grant incentives under the Program, in
such forms and amounts and subject to such terms and conditions as it
deems appropriate, including, without limitation, incentives which are
made in combination with or in tandem with other incentives (whether
or not contemporaneously granted) or compensation or in lieu of
current or deferred compensation, (c) modify the terms of, cancel and
reissue, or repurchase outstanding incentives, subject to subsection
12.7, and (d) make all other determinations and take all other actions
as it deems necessary or desirable for the administration of the
Program; provided, however, that in no event shall the Committee
cancel any outstanding stock option for the purpose of reissuing an
option to the option holder at a lower exercise price. The
determination of the Committee on matters within its authority shall
be conclusive and binding on the Company and all other
<PAGE>
persons. The Committee shall comply with all applicable law in
administering the Plan.
3. PARTICIPATION. Subject to the terms and conditions of the Program, the
Committee shall designate from time to time the employees of the Company
(including employees who are directors of Allegiance) who shall receive
incentives under the Program ("Participants"). All officers and other
full-time employees of the Company are eligible to receive incentives under
the Program. Participation, the grant of incentives and any related
performance goals for persons subject to Section 16(a) of the Exchange Act
must be determined by the Committee.
4. SHARES SUBJECT TO THE PROGRAM
4.1 NUMBER OF SHARES RESERVED. Subject to adjustment in accordance with
subsections 4.2 and 4.3, the aggregate number of shares of Allegiance
Common Stock ("Common Stock") available for incentives under the
Program shall be shares. All shares of Common Stock issued
under the Program may be authorized and unissued shares or treasury
shares. All of such shares may, but need not, be issued pursuant to
the exercise of Incentive Stock Options. The maximum number of shares
of Common Stock which may be granted in the form of Restricted Stock
shall be 750,000. The maximum number of shares that may be granted
in the form of a Stock Option or Stock Appreciation Right pursuant to
any award granted in any fiscal year to a Participant shall be
1,000,000 shares.
4.2 REUSAGE OF SHARES.
(a) In the event of the exercise or termination (by reason of
forfeiture, expiration, cancellation, surrender, or otherwise) of
any incentive under the Program, that number of shares of Common
Stock that was subject to the incentive but not delivered shall
be available again for incentives under the Program.
(b) In the event that shares of Common Stock are delivered under the
Program and are thereafter forfeited or reacquired by the Company
pursuant to rights reserved upon the award thereof, such
forfeited or reacquired shares shall be available again for
incentives under the Program.
4.3 ADJUSTMENTS TO SHARES RESERVED. In the event of any merger,
consolidation, reorganization, recapitalization, spinoff, stock
dividend, stock split, reverse stock split, exchange, or other
distribution with respect to shares of Common
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Stock or other change in the corporate structure or capitalization
affecting the Common Stock, the type and number of shares of stock
which are or may be subject to incentives under the Program and the
terms of any outstanding incentives (including the price at which
shares of stock may be issued pursuant to an outstanding incentive)
shall be equitably adjusted by the Committee, in its sole discretion,
to preserve the value of incentives awarded or to be awarded to
Participants under the Program.
5. STOCK OPTIONS.
5.1 AWARDS. Subject to the terms and conditions of the Program, the
Committee shall designate the employees to whom options to purchase
shares of Common Stock ("Stock Options") are to be awarded under the
Program and shall determine the number, type, and terms of the Stock
Options to be awarded to each of them. Each Stock Option shall expire
not later than 10 years and one day after the date of grant. The
option price per share ("Option Price") for any Stock Option awarded
shall not be less than the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted. Each Stock Option
awarded under the Program shall be a "nonqualified stock option" for
tax purposes unless the Stock Option satisfies all of the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended, and
the Committee designates such Stock Option as an "Incentive Stock
Option".
5.2 MANNER OF EXERCISE. A Stock Option may be exercised by written notice
to the Company specifying the number of shares of Common Stock to be
purchased and shall be accompanied by payment of the Option Price by
check or, in the discretion of the Committee, by the delivery of
shares of Common Stock then owned by the Participant or certification
of such ownership. In the discretion of the Committee, payment may
also be made by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds
to pay the exercise price.
5.3 DIVIDEND EQUIVALENTS. The Committee may grant dividend equivalents in
connection with any option granted under this Program. Such dividend
equivalents may be payable in cash or in shares of Common Stock upon
such terms and conditions as the Committee in its sole discretion
deems appropriate.
6. STOCK APPRECIATION RIGHTS.
6.1 GRANT OF SARS. Subject to the terms and conditions of the Program,
the Committee shall designate the employees to whom stock appreciation
rights ("SARs") are to be awarded under the Program and shall
determine the number,
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type and terms of the SARs to be awarded to each of them. An SAR may be
granted in tandem with a stock option granted under the Program, or the
SAR may be granted on a free-standing basis. Tandem SARs may be granted
either at or after the time of grant of a stock option, provided that,
in the case of an Incentive Stock Option a tandem SAR may be granted
only at the time of the grant of such option. The grant price of a
tandem SAR shall equal the option price of the related option. The
grant price of a free-standing SAR shall be equal to the Fair Market
Value of a share of Common Stock on the date of grant of the SAR.
6.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the shares subject to the related option upon the surrender of the
right to exercise the equivalent portion of the related option. A
tandem SAR shall terminate and no longer be exercisable upon
termination or exercise of the related stock option. A tandem SAR may
be exercised only with respect to the shares for which its related
option is then exercisable.
6.3 EXERCISE OF FREE-STANDING SARS. Free-standing SARs may be exercised
upon such terms and conditions as the Committee, in its sole
discretion, determines.
6.4 TERM OF SARS. The term of an SAR granted under the Program shall be
determined by the Committee in its sole discretion; provided, however,
that such term shall not exceed the option term in the case of a
tandem SAR, or ten years in the case of a free-standing SAR.
6.5 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The excess of the Fair Market Value of a share of Common Stock on
the date of exercise over the grant price of the SAR by
(b) The number of shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment to be made upon an SAR
exercise may be in cash, in shares of Common Stock of equivalent
value, or in some combination thereof.
7. STOCK AWARDS. Subject to the terms and conditions of the Program, the
Committee shall designate the employees who shall be awarded shares of
Common Stock without restrictions ("Stock Awards"), under the Program and
shall determine the number and terms of the Stock Awards to be awarded to
each of them. No person subject to Section 16(a) of the Exchange Act may
receive a Stock Award, and no
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person eligible to receive a Stock Award may receive a Stock Award
representing more than 2,500 shares of Common Stock in any calendar year.
8. RESTRICTED STOCK.
8.1 AWARDS. Subject to the terms and conditions of the Program, the
Committee shall designate the employees to whom shares of Common
Stock, subject to restrictions ("Restricted Stock"), shall be awarded
or sold under the Program and determine the number of shares and the
terms and conditions of each such award.
8.2 RESTRICTIONS. All shares of Restricted Stock shall be subject to such
restrictions as the Committee may determine, including, without
limitation, any of the following:
(a) a prohibition against the sale, assignment, transfer, pledge,
hypothecation, or other encumbrance of the shares of Restricted
Stock for a specified period;
(b) a requirement that the holder of shares of Restricted Stock
forfeit (or in the case of shares sold to a Participant, resell
to the Company at his or her cost) such shares in the event of
termination of his or her employment during any period in which
such shares are subject to restrictions; or
(c) a prohibition against employment of the holder by any competitor
of the Company or against such holder's dissemination of any
confidential information belonging to the Company.
All restrictions shall expire at such time as the Committee shall
specify.
8.3 STOCKHOLDER RIGHTS. Shares of Restricted Stock shall be registered in
the name of the Participant. Each Participant who has been awarded
shares of Restricted Stock shall have such rights of a stockholder
with respect to such shares as the Committee may designate at the time
of the award, including the right to vote such shares and the right to
receive dividends paid on such shares. Unless otherwise provided by
the Committee, stock dividends or non-cash dividends and any other
securities distributed with respect to Restricted Stock shall be
subject to the same restrictions and other terms and conditions as the
Restricted Stock to which they are attributable.
8.4 LAPSE OF RESTRICTIONS. Shares of Restricted Stock will be delivered
free of all restrictions to the Participant (or to the Participant's
legal representative,
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beneficiary, or heir) when the shares are no longer subject to
forfeiture or restrictions on transfer.
9. PERFORMANCE SHARES.
9.1 AWARDS. Subject to the terms and conditions of the Program, the
Committee shall designate the employees to whom Performance Shares are
to be awarded and determine the number of shares and the terms and
conditions of each such award. Each Performance Share shall entitle
the Participant to a payment in the form of one share of Common Stock
upon the attainment of performance goals and other terms and
conditions specified by the Committee.
9.2 NO ADJUSTMENTS. Except as otherwise provided by the Committee or in
section 4.3 hereof, no adjustment shall be made in Performance Shares
awarded on account of cash dividends which may be paid or other rights
which may be provided to the holders of Common Stock prior to the end
of any performance period.
9.3 SUBSTITUTION OF CASH. The Committee may, in its sole discretion,
substitute cash equal to the Fair Market Value (determined as of the
date of the issuance) of shares of Common Stock otherwise required to
be issued to a Participant hereunder.
10. OTHER INCENTIVES. In addition to the incentives described in Sections 5
through 9 above and subject to the terms and conditions of the Program, the
Committee may grant other incentives ("Other Incentives"), payable in cash
or in stock, under the Program as it determines to be in the best interest
of the Company.
11. PERFORMANCE GOALS. Awards of Restricted Stock, Performance Shares and
other incentives under the Program may be made subject to the attainment of
performance goals relating to one or more business criteria within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended,
including, but not limited to, stock price, market share, sales, earnings
per share, return on equity, costs and cash flow, as determined by the
Committee from time to time.
12. GENERAL
12.1 EFFECTIVE DATE. The Program will become effective upon its approval
by Baxter International, Inc., Allegiance's sole stockholder.
12.2 DURATION. The Program shall remain in effect until all incentives
granted under the Program have been satisfied by the issuance of
shares of Common Stock, lapse of restrictions or the payment of cash,
or have been terminated in
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<PAGE>
accordance with the terms of the Program or the incentive. No incentive
may be granted under the Program after the tenth anniversary of its
effective date.
12.3 NON-TRANSFERABILITY OF INCENTIVES. No incentive granted under the
Program may be transferred, pledged, or assigned by the employee
except by will or the laws of descent and distribution in the event of
death, and the Company shall not be required to recognize any
attempted assignment of such rights by any Participant. During a
Participant's lifetime, awards may be exercised only by the
Participant or by the Participant's guardian or legal representative.
Notwithstanding the foregoing, at the discretion of the Committee, a
grant of an award may permit the transfer of the award by the
Participant solely to members of the Participant's immediate family or
trusts or family partnerships for the benefit of such persons, subject
to such terms and conditions as may be established by the Committee.
12.4 COMPLIANCE WITH APPLICABLE LAW AND WITHHOLDING.
(a) The award of any benefit under the Program may also be made subject to
such other provisions as the Committee determines appropriate,
including, without limitation, provisions to comply with federal and
state securities laws or stock exchange requirements.
(b) If, at any time, the Company, in its sole discretion, determines that
the listing, registration, or qualification of any type of incentive,
or the shares of Common Stock issuable pursuant thereto, is necessary
on any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable, the issuance of shares of
Common Stock pursuant to any incentive, or the removal of any
restrictions imposed on shares subject to an incentive, may be delayed
until such listing, registration, qualification, consent, or approval
is effected.
(c) The Company shall have the right to withhold from any award under the
Program or to collect as a condition of any payment under the Program,
as applicable, any taxes required by law to be withheld. To the
extent permitted by the Committee, a Participant may elect to have any
distribution, or a portion thereof, otherwise required to be made
under the Program to be withheld or to surrender to the Company
previously owned shares of Common Stock to fulfill any tax withholding
obligation.
12.5 NO CONTINUED EMPLOYMENT. Participation in the Program will not give
any Participant the right to be retained in the employ of the Company
or any right or claim to any benefit under the Program unless such
right or claim has specifically accrued under the terms of any
incentive under the Program.
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<PAGE>
12.6 TREATMENT AS A STOCKHOLDER. No incentive granted to a Participant
under the Program shall create any rights in such Participant as a
stockholder of the Company until shares of Common Stock related to the
incentive are registered in the name of the Participant.
12.7 AMENDMENT OR DISCONTINUATION OF THE PROGRAM. The Board of Directors
may amend, suspend, or discontinue the Program at any time; provided,
however, that no amendment, suspension or discontinuance shall
adversely affect any outstanding benefit and if any law, agreement or
exchange on which Common Stock of Allegiance is traded requires
stockholder approval for an amendment to become effective, no such
amendment shall become effective unless approved by vote of
Allegiance's stockholders.
12.8 ACCELERATION OF INCENTIVES. Notwithstanding any provision in this
Program to the contrary or the normal terms of vesting in any
incentive,(a) the restrictions on all shares of Restricted Stock
shall lapse immediately,(b) all outstanding Stock Options will become
exercisable immediately, and (c) all performance goals shall be deemed
to be met and payment made immediately if a Change in Control occurs.
For purposes of this Program, a "Change in Control" shall have
occurred if:
(1) any "Person", as such term is used in Section 13(d) and 14(d) of
the Exchange Act (other than Allegiance, any corporation owned,
directly or indirectly, by the stockholders of Allegiance in
substantially the same proportions as their ownership of stock of
Allegiance, and any trustee or other fiduciary, holding
securities under an employee benefit plan of Allegiance or such
proportionately owned corporation), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Allegiance representing
20% or more of the combined voting power of Allegiance's then
outstanding securities;
(2) during any period of not more than 24 months, individuals who at
the beginning of such period constitute the Board of Directors of
Allegiance, and any new director (other than a director
designated by a Person who has entered into an agreement with
Allegiance to effect a transaction described in paragraph (1),
(3), or (4) of this subsection 13.8) whose election by the board
or nomination for election by Allegiance's stockholders was
approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election
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<PAGE>
was previously so approved, cease for any reason to constitute at
least a majority thereof;
(3) the stockholders of Allegiance approve a merger or consolidation
of Allegiance with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of
Allegiance outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 60% of
the combined voting power of the voting securities of Allegiance
or such surviving entity outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of Allegiance (or
similar transaction) in which no Person acquires more than 20% of
the combined voting power of Allegiance's then outstanding
securities; or
(4) the stockholders of Allegiance approve a plan of complete
liquidation of Allegiance or an agreement for the sale or
disposition by Allegiance of all or substantially all of its
assets (or any transaction having a similar effect).
The Committee may also determine, in its discretion, that a sale of a
substantial portion of Allegiance's assets or one of its businesses
constitutes a "Change of Control" with respect to incentives held by
Participants employed in the affected operation.
12.9 DEFINITION OF FAIR MARKET VALUE. Except as otherwise determined by
the Committee, the Fair Market Value of a share of Common Stock as of
any date shall be equal to the closing sale price of a share of Common
Stock on that date as reported on the New York Stock Exchange
Composite Reporting Tape.
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<PAGE>
ALLEGIANCE CHANGE IN CONTROL PLAN
<PAGE>
ALLEGIANCE CHANGE IN CONTROL PLAN
SECTION 1
INTRODUCTION
1.1. PURPOSE. Allegiance Corporation ("Allegiance") has established
the Allegiance Change In Control Plan (the "Plan") to enable Allegiance and its
Subsidiaries and Affiliates (collectively, the "Company") to provide severance
benefits to eligible executive or management employees whose employment is
terminated following a Change in Control of the Company. It is the intent of
the Company that the Plan, as set forth herein, constitute an "employee welfare
benefit plan" within the meaning of Section 3(1) of the Employee Retirement
Income Act of 1974 ("ERISA") and comply with the applicable requirements of
ERISA.
1.2. EFFECTIVE DATE, PLAN YEAR. The "Effective Date" of the Plan is
October 1, 1996. A "Plan Year" is the 12-month period beginning on October 1
and ending on the following September 30.
1.3. EMPLOYERS. Any Subsidiary or Affiliate of Allegiance employing
an employee who has been designated as a Participant by the Committee shall be
deemed to have adopted the Plan. A "Subsidiary" of Allegiance is any
corporation more than 50 percent of the voting stock of which is owned, directly
or indirectly, by Allegiance. An "Affiliate" of Allegiance is any corporation
more than 50 percent of the voting stock of which is owned, directly or
indirectly, by the owner or owners of more than 50 percent of the voting stock
of Allegiance.
1.4. ADMINISTRATION. The Plan is administered by the Compensation
Committee of the Board of Directors of Allegiance (the "Committee"). The
Committee, from time to time, may adopt such rules and regulations as may be
necessary or desirable for the proper and efficient administration of the Plan
and as are consistent with the terms of the Plan. The Committee, from time to
time, may also appoint such individuals to act as its representatives as the
Committee considers necessary or desirable for the effective administration of
the Plan. Any notice or document required to be given or filed with the
committee will be properly given or filed if delivered or mailed, by registered
mail, postage prepaid, to the Committee at 1430 Waukegan Road, McGaw Park,
Illinois 60085.
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<PAGE>
SECTION 2
PARTICIPATION
The Committee shall designate from time to time those employees of the
Company employed in an executive or management position who shall participate in
the Plan (a "Participant"). An employee who has been so designated shall
participate by signing an agreement with the Company ("Agreement") which shall
specify the benefits the Participant is entitled to receive should the
Participant's employment terminate following a Change in Control of the Company
and the terms and conditions under which those benefits will be provided. A
Participant's Agreement implements and forms a part of the Plan as respects the
Participant's participation in the Plan. To the extent there are any
inconsistencies between the Plan document and a Participant's Agreement, the
terms of the Participant's Agreement shall be controlling. No employee other
than those designated by the Committee shall be eligible to participate in the
Plan.
SECTION 3
PLAN BENEFITS
2.1. BENEFITS FOLLOWING A CHANGE IN CONTROL. If a Participant's
employment with the Company terminates within twenty-four (24) months following
a Change in Control, the Participant shall be entitled to the benefits specified
in the Participant's Agreement and such benefits shall be paid at such time, in
such manner and subject to such conditions as are specified in the Agreement. A
Participant's entitlement to benefits as specified in the Participant's
Agreement shall depend upon whether the Participant's termination is voluntary
or involuntary and whether for Cause (as defined below), if involuntary, or for
Good Reason (as defined below), if voluntary.
2.2. NON-SOLICITATION AND NON-COMPETITION. In consideration for the
benefits provided for under a Participant's Agreement, the Participant shall
agree that during the 24-month period following the Participant's date of
termination (the "Severance Period"), the Participant:
(a) will not, without the prior written consent of the Company,
alone or in association with others, solicit on behalf of
the Participant, or any other person, firm, corporation or
entity, any employee of the Company, or any of its operating
divisions,
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Subsidiaries or Affiliates, for employment with a person, firm,
corporation or entity which competes with the Company, or any of
its divisions, Subsidiaries or Affiliates.
(b) will not, without the prior written consent of the
Company, directly or indirectly, engage or invest in,
counsel or advise or be employed by any other person,
firm, corporation or entity engaged in or conducting
business which is the same as, or competing with, the
business being conducted by the Company, or any of its
operating divisions, Subsidiaries or Affiliates, in any
area or territory in which the Company, or such
operating divisions, Subsidiaries or Affiliates, shall
be conducting business during the Severance Period.
Notwithstanding the foregoing, the Participant shall be
entitled to passively own not more than four and
nine-tenths percent (4.9%) of any publicly held entity
engaged in any business in which the Company, or any of
its operating divisions, Subsidiaries or Affiliates,
shall be engaged during said period.
If a Participant fails to comply with the non-solicitation and/or
non-competition restrictions of this subsection 2.2 and the Participant's
Agreement, participation in the Plan shall immediately terminate and the
Participant shall forfeit any remaining unpaid benefits.
2.3. CHANGE IN CONTROL. For purposes of the Plan a "Change in
Control" shall have occurred if:
(a) any "Person", as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended ("Exchange
Act") other than Allegiance, any corporation owned, directly or
indirectly, by the stockholders of Allegiance in substantially
the same proportions as their ownership of stock of Allegiance,
and any trustee or other fiduciary holding securities under a
Company employee benefit plan or such proportionately owned
corporation, becomes the "beneficial owner" (as defined in
rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Allegiance representing 20% or more of the combined
voting power of Allegiance's then outstanding securities;
(b) during any period of not more than twenty-four (24) months,
individuals who at the beginning of such period constitute the
Board of Directors of Allegiance, and any new director (other
than a director designated by a Person who has entered into an
agreement with Allegiance to effect a transaction described in
subparagraph (a), (c), or (d) of this subsection 2.3) whose
election by the board or nomination for election by Allegiance's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute at least a majority thereof;
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(c) the stockholders of Allegiance approve a merger or consolidation
of Allegiance with any other corporation, other than (i) a merger
or consolidation which would result in the voting securities of
Allegiance outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 60% of
the combined voting power of the voting securities of Allegiance
or such surviving entity outstanding immediately after such merger
or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of Allegiance (or similar
transaction) in which no Person acquires more than 20% of the
combined voting power of Allegiance's then outstanding securities;
or
(d) the stockholders of Allegiance approve a plan of complete
liquidation of Allegiance or an agreement for the sale or
disposition by Allegiance of all or substantially all of its
assets (or any transaction having a similar effect).
Allegiance may also determine, in its discretion, that a sale of a substantial
portion of its assets or one of its businesses constitutes a "Change of Control"
with respect to any Participant if the Participant is employed in the affected
operation.
2.4. TERMINATIONS FOR CAUSE AND GOOD REASON. A Participant will be
considered to have been terminated for "Cause" if the termination is by reason
of the Participant willfully engaging in conduct demonstrably and materially
injurious to the Company, the Participant being convicted of or confessing to a
crime involving dishonesty or moral turpitude or the Participant's willful and
continued failure for a significant period of time to perform the Participant's
duties after a demand for substantial performance has been delivered to the
Participant by the Board of Directors of Allegiance which demand specifically
identifies the manner in which the Board believes that the Participant has not
substantially performed his duties. A Participant's termination shall be
considered to have been for "Good Reason" if the Participant's termination is by
reason of the occurrence of any of the following events within twenty-four (24)
months following a Change in Control without the Participant's express written
consent:
(a) any change in the Participant's title, authorities,
responsibilities (including reporting responsibilities)
which, in the Participant's judgment, represents an
adverse change; the assignment to the Participant of
any duties or work responsibilities which, in his
reasonable judgment, are inconsistent with such title,
authorities or responsibilities; or any removal of the
Participant from, or failure to reappoint or reelect
him to any of such positions, except if any such
changes are because of disability, retirement or Cause;
(b) a reduction in or failure to pay any portion of the
Participant's annual base salary as in effect on the
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date of the Change in Control or as the same may be
increased from time to time thereafter;
(c) the failure by the Company to provide the Participant
with compensation and benefits (including, without
limitation, incentive, bonus and other compensation
plans and any vacation, medical, hospitalization, life
insurance, dental or disability benefit plan), or cash
compensation in lieu thereof, which are, in the
aggregate, no less favorable than those provided by the
Company to the Participant immediately prior to the
occurrence of the Change in Control;
(d) any breach by the Company of any provision of a
Participant's Agreement; and
(e) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company
to assume and agree to perform the Participant's
Agreement.
SECTION 4
PAYMENT OF BENEFITS
4.1. AGREEMENT GOVERNS. Any benefits under the Plan shall be payable
at such time, and pursuant to the terms and conditions of each Participant's
Agreement.
4.2. FORM OF PAYMENT. Subject to the terms of a Participant's
Agreement, benefits shall be paid in equal installments according to the
Company's normal payroll schedule. In the event of a Participant's death before
the Participant receives all benefits to which he otherwise would be entitled
under the Plan, payment shall be made to the Participant's beneficiary in
installments or a lump sum, as determined by the Committee.
4.3. DESIGNATION OF BENEFICIARY. By signing a form furnished by the
Committee, each Participant may designate any person or persons to whom his
benefits are to be paid if he dies before he receives all of his benefits. A
beneficiary designation form will be effective only when the form is filed with
the Committee while the Participant is
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still alive and will cancel all beneficiary designation forms previously
filed by the Participant with respect to this Plan. If a deceased
Participant has failed to designate a beneficiary as provided above, or if
the designated beneficiary predeceases the participant, payment of the
Participant's benefits shall be made to the Participant's estate. If a
designated beneficiary dies before complete payment of any benefits
attributable to a Participant, remaining benefits shall be paid to the
beneficiary's estate.
SECTION 5
FINANCING PLAN BENEFITS
All benefits payable under the Plan shall be paid directly by the
Company out of general assets. The Company shall not be required to segregate
on its books or otherwise any amount to be used for the payment of benefits
under the Plan.
SECTION 6
OTHER EMPLOYMENT
A Participant shall not be required to mitigate the amount of any
payment or benefit provided for under the Plan by seeking other employment or
otherwise nor shall the amount of any payment or benefit provided for under the
Plan be reduced by any compensation earned by the Participant as a result of
other employment.
SECTION 7
MISCELLANEOUS
7.1. INFORMATION TO BE FURNISHED BY PARTICIPANTS. Each Participant
must furnish to the Committee such documents, evidence, data or other
information as the Committee consider necessary or desirable for the purpose of
administering the Plan. Benefits under the Plan for each Participant are
provided on the condition that he/she furnish full, true and complete data,
evidence or other information, and that he/she will promptly sign any document
related to the Plan, requested by the Committee.
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7.2. CLAIMS REVIEW. Any claim for benefits under the Plan or a
Participant's Agreement by a Participant shall be made in writing and delivered
to the Committee. If a Participant, or any beneficiary following the
Participant's death (collectively, the "Claimant"), believes he has been denied
any benefits or payments under the Plan or Agreement, either in total or in an
amount less than the full benefit or payment to which the Claimant would
normally be entitled, the Committee shall advise the Claimant in writing of the
amount of the benefit, or payment, if any, and the specific reasons for the
denial. The Committee shall also furnish the Claimant at that time with a
written notice containing:
(a) A specific reference to pertinent provisions of the Plan or
the Participant's Agreement;
(b) A description of any additional material or information
necessary for the Claimant to perfect the claim if
possible, and an explanation of why such material or
information is needed; and
(c) An explanation of the claim review procedure set forth
below.
Within 60 days of receipt of the information described above, a Claimant shall,
if further review is desired, file a written request for reconsideration with
the Committee. So long as the Claimant's request for review is pending
(including such 60-day period), Claimant or his duly authorized representative
may review pertinent documents and may submit issues and comments in writing to
the Committee. A final and binding decision shall be made by the Committee
within 60 days of the filing by the Claimant of the request for reconsideration;
provided, however, that if the Committee, in its discretion, feels that a
hearing with the Claimant or his representative present is necessary or
desirable, this period shall be extended an additional 60 days. The decision by
the Committee shall be conveyed to the Claimant in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the Claimant, which specifically references to the pertinent
provisions of the Plan or the Participant's Agreement on which the decision is
based. The Committee shall use ordinary care and diligence in the performance
of its duties.
7.3. EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person relying
thereon considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
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7.4. FEES AND EXPENSES. The Company shall pay all reasonable legal
fees and related expenses (including the reasonable costs of experts, evidence
and counsel), when and as incurred by a Participant, as a result of contesting
or disputing any termination of employment of the Participant following a Change
in Control whether or not such contest or dispute is resolved in the
Participant's favor but only if the Participant was seeking in good faith to
obtain or enforce any right or benefit provided by the Plan or the Participant's
Agreement or by any other plan or arrangement maintained by the Employers under
which the Participant is or may be entitled to receive benefits.
7.5. ACTION BY EMPLOYER. Any action required of or permitted by
Allegiance under the Plan shall be by resolution of its Board of Directors, by
resolution of a duly authorized committee of its Board of Directors, or by a
person or persons authorized by resolutions of its Board of Directors or such
committee.
7.6. CONTROLLING LAWS. Except to the extent superseded by laws of
the United States, the laws of Illinois shall be controlling in all matters
relating to the Plan.
7.7. INTERESTS NOT TRANSFERABLE. The interests of persons entitled
to benefits under the Plan are not subject to their debts or other obligations
and, except as may be required by the tax withholding provisions of the Internal
Revenue Code or any state's income tax act, or pursuant to an agreement between
a Participant and the Employers, may not be voluntarily sold, transferred,
alienated, assigned or encumbered.
7.8. MISTAKE OF FACT. Any mistake of fact or misstatement of fact
shall be corrected when it becomes known and proper adjustment made by reason
thereof.
7.9. SEVERABILITY. In the event any provision of the Plan or an
Agreement shall be held to be illegal or invalid for any reason, such illegality
or invalidity shall not affect the remaining parts of the Plan or Agreement, and
the Plan or Agreement shall be construed and enforced as if such illegal or
invalid provisions had never been contained in the Plan or Agreement.
7.10. WITHHOLDING. The Company will withhold from any amounts
payable under the Plan all federal, state, city and local taxes as shall be
legally required and any applicable insurance premiums, as well as any other
amounts authorized or required by Company policy including, but not limited to,
withholding for garnishments and judgments or other court orders.
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7.11. EFFECT ON OTHER PLANS OR AGREEMENTS. Payments or benefits
provided to a Participant under any Company stock, deferred compensation,
savings, retirement or other employee benefit plan are governed solely by the
terms of such plan. Any obligations or duties of a Participant pursuant to any
non-competition or other agreement with the Company shall not be affected by the
receipt of benefits under this Plan.
SECTION 8
AMENDMENT AND TERMINATION
8.1. AMENDMENT AND TERMINATION. Allegiance reserves the right to
amend the Plan at any time or to terminate the Plan at any time provided that no
such amendment or termination of the Plan shall affect the provisions of any
Participant's Agreement then in force under the Plan.
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<PAGE>
[LETTERHEAD]
November 27, 1995
Gail Gaumer
Dear Gail:
As you know, Baxter has announced that it will create two companies from its
current structure, a Global medical technology company and a health cost
management company. As a key manager of what will become a health cost
management company, you are very important to the success of this transition and
to its future.
Over the next several months, it is critical that we continue through you and
your people, to keep focused on the strategies that we have put in place over
the past two years. We need you to focus on customer requirements, operational
effectiveness and maintain the values we have shared to assure that this new
company is successful, and the transition is as smooth as possible. Results for
1996, that we have committed to, are important both to Baxter and our new
company.
Because you are important to this transition and helping to create a new
company, we want to put in place a special incentive for you, equal to your base
salary in effect on November 28, 1995. This amount will be paid to you, three
months following the official separation of the new company from Baxter, as long
as you have not voluntarily resigned, been terminated for cause, or accepted a
position with a unit that will be a part of the new Baxter company.
Joe Damico and I hope we can count on your support and commitment to the
exciting new opportunity ahead of us. If you accept this offer and challenge,
please sign below and return a copy of this letter to me.
/s/ Lester B. Knight
Lester B. Knight
Signature: /s/ Gail Gaumer
--------------------
Date: November 28,1995
--------------------
<PAGE>
[LETTERHEAD]
November 27, 1995
Bob Zollars
Dear Bob:
As you know, Baxter has announced that it will create two companies from its
current structure, a Global medical technology company and a health cost
management company. As a key manager of what will become a health cost
management company, you are very important to the success of this transition and
to its future.
Over the next several months, it is critical that we continue through you and
your people, to keep focused on the strategies that we have put in place over
the past two years. We need you to focus on customer requirements, operational
effectiveness and maintain the values we have shared to assure that this new
company is successful, and the transition is as smooth as possible. Results for
1996, that we have committed to, are important both to Baxter and our new
company.
Because you are important to this transition and helping to create a new
company, we want to put in place a special incentive for you, equal to your base
salary in effect on November 28, 1995. This amount will be paid to you, three
months following the official separation of the new company from Baxter, as long
as you have not voluntarily resigned, been terminated for cause, or accepted a
position with a unit that will be a part of the new Baxter company.
Joe Damico and I hope we can count on your support and commitment to the
exciting new opportunity ahead of us. If you accept this offer and challenge,
please sign below and return a copy of this letter to me.
/s/ Lester B. Knight
Lester B. Knight
Signature: /s/ Robert J. Zollars
-----------------------
Date: 11-28-95
-----------------------
<PAGE>
S & A D R A F T -- AUGUST 19, 1996
------------------------------------
I.V. SYSTEMS
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. OMITTED
INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
by and between
BAXTER HEALTHCARE CORPORATION
as Baxter
and
ALLEGIANCE HEALTHCARE CORPORATION
as Allegiance
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions; Rules of Construction........................................1
2. Appointment and Commitment................................................6
3. Agency Model, Distributor Model, and BCS Kit Model........................7
4. Exclusivity...............................................................9
5. Term.....................................................................11
6. Prices and Fees..........................................................12
7. The Council..............................................................20
8. Invoicing and Payments...................................................21
9. Allegiance's Duties......................................................23
10. Baxter's Duties..........................................................23
11. Standard of Care.........................................................23
12. Alternative Acute Care Distribution......................................24
13. Transfer of Title and Risk of Loss.......................................24
14. Warranties...............................................................25
15. Trademarks...............................................................25
16. Termination..............................................................26
17. Indemnity................................................................30
18. Insurance................................................................34
19. Compliance with Laws.....................................................34
20. Force Majeure............................................................36
21. Confidentiality..........................................................37
22. Limitation of Liability and Remedy.......................................38
23. Miscellaneous Provisions.................................................40
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24. Dispute Resolution and Arbitration.......................................42
25. Assignment...............................................................43
26. Authority................................................................44
LIST OF EXHIBITS
Exhibit A I.V. Products
Exhibit B Nutrition Products
Exhibit C Allegiance's Duties
Exhibit D Baxter's Duties
Exhibit E Supplier Scoreboard
Exhibit F Interim Distributor Model
ii
<PAGE>
AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
This AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT (this "Agreement"),
dated as of October 1, 1996, by and between BAXTER HEALTHCARE CORPORATION, a
Delaware corporation with its principal offices at One Baxter Parkway,
Deerfield, Illinois 60015 (hereinafter called "Baxter") and ALLEGIANCE
HEALTHCARE CORPORATION, a Delaware corporation with its principal offices at
1430 Waukegan Road, McGaw Park, Illinois 60085 (hereinafter called
"Allegiance").
RECITALS
Baxter and its parent corporation, Baxter International Inc. ("Baxter
International"), have spun-off various businesses by transferring those
businesses to Allegiance Corporation ("Allegiance Corporation") (or its
subsidiaries) and distributing all of the stock of Allegiance Corporation to the
stockholders of Baxter International as a dividend. As a result of the
distribution of that dividend, Baxter International and Allegiance Corporation,
and their respective subsidiaries, are separate and independent corporations.
As a consequence of the foregoing actions, Allegiance will acquire,
INTER ALIA, certain business units, including the U.S. Distribution business,
that have previously provided various sales and distribution services to
business units owned by Baxter.
Baxter and Allegiance recognize that it is advisable for Allegiance to
continue providing physical distribution and sales support and related services
to Baxter.
AGREEMENT
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:
1. DEFINITIONS; RULES OF CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement:
1.1.1 "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,
<PAGE>
the term "control" means the power to direct the management of an entity,
directly or indirectly, whether solely through the ownership of voting
securities (as in the case of a subsidiary), by contract, or otherwise; and the
term "controlled" has a meaning correlative to the foregoing. Allegiance
Corporation and Baxter International shall not be deemed to be Affiliates of
each other.
1.1.2 "Agreement" shall mean this Agency, Services, and Distribution
Agreement dated as of October 1, 1996, including all Exhibits and Schedules
attached hereto.
1.1.3 "Base Business Products" shall mean all I.V. Products on
Exhibit A that are not designated as Premium Products, as defined herein.
1.1.4 "Best Value Products" shall mean a select offering of
Allegiance-distributed and Allegiance-manufactured products * * *. Best Value
Products are specially promoted externally to Allegiance customers and
internally to Allegiance sales personnel through financial incentives. All Best
Value Products are required to meet the following specific criteria: * * *.
Notwithstanding the foregoing criteria, the Premium Products listed on Exhibit A
from time to time pursuant to Section 4.3 will be deemed Best Value Products;
provided, however, that * * * identified on Exhibit A will not be considered to
be Best Value Products solely on account of their being identified as Premium
Products.
1.1.5 "Competitor" shall mean (a) with respect to Baxter, any
Person (including an affiliate of such Person) that during its most recently
completed fiscal year has annual net revenues from sales of products competitive
with the Products greater than 20% of the total annual net revenues of Baxter
from Products during its most recently completed fiscal year; and (b) in the
case of Allegiance, any Person (including an affiliate of such Person) that
during its most recently completed fiscal year has annual net revenues from the
distribution of medical, surgical and laboratory products greater than 20% of
the total annual net revenues of Allegiance during its most recently completed
fiscal year.
1.1.6 "Cost Management" shall mean the dedication of resources by
Allegiance or its Affiliates to deliver cost improvement services to customers.
Cost Management services shall focus on activities including, without
limitation, reducing product consumption, improving utilization of assets,
improving logistics, and reducing or eliminating operating costs. Cost
Management transactions shall be those transactions performed by
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Allegiance pursuant to any comprehensive Cost Management contract which permits
Allegiance to share with a customer the risk and reward of cost savings
generated by Cost Management as well as obligating the customer to purchase a
specified percentage of Best Value Products. As part of such Cost Management
transactions, Allegiance may also provide some or all of the following services:
(a) ValueLink (as defined herein); (b) PBDS (as defined herein); (c) consulting
services; (d) on-site clinical resources; (e) contract materials management; and
(f) consolidated service centers.
1.1.7 "Internal Use Sales" shall mean (a) Products transferred to
Baxter's Affiliates for internal use (including provision of perfusion
services); and (b) Products transferred to another Baxter Division for resale
under a distribution agreement with Allegiance.
1.1.8 "I.V. Products" shall mean the products and accessories
manufactured by or on behalf of Baxter and listed in Exhibit A hereto together
with the parts and components necessary for the repair and replacement thereof.
1.1.9 "Kit" shall mean an aggregation by Allegiance of Baxter,
Allegiance, and/or third-party products packaged together or repackaged for
specific uses and procedures including, without limitation, such aggregations
for programs known prior to the effective date of this Agreement as Baxter
Custom Sterile ("BCS"), Baxter Custom Products ("BCP"), and Procedure-Based
Delivery Systems ("PBDS").
1.1.10 "Line of Products" shall mean any specifically identified
group of related Products set forth in Exhibits A and B to this Agreement.
1.1.11 Net Sales.
1.1.11.1 "Agency Net Sales" shall mean Baxter's aggregate sales
of Products at the Agency Prices (or direct shipment prices) for such
Products less all applicable divisional and corporate bonuses and
discounts, returns, allowances, discounts available at time of purchase,
group purchasing organization fees, drug buy-back premiums, and amortized
contract procurement costs provided or recognized by Baxter. Agency Net
Sales includes all sales of the Products by Baxter in the Territory except
Distributor Net Sales, sales to Allegiance of Products, Internal Use Sales,
VWR Purchases, Drug Purchases, capital equipment lease extensions and re-
signs, or sales and leases of hardware and
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<PAGE>
related software and disposables to nonhealth-care retailers serving end-
user customers.
1.1.11.2 "Contract Net Sales" shall mean the sum of Agency Net
Sales and Distributor Net Sales. Contract Net Sales amounts shall be
recognized for calculation purposes in a manner consistent with Baxter's
historical revenue recognition policies and generally accepted accounting
principles.
1.1.11.3 "Distributor Net Sales" shall mean a calculation of net
sales for all transactions hereunder pursuant to the Distributor Model or
the Interim Distributor Model. Distributor Net Sales shall be based upon
the volumes of Products sold by Allegiance to customers and calculated as
if Baxter had sold such volumes to such customers at the Suggested Sales
Prices less all applicable corporate and divisional bonuses and discounts,
returns, allowances, discounts available at time of purchase, group
purchasing organization fees, drug buy-back premiums, and amortized
contract procurement costs provided or recognized by Baxter. Distributor
Net Sales shall not include sales to Allegiance of Products for use as
components of BCS Kits or sales of BCS Kits to customers.
1.1.12 "Notice" shall mean notice given in accordance with Section
23.1.
1.1.13 "Nutrition Products" shall mean the products and accessories
manufactured by or on behalf of Baxter and listed in Exhibit B hereto together
with the parts and components necessary for the repair and replacement thereof.
1.1.14 "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.
1.1.15 "Premium Products" shall mean all I.V. Products on Exhibit A
that are designated as Premium Products.
1.1.16 "Products" shall mean all I.V. Products and all Nutrition
Products.
1.1.17 "Term" shall mean the period of time provided in Section 5
hereof, including any and all extensions thereof.
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<PAGE>
1.1.18 "Territory" shall mean the District of Columbia and the
fifty states comprising the United States of America.
1.1.19 "Transfer" shall mean any assignment, transfer, sale or
other disposition to a Person that is not an Affiliate of the Transferor,
including any Transfer by way of merger or consolidation or otherwise by
operation of law.
1.1.20 "ValueLink" shall mean the just-in-time inventory management
service known as ValueLink-Registered Trademark-.
1.2 OTHER TERMS. Terms defined in other Sections of this Agreement will
have the meanings therein provided.
1.3 RULES OF CONSTRUCTION.
1.3.1 In this Agreement, unless a clear contrary intention
appears:
1.3.1.1 the singular number includes the plural number and vice
versa;
1.3.1.2 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;
1.3.1.3 reference to any gender includes the other gender;
1.3.1.4 reference to any Section or Exhibit means such Section
of this Agreement or such Exhibit 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;
1.3.1.5 "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;
1.3.1.6 "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
1.3.1.7 "distribute" and "distribution" shall be used
interchangeably to refer to Allegiance's duties under the Agency Model, the
Distributor Model, the Interim
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<PAGE>
Distributor Model, or the BCS Kit Model and shall not alone imply a legal
distributor relationship;
1.3.1.8 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";
1.3.1.9 reference to any law (including statutes and
ordinances) means such law as amended, modified, codified or reenacted, in
whole or in part, and in effect from time to time, including rules and
regulations promulgated thereunder;
1.3.1.10 accounting terms used herein shall have the meanings
historically attributed to them by Baxter and its subsidiaries based upon
Baxter's internal financial policies and procedures in effect prior to the
spin-off described in the recitals above;
1.3.1.11 in the event of any conflict between the provisions of
the body of this Agreement and the Exhibits hereto, the provisions of the
body of this Agreement shall control; and
1.3.1.12 the headings contained in this Agreement (except for
the Exhibits) have been inserted for convenience of reference only, and are
not to be used in construing this Agreement.
1.3.2 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.
2. APPOINTMENT AND COMMITMENT.
2.1 APPOINTMENT OF LIMITED AGENCY. Baxter hereby appoints Allegiance, and
Allegiance hereby accepts such appointment, as Baxter's exclusive limited agent
to provide under the Agency Model (as defined herein), (1) physical distribution
services and sales support services with respect to the Products sold by Baxter
to Baxter's customers in the Territory, and (2) sales representative services
for sales to surgery centers not affiliated with acute care hospitals (such
acute care hospitals as set forth in the then-current AMERICAN HOSPITAL
ASSOCIATION GUIDE), subject to the terms and conditions stated herein. Subject
to the terms of Section 4.2, Baxter, in its sole and
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<PAGE>
absolute discretion, shall select the customers to whom Allegiance distributes
as Baxter's agent under the Agency Model. Subject to the terms of Section 3,
all Products shall be sold under the Agency Model except for (a) Kits, and/or
(b) Cost Management, ValueLink, and other transactions in which the customer
demands that Allegiance issue an Allegiance invoice for Products and, in some
instances, Allegiance products; provided that Allegiance shall nevertheless
provide sales, sales support, customer service, and physical distribution
services for the transactions specified in clauses (a) and (b) of this Section
under the Distributor Model or BCS Kit Model, each as defined herein.
2.2 GRANT OF DISTRIBUTION RIGHTS. With respect to the transactions
specified in clauses (a) and (b) in Section 2.1, Baxter hereby grants to
Allegiance and Allegiance hereby accepts the right, which shall be exclusive
except as set forth in Section 4.2, to provide sales, sales support, customer
service, and physical distribution services, as specified in Section 9, to
customers in the Territory under the Distributor Model, the Interim Distributor
Model, and the BCS Kit Model, provided that Allegiance shall notify Baxter in
advance of the identity of each such customer.
2.3 EXCEPTIONS AND LIMITATIONS. Baxter reserves all rights not expressly
granted to Allegiance hereunder. Except as expressly provided herein with
respect to Subdistributors, Allegiance shall not grant to any subagents or
subdistributors any of its rights or obligations hereunder.
3. AGENCY MODEL, DISTRIBUTOR MODEL, AND BCS KIT MODEL.
3.1 GENERAL. The Products may be distributed pursuant to the Agency
Model, the Distributor Model, or the BCS Kit Model. Section 2.1 shall apply to
Products distributed pursuant to the Agency Model, and Section 2.2 shall apply
to Products distributed pursuant to the Distributor Model or the BCS Kit Model.
For the period beginning with the effective date of this Agreement and ending
upon the earlier of (a) mutual agreement of the parties or (b) September 30,
1997 (the "Interim Period"), all transactions that would otherwise be treated as
Distributor Model transactions under this Agreement will follow the Interim
Distributor Model as provided in Exhibit F. Based upon the parties' business
prior to the effective date of this Agreement, the parties believe that a
significant majority of Baxter's distribution of the Products shall be made by
Allegiance under the Agency Model.
3.2 AGENCY MODEL. Under the Agency Model, Baxter shall maintain the
principal contractual relationship with the customer
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<PAGE>
and shall be responsible for sales, sales support, customer invoicing, accounts
receivable, and customer service in connection with the sales of the Products,
and Allegiance shall act as Baxter's agent to facilitate physical distribution
of the Products from Baxter to the customer. Baxter shall have the sole right
and responsibility for negotiating and contracting with each customer the
delivered price from Baxter of the Products (the "Agency Price"). As provided
in Section 6, Baxter shall pay Allegiance a percentage of the Agency Net Sales
of the Products as a fee for Allegiance's services as set forth in Section 9.
3.3 DISTRIBUTOR MODEL. Under the Distributor Model, Allegiance shall
maintain the principal contractual relationship with the customer for sales,
sales support, customer invoicing, accounts receivable, and customer service in
connection with the supply of the Products in connection with the provision by
Allegiance of Kits and Cost Management, ValueLink, and other services
consolidated on an Allegiance invoice for Products and, in some instances,
Allegiance products (as required by the customer). Baxter shall use reasonable
efforts to cooperate with Allegiance and to facilitate Allegiance's fulfillment
of its obligations hereunder. Baxter shall provide to Allegiance a suggested
direct sale price including Standard Delivery (the "Suggested Sales Price") and
an effective Distributor Net Sales price applicable to each such Product in
connection with each Distributor Model transaction; provided, however, that
Allegiance shall have the sole right and responsibility for negotiating and
contracting with each customer the delivered price of the Products. If the
customer has a then-current contract with Baxter for such Products, the
Suggested Sales Price shall be the then-current contract price. If Baxter has
an agreement with any customer for Baxter's provision of Products to such
customer and such customer subsequently requests (a) Kits, and/or (b) Cost
Management, ValueLink, and other services consolidated on an Allegiance invoice
for such Products and, in some instances, Allegiance products, then all such
Distributor Model sales of Products to such customer shall apply to any minimum
purchase commitments or quantity discounts contained in Baxter's agreement with
such customer.
3.4 BCS KIT MODEL. Under the BCS Kit Model, Allegiance shall maintain the
principal contractual relationship with the customer for sales, sales support,
customer invoicing, accounts receivable, and customer service in connection with
the provision by Allegiance of BCS Kits. Baxter shall provide to Allegiance a
price for each Product that Allegiance orders from Baxter for use as a component
for a BCS Kit, and such price shall be Baxter's Agency Net Sales price for
Products from the * * * contract in effect on January 1 of the calendar year in
which the BCS Kit
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<PAGE>
component sale takes place (the "BCS Component Price"). Allegiance shall have
the sole right and responsibility for negotiating and contracting with each
customer the delivered price of the BCS Kits. If Baxter has an agreement with
any customer for Baxter's provision of Products to such customer and such
customer subsequently requests BCS Kits, all such BCS Kit Model sales of
Products to such customer shall apply to any minimum purchase commitments or
quantity discounts contained in Baxter's agreement with such customer.
4. EXCLUSIVITY.
4.1 RESTRICTIONS ON ALLEGIANCE.
4.1.1 Unless specifically required by the end-user customer or as
permitted below for certain competitive Best Value Products, Allegiance, its
Affiliates, and any other Person acting on its or their behalf, shall not,
directly or indirectly, market or promote any product or solicit orders through
agents or otherwise, to or from any customer or any Affiliate of any customer
for any product that competes in the Territory with any Product or Products.
The taking by Allegiance of orders not solicited by Allegiance shall not be
deemed to be a breach of this Section. Without limiting the generality of the
foregoing and at all times subject to availability of the Products, Allegiance,
its Affiliates, and any other Person acting on its or their behalf, shall not,
directly or indirectly, market or promote any product that competes with any
Product or Products as Allegiance's (a) Best Value Product that competes with
the Products, (b) first-line substitute or for competitive comparison, or (c) as
a substitute for any other product competitive with any Product or Products;
except that Allegiance may market and promote as Best Value Products
endotracheal tubes, temperature probes, and heat and moisture exchangers
(whether with or without filters) and that such competitive Best Value Products
shall not be subject to clauses (b) and (c) of this sentence. Allegiance, its
Affiliates, and any other Person acting on its or their behalf, shall promote
the Premium Products [except for endotracheal tubes, temperature probes, and
heat and moisture exchangers (whether with or without filters)]. This Section
4.1.1 shall not apply if the applicable Products are unavailable, and such
unavailability is due substantially to Baxter's acts or omissions.
4.1.2 Allegiance, its Affiliates, and any other Person acting on
its or their behalf, shall not, directly or indirectly, develop or manufacture
any product that competes in the Territory with any Product or Products.
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4.1.3 Allegiance, its Affiliates, and any other Person acting on
its or their behalf, shall not, directly or indirectly, market to or solicit
orders from, or distribute any Product through distributors, agents, or
otherwise, to or from any customer or any Affiliate of any customer located
outside of the Territory.
4.2 RESTRICTIONS ON BAXTER. Baxter, its Affiliates, and any other Person
acting on its or their behalf, shall not, directly or indirectly, provide or
engage any Person other than Allegiance to provide physical distribution
services or to act as agent or distributor for Baxter in the Territory with
respect to the sales and distribution of the Products, provided that Baxter
shall have the right to:
4.2.1 distribute the Products in the Territory directly to
customers from Baxter manufacturing facilities and/or Baxter's replenishment
centers in order to facilitate cost reduction plans;
4.2.2 distribute any Product to any customer in the Territory to
the extent necessitated by Baxter's inability to assign to Allegiance any
contract or agreement whether pursuant to the Restructuring Agreements or at a
later date in connection with a future acquisition;
4.2.3 distribute the Products directly to Baxter's Affiliates or
directly to other Baxter Divisions, where such distribution is made in
connection with Internal Use Sales;
4.2.4 continue to sell and distribute Products directly to VWR
Corporation for resale to industrial customers (all such Products actually sold
and distributed to VWR Corporation to be referred to herein as "VWR Purchases");
4.2.5 continue to distribute directly from Baxter manufacturing
facilities any Product sold directly to drug manufacturers (all such Products
actually sold and distributed to drug manufacturers to be referred to herein as
"Drug Purchases");
4.2.6 distribute Products to customers within the Territory other
than through Allegiance (and Baxter shall be relieved of its obligation to pay
fees pursuant to Section 6.3) if and to the extent Allegiance is unable to so
distribute the Products due to (a) regulatory requirements; (b) Allegiance's
material failure to meet agreed-upon performance standards; or (c) Allegiance
being otherwise prohibited or prevented from selling and/or distributing the
Products or refusing or being
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unable to sell and/or distribute the Products to any customer or class of
customers other than by customer decision;
4.2.7 direct Allegiance to distribute the Products to third-party
distributors ("Subdistributors"), provided that Baxter shall not have the right
to direct Allegiance to distribute the Products to acute care hospitals (such
acute care hospitals as set forth in the then-current AMERICAN HOSPITAL
ASSOCIATION GUIDE) through Subdistributors unless specifically required by the
end-user customer;
4.2.8 sell and distribute products which are not Products, as
defined herein, through relationships that do not include Allegiance; and
4.2.9 distribute, sell and lease hardware and related software and
disposables to nonhealth-care retailers serving end-user customers.
This Agreement shall in no way limit the right of Baxter and its Affiliates to
market, sell, or otherwise distribute the Products outside the Territory.
4.3 PRODUCT EXCLUSIVITY. Baxter shall: (a) add Products to Exhibits A
and B which are new products (including all modifications of, improvements of,
substitutes for, and line extensions of the Products) developed or acquired by
Baxter that are of the same type and have similar distribution characteristics
as the Products set forth in Exhibits A and B as of the effective date of this
Agreement; and (b) delete from Exhibits A and B and this Agreement any Product,
the manufacture and sale of which has been generally discontinued by Baxter.
Exhibits A and B shall be deemed to be amended to reflect any such Product
additions and deletions without any further act by any party hereto.
Notwithstanding clause (a) above, Baxter shall have the right, but not the
obligation, to add newly developed or acquired products to Exhibits A and B
pursuant to clause (a) above if such products are part of a new product line or
a new line of business, subject to agreement by Allegiance. Baxter shall use
commercially reasonable efforts to provide at least 30 days prior written notice
to Allegiance of each such addition or deletion. Exhibits A and B, as amended
and supplemented from time to time, are incorporated by reference herein and
form part of this Agreement.
5. TERM. The initial Term of this Agreement shall begin on the effective date
of this Agreement and, except as otherwise provided in this Agreement, end at
the end of the day on December 31, 2001. The Term may be extended for
successive additional
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periods, subject to the parties agreeing upon the terms and conditions of such
an extension. Beginning no later than July 1, 2000, the parties shall negotiate
in good faith regarding the terms and conditions of an extension of this
Agreement beyond its expiration on December 31, 2001. Each party may in its
absolute discretion determine whether or not the terms of any such proposed
extension are acceptable and may refuse to agree to any such extension for any
reason whatsoever.
6. PRICES AND FEES. Allegiance and Baxter will keep confidential all amounts
paid by either party to the other.
6.1 DISTRIBUTOR MODEL. Baxter shall pay to Allegiance a service fee equal
to the applicable percentages (pursuant to Section 6.4) of the Distributor Net
Sales of such Products.
6.2 BCS KIT MODEL. Allegiance shall pay to Baxter as the purchase price
of the Products purchased by Allegiance pursuant to the BCS Kit Model an amount
equal to the aggregate BCS Component Prices of all such Products.
6.3 AGENCY MODEL, DIRECT SALES AND OTHER. Baxter shall pay to Allegiance
an agency services fee equal to the applicable percentages (pursuant to Section
6.4) of the Agency Net Sales of all Products sold by Baxter to customers.
However, sales to Allegiance of Products, Internal Use Sales, VWR Purchases,
Drug Purchases, capital equipment lease extensions and re-signs, and sales and
leases of hardware and related software and disposables to nonhealth-care
retailers serving end-user customers are excluded from Agency Net Sales.
6.4 APPLICABLE PERCENTAGES.
6.4.1 For all transactions under Sections 6.1 and 6.3 during the
period beginning October 1, 1996, and continuing through December 31, 1996, the
applicable percentage shall be * * * and shall be calculated in the same manner
as the internal profit split between Baxter's business units was calculated from
January 1, 1996, through September 30, 1996.
6.4.2 The following percentages shall apply to Agency Net Sales
and Distributor Net Sales during calendar year 1997 and thereafter unless
otherwise agreed to by the parties in accordance with Section 6.4.2.3:
6.4.2.1 * * * during such calendar year for all Nutrition
Products and Base Business Products and Premium Products which are excluded
from Best Value Products except for sales of such I.V. Products within the
scope of Section
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6.4.2.2, and * * * during such calendar year for all Premium Products
(except Premium Products which are excluded from Best Value Products);
6.4.2.2 Notwithstanding the above, the percentage applicable to
Agency Net Sales and Distributor Net Sales of I.V. Products shall be * * *
for sales by Allegiance of such I.V. Products (i) in connection with the
provision of cost management services in which Allegiance shares the risk
and reward of achieving customer cost savings through shared risk and
shared savings agreements which obligate the customer to purchase a
specified percentage of Best Value Products or comprehensive cost
management agreements which require Allegiance to provide clinical and
operational services that reduce the customer's operational costs and which
obligate the customer to (A) purchase a specified percentage of Best Value
Products, and (B) share the operating cost reductions achieved through
specified fees and/or shared savings paid to Allegiance, and the customer
has switched to the Base Business Products under a long-term agreement with
Baxter on or after the date of the Allegiance/customer agreement and such
switch is not as a result of a requirement of a contract between Baxter and
a third party; or (ii) when Baxter has agreed that Allegiance's efforts in
promoting the I.V. Products warrants the higher percentage. This
percentage shall apply for the period ending upon the earliest termination
or expiration of the following: (a) this Agreement; (b) the Allegiance/
customer agreement; and (c) the Baxter/customer agreement.
6.4.2.3 Following the completion of Baxter's sales plan for and
prior to January 1 of an upcoming calendar year, Baxter will calculate an
amount equal to * * * of Baxter's aggregate sales plan for Contract Net
Sales of I.V. Products. Baxter will then apportion this amount between
proposed base business products and proposed premium products and will then
develop a proposed base percentage and a proposed premium percentage such
that the sum of the proposed percentages when multiplied by the respective
sales plan targets for proposed base business products and proposed premium
products will produce an amount equal to * * * of Baxter's aggregate sales
plan for Contract Net Sales of I.V. Products. Baxter and Allegiance will
then negotiate and mutually agree to any changes in Base Business Products,
Premium Products, and the applicable percentages with an expectation, but
with no commitment, that achievement of Baxter's sales plan as to both Base
Business Products and Premium Products will yield Allegiance an amount of
earned
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fees which will aggregate to * * * of Baxter's sales plan for Contract Net
Sales of I.V. Products.
6.4.2.4 If the parties' business information systems and/or
data processing systems are unable to accommodate the applicable
percentages set forth in this Section 6.4.2, the parties shall agree upon a
procedure for monthly payment with a quarterly adjustment to achieve the
effects of the percentage fees set forth herein based upon the then-current
percentages as applied to Agency Net Sales and Distributor Net Sales for
each Product category.
6.5 MINIMUM FEE TO ALLEGIANCE FOR CALENDAR YEAR 1997. For calendar year
1997, Baxter shall pay to Allegiance a minimum dollar amount (the "Minimum Fee")
calculated by multiplying the actual Contract Net Sales of I.V. Products in
calendar year 1996 by * * *. If (a) the agency services fees paid by Baxter to
Allegiance in calendar year 1997 pursuant to Section 6.3 for I.V. Products, plus
(b) the service fees paid by Baxter to Allegiance pursuant to Section 6.1 in
connection with its sales of I.V. Products, is less than (c) the Minimum Fee,
then Baxter shall pay the difference to Allegiance on or before January 30,
1998. This Section 6.5 shall not apply if prior to December 31, 1997, Baxter
fails to retain, replace, or renew Baxter's contract with any of the following
national group purchasing organizations for the purchase of Base Business
Products by such organization's members: * * *.
6.6 ADJUSTMENTS FOR ALTERNATE SITE DISTRIBUTORS.
6.6.1 ALTERNATE SITE DISTRIBUTION FEE. Baxter shall pay to Allegiance
a minimum dollar amount (the "Alternate Site Distribution Fee") calculated by
multiplying * * * by the actual Contract Net Sales to resellers and
subdistributors of I.V. Products reselling to entities other than acute care
hospitals (such acute care hospitals as set forth in the then-current AMERICAN
HOSPITAL ASSOCIATION GUIDE) (such resellers and subdistributors collectively
referred to as "Alternate Site Distributors"). If for any calendar year, the
sum of (a) the agency services fees paid by Baxter to Allegiance pursuant to
Section 6.3 for sales of I.V. Products to Alternate Site Distributors, plus (b)
the service fees paid by Baxter to Allegiance pursuant to Section 6.1 for sales
of I.V. Products to Alternate Site Distributors, is less than (c) the Alternate
Site Distribution Fee, then Baxter shall pay the shortfall to Allegiance on or
before January 30 of the subsequent calendar year.
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6.6.2 ALTERNATE SITE DISTRIBUTOR BONUS PROGRAMS. If Allegiance wishes
(1) to provide financial incentives to its Alternate Site Distributors to reward
such Alternate Site Distributors for achievement of growth in purchases of
Products above a predetermined amount, and (2) for Baxter to fund such
incentives by payments to Allegiance for such Alternate Site Distributors in
addition to those payments otherwise specified in this Agreement, then Baxter
must approve the amount of such funding, the purchase requirements applicable to
such Alternate Site Distributors, payment criteria to be used by Allegiance, and
applicable reporting requirements. During the Term of this Agreement,
Allegiance may continue its existing premier bonus program for Alternate Site
Distributors with respect to Products, subject to Baxter's right to approve in
advance the purchase requirements applicable to such Alternate Site
Distributors, payment criteria to be used by Allegiance, and applicable
reporting requirements. For each calendar year beginning on or after January 1,
1997, during the Term of this Agreement, in addition to those payments otherwise
specified in this Agreement, Baxter will reimburse Allegiance for amounts
incurred under such premier bonus program, up to a maximum of * * *. Baxter's
reimbursement obligation under this Section 6.6.2 shall be calculated with
respect to total sales (rather than incremental sales) by Allegiance to
Alternate Site Distributors participating in the premier bonus program.
6.7 DRUG WHOLESALER SUPPORT. Allegiance shall supply the equivalent of
one full-time employee who shall possess the requisite level of skill,
experience, and/or training to perform drug wholesaler support services as
directed by Baxter. Baxter shall pay to Allegiance * * * per month in advance
for such services, provided that Baxter may terminate such services at any time
upon 30 days advance written notice without any further liability whatsoever to
Allegiance in connection therewith.
6.8 TELEPHONE SALES. Allegiance shall supply the equivalent of one full-
time employee who shall possess the requisite level of skill, experience, and/or
training to perform telephone sales services to doctors and clinics as directed
by Baxter. Baxter shall pay to Allegiance * * * per month in advance for such
services, provided that Baxter may terminate such services at any time upon 30
days advance written notice without any further liability whatsoever to
Allegiance in connection therewith.
6.9 INBOUND FREIGHT.
6.9.1 INBOUND FREIGHT EXPENSES. Within thirty days after receipt
by Baxter of a monthly invoice from Allegiance
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detailing Allegiance's expenses, Baxter shall reimburse Allegiance for its
actual out-of-pocket expenses incurred in connection with freight expenses for
Products (a) received by Allegiance at its Ontario, California replenishment
center and its distribution centers from Baxter manufacturing plants; and (b)
received by Allegiance at its distribution centers from Baxter's or Allegiance's
replenishment centers.
6.9.2 ALLEGIANCE INBOUND FREIGHT ADMINISTRATIVE SERVICES. Baxter
will pay Allegiance a fee for continuing inbound freight administrative services
provided in accordance with the first two sentences of Section 1.5.2 of Exhibit
C. Baxter will also pay Allegiance any additional fees agreed upon for any
additional inbound freight administrative services provided pursuant to the last
sentence of Section 1.5.2 of Exhibit C.
6.10 EXPENSES OF REBALANCING INVENTORY. Beginning January 1, 1997, and
continuing for the remainder of the Term, Baxter shall reimburse Allegiance for
its actual out-of-pocket expenses incurred in connection with moving Products at
Baxter's request between distribution centers for purposes of re-balancing
stocks, to the extent that such rebalancing expenses exceeded the actual costs
so incurred in calendar year 1996. Baxter shall reimburse Allegiance for such
rebalancing expenses within 30 days after receipt by Baxter of a monthly invoice
from Allegiance detailing its expenses during the preceding month. During the
first calendar quarter following the close of each calendar year during the
Term, the parties will determine the actual amounts due under this Section 6.10
for the such calendar year and settle any amounts owed.
6.11 OUTBOUND FREIGHT.
6.11.1 GENERAL RULE. Allegiance is responsible for all costs
incurred in delivering Products from Allegiance facilities to customers, subject
to the following provisions regarding sharing of costs and savings for Standard
Delivery and Premium Delivery.
6.11.2 SHARING OF COSTS AND SAVINGS FOR STANDARD DELIVERY. For
1998 and each subsequent calendar year during the Term, the parties will agree
in the Council prior to such calendar year upon a target range for costs that
are expected to be incurred by Allegiance in providing Standard Delivery (as
that term is defined in Section 2.4.1.1 of Exhibit C) for the Products during
such calendar year. If during any such calendar year, the actual costs so
incurred by Allegiance fall outside such target range (using a consistent
methodology for such comparison), then
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Baxter and Allegiance will share the excess costs or savings on an equal basis.
6.11.3 SHARING OF COSTS AND SAVINGS FOR UNCOLLECTED PREMIUM
DELIVERY.
6.11.3.1 For 1997 and each subsequent calendar year during the
Term, the parties will agree in the Council prior to such calendar year
upon a target range for costs that are expected (1) to be incurred by
Allegiance in providing Premium Delivery (as that term is defined in
Section 2.4.1.2 of Exhibit C) of Products and (2) not to be collected from
customers. (Hereinafter, such costs are referred to as "Uncollected Premium
Delivery Costs"). If during any such calendar year, the actual Uncollected
Premium Delivery Costs for Products fall outside such target range (using a
consistent methodology for such comparison), the parties will share such
excess costs or savings as follows: Baxter will reimburse Allegiance * * *
of any excess costs; and Allegiance shall pay Baxter * * * of any savings.
6.11.3.2 For 1997, the target range shall be the actual amount of
Uncollected Premium Delivery Costs for Products incurred by Baxter in 1995,
plus and minus * * *. For all subsequent years, the target range shall be
determined by the parties by mutual agreement in the Council, taking into
account the percentage change in Agency Net Sales since 1995.
6.11.3.3 Allegiance will report its actual Uncollected Premium
Delivery Costs to Baxter on a quarterly basis. During the first calendar
quarter following the close of each calendar year during the Term, the
parties will determine the actual amounts due under this Section 6.11.3 for
such calendar year and settle any amounts owed.
6.11.4 INCREMENTAL DELIVERIES. Baxter will pay Allegiance any
amounts agreed upon in respect of Incremental Deliveries pursuant to Section
2.4.1 of Exhibit C.
6.11.5 ALLEGIANCE OUTBOUND FREIGHT ADMINISTRATIVE SERVICES. Baxter
will pay Allegiance any additional fees agreed upon for any additional outbound
freight administrative services provided pursuant to the last sentence of
Section 2.4.3 of Exhibit C.
6.12 CUSTOMER SERVICE REIMBURSEMENT. Beginning January 1, 1997, and
continuing for the Term, Allegiance will pay to Baxter
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monthly the sum of * * *, in order to compensate Baxter for Baxter's increased
customer service costs during such period. For the fourth calendar quarter of
1996, Allegiance will pay to Baxter an amount equal to * * * per person per
month, for all activated Baxter customer service personnel providing customer
service relating to the Products during that month or any preceding month during
such calendar quarter. For purposes of this Section 6.12, Baxter customer
service personnel are activated when they have received appropriate customer
service training relating to the Products and actually begin providing customer
service relating to the Products on a full-time basis. Baxter shall bill
Allegiance monthly for any amounts due under this Section and Allegiance shall
pay any such invoice net 15 days from the end of the applicable month.
6.13 BCS KIT FUNDING.
6.13.1 PAYMENT OBLIGATION. Beginning on the effective date of this
Agreement and continuing for the Term, for all Products sold under the BCS Kit
Model, Baxter will pay Allegiance an amount equal to the excess of the BCS
Component Prices over the transfer prices that the applicable Baxter business
units charged each other for such Products prior to the effective date of this
Agreement. Notwithstanding the immediately preceding sentence, Baxter's total
payment obligation to Allegiance under this Section shall not exceed * * * for
any calendar year during the Term and shall not exceed * * * for calendar year
1996.
6.13.2 SETTLEMENT PROCEDURE. The parties will settle any amounts owed
under Section 6.13.1 as follows: For each month during the Term, Baxter will
make payments to Allegiance in the estimated amount of * * * per month, net
fifteen days from the end of the applicable month. During the first calendar
quarter following the close of each calendar year during the Term, the parties
will determine the actual amounts due under Section 6.13.1 for such calendar
year and settle any amounts owed within 15 days of such determination. The
settlement for the fourth calendar quarter of 1996 will take place during the
first calendar quarter of 1997.
6.14 ADJUSTMENTS FOR CHANGES IN APPLICABLE STORAGE REQUIREMENTS.
6.14.1 BAXTER CHANGES IN APPLICABLE STORAGE REQUIREMENTS. The fees
set forth in Sections 6.1 and 6.3 are subject to renegotiation if Baxter
redefines applicable storage requirements in a way that has a material adverse
impact on Allegiance's costs.
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6.14.2 LEGAL CHANGES IN APPLICABLE STORAGE REQUIREMENTS. If
applicable storage requirements change as a result of changes in laws,
regulations, or interpretations or enforcement actions by governmental
authorities with jurisdiction over the Products or the subject matter of this
Agreement, the otherwise applicable fees set forth in Sections 6.1 and 6.3 may
be adjusted, if appropriate, pursuant to the process described in Section 19.3
of this Agreement.
6.15 DEALER MANAGEMENT GROUP FUNDING. If changes in Baxter's business
requirements (including, without limitation, increased sales volumes through
Allegiance's dealer management group or increased complexity in the sales and/or
distribution process through Allegiance's dealer management group) directly
cause significant increases in Allegiance's dealer management group operational
headcount, Baxter shall pay Allegiance for such increases in Allegiance's
operational headcount. The parties shall meet at least twice per year to review
the status of Allegiance's dealer management group operations and shall agree
upon Allegiance's need, if any, for increases in operational headcount, the
cause of such need, and Baxter's payment, if any, for any increases in
operational headcount.
6.16 FCA FEES AND EXPENSES.
6.16.1 In addition to the other fees and charges set forth in this
Section 6, in 1997 and subsequent years Baxter will pay Allegiance an annual fee
equal to (a) * * * times (b) the total number of Product lines affected by FCAs
in such year in excess of * * * (the total number of Product lines affected by
FCAs in 1995). For purposes of this Section, any FCAs caused by Allegiance's
negligence shall be excluded. In addition, for each catalog number affected by
an FCA, the total "lines" shall be an amount equal to the sum of (a) the number
of notification processing responses completed by Allegiance facilities for that
FCA, plus (b) the number of dispositions completed by Allegiance facilities for
that FCA. Baxter shall not owe Allegiance any FCA fee under this Section, nor
shall Baxter be entitled to any fee or credit from Allegiance, if in 1997 or any
subsequent year, the total number of lines affected by FCAs does not exceed
* * *. For 1996, the FCA fee will be computed based on the excess of total
Product lines affected by FCAs in the last three months of 1996 over the
average quarterly total of Product lines affected by FCAs in calendar year 1995.
6.16.2 ADDITIONAL FCA SERVICES. Baxter shall pay Allegiance the
fees agreed upon for any additional FCA services requested and approved by
Baxter and provided by Allegiance pursuant to Section 1.7.2 of Exhibit C.
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6.16.3 THIRD-PARTY INVOICES. Baxter shall reimburse Allegiance for
all third-party invoices relating to additional FCA services requested and
approved by Baxter and actually paid by Allegiance, pursuant to Section 1.7.2 of
Exhibit C.
6.17 PACKAGING FAILURE. Baxter shall reimburse Allegiance for Allegiance's
actual expenses incurred in respect of failure of shipping cartons for Products
(including, without limitation, repackaging and return of Product). Such
reimbursement shall be paid quarterly and shall be due within 30 days after
receipt of Allegiance's invoice therefor together with full supporting
documentation.
6.18 COMPENSATION FOR PRODUCT DAMAGE, THEFT OR LOSS. If any Products
are damaged, lost or stolen while in an Allegiance-owned replenishment center or
distribution center, and Allegiance is responsible under this Agreement for such
damage, theft or loss, Allegiance shall compensate Baxter. In addition, if
Allegiance is unable to furnish proof of delivery with respect to Products
shipped on Allegiance's private fleet, Allegiance shall compensate Baxter for
such undelivered Products. For purposes of this Section 6.18, the basis for
compensation shall be an amount equal to Baxter's standard costs for such
Products as stated in Baxter's inventory valuation reports together with all
amounts owed by Baxter to third parties in respect of such Products. Payment
shall be due within 30 days after Baxter's request for compensation hereunder.
During the Interim Period, in the event of any conflicts between the provisions
of this Section 6.18 and the provisions of Exhibit F of this Agreement with
respect to transactions under Interim Distributor Model, the provisions of
Exhibit F shall control.
7. THE COUNCIL.
7.1 A Baxter/Allegiance Distribution/Materials Management/Transportation
Council (the "Council") will be formed to ensure open communication between
Allegiance and each of the Baxter divisions, and to provide problem/dispute
identification and resolution in the areas of materials management,
distribution, and transportation and logistics. Without limitation to the
foregoing, the Council will provide a forum for the parties (1) to review
jointly their performance in relation to their responsibilities identified in
Appendices C and D of this Agreement, (2) to agree upon eligible carriers for
Product shipments and to review jointly freight charges and transportation
modes, (3) to agree upon target ranges and compensation for Standard Delivery,
Premium Delivery and Incremental Deliveries under Section 6.11, and (4) to
develop joint recommendations for the parties' respective business
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executives regarding the management of freight costs and other issues arising
under this Agreement.
7.2 Baxter and Allegiance will agree upon the membership of the Council
and its procedures.
7.3 The Council will meet at least once per calendar quarter during the
Term of this Agreement. Baxter and Allegiance may identify a Steering Committee
consisting of fewer than all of the Council members with authority to address
issues requiring resolution prior to such quarterly meetings.
8. INVOICING AND PAYMENTS.
8.1 GENERAL.
8.1.1 On or before the fifth business day of each calendar month
during the Term, Baxter shall report to Allegiance its Agency Net Sales for the
previous calendar month, and shall also provide to Allegiance a service fee
report in a format to be agreed upon, showing the service fees payable for
Products sold under the Agency Model. Each business day during the Term,
Allegiance shall report to Baxter its aggregate sales and returns of Products
for the previous business day by code and by customer for Distributor Model and
BCS Kit Model transactions, and such reports shall also include, with respect to
Distributor Model transactions, the Suggested Sales Price and Allegiance's
actual purchase price of the Products.
8.1.2 Allegiance shall make payment to Baxter for its aggregate
purchases of Products sold by Allegiance under the Distributor Model, net 30
days from the date of shipment of the Product by Allegiance to the customer.
Baxter shall make payment to Allegiance of applicable service fees in connection
with sales of Products under the Distributor Model, net 30 days from the date of
shipment of the Product by Allegiance to the customer.
8.1.3 For sales other than those made under the Distributor Model,
Allegiance shall bill Baxter for any fees due hereunder. Baxter shall pay any
such invoice net 15 days from the end of the applicable month.
8.1.4 For sales to Allegiance of Products for use as components of
BCS Kits, Baxter shall bill Allegiance for the BCS Component Prices for the
Products. Allegiance shall pay any such invoice net 60 days from the date of
such invoice.
8.1.5 If any amounts due hereunder have not been received by the
due date, such overdue amounts shall bear
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interest from the due date at the rate of * * * per month, or portion thereof,
until received. If payment is delayed because a report required by Section
8.1.1 has not been received, interest will not accrue until 30 days after
receipt of such report.
8.2 ADDITIONAL SERVICES. Allegiance may provide services ("Additional
Services") to customers in connection with Agency Model transactions over and
above Allegiance's duties set forth in Exhibit C, provided that such Additional
Services are not Cost Management services. Allegiance shall have the right to
bill customers directly for the Additional Services. Upon Allegiance's written
request, Baxter shall cooperate with Allegiance by performing billing and
collection services for Allegiance in connection with the Additional Services as
directed by Allegiance. Within 30 days after receipt from the customers, Baxter
shall forward to Allegiance any payments received from customers in connection
with the Additional Services.
8.3 DISPUTED PAYMENTS. Either party shall have the right to withhold any
amounts due hereunder if such party in good faith disputes the amount claimed by
the other party to be due hereunder and such party notifies the other party of
such dispute within 60 days after the date of each applicable statement from the
other party hereunder. The foregoing right to withhold payment of disputed
amounts shall be limited to the amounts disputed in good faith, and interest
will accrue and be payable on the net amount determined to be payable.
8.4 SUSPENSION OF SERVICE. In addition to any other rights available to
it at law or in equity, upon ten days Notice to Baxter, Allegiance may suspend
the provision of any services for which an undisputed statement for provision of
services hereunder from Allegiance (or one of its Affiliates) has not been
satisfied within 30 days of its due date until such statement has been
satisfied.
8.5 AUDIT. Allegiance may audit Baxter's books and records and Baxter may
audit Allegiance's books and records for the purpose of determining compliance
with the terms of this Agreement. The party requesting the audit may use
independent auditors, who may participate fully in such audit. In the event
that an audit is proposed with respect to information which the party to be
audited wishes not to disclose to the other party ("Restricted Information"),
then on the written demand of the party to be audited, the individuals
conducting the audit with respect to Restricted Information will be limited to
the independent auditors of the party requesting the audit. In such event, the
party to be audited shall pay the costs of the independent auditors conducting
such audit, but only with respect
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to that portion of the audit relating to the Restricted Information. Such
independent auditors shall enter into an agreement with the parties hereto, on
terms that are agreeable to both parties hereto, under which such independent
auditors shall agree to maintain the confidentiality of the information obtained
during the course of such audit and establishing what information such auditors
will be permitted to disclose to report the results of any audit of Restricted
Information to the party requesting the audit. Any such audit shall be
conducted during regular business hours, in a manner that does not interfere
unreasonably with the operations of the party being audited. Such audits shall
be conducted not more than once in any one year period unless the next preceding
audit disclosed a failure to conform to the terms of this Agreement. Subject to
the foregoing limitations, any such audit shall be conducted when requested by
Notice given not less than 30 days prior to the commencement of the audit.
8.6 RIGHT OF OFFSET. At any time during the Term or after termination or
expiration of this Agreement, either party may offset any and all amounts which
the other party owes it hereunder against any and all amounts which it owes the
other party hereunder.
8.7 INTERIM PERIOD. During the Interim Period, in the event of any
conflicts between the provisions of this Section 8 and the provisions of Exhibit
F of this Agreement with respect to transactions under Interim Distributor
Model, the provisions of Exhibit F shall control.
9. ALLEGIANCE'S DUTIES. During the Term, Allegiance shall maintain the
facilities and personnel necessary to provide the physical distribution services
and related services in connection with its appointment and grant hereunder
including, without limitation, the facilities and personnel necessary to fulfill
Allegiance's duties as set forth in Exhibit C attached hereto and made a part
hereof. Allegiance will use all reasonable efforts to meet the levels of
service specified in Exhibit C.
10. BAXTER'S DUTIES. During the Term, Baxter shall maintain the facilities and
personnel necessary to manufacture and distribute the Products as provided for
hereunder including, without limitation, the facilities and personnel necessary
to fulfill Baxter's duties as set forth in Exhibit D attached hereto and made a
part hereof. Baxter will use all reasonable efforts to meet the commitments
specified in Exhibit C.
11. STANDARD OF CARE. Each party will use (and will cause its Affiliates to
use) commercially reasonable efforts in the
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performance of its obligations and will do so with the same degree of care,
skill and prudence customarily exercised when engaged in similar activities for
itself and its Affiliates. Subject to the provisions of Section 22, if a
party's performance is inaccurate, incomplete or untimely, such party shall, if
practical, promptly perform or reperform such obligations. In performing its
responsibilities hereunder, each party shall accord the other party and its
Affiliates the same priority as it provides itself and its Affiliates under
comparable circumstances. Without limiting the generality of the foregoing, in
the provision of services under comparable circumstances, a party will not
discriminate against the other party or any of its Affiliates solely because the
other party or one of its Affiliates is the recipient of such services. The
parties agree to consult with each other with respect to performance of their
obligations hereunder. Each party shall give due consideration to any
suggestion by the other to improve performance.
11.1 UNIFORM COMMERCIAL CODE. The parties agree that the provisions of
Section 2-306(2) of the Uniform Commercial Code ("U.C.C.") shall not apply to
services or any other activities or obligations of either of the parties
hereunder.
12. ALTERNATIVE ACUTE CARE DISTRIBUTION. If, for any calendar year during the
Term of this Agreement after 1996, Agency Net Sales of Products to nonacute care
customers for delivery to acute care hospitals (such acute care hospitals as set
forth in the then-current AMERICAN HOSPITAL ASSOCIATION GUIDE) ("Alternative
Acute Care Distributors") * * *. If, for any calendar year, Agency Net Sales of
Products to Alternative Acute Care * * *. Notwithstanding the preceding
provisions of this Section, * * *. If in any calendar year, Agency Net Sales of
Products to * * *.
13. TRANSFER OF TITLE AND RISK OF LOSS.
13.1 GENERAL. Title and risk of loss with respect to Products sold
pursuant to the Agency Model shall pass from Baxter directly to the customer or
Subdistributor when such customer or Subdistributor receives the Products from
Allegiance whether delivered by Allegiance or a third-party carrier. Prior to
such time, title and risk of loss shall remain with Baxter regardless of whether
or not Allegiance shall have physical possession and/or control of such
Products. Title and risk of loss with respect to Products sold pursuant to the
Distributor Model shall pass from Baxter to Allegiance and immediately on to the
customer at the time of Allegiance's shipment of the Products to the customer.
Title and risk of loss with respect to Products sold to Allegiance for use as
components of BCS Kits shall pass from
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Baxter to Allegiance at the time that Allegiance receives such Products from
Baxter. Notwithstanding the foregoing, Allegiance shall be solely responsible
for any damage to the Products arising from Allegiance's mishandling of such
Products or theft or shrinkage while in Allegiance's possession.
13.2 INTERIM PERIOD. During the Interim Period, in the event of any
conflicts between the provisions of this Section 13 and the provisions of
Exhibit F of this Agreement with respect to transactions under Interim
Distributor Model, the provisions of Exhibit F shall control.
14. WARRANTIES.
14.1 PRODUCT WARRANTY. Baxter warrants to Allegiance that, at the time of
delivery to Allegiance: (a) the Products shall not be adulterated or misbranded
within the meaning of the Federal Food, Drug and Cosmetic Act, as amended and
the regulations issued thereunder, or products that may not under the provisions
of Sections 404, 505, 514 or 515 of said Act be introduced into interstate
commerce, or banned devices under Section 516 of said Act; and (b) Baxter shall
have good and marketable title to all such Products free and clear of all liens
or encumbrances (other than any created by Allegiance).
14.2 DISCLAIMER. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
MERCHANTABILITY. IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT
LIABILITY (INCLUDING NEGLIGENCE) OR OTHERWISE, SHALL BAXTER BE LIABLE TO
ALLEGIANCE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
14.3 LIMITATION OF LIABILITY. ANY LIABILITY OF BAXTER TO ALLEGIANCE UNDER
THE WARRANTY CONTAINED IN THIS SECTION 14 SHALL BE LIMITED TO THE TOTAL PRICE
PAID BY ALLEGIANCE FOR THE PRODUCTS WHICH ARE THE SUBJECT OF SUCH LIABILITY PLUS
ALL COSTS FOR TRANSPORTATION AND OTHER DIRECT EXPENSES INCURRED BY ALLEGIANCE
WITH RESPECT TO SUCH PRODUCTS.
15. TRADEMARKS.
15.1 OWNERSHIP. Allegiance acknowledges that Baxter is the owner or
licensee of the trademarks and trade names which Baxter uses in the promotion
and sale of the Products hereunder, and that Allegiance has no right or interest
in such trademarks or trade names. Before commencing any use of the trademarks
or trade names connoting Baxter in connection with any catalog,
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promotional, packaging, or other materials, which use has not been previously
approved in writing by Baxter, Allegiance agrees to provide Baxter with proposed
specimens of use of such trademarks or trade names and to obtain Baxter's
written approval of such proposed use.
15.2 INFRINGEMENT. Allegiance shall notify Baxter promptly of any and all
infringements or improper use by any third party of the trademarks and trade
names connoting Baxter should Allegiance discover reasonable cause for believing
that such infringement or improper use is taking place and shall provide to
Baxter all information which Allegiance has available thereon. Baxter shall
have sole discretion and control with regard to any proceedings relating to
infringement or improper use of its trademarks and trade names. Allegiance may
choose to be represented by its own counsel in any such proceedings but such
representation shall be solely at Allegiance's expense.
15.3 EQUITABLE REMEDIES. Allegiance acknowledges that Baxter would not
have any adequate remedy at law for the breach by the other party of any one or
more of the covenants contained in this Section 15 and agrees that, in the event
of such breach, Baxter may, in addition to the other remedies which may be
available to it, file a suit in equity to enjoin Allegiance from any further
breach of any of the terms of this Section 15.
16. TERMINATION.
16.1 CHANGE IN CONTROL.
16.1.1 GENERAL. In the event of a Change in Control of either party
hereto or any Affiliate thereof to which any of the rights or obligations
hereunder have been assigned as permitted by Section 25, the party (the
"Affected Party") with respect to which the Change in Control has occurred,
either directly or with respect to one of its Affiliates shall give Notice to
the other party (the "Non-Affected Party") within 30 days of the occurrence of
such Change in Control. The Non-Affected Party may terminate this Agreement, in
whole but not in part, in the event of any such Change in Control with respect
to the Affected Party by giving Notice of such termination to the Affected Party
as provided below. In the event of a Change in Control of an Affiliate of the
Affected Party to which any of the rights or obligations hereunder have been
assigned as permitted by Section 25, the Non-Affected Party may terminate this
Agreement with respect to such Affiliate by giving Notice to the Affected Party
as provided below. The Non-Affected Party may exercise the rights of
termination described in the two preceding sentences by giving a notice of
termination, specifying the date
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of termination, to the Affected Party at any time prior to the end of the 60th
day following the receipt by the Non-Affected Party of the applicable Notice of
Change in Control given by the Affected Party pursuant to the first sentence of
this Section. In the event that the applicable Change in Control involves a
Competitor of the Non-Affected Party, the date of termination specified by the
Non-Affected Party in the notice of termination shall be the last day of a
calendar month which is not earlier than the sixth full calendar month following
the date of the Notice of termination and not later than the twelfth full
calendar month following the date of the Notice of Termination. In the event
that the applicable Change in Control does not involve a Competitor of the Non-
Affected Party, the date of termination specified by the Non-Affected Party in
the notice of termination shall be the later of (i) the last day of the twelfth
full calendar month following the date of the notice of termination and (ii)
December 31, 1998.
16.1.2 DEFINITIONS. For purposes hereof, "Change in Control" shall
mean (i) the acquisition, directly or indirectly, by any Person or Persons of
more than * * * of the voting stock of either party to this Agreement or any
Affiliate thereof, (ii) any merger or consolidation involving the Affected Party
or any Affiliate of the Affected Party that requires a vote of the stockholders
of the Ultimate Parent of the Affected Party, (iii) the acquisition by the
Affected Party or any Affiliate of the Affected Party of any Person that (a) is
a Rival of the Non-Affected Party and (b) after such acquisition, constitutes a
"significant subsidiary" of the Affected Party within the meaning of Rule
1-02(w) of Regulation S-X of the Regulations of the Securities and Exchange
Commission, substituting * * * for 10 percent in the tests used therein to
determine significant subsidiary, and (iv) only in the case of an Affiliate of
the Affected Party, the Transfer of all or substantially all of the business and
assets of such Affiliate. For the purposes hereof, "Rival" shall mean (a) with
respect to Baxter, any Person (including an Affiliate of such Person) that
during its most recently completed fiscal year has annual net revenues greater
than * * * of the total annual net revenues of Baxter International during its
most recently completed fiscal year; and (b) with respect to Allegiance, any
Person (including an Affiliate of such Person) that during its most recently
completed fiscal year has annual net revenues greater than * * * of the total
annual net revenues of Allegiance Corporation during the most recently completed
fiscal year. For the purposes hereof, "Ultimate Parent" means Baxter
International in the case of Baxter and Allegiance Corporation in the case of
Allegiance.
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16.1.3 TRANSFERS BY BAXTER. In the event that Baxter or any of its
Affiliates shall Transfer all or substantially all of the business and assets
relating to any Line of Products as permitted by Section 25, Allegiance may
terminate this Agreement with respect to such Line of Products in the same
manner as provided in Section 16.1.1. In the event that Baxter or any of its
Affiliates shall Transfer all or substantially all of the business and assets
relating to the Products as permitted by Section 25, Allegiance may terminate
this Agreement in its entirety in the same manner as provided in Section 16.1.1.
16.1.4 TRANSFERS BY ALLEGIANCE. In the event that Allegiance or any
of its Affiliates shall Transfer any portion of its business and assets relating
to Allegiance's distribution network as permitted by Section 25, which portion
accounted for net sales during the most recently completed fiscal year in excess
of * * *, Baxter may terminate this Agreement with respect to the Transferred
portion of the distribution network in the same manner as provided in Section
16.1.1.
16.1.5 OBLIGATION TO NEGOTIATE. If demanded in writing by the Non-
Affected Party, the Affected Party shall be obligated, during the period
following a Notice of termination from the Non-Affected Party, to negotiate in
good faith to establish terms and conditions that are acceptable to the Non-
Affected Party for an extension of the Term beyond the date of termination
specified in the Notice of termination in light of the Change in Control,
provided, however, the Non-Affected Party may in its absolute discretion
determine whether any proposed terms and conditions are acceptable and may
refuse to agree to any such terms and conditions for any reason whatsoever.
16.1.6 CONFIDENTIAL INFORMATION During the period commencing with any
such Change in Control and continuing through the end of the Term (and
thereafter, if appropriate), the Affected Party shall take any and all action
reasonably requested by the Non-Affected Party to protect any confidential
information of the Non-Affected Party from disclosure to or use by any Affiliate
of the Affected Party other than a Person that, immediately prior to the
occurrence of the Change in Control, was an Affiliate of the Affected Party that
regularly accessed such confidential information for a reasonable business
purpose.
16.2 OTHER TERMINATIONS. Each Party shall have the right to terminate this
Agreement effective upon delivery of Notice to the other party if the other
party: (a) makes an assignment for the benefit of creditors, or becomes
bankrupt or insolvent, or is petitioned into bankruptcy, or takes advantage of
any state, federal or foreign bankruptcy or insolvency act, or if a receiver
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or receiver/manager is appointed for all or any substantial part of its property
and business and such receiver or receiver/manager remains undischarged for a
period of 30 days, (b) has its corporate existence terminated by voluntary or
involuntary dissolution; or (c) materially defaults in the performance of any of
its covenants or obligations contained in this Agreement and such default is not
remedied to the nondefaulting party's reasonable satisfaction within 30 days
after Notice to the defaulting party of such default, or if such default is not
capable of rectification within 30 days, if the defaulting party has not
promptly commenced to rectify the default within such 30 day period and is not
proceeding diligently to rectify the default.
16.3 PROCEDURES ON TERMINATION. In the event of any termination of this
Agreement and if and when requested by Allegiance, Baxter will promptly remove
all inventory of Products owned by Baxter from facilities of Allegiance or any
of its Affiliates. Such removal will be effected during normal business hours
after reasonable advance Notice to Allegiance and will be done in a manner that
will not unreasonably disrupt the normal business operations of Allegiance or
Baxter.
Except as otherwise required pursuant to Sections 21 and 23.9, each party
shall destroy or return to the other party all records made or obtained in the
course of performance hereunder containing information regarding the other party
or its customers that is protected from disclosure under Section 21. In the
event that any party shall elect to destroy any records as permitted above, such
party shall provide the other party with written confirmation of any such
destruction.
16.4 CONTINUED SERVICE. In the event that this Agreement is terminated
pursuant to this Section 16, Baxter and Allegiance shall comply fully with this
Agreement and use reasonable efforts to service adequately existing customers of
the Products until such termination becomes effective.
16.5 PENDING ORDERS. On the expiration or termination of this Agreement
for any reason, Allegiance shall continue to honor customer's orders for
Products placed up to the date of expiration or termination, and Baxter shall
pay the fees due to Allegiance on the terms and conditions set forth in this
Agreement. Any consideration due hereunder that is calculated based upon a
specified time period shall be prorated for any partial period of time between
the end of the last such period and the date of expiration or termination. In
the event that Allegiance has elected to terminate this Agreement because of the
failure of Baxter to pay amounts due hereunder, Allegiance shall be obligated to
perform under the first sentence of this Section
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16.5 only after Baxter shall have paid all amounts due and owing to Allegiance
hereunder.
16.6 SELL-OFF. Notwithstanding any provision of this Agreement or any
other agreement between Baxter, Allegiance, and/or their respective Affiliates,
the parties acknowledge that Allegiance and its Affiliates shall be entitled to
continue to sell or otherwise dispose of the Products within the Territory from
and after the effective date of the expiration or termination of this Agreement
if such Products were owned by Allegiance on the date of termination.
16.7 TRUE-UP. No later than 12 months after expiration or termination of
this Agreement, Baxter shall report to Allegiance all discounts and bonuses
accrued but not earned and/or earned but not accrued on sales made hereunder,
and Baxter shall submit either a payment or an invoice for the net of such
amounts.
17. INDEMNITY.
17.1 BAXTER'S OBLIGATION. Baxter agrees to indemnify and hold Allegiance
and the Allegiance Indemnified Parties harmless from and against, and in respect
of, any and all claims by, and liabilities to, third parties ("Third-Party
Claims") asserted against or incurred by, and any and all expenses (including
all fees and expenses of counsel, travel costs and other out-of-pocket costs) in
connection with pending or threatened litigation or other proceedings regarding
such Third-Party Claims ("Expenses") incurred by, Allegiance or any of the
Allegiance Indemnified Parties (as hereinafter defined) which arise out of or
relate to:
17.1.1 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 Products pursuant to this Agreement;
17.1.2 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 Baxter (or its employees or agents) in
the course of its performance of this Agreement;
17.1.3 defects in Products;
17.1.4 any actual or alleged breach of warranty or obligation, if
any, accompanying the Product or Products, subject to the limitations in Section
14 to the extent provided therein; and
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17.1.5 any claim for personal injury, wrongful death or property
damage arising out of the use of a Product;
PROVIDED that this Section 17.1 shall not apply to any Third-Party Claim or
Expense to the extent that the parties agree, or it is finally determined
pursuant to Section 17.4 that the Third-Party Claim or Expense is within the
scope of Allegiance's indemnity obligation set forth in Sections 17.2.1 and
17.2.2 below.
The Allegiance Indemnified Parties shall mean and include (A) Allegiance's
Affiliates (B) the respective directors, officers, agents and employees of and
counsel to Allegiance and its Affiliates, (C) each other person, if any,
controlling Allegiance or any of its Affiliates, and (D) the successors,
assigns, heirs and personal representatives of any of the foregoing. Expenses
shall be reimbursed or advanced when and as incurred promptly upon submission by
Allegiance or any Allegiance Indemnified Party of statements to Baxter.
17.2 ALLEGIANCE'S OBLIGATION. Allegiance agrees to indemnify and hold
Baxter and the Baxter Indemnified Parties harmless from and against, and in
respect of, any and all Third-Party Claims asserted against or incurred by, and
any and all Expenses incurred by, Baxter or any of the Baxter Indemnified
Parties (as hereinafter defined) which arise out of or relate to:
17.2.1 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 Allegiance (or its employees or other
agents) in the course of its performance of this Agreement including, but not
limited to, any Third-Party Claims or Expenses 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 inclusion in
Kits; and
17.2.2 any actual or alleged patent, copyright or trademark
infringement, or violation of any other proprietary right, arising out of any
act or omission of Allegiance or any of its Affiliates in connection with the
sale of Kits or relating to any intellectual property owned by Allegiance or any
of its Affiliates and used in connection with the sale of Kits.
The Baxter Indemnified Parties shall mean and include (A) Baxter's Affiliates,
(B) the respective directors, officers, agents and employees of and counsel to
Baxter and its Affiliates, (C) each other person, if any, controlling Baxter or
any of its
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Affiliates, and (D) the successors, assigns, heirs and personal representatives
of any of the foregoing. Expenses shall be reimbursed or advanced when and as
incurred promptly upon submission by Baxter or any Baxter Indemnified Party of
statements to Allegiance.
17.3 THIRD-PARTY CLAIMS. If any third party shall make any claim or
commence any arbitration proceeding or suit against any one or more of the
Baxter Indemnified Parties or the Allegiance Indemnified Parties (hereafter,
"Indemnified Persons") with respect to which an Indemnified Person intends to
make any claim for indemnification against Allegiance under Section 17.2 or
against Baxter under Section 17.1 (as the case may be, the "Indemnifying
Party"), such Indemnified Persons shall promptly give written notice to the
Indemnifying Party of such third party claim, arbitration proceeding or suit and
the following provisions shall apply.
17.4 CONTROL OF PROCEEDINGS.
17.4.1 The Indemnifying Party shall have 20 business days after
receipt of the notice referred to in Section 17.3 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 or
compromise such claim, proceeding or suit in the exercise of its exclusive
discretion subject to the provisions of Section 17.5, and the Indemnifying Party
shall, upon request from any of the Indemnified Persons, promptly pay to such
Indemnified Persons in accordance with the other terms of this Section the
amount of any Third-Party Claim resulting from their liability to the third
party claimant and all related Expense.
17.4.2 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 Person; (ii) the Indemnifying Party shall not thereby permit any
injunction against any Indemnified Person; (iii) the Indemnifying Party shall
permit the Indemnified Person and counsel chosen by the Indemnified Person and
reasonably acceptable to the Indemnifying Party to monitor such conduct or
settlement and shall provide the Indemnified Person and such counsel with such
information
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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 Person unless (1) the
Indemnifying Party and the Indemnified Person 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 Person and the Indemnifying Party and in the
reasonable opinion of counsel to the Indemnified Person 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 Person shall be reimbursed by
the Indemnifying Party to the Indemnified Person; and (iv) the Indemnifying
Party shall agree promptly to reimburse to the extent required under this
Section the Indemnified Person for the full amount of any Third-Party Claim
resulting from such claim, proceeding or suit and all related Expense incurred
by the Indemnified Person.
17.4.3 In no event shall the Indemnifying Party without the prior
written consent of the Indemnified Person, 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
Person a release from all liability in respect of such claim.
17.4.4 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 Person to
monitor the conduct or settlement of such claim by the Indemnified Person, and
the Indemnified Person 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.
17.5 SETTLEMENT OF THIRD-PARTY CLAIMS BY THE INDEMNIFIED PERSON. So long
as the Indemnifying Party is contesting any such claim, suit or proceeding in
good faith, the Indemnified Person shall not pay or settle any such claim,
proceeding or suit. Notwithstanding the foregoing, the Indemnified Person shall
have the right to pay or settle any such claim, proceeding or suit, provided
that in such event the Indemnified Person shall waive any right to indemnity
therefor by the Indemnifying Party, and no amount in respect thereof shall be
claimed as Third-Party Claim or Expense under this Section 17.
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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
Indemnified Person, 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 Person to contest such claim at the expense of
the Indemnifying Party. In such event, the Indemnified Person 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 17.4. Anything in this Section 17 to the contrary
notwithstanding, if the Indemnified Person advises the Indemnifying Party that
it has determined to make settlement of a claim, the Indemnified Person 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 17 for indemnification by the
Indemnifying Party.
18. INSURANCE.
Each party is responsible for carrying any insurance desired by it in its
sole discretion, including comprehensive general liability insurance, insurance
to cover its facilities, products liability insurance and business interruption
insurance.
19. COMPLIANCE WITH LAWS.
19.1 ALLEGIANCE COMPLIANCE. Allegiance shall, to the extent material to
Allegiance and its Affiliates taken as a whole, comply (or cause compliance)
with all existing and future federal, state and other laws and regulations in
the Territory applicable to the conduct of Allegiance's business or the
possession of Products pursuant to this Agreement including, without limitation,
the following:
19.1.1 giving prompt written notice to Baxter if Allegiance should
become aware of any actual defect or condition which may alter the quality of
the Products in any material respect or may render any of the Products in
violation of any applicable law or regulation of the Territory including,
without limitation, any violation which could require any alteration of the
specifications of any Product, affect the sale of any Product, cause revocation
of any regulatory approval with respect to any Product or its sale hereunder, or
give rise to a claim against Baxter by any person, and Allegiance shall promptly
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notify Baxter upon becoming aware of any changes in any laws or regulations in
the Territory applicable to the manufacture, sale, packaging, labeling,
possession or use of the Products;
19.1.2 keeping appropriate records of all lot coded and serial
numbered Products shipped to customers; and
19.1.3 making prompt return of any and all Products affected by
holds or recalls if so requested by Baxter.
To the extent applicable to the subject matter of this Agreement, and pursuant
to the requirements of 42 CFR 420.300 et. seq., Allegiance hereby agrees to make
available to the Secretary of Health and Human Services ("HHS"), the Comptroller
of the General Accounting Office ("GAO"), or their authorized representatives,
all contracts, books, documents and records relating to the nature and extent of
costs hereunder for a period of four (4) years after the furnishing of services
hereunder. In addition, if any part of any service is to be provided by
subcontract, Allegiance hereby agrees to require by contract that such
subcontractor make available to the HHS and GAO, or their authorized
representatives, all contracts, books, documents and records relating to the
nature and costs thereunder for a period of four (4) years after the furnishing
of services thereunder.
19.2 BAXTER COMPLIANCE. Baxter shall, to the extent material to Baxter and
its Affiliates taken as a whole, comply (or cause compliance) with all existing
and future laws and regulations in the Territory applicable to the conduct of
Baxter's business or the manufacture, packaging, labeling and sale to Allegiance
of Products pursuant to this Agreement, including, without limitation, the
following:
19.2.1 giving prompt written notice to Allegiance if Baxter should
become aware of any actual defect or condition which may alter the quality of
the Products in any material respect or may render any of the Products in
violation of any applicable law or regulation of the Territory, including,
without limitation, any violation which could require any alteration of the
specifications of any Product, affect the sale of any Product, cause revocation
of any federal, state or other regulatory approval with respect to any Product
or its sale hereunder or give rise to a claim against Allegiance by any person;
and
19.2.2 giving prompt written notice to Allegiance of any and all
Products affected by holds or recalls and, if Baxter requests Allegiance to
return any of such Products to Baxter, promptly reimburse Allegiance for the
price of such returned
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Products paid by Allegiance under this Agreement and the direct cost of
returning such Products to Baxter.
The services provided hereunder will not be provided in violation of any
applicable Equal Employment Opportunity requirements including those set forth
in Section 202 of Executive Order 11246, as amended.
19.3 CONSULTATION. If applicable storage requirements change during the
Term of this Agreement as a result of changes in laws, regulations, or
interpretations or enforcement actions by governmental authorities with
jurisdiction over the Products or the subject matter of this Agreement, the
parties will confer regarding the need for and funding of any such changes, in
accordance with the following process. The need for any change in storage
requirements will be reviewed by senior executives of the parties who are
directly responsible for regulatory compliance, who will forward their
recommendation for specific change(s) to the Council. The Council will develop a
proposal for resolution that will include scope, funding needed, alternatives
and its recommendation. The Council will then forward its proposal to a working
group of business executives designated by Baxter and Allegiance that will have
the authority: (a) to adopt or modify the proposal; (b) to determine the funding
method; and (c) if appropriate, to allocate the costs of such resolution between
the Parties.
20. FORCE MAJEURE. The obligations of either party to perform under this
Agreement shall be excused during each period of delay caused by matters (not
including lack of funds or other financial causes) such as strikes, supplier
delays, shortages of raw materials, government orders or acts of God, which are
reasonably beyond the control of the party obligated to perform; provided that
nothing contained in this Agreement shall affect either party's ability or
discretion with respect to any strike or other employee dispute or disturbance
and all such strikes, disputes or disturbances shall be deemed to be beyond the
control of such party. A condition of force majeure shall be deemed to continue
only so long as the affected party shall be taking all reasonable actions
necessary to overcome such condition. In the event that either party hereto
shall be affected by a condition of force majeure, such party shall give the
other party prompt Notice thereof, which Notice shall contain the affected
party's estimate of the duration of such condition and a description of the
steps being taken or proposed to be taken to overcome such condition of force
majeure. Any delay occasioned by any such cause shall not constitute a default
under this Agreement, and the obligations of the parties shall be suspended
during the period of delay so occasioned. During any period of force majeure,
the party that
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is not directly affected by such condition of force majeure shall be entitled to
take any reasonable action necessary to mitigate the effects of such condition
of force majeure, and the provisions of Section 4 shall be suspended to the
extent necessary to permit any such action.
21. CONFIDENTIALITY.
21.1 ALLEGIANCE INFORMATION. Baxter agrees to hold, and to use reasonable
efforts to cause its employees and representatives to hold, in confidence all
marketing and pricing information of a confidential nature pertaining to the
Territory, and all information relating to Allegiance's standard costs,
received by Baxter from Allegiance after the Effective Date or obtained from
Allegiance in the course of an audit pursuant to Section 8.5, in a manner
consistent with Baxter's treatment of its own confidential information. Baxter
shall not use such information for any purpose other than as contemplated under
this Agreement or verifying compliance with this Agreement, without Allegiance's
prior written consent.
21.2 BAXTER INFORMATION. Allegiance agrees to hold, and to use reasonable
efforts to cause its employees and representatives to hold, in confidence all
information of a confidential nature concerning Baxter or its customers
(including all marketing and pricing information relating to Baxter and all
standard cost information relating to the Products) in the possession of
Allegiance as of the Effective Date or furnished to or obtained by Allegiance
after the Effective Date, in a manner consistent with Allegiance's treatment of
its own confidential information. Allegiance shall not use such information for
any purpose other than as contemplated under this Agreement, without Baxter's
prior written consent.
21.3 GENERAL. The obligations of confidentiality and non-disclosure
imposed under this Section 21 shall not apply to data and information that the
recipient can demonstrate:
21.3.1 is published or is or otherwise becomes available to the
general public as part of the public domain without breach of this Agreement;
21.3.2 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;
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21.3.3 was developed independently of information furnished to the
recipient under this Agreement; or
21.3.4 was known to the recipient at the time of receipt thereof
from the other party, is not otherwise subject to (a) the confidentiality
restrictions contained in the Reorganization Agreement dated as of September 30,
1996 between Baxter International and Allegiance Corporation, or (b) any other
obligation to keep it confidential and was not obtained from a third party under
circumstances which were known to the recipient to involve a breach of the third
party's obligations to a party hereto.
21.4 EQUITABLE RELIEF. 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 21 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 21 and to enforce specifically
the terms and provisions of this Section.
21.5 REQUIRED DISCLOSURES. The provisions of this Section shall not
preclude disclosures required by law; provided, however, that each party will
use reasonable efforts to notify the other, prior to making any such disclosure,
and permit the other to take such steps as it deems appropriate, including
obtaining a protective order, consistent with applicable law, to minimize any
loss of confidentiality.
21.6 SECURITY. Each party shall be responsible for preventing unauthorized
remote access by such party's own agents and employees to data transferred to or
otherwise made available to the other party under this Agreement.
22. LIMITATION OF LIABILITY AND REMEDY.
22.1 DAMAGES. In no event, whether based on contract, indemnity, warranty,
tort (including negligence), strict liability or otherwise, shall either party
or any of its directors, officers, employees or agents, be liable for special,
exemplary, or punitive damages. The foregoing limitation and disclaimer shall
apply irrespective of whether the possibility of such special, exemplary, or
punitive damages had been disclosed in advance or could have reasonably been
foreseen.
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The limitations and disclaimers of obligations and liabilities contained in
this Section 22 are intended to apply to the fullest extent permitted by law;
provided that such limitations and disclaimers shall not limit amounts payable
with respect to any express indemnity provided for in this Agreement.
22.2 EXCLUSIVE REMEDIES.
22.2.1 BAXTER'S EXCLUSIVE REMEDIES. Except in the case of the gross
negligence or willful misconduct of Allegiance or its Affiliates, Baxter's
exclusive remedies against Allegiance for any breach of, or other act or
omission arising out of or relating to, this Agreement shall be:
22.2.1.1 the right to receive payment of amounts owed under
Sections 6 and 8 hereof;
22.2.1.2 the right to require reperformance of any service to
the extent required pursuant to Section 11;
22.2.1.3 the right to indemnification as provided in Section 17;
22.2.1.4 the right to injunction, specific performance or other
equitable non-monetary relief when available under applicable law;
22.2.1.5 the right to terminate this Agreement for material
breach as set forth in Section 16; and
22.2.1.6 the right to actual damages for breach of Section 21.
22.2.2 ALLEGIANCE'S EXCLUSIVE REMEDIES. Except in the case of the
gross negligence or willful misconduct of Baxter or its Affiliates, Allegiance's
exclusive remedies against Baxter for any breach of, or other act or omission
arising out of or relating to, this Agreement shall be:
22.2.2.1 the right to receive payment of amounts owed under
Sections 6 and 8 hereof;
22.2.2.2 with respect to Interim Distributor Model transactions
only, the right to require Baxter to repair or replace (at Baxter's option
and expense) any Product that proves not to be in conformity with
applicable labeling or specifications, and Baxter shall pay the
transportation and other costs incurred by Allegiance with respect to any
Products returned to Baxter for repair or
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replacement under this Section 22.2.2.2, or at Baxter's option, reimburse
Allegiance for any such costs;
22.2.2.3 the right to indemnification as provided in Section 17;
22.2.2.4 the right to injunction, specific performance or other
equitable non-monetary relief when available under applicable law;
22.2.2.5 the right to terminate this Agreement for material
breach as set forth in Section 16; and
22.2.2.6 the right to actual damages for breach of Section 21.
23. MISCELLANEOUS PROVISIONS.
23.1 NOTICES. All notices and other communications required under this
Agreement shall be in writing and shall be deemed to have been given if
delivered by hand, or sent by courier or facsimile transmission (provided that
in the case of facsimile transmission, a confirmation copy of the notice shall
be delivered by hand or sent by courier within 2 days of transmission),
addressed:
To Baxter:
Baxter Healthcare Corporation
One Baxter Parkway
Deerfield, Illinois 60015
Attention: General Counsel
with copies to:
Baxter Healthcare Corporation
Route 120 and Wilson Road
Round Lake, Illinois 60073
Attention: President--I.V. Systems Division
if to Allegiance to:
Allegiance Healthcare Corporation
McGaw Park Building A/B
1620 Waukegan Road
McGaw Park, Illinois 60085
Attention: General Counsel
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with a copy to:
Allegiance Healthcare Corporation
McGaw Park Building A/B
1620 Waukegan Road
McGaw Park, Illinois 60085
Attention: President--Distribution
until notice of a change in address or addressee is given as provided in this
Section. All notices given in accordance with this Section shall be effective,
if delivered by hand or by courier, at the time of delivery, and, if
communicated by facsimile transmission, at the time of transmission.
23.2 ENTIRE AGREEMENT. This Agreement is the entire agreement between the
parties hereto with respect to the subject matter hereof, there being no prior
written or oral promises or representations not incorporated herein.
23.3 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.
23.4 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 any
rights which the nondefaulting party may have with respect to the same or any
future default.
23.5 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall be
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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.
23.6 RELATIONSHIP OF THE PARTIES. By virtue of this Agreement, neither
party constitutes the other as its agent (except as otherwise expressly
provided), partner, joint venturer, or legal representative and neither party
has express or implied authority to bind the other in any manner whatsoever.
23.7 SURVIVAL. The rights and obligations of the parties under Sections
8.5, 8.6, 11, 13.1, 14, 16.3, 16.4, 16.5, 16.6, 16.7, 17, 19.1, 19.2, 20, 21,
22, 23, and 24 as well as all rights and obligations with respect to any amounts
that remain unpaid under Sections 6 and 8 hereof as of the date of termination,
shall survive any termination of this Agreement.
23.8 COUNTERPARTS. For convenience of the parties hereto, this Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original for all purposes.
23.9 RECORDS RETENTION. Each party will retain all information obtained or
created in the course of performance hereunder in accordance with the records
retention policy of the other party existing from time to time. Each party has
advised the other of its respective policy as in effect on the Effective Date
and will advise the other party of any subsequent changes therein.
23.10 BENEFICIARIES. Except for the provisions of Section 17 hereof,
which are also for the benefit of the other Persons indemnified, this Agreement
is solely for the benefit of the parties hereto 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.
24. DISPUTE RESOLUTION AND ARBITRATION.
24.1 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. Prior to taking action as provided
in Section 24.2, the parties shall first submit such claim or controversy to the
appropriate Divisional Presidents of each party for resolution, and if such
Divisional Presidents are unable to resolve such claim or controversy, either
party may request that
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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 as provided above 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.
24.2 ARBITRATION. Any dispute that is not resolved by negotiations
pursuant to Section 24.1 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 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 24 except as expressly provided otherwise.
24.3 INJUNCTIVE RELIEF. Nothing contained in this Section 24 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.
25. ASSIGNMENT.
25.1 GENERAL. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, provided, however, that, except as provided below, neither party may
Transfer its interest in the Agreement, including Transfers by operation of law
such as by way of merger or consolidation, without the prior written consent of
the other party, which consent may not be unreasonably withheld.
Notwithstanding the foregoing sentence, either party may Transfer its rights and
obligations under this Agreement to any
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corporation or other entity that shall acquire all or substantially all of such
party's business and assets and assume in writing all of such party's
obligations hereunder and deliver a signed copy of such assumption instrument to
the other party; and, upon the other party's receipt of such assumption
instrument, the assigning party shall be fully released and discharged from its
obligations under this Agreement. In the event of such a Transfer, the Non-
Affected Party shall have the right to terminate this Agreement as provided in
Section 16.1.
25.2 CERTAIN OTHER TRANSFERS BY BAXTER. Notwithstanding the foregoing
provisions of this Section, to the extent that (a) any Person that is not a
Competitor of Allegiance shall acquire all or substantially all of Baxter's
business and assets relating to any Line of Products, or (b) any Person shall
acquire all or substantially all of Baxter's business and assets relating to the
Products; then Baxter may Transfer the portion of its rights hereunder relating
to such Line of Products or all of its rights hereunder, respectively, to such
acquiring Person, provided that any such acquiring Person shall assume in
writing all of Baxter's obligations hereunder which correspond to the portion of
rights Transferred, and shall deliver a signed copy of such assumption
instrument to Allegiance. Baxter shall remain liable for all of the obligations
under this Agreement notwithstanding any such Transfer. In the event of any
Transfer described in this paragraph, Allegiance shall have the right to
terminate the portion of this Agreement relating to such Line of Products as
provided in Section 16.1.
25.3 CERTAIN OTHER TRANSFERS BY ALLEGIANCE. Notwithstanding the foregoing
provisions of this Section, to the extent that any Person shall acquire all or
any portion of Allegiance's business and assets relating to the Allegiance's
distribution network, Allegiance may Transfer the portion of its rights
hereunder relating to such portion of its distribution network to such acquiring
Person, provided that any such acquiring Person shall assume in writing the
portion of Allegiance's obligations hereunder relating to the portion of the
distribution network so Transferred, and shall deliver a signed copy of such
assumption instrument to Baxter. Allegiance shall remain liable for all of the
obligations under this Agreement notwithstanding any such Transfer. In the event
of any Transfer described in this paragraph, Baxter shall have the right to
terminate this Agreement as provided in Section 16.1.
26. AUTHORITY. Each party represents and warrants that, as of the effective
date of this Agreement, the terms of this Agreement do not violate any existing
obligations or contracts of, or any law, rule, regulation, judgment or order
binding on, such party.
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Each party shall indemnify and hold harmless the other party from and against
any and all liabilities, damages, losses and expenses (including reasonable
attorney's fees) resulting from any third party claim, arbitration proceeding or
suit which is hereafter made or brought against the other party and which
alleges any such violation, all as provided in Section 17 herein with respect to
the indemnification provided in Section 17.1 and Section 17.2.
* * * * * *
IN WITNESS WHEREOF, the parties have by their duly authorized officers
executed this Agreement as of the date first above written.
BAXTER: ALLEGIANCE:
BAXTER HEALTHCARE CORPORATION ALLEGIANCE HEALTHCARE CORPORATION
By: By:
---------------------------- -----------------------------
Name: Name:
Title: Title:
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT A
I.V. PRODUCTS
[PREMIUM PRODUCTS SHALL NOT INCLUDE * * *.]
A-1
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT B
NUTRITION PRODUCTS
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT C
ALLEGIANCE'S DUTIES
1. GENERAL DUTIES UNDER AGENCY MODEL, DISTRIBUTOR MODEL AND BCS KITS MODEL.
1.1 CORPORATE AGREEMENT BONUS PROGRAM. Allegiance shall participate in
the corporate agreement bonus program for the Products as follows:
1.1.1 EXISTING AGREEMENTS.
1.1.1.1 The "Existing Corporate Agreements" shall mean Baxter's
agreements with stand-alone hospitals and regional and national health
systems with effective dates prior to September 30, 1996, which provide for
annual bonus or discount payments based upon the quantity of Baxter-
manufactured products purchased by the customer.
1.1.1.2 Allegiance will accept assignment of the Existing
Corporate Agreements and will administer the Existing Corporate Agreements
on behalf of itself and Baxter.
1.1.1.3 Allegiance shall honor and administer each Existing
Corporate Agreement through its expiration or earlier termination pursuant
to its terms.
1.1.1.4 The corporate agreement bonus funding process will be
the same as prior to October 1, 1996, i.e., the corporate agreement bonuses
will be funded by Baxter and Allegiance, the allocation will be made based
on the estimated total year-end payout and actual May year-to-date sales
and gross profit recognized from the applicable customers, the bonus
allocation will be invoiced by Allegiance to Baxter on a monthly basis
(terms of payment will be net 30 days), and on or before May 31 of each
year, any over-accrual or under-accrual will be allocated to Allegiance or
Baxter based upon the foregoing allocation for the applicable year.
1.1.1.5 Allegiance shall prepare and present the corporate
agreement bonus payments to the customers, and Baxter shall have the right
to have Baxter representatives present.
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1.1.2 FUTURE AGREEMENTS. For any corporate bonus agreements
entered into on or after the effective date of this Agreement with stand-alone
hospitals and regional and national health systems, Allegiance shall meet in
advance with each Baxter business unit to determine whether such Baxter business
unit desires to participate in any such agreements.
1.2 SALES SUPPORT. Allegiance shall use commercially reasonable efforts
to support sales of the Products in accordance with the following and such
efforts are in lieu of any standard of performance implied by Section 2-306(2)
of the U.C.C.:
1.2.1 Allegiance field service representatives (customer service
representatives in the field) or other Allegiance customer service
representatives shall direct customer inquiries regarding the Products to
Baxter's customer service support organization for resolution.
1.2.2 If Allegiance receives a request for proposal or request for
bid relating to the Products, Allegiance will advise Baxter of such receipt, and
will also advise Baxter whether the customer appears interested in purchasing
the Products under the Agency Model or the Distributor Model.
1.2.3 Allegiance account managers shall: (a) provide Baxter with
access to the customer decision-makers; (b) generate sales interest in the
Products; (c) actively support the joint customer satisfaction strategy between
Allegiance and Baxter; and (d) work with Baxter (in a manner similar to that
prior to the effective date of this Agreement) relative to account segmentation
rating of Baxter customers. Allegiance segmentation of customers for the
Products shall not affect Allegiance's obligations under the Agency Model.
1.2.4 Allegiance will use commercially reasonable efforts to
monitor critical business indicators in the areas of customer service, materials
management, distribution services, pricing/billing, and compliance with all
specific service requirements set forth in this Exhibit C. Without limitation
to the foregoing sentence, Allegiance will use commercially reasonable efforts
to measure and assess customer satisfaction for Allegiance sales processes and
sales representatives, to the extent Allegiance provides such sales-related
functions under this Agreement.
1.2.5 Allegiance shall participate with Baxter in a semi-annual
review of regional account segmentation, performance to critical business
indicators, and regional sales to be conducted between the leaders of their
respective regional sales
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organizations. Allegiance and Baxter will work together in good faith to develop
action plans to improve customer satisfaction in areas that are mutually
identified as key factors for customer growth and retention, or areas where
Baxter's performance is significantly (statistically defined) below that of its
competitors.
1.2.6 Allegiance's sales generalist sales force shall continue to
promote sales of the Products in the same manner as prior to the effective date
of this Agreement.
1.2.7 Allegiance will provide telephone sales services for
deployment purposes or strategic account management, at Baxter's request, for an
additional fee to be agreed upon.
1.2.8 Allegiance shall make available to Baxter its electronic
catalog listing each party's products.
1.2.9 Upon termination or expiration of any pre-existing customer
contract with a third-party supplier for products that compete with any Product
or Products, except for permitted competitive Best Value Products, Allegiance
shall encourage and facilitate use of the Products (rather than any product
competing with any Product or Products) through appropriate means including, but
not limited to, use of Best Value Product incentives, Allegiance customer
contract provisions, and/or sales representative incentives.
1.2.10 TRANSITION. During the period beginning with the effective
date of this Agreement and ending on December 31, 1996, Allegiance will continue
to use reasonable business efforts to provide substantially the same level of
customer service relating to the Products through substantially the same
personnel as Baxter's U.S. Distribution business provided as of July 1, 1996.
Allegiance's responsibilities under the preceding sentence shall end as and to
the extent that Baxter customer service personnel are activated. Baxter will
use reasonable efforts to meet the agreed-upon transition schedule.
1.3 MARKETING SUPPORT. Allegiance shall use commercially reasonable
efforts to support marketing of the Products in accordance with the following,
and such efforts are in lieu of any standard of performance implied by Section
2-306(2) of the U.C.C.:
1.3.1 Allegiance shall provide marketing services (other than
product management services which will be provided by Baxter) to Surgery Centers
and to Alternate Site Distributors.
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1.3.2 Allegiance shall maintain its own communications resources
and shall coordinate the communications messages with Baxter when appropriate.
1.3.3 Allegiance shall attempt whenever possible to share with
Baxter expenses for convention fees, industry organizations, and industry
databases when and where appropriate.
1.3.4 Prior to publication, Allegiance shall submit to Baxter for
Baxter's approval all Allegiance promotional/communication endeavors
specifically referencing the Products or any Baxter services.
1.3.5 Either as part of the promotion of Best Value Products or as
part of a general promotion, Allegiance shall represent the Products fully and
prominently in Allegiance's product and service literature or any other media,
including field sales support tools.
1.3.6 Allegiance shall include Baxter sales volume by Product
category on Allegiance's sales reports in a similar format as provided by
Allegiance prior to the effective date of this Agreement.
1.3.7 For a fee to be agreed upon from time to time, Allegiance
shall provide literature distribution services to Baxter.
1.4 NATIONAL SAMPLE CENTER. From the effective date of this Agreement
through the period ending December 31, 1997, Allegiance shall provide the
following services in connection with the National Sample Center:
1.4.1 Allegiance shall maintain the Sample Center for the
Products.
1.4.2 Allegiance shall order the Products to be stocked in the
Sample Center which shall remain owned by Baxter.
1.4.3 Allegiance shall maintain the MAS90 system for the Sample
Center inventory.
1.4.4 Allegiance shall provide to Baxter a monthly spreadsheet
with the Product-related activity for the month, I.E., rep name, cost center,
product ordered, and service charge.
1.4.5 Allegiance shall charge Baxter a handling charge of * *
*/order to cover the overhead associated with receiving, storing, and shipping
the Products.
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1.4.6 Allegiance shall apply special handling charges to priority
shipments as follows: (a) next day shipments will be charged an additional * *
*; and (b) second day air shipments will be charged an additional * * *.
1.4.7 Allegiance shall bill Baxter monthly for applicable charges.
1.4.8 Allegiance shall conduct an annual inventory and/or routine
cycle counting to maintain inventory integrity in the National Sample Center.
1.4.9 Allegiance shall continue to provide the same customer
service functions to the sales representatives as was provided prior to the
effective date of this Agreement.
1.4.10 Allegiance shall continue to check expiration dates on all
Sample Center Products.
1.4.11 Allegiance shall maintain contact with Baxter's finance
personnel regarding inventory status and financial transactions.
1.4.12 Allegiance shall send monthly reports to Baxter providing
inventory levels.
1.5 MATERIALS MANAGEMENT. Allegiance and Baxter shall use commercially
reasonable efforts to make the supply chain as efficient as possible for both
parties. Future opportunities to improve efficiency include, but are not
limited to, EDI, bar coding, custom palletization, network channels and the use
of returnable totes. Both parties agree to work in good faith to achieve this
goal.
1.5.1 FINISHED GOODS REQUIREMENTS PLANNING.
1.5.1.1 Both parties agree that the echeloning of products
based on line item usage generally makes sense. Assuming there are no
significant customer contractual issues or financial impacts to Baxter,
Baxter agrees to the parameters set forth by the rationalized supply chain.
If after the appropriate review there are significant customer contractual
issues or financial impacts to Baxter, 1995 will be used as the baseline
for where products are stocked and the number of low velocity SKU's will
not exceed 1995 levels.
1.5.1.2 Allegiance will not be required to carry more than 1995
average Days Inventory On Hand.
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1.5.2 ALLEGIANCE INBOUND FREIGHT ADMINISTRATIVE SERVICES.
Allegiance shall continue to provide the following administrative services for
all inbound freight shipments (i.e., shipments of Products from manufacturing
plants to replenishment centers and distribution centers or from replenishment
centers to distribution centers) to the extent that such services were normally
being provided by Baxter's U.S. Distribution business to Baxter's I.V. Division
prior to the effective date of this Agreement: (a) freight payments, (b) audit
of freight payments, (c) transportation cost reporting, and (d) logistics
analysis/distribution technology to include network planning and replenishment
center sourcing. Allegiance's compensation for such services shall be
determined in accordance with the methodology used by Baxter prior to the
effective date of this Agreement. For an additional fee to be agreed upon,
Allegiance may agree to provide to Baxter additional inbound freight
administrative services beyond the scope of the services normally being
furnished by Baxter's U.S. Distribution business to Baxter's I.V. Division prior
to the effective date of this Agreement.
1.6 DISTRIBUTION.
1.6.1 RECEIVING (NOTIFICATION AND PLANNING).
1.6.1.1 Product will be system received within one and one-half
business days of arrival at Allegiance's replenishment center or
distribution center.
1.6.1.2 Allegiance will coordinate with Baxter to schedule
receiving appointments for Products coming from manufacturing facilities
and replenishment centers, and in unloading Products. Allegiance will
follow Bill of Lading (BOL) instructions regarding receipt unless late
arrival prevents Allegiance from doing so, and alternative arrangements
have not been made.
1.6.1.3 Allegiance will receive products at distribution
centers using Baxter's and Allegiance's computer systems or an Allegiance
warehouse management system that will upload to such computer systems.
1.6.2 WAREHOUSE MANAGEMENT.
1.6.2.1 Allegiance will be responsible for the management of
its replenishment centers and distribution centers.
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1.6.2.2 Allegiance will hold Baxter inventory in Allegiance's
replenishment center or its distribution centers.
1.6.2.3 Except as otherwise agreed, Allegiance will adhere to
existing storage, shipping and receiving practices, including practices
regarding time-sensitive Products.
1.6.2.4 Allegiance will measure and report to Baxter on a monthly
basis Product damage or loss that occurs at Allegiance facilities.
Allegiance shall compensate Baxter pursuant to Section 6.18 of this
Agreement for any damage or loss that is Allegiance's responsibility under
this Agreement.
1.6.2.5 Allegiance will measure and report to Baxter on a
monthly basis Product damage that occurs prior to arrival at Allegiance's
distribution centers or its replenishment center.
1.6.3 CYCLE COUNTS AND PHYSICAL INVENTORIES.
1.6.3.1 Allegiance will continue to perform counts of Baxter's
Product inventory in all Allegiance facilities through annual physical
inventories or cycle counts, following substantially the same practices as
employed by Baxter and Baxter's U.S. Distribution business prior to the
effective date of this Agreement, at no additional cost to Baxter.
1.6.3.2 Allegiance facilities that performed cycle counts for
the Products prior to the effective date of this Agreement will continue to
do so consistent with practices utilized prior to the date hereof.
1.6.3.3 Allegiance shall provide Baxter with the results of its
cycle counts by the tenth business day after the count was taken.
1.6.3.4 Baxter personnel and external auditors for Baxter shall
have the right to audit an Allegiance cycle count of the Products at any
time up to 90 days after the end of the month in which the cycle count is
conducted.
1.6.3.5 Baxter personnel and external auditors for Baxter shall
have the right to audit Product inventory in Allegiance facilities at any
mutually-acceptable time upon not more than five business days advance
notice.
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1.6.3.6 Allegiance facilities that performed annual physical
inventories prior to the effective date of this Agreement will continue to
do so during the Term of this Agreement. The annual physical inventory
will take place in October of each year during the Term of this Agreement.
Baxter will select a day in October acceptable to Allegiance on which the
physical inventory will take place.
1.6.3.7 Allegiance will have 20 business days from the day of
the physical inventory to reconcile, system enter, and report the physical
inventory results to Baxter.
1.6.3.8 Each Allegiance facility participating in the physical
inventory must demonstrate a gross variance of the dollar value of the
Product inventory on TOPS within a range of -5% to +5%. Baxter may require
Allegiance facilities that do not meet this standard to perform another
physical inventory in April of the following calendar year. If the gross
variance is outside of the range of -1.5% to +1.5%, Baxter may require
Allegiance to perform specified Product physical inventory counts.
1.6.3.9 To the extent practicable, Baxter and Allegiance shall
record any annual physical inventory adjustments into their respective
accounting records at the same time.
1.6.3.10 Baxter shall have the right to have Baxter personnel
and external auditors present at Allegiance facilities on the day that the
physical inventory is conducted. In addition, Baxter shall have the right
to audit Allegiance's annual physical inventory results at any time up to 3
months after the date on which Allegiance records its annual inventory
adjustments into its accounting records.
1.6.4 ORDER FULFILLMENT. When customer orders are released
through Baxter's computer system to Allegiance's computer system, Allegiance
personnel will pick, pack, load and stage and ship-verify the customer order for
delivery within the Allegiance distribution center. For Agency Model
transactions, Allegiance personnel will continue to provide problem resolution
for electronic data interchange (EDI) orders to the same extent as provided by
Baxter's U.S. Distribution business to Baxter's I.V. Division immediately prior
to the effective date of this Agreement, at no additional charge to Baxter.
1.6.5 OUTBOUND SHIPMENT.
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1.6.5.1 Allegiance personnel will be responsible for the
selection and routing, private fleet or commercial carrier, of the Baxter
customer order.
1.6.5.2 Allegiance shipments will be based on BOL instructions.
If no specific instruction appears on the in BOL, shipments will occur on
the next scheduled delivery or within a maximum of two business days (if no
scheduled delivery).
1.6.6 FREIGHT CLAIMS.
1.6.6.1 Allegiance will be responsible for filing freight
claims and resolving product shortages and overages, including providing
proof of delivery, with respect to all Product shipments.
1.6.6.2 If Allegiance is unable to furnish proof of delivery
with respect to Products shipped on Allegiance's private fleet within a
reasonable period of time thereafter, it shall compensate Baxter for such
undelivered Product in accordance with Section 6.18 of this Agreement.
1.6.7 LOT TRACKING. Allegiance shall provide lot tracking
capabilities as provided by Baxter for the Products prior to the effective date
of this Agreement.
1.6.8 RETURN GOODS MANAGEMENT.
1.6.8.1 Allegiance shall arrange for and pick up, process and
dispose of returned Products at Baxter's request.
1.6.8.2 In the event of returned Products, a return goods
authorization will be issued by Baxter Customer Service and Allegiance will
arrange for and pick up such Products within 5 business days. However, if
the customer is located in a remote area where pick-up within 5 business
days would be impracticable, Allegiance will use commercially reasonable
efforts to pick up the returned Products at the next scheduled delivery,
but in no event later than 30 days after its receipt of such return goods
authorization.
1.6.8.3 Allegiance will continue practices existing immediately
prior to the effective date of this Agreement regarding returned goods
processing, including unloading, segregation, inspection, product
disposition (restocking, disposal, or transport for restocking),
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documentation, and forwarding paperwork for Baxter to administer credit.
1.6.8.4 Return goods processing time (receipt date at
distribution center to paperwork receipt at Baxter) will not exceed 30
days.
1.6.8.5 Allegiance shall use commercially reasonable efforts to
dispose of returned Products in a cost-effective manner, subject to
Baxter's instructions.
1.7 PRODUCT FIELD CORRECTIVE ACTIONS.
1.7.1 Allegiance shall perform field corrective action ("FCA")
services in a manner consistent with the quality systems, procedures and
specifications as of the effective date of this Agreement. Allegiance shall
provide the following FCA services for the fee stated in Section 6.16.1:
a. FCA notification processing;
b. FCA disposition processing;
c. storage of Products affected by an FCA inside an Allegiance
distribution center for up to six months from the date of
initiation of the FCA;
d. transportation of all Products affected by the FCA to
Baxter, freight collect;
e. rework or inspections of Products by Allegiance employees;
f. discard and destruction of Products utilizing nonhazardous
waste disposal methods;
g. delivery of recall report information to Baxter;
h. incoming inspection of all Baxter Products for open FCAs for
twelve months from the date of initiation of the FCA;
i. third-party invoices for any of the services listed above;
and
j. third-party invoices for any services in addition to those
listed above as performed in 1996.
1.7.2 At Baxter's request and with Baxter's approval, Allegiance shall
perform FCA services not included in Section 1.7.1 for additional compensation
to be agreed upon. Baxter will be invoiced separately for such additional
services pursuant to Section 6.16.2 of this Agreement. Examples of additional
FCA services addressed by this Section 1.7.2 include:
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a. all third-party invoices related to expenses incurred by
Allegiance (except expenses related to the discard and
destruction of non-hazardous Products) that arise out of the
need for Baxter to issue an FCA for Products;
b. computer system upgrades requested by Baxter or Baxter for
Allegiance FCA systems;
c. storage of Products affected by an FCA for periods longer
than six months or storage of such Products in rented
trailers; and
d. incoming inspection of all Products for open FCAs for
periods longer than 12 months from the date of initiation of
the initiation of the FCA.
1.7.3 For purposes of the subsequent provisions of this
Section 1.7, Allegiance shall use commercially reasonable efforts to accomplish
the FCA tasks identified within the time periods indicated. If extraordinary
volume or other circumstances make such time periods impracticable, Baxter and
Allegiance will make adjustments by extending time periods, setting priorities
or otherwise.
1.7.4 Allegiance shall perform FCA notification to Allegiance's
distribution centers and replenishment center based upon priorities. Priority A
notification requires extraordinary and immediate action. Priority B
notification requires notification to all Allegiance distribution centers and
its replenishment center within one business day. Priorities will be based on
the urgency of the FCA as determined primarily by Baxter.
1.7.5 For FCAs involving Products sold under the Distributor
Model, Allegiance shall provide customer lists to Baxter the next business day
for requests received before 1:00 p.m. Central Standard Time.
1.7.6 Allegiance shall perform stock checks based upon priorities.
Priority A requires extraordinary and immediate action. Priority B requires
processing and reporting on the same day. Priority C will be negotiated based
upon needs but generally requires processing and reporting in 2 to 5 business
days. Priorities will be based on the urgency of the FCA as determined
primarily by Baxter.
1.7.7 Initial inventory reports shall be issued in 5 business days
from initial FCA notification to Allegiance's distribution centers or
replenishment center unless otherwise requested.
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1.7.8 Subject to local restrictions regarding discard of the
products, routine dispositions (as designated by Baxter) shall be issued to
Allegiance's distribution centers and replenishment center in 5 business days.
Allegiance's distribution centers and replenishment center shall then have 5
business days to process the disposition.
1.7.9 Subject to local restrictions regarding discard of the
Products, expedited dispositions (as designated by Baxter) shall be issued to
Allegiance's distribution centers and replenishment center within 1 business
day. Allegiance's distribution centers and replenishment center shall then have
five business days to process the expedited disposition.
1.7.10 Subject to local restrictions regarding discard of the
Products, extraordinary dispositions (as designated by Baxter) shall be issued
within 1 business day. Allegiance's distribution centers and replenishment
center shall then have one business day to process the expedited disposition.
1.7.11 Reconciled disposition reports for quantity variance shall be
negotiated between Allegiance and Baxter at the time of disposition.
1.7.12 The necessity for and content of sampling plans and protocols
shall be negotiated at the time of the FCA.
1.7.13 Allegiance shall cooperate with Baxter in performing any FCA
by identifying affected Products and customers, developing an action-specific
management plan detailing specific responsibilities, and notifying customers of
any such action. Allegiance shall encourage customers to follow instructions
related to any hold or recall situation.
1.7.14 FCAS FOR KITS. Allegiance shall implement and report, as
necessary, any Product FCAs for Kits, following, to the extent commercially
reasonable, the same instructions and priorities provided for Products sold
pursuant to the Agency Model or the Distributor Model. Allegiance shall provide
to Baxter a customer list for specialized distribution such as ValueLink and
other low unit of measure ("LUM") programs. Allegiance shall implement the FCA
for such specialized distribution. Allegiance shall reconcile the Kit portion
of any recall and provide Baxter with all required recall data.
1.8 DIVISIONAL BONUS PROGRAM.
1.8.1 Allegiance shall participate in the Baxter divisional bonus
programs for the Products if and to the extent
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that such programs include Allegiance products and such programs are in
existence as of the effective date of this Agreement.
1.8.2 Allegiance shall continue to bill the customer for sales of
Allegiance products and promptly provide to Baxter information related to such
sales necessary to calculate the divisional bonus. Baxter will invoice the
bonus allocation to Allegiance.
1.8.3 Baxter shall prepare and present the divisional bonus
payments to customers, and Allegiance shall have the right to have Allegiance
representatives present at the presentation.
1.8.4 Allegiance shall use commercially reasonable efforts to
cooperate with Baxter in the event customers request that divisional bonus
payments be made by alternative means, for example, through credits on
Allegiance statements of account.
1.8.5 [BEGINNING WITH CALENDAR YEAR 1997, ALLEGIANCE SHALL PAY TO
BAXTER ALLEGIANCE'S SHARE OF OPERATIONS AND SYSTEMS EXPENSES REQUIRED TO SUPPORT
THE ADMINISTRATION OF THE DIVISIONAL BONUS PROGRAM BASED UPON ALLEGIANCE'S SHARE
OF THE DIVISIONAL BONUS AS A PERCENTAGE OF THE TOTAL DIVISIONAL BONUS.
NOTWITHSTANDING THE PRECEDING SENTENCE, ALLEGIANCE'S SHARE OF SUCH OPERATIONS
AND SYSTEMS EXPENSES SHALL NOT EXCEED * * *.]
1.9 PRIOR NOTICE. To the extent practicable, Allegiance shall provide at
least six months prior written notice to Baxter before making any change in its
business operations that is likely to impact materially Baxter's business
operations, revenues or costs. Such changes include, but are not limited to,
Allegiance's closure of one or more of its distribution centers.
2. AGENCY MODEL.
2.1 GENERAL.
2.1.1 Allegiance will system receive the Products into Baxter's
computer system.
2.1.2 Allegiance will receive the shipping documentation from
Baxter's computer system and pick-up information by facsimile.
2.1.3 Allegiance will perform shipment verification on Baxter's
computer system.
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2.2 CUSTOMER SERVICE. Allegiance shall provide customer service support
and order entry as follows for Products sold to Subdistributors (except for EIS
customers and anaesthesia dealers, for whom Baxter will provide all dealer
management services):
2.2.1 When utilizing the dealer management group as an agent to
service Alternate Site Distributors and Alternative Acute Care Distributors:
2.2.1.1 Allegiance's dealer management group will act as
Baxter's agent in negotiating agreements with Alternate Site Distributors
and Alternative Acute Care Distributors as designated by Baxter for
Products and will act as the primary interface with such Alternate Site
Distributors and Alternative Acute Care Distributors.
2.2.1.2 Allegiance shall seek Baxter's approval which must be
obtained by the Allegiance dealer management group prior to setting up any
accounts for Alternate Site Distributors or Alternative Acute Care
Distributors.
2.2.1.3 Baxter will establish sales strategies, selling terms,
ordering policies, and pricing for sales to Alternate Site Distributors and
Alternative Acute Care Distributors.
2.2.1.4 Allegiance shall provide operational support including
order entry/customer service, billing/contract and pricing administration,
collection, dealer rebates, trace sales, return processing, accounts
receivable dispute resolution, system support, and new account set-up.
2.3 PRICING/BILLING.
2.3.1 When utilizing the dealer management group as an agent to
sell and service Alternate Site Distributors and Alternative Acute Care
Distributors:
2.3.1.1 Allegiance's dealer management group must seek approval
from Baxter which must be obtained prior to any agreement with an Alternate
Site Distributor or an Alternative Acute Care Distributor to fund margin or
pay sales tracing fees.
2.3.1.2 Allegiance's dealer management group will perform the
billing function for Baxter using Baxter's computer system.
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2.3.2 When Allegiance's surgery center sales force is promoting
Baxter's sale of the Products to surgery centers, Allegiance's sales force shall
operate within the price guidelines set by Baxter.
2.3.3 ADDITIONAL CUSTOMER-REQUESTED SERVICES. In conjunction with
the Agency Model, if a customer requests Product-related services from
Allegiance that are in addition to the services that Allegiance has agreed to
provide under the foregoing provisions of Exhibit C, Allegiance will provide to
Baxter a description of the additional services requested and its associated
fees for such services. Baxter will conduct all preliminary negotiations with
the customer relative to such additional services. Based on these negotiations,
Baxter will advise Allegiance as to whether (a) Baxter will contract directly
with Allegiance for provision of such additional services, or (b) Allegiance
should contract directly with the customer for provision of such services.
2.4 DISTRIBUTION.
2.4.1 OUTBOUND SHIPMENT.
2.4.1.1 Allegiance shall provide the following standard
delivery services ("Standard Delivery"): (a) with respect to customer
contracts in connection with new relationships beginning after September
30, 1996, Allegiance shall provide delivery of carton quantities,
palletized, delivered to the customer's receiving area (loading dock) at
least two days per week (or three days per week for shipments to alternate
site customers); or (b) with respect to all other transactions, delivery
services consistent with Allegiance's performance at the customer level
immediately preceding the effective date of this Agreement. Allegiance
will share with Baxter the costs and savings associated with Standard
Delivery as set forth in Section 6.11.
2.4.1.2 Allegiance shall deliver Products by air freight or by
messenger ("Premium Delivery") when requested by Baxter. Allegiance will
share with Baxter the costs and savings associated with Uncollected Premium
Delivery Costs as set forth in Section 6.11 of this Agreement.
2.4.1.3 Allegiance shall make deliveries of Products in
addition to Standard Delivery ("Incremental Deliveries") when requested by
Baxter. For calendar year 1997 Allegiance will be compensated by Baxter
for providing such Incremental Deliveries in an amount equal to * * * of
the amount, if any, that Baxter invoices to its customers
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for such Incremental Deliveries. For 1998 and subsequent calendar years
during the Term, the parties will agree in Council prior to the beginning
of each year upon Allegiance's compensation for providing such Incremental
Deliveries.
2.4.1.4 During calendar year 1997, Allegiance will review with
Baxter on a quarterly basis in the Council the operational and financial
effects of the terms of this Agreement regarding Incremental Deliveries,
and will renegotiate such terms for 1997 if necessary to keep both parties
financially whole. Without limiting the foregoing sentence, the parties
will renegotiate such terms for 1997 if (a) the total number of Incremental
Deliveries of Products increase substantially more rapidly than Agency Net
Sales, and (b) Allegiance's costs incurred in providing such Incremental
Deliveries (net of freight and net of any reimbursement by Baxter pursuant
to Exhibit D, Section 1.5.4), increase substantially.
2.4.1.5 Allegiance shall provide enhanced delivery services
(e.g., custom palletization, inside delivery, etc.) that are outside the
basic agreements ("Enhanced Delivery"), when requested by Baxter, for
compensation to be agreed upon in accordance with Section 2.3.3 of this
Exhibit C (Additional Services).
2.4.1.6 Allegiance will ship-verify shipments of Products to
customers by private fleet or commercial carriers within one business day.
2.4.2 FREIGHT CLAIMS. Allegiance will pay to Baxter any amounts
recovered with respect to freight claims filed on behalf of Baxter within 30
days of receipt, except that (1) Allegiance may set-off against such payments
any amounts that it has previously paid to Baxter with respect to the same
claim; and (2) during the Interim Period, the provisions of Exhibit F shall
control with respect to payment of any amounts recovered with respect to such
freight claims for Products shipped to customers under the Interim Distributor
Model.
2.4.3 ALLEGIANCE OUTBOUND FREIGHT ADMINISTRATIVE SERVICES.
Allegiance shall continue to provide the following administrative services for
all outbound freight shipments (i.e., shipments of Products from Allegiance
facilities to customers) to the extent such services were normally being
provided by Baxter's U.S. Distribution business to Baxter's I.V. Division prior
to the effective date of this Agreement: (a) freight payments, (b) audit of
freight payments, (c) transportation cost reporting, and
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(d) logistics analysis/distribution technology to include network planning and
replenishment center sourcing, at no additional cost to Baxter. For an
additional fee to be agreed upon, Allegiance may agree to provide to Baxter
additional outbound freight services beyond the scope of the services normally
being furnished by Baxter's U.S. Distribution business to Baxter's I.V. Division
prior to the effective date of this Agreement.
3. DISTRIBUTOR MODEL AND BCS KIT MODEL.
3.1 GENERAL.
3.1.1 Allegiance system receives the Products into its computer
system.
3.1.2 Each business day during the Term, Allegiance shall report
to Baxter its aggregate sales of Products for the previous business day by code
and by customer for Distributor Model transactions and BCS Kits, and such
reports shall also include, with respect to Distributor Model transactions, the
Suggested Sales Price, Allegiance's actual purchase price of the Products, and
sufficient information regarding customer discounts, returns, allowances and all
other applicable customer debits and credits to permit Baxter to calculate
Distributor Net Sales.
3.1.3 For all transactions under the Distributor Model, Allegiance
will provide Baxter each business day with customer Product demand information
by product code to support Baxter's finished goods requirements planning.
3.2 CUSTOMER SERVICE. Allegiance shall provide customer service support
and order entry as follows for all Products sold under the Distributor Model and
the BCS Kits Model:
3.2.1 PRE-SALES SERVICES. Allegiance shall perform the following
pre-sales services:
3.2.1.1 PRODUCT/SERVICE SPECIFICATIONS - Allegiance shall
forward to Baxter any requests for Product information not available on
Allegiance systems.
3.2.1.2 PRICING/CONTRACTING INFORMATION - Allegiance shall
develop and maintain contract information for all contracts, and such
information shall be accessible to Allegiance via its computer system.
3.2.1.3 PRODUCT AVAILABILITY - Allegiance shall provide fill
rate and product availability information from
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Allegiance and Baxter computer systems to all Allegiance customer service
personnel.
3.2.1.4 COMPETITIVE PRODUCT CROSS-REFERENCING - Allegiance
shall update information cross-referencing Products and competitive
products on a consistent time frame and provide it to its service personnel
via Allegiance's computer system.
3.2.1.5 SALES REPRESENTATIVE INFORMATION - Allegiance shall
provide Allegiance sales representative identification to the customer.
This information will reside in the Allegiance customer master file and be
updated as needed.
3.2.1.6 HARDWARE SALES - Specific questions regarding hardware
sales should be referred to Baxter's hardware order entry personnel.
3.2.1.7 NEW CUSTOMER SET-UP - Allegiance customer service
personnel will ensure effective and efficient coding of all new customers
into the customer master files.
3.2.2 ORDER FULFILLMENT/SALES PROCESS.
3.2.2.1 ORDER PLACEMENT - Allegiance customer service personnel
will be the initial access point for customer into Allegiance and will
handle inquiries and order placement efficiently and effectively. The
order entry activity will function on Allegiance's computer system.
3.2.2.2 ORDER TRACKING - Allegiance shall maintain the ability
to identify to customers the location of Products in the order process.
3.2.2.3 SPECIAL REQUEST PROCESSING - Allegiance customer
service personnel will be required to process special handling requests by
customer such as drop shipping, alternate shipping, special handling, lot
holding, etc., and will work within contract guidelines and procedural
boundaries to service the customer.
3.2.2.4 INVOICING - Allegiance will perform billing for the
Products via appropriate computer systems.
3.2.2.5 CUSTOMER SATISFACTION - Allegiance's service personnel
are accountable for the customer's satisfaction regarding the service
provided. Allegiance
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will conduct annual surveys of customer satisfaction levels and manage
improvement plans.
3.2.3 POST-SALES SERVICE.
3.2.3.1 DISCOUNTS - Allegiance will pass all appropriate sales
information to Baxter which will calculate discounts and incentives for all
customers.
3.2.3.2 CREDIT AND COLLECTION - Allegiance is responsible for
collecting on outstanding invoices. Allegiance shall have the sole
authority to issue credits.
3.2.3.3 CREDITS FOR RETURNED GOODS, SHORTAGES, DAMAGES, AND
MISDELIVERIES - Allegiance shall be responsible for issuing credits and
resolving customer issues relating to returned goods, shortages, damages
and misdeliveries. Allegiance shall use commercially reasonable efforts to
advise Baxter of all Product-related credits and any other customer
resolutions likely to affect Baxter's relationship with the customer.
3.2.3.4 PRICING DISPUTES - Pricing disputes will be handled by
Allegiance.
3.2.3.5 BACK ORDER STATUS AND RESOLUTION - Allegiance will be
accountable for managing customer communications of back orders to provide
accurate and timely information on resolution. Allegiance will communicate
appropriate product substitution information to the customer.
3.2.3.6 PRODUCT COMPLAINT - Initial customer Product complaints
will be logged by Allegiance customer service. Such complaints may be
escalated for resolution.
3.3 PRICING/BILLING.
3.3.1 Allegiance will negotiate the delivered price for the
Products.
3.3.2 Allegiance will quote the Allegiance price to the customer
in response to market conditions but may quote as its price the Suggested Sales
Price, plus any markup or less any markdown it feels is appropriate, including
any markup for added services.
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3.3.3 Each customer will sign a bid or contract with Allegiance
and an addendum or new contract with Baxter that states that such customer has
reached agreement with Allegiance on the final price such customer will pay.
The customer must comply with the purchase requirements of the bilateral
contract with Baxter, and such bilateral contract shall continue to constitute a
binding commitment of the customer to Baxter. Shortfall charges and
cancellation fees, if any, under such bilateral contract will be calculated
using the Suggested Sales Price and will be administered by Baxter.
3.3.4 Allegiance shall process all billing to the customer on its
computer system.
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT D
BAXTER'S DUTIES
1. GENERAL DUTIES UNDER AGENCY MODEL, DISTRIBUTOR MODEL, AND BCS KITS MODEL.
1.1 CORPORATE AGREEMENT BONUS PROGRAM. Baxter shall participate in the
Existing Corporate Agreements bonus program as follows:
1.1.1 Baxter shall provide to Allegiance comparable sales and
gross profit data as it provided prior to October 1, 1996, for each applicable
customer participating in the Existing Corporate Agreements Bonus Program.
1.1.2 [BEGINNING WITH CALENDAR YEAR 1997, BAXTER SHALL PAY TO
ALLEGIANCE BAXTER'S SHARE OF OPERATIONS AND SYSTEMS EXPENSES REQUIRED TO SUPPORT
THE ADMINISTRATION OF THE EXISTING CORPORATE AGREEMENTS BONUS PLAN BASED UPON
BAXTER'S SHARE OF THE CORPORATE AGREEMENT BONUS AS A PERCENTAGE OF THE TOTAL
CORPORATE AGREEMENT BONUS. NOTWITHSTANDING THE PRECEDING SENTENCE, BAXTER'S
SHARE OF SUCH OPERATIONS AND SYSTEMS EXPENSES SHALL NOT EXCEED * * *.]
1.1.3 Baxter may have a representative(s) present when Allegiance
presents each bonus check to each customer.
1.2 SALES.
1.2.1 Baxter will use commercially reasonable efforts to monitor
critical business indicators in the areas of customer service, materials
management, distribution services, pricing/billing and compliance with all
specific service requirements set forth in this Exhibit D. Without limitation
to the foregoing sentence, Baxter will use commercially reasonable efforts to
measure and assess customer satisfaction for Baxter sales processes and sales
representatives, to the extent Baxter provides such sales-related functions
under this Agreement. Baxter will also use commercially reasonable efforts to
measure and assess critical business indicators relating to other customer-
related services provided by Baxter under this Agreement (e.g., customer fill
rate, pricing accuracy).
1.2.2 Baxter shall participate with Allegiance in a semi-annual
review of regional account segmentation, performance
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to critical business indicators, and regional sales to be conducted between the
leaders of their respective regional sales organizations. Allegiance and Baxter
will work together in good faith to develop action plans to improve customer
satisfaction in areas that are mutually identified as key factors for customer
growth and retention, or areas where Baxter's performance is significantly
(statistically defined) below that of its competitors.
1.2.3 COMPETITIVE PRODUCT SUBSTITUTIONS - Baxter shall update
competitive product substitution information on a consistent time frame and
provide it to Allegiance customer service personnel via Baxter's system.
1.3 MARKETING. Baxter shall use commercially reasonable efforts to market
the Products in accordance with the following:
1.3.1 During the Term of this Agreement, Baxter shall continue to
devote substantially the same degree of effort to marketing and promoting the
Products (such effort to be judged in the aggregate) as it did prior to the
effective date of this Agreement.
1.3.2 Baxter shall provide product management services to surgery
centers and to Alternate Site Distributors.
1.3.3 Baxter shall provide marketing services to the Long
Term/Subacute and Homecare customers.
1.3.4 Baxter shall provide product and service development in the
same manner as provided by Baxter prior to the effective date of this Agreement.
1.3.5 Baxter shall maintain its own communications resources and
will coordinate communications messages with Allegiance where appropriate.
1.3.6 Baxter shall attempt whenever possible to share with
Allegiance expenses for convention fees, industry organizations, and industry
databases where appropriate, and convention assets originally purchased by
Baxter shall remain Baxter's.
1.3.7 Baxter shall provide sales volumes by Product category for
inclusion on Allegiance sales reports as provided by Baxter prior to the
effective date of this Agreement.
1.4 NATIONAL SAMPLE CENTER. Baxter shall own the Products stocked in the
Sample Center.
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1.5 MATERIALS MANAGEMENT. Allegiance and Baxter shall use commercially
reasonable efforts to make the supply chain as efficient as possible for both
parties. Future opportunities to improve efficiency include, but are not
limited to, EDI, bar coding, custom palletization, new work channels and the use
of returnable totes. Both parties shall work in good faith to achieve this
goal.
1.5.1 FINISHED GOODS REQUIREMENTS PLANNING.
1.5.1.1 Baxter manufacturing planning will evaluate all
pipeline segments for domestic customers.
1.5.1.2 Baxter will establish appropriate stocking levels for
all product codes of Products to meet required customer service
commitments.
1.5.1.3 Baxter shall not require Allegiance to carry more than
1995 average Days Inventory On Hand. Stocking levels should be consistent
with Baxter's planned turn improvement for the Products.
1.5.1.4 Both parties agree that the echeloning of products
based on line item usage generally makes sense. Assuming there are no
significant customer contractual issues or financial impacts to Baxter,
Baxter agrees to the parameters set forth by the rationalized supply chain.
If after the appropriate review there are significant customer contractual
issues or financial impacts to Baxter, 1995 will be used as the baseline
for where products are stocked and the number of low velocity SKU's will
not exceed 1995 levels.
1.5.2 PIPELINE VISIBILITY. Baxter will provide to Allegiance
visibility to actual inventory levels for all Baxter segments of the Product
pipeline.
1.5.3 INBOUND FREIGHT SHIPMENTS.
1.5.3.1 Baxter will ship all products to appropriate Baxter or
Allegiance replenishment centers as directed by the replenishment center
sourcing model.
1.5.3.2 Product will move on carriers agreed upon by the
parties in the Council.
1.5.3.3 The physical replenishment of Products from
replenishment centers to distribution centers will use
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the following process: (a) variable review, (b) load build, and (c) pick,
pack, schedule delivery, load and ship.
1.5.3.4 Baxter will coordinate with Allegiance to schedule
receiving appointments for Products shipped to Allegiance facilities from
manufacturing facilities and replenishment centers, and in unloading
Products. Baxter will provide Bill of Lading (BOL) instructions regarding
receipt, where appropriate.
1.5.3.5 Baxter is ultimately responsible for freight charges
for shipments of Products from Baxter manufacturing facilities to Baxter or
Allegiance replenishment centers and from Baxter and Allegiance
replenishment centers to Allegiance distribution centers.
1.5.4 OUTBOUND SHIPMENT
1.5.4.1 Standard Delivery -- Baxter shall use commercially
reasonable efforts to implement Standard Delivery when negotiating new
customer agreements or renegotiating expiring customer agreements, with the
goal of reducing Allegiance's overall number of Product deliveries and its
related delivery costs. Baxter will share with Allegiance the costs and
savings associated with Standard Delivery as set forth in Section 6.11 of
this Agreement.
1.5.4.2 Premium Delivery -- When Baxter's customers are
required to pay for Premium Delivery of Products, Baxter will collect such
amounts from the customers and pay the amounts collected to Allegiance on a
quarterly basis in accordance with Section 6.11 of this Agreement. Baxter
will share with Allegiance the costs and savings associated with
Uncollected Premium Delivery Costs as set forth in Section 6.11 of this
Agreement.
1.5.4.3 Incremental Deliveries -- For calendar year 1997,
Baxter will pay Allegiance an amount equal to * * * of the amount, if any,
that Baxter invoices to its customers for Incremental Deliveries of
Products. Such payments shall be made on a quarterly basis in accordance
with Section 6.11 of this Agreement. For 1998 and subsequent calendar
years during the Term, the parties will agree in Council upon Allegiance's
compensation for providing such Incremental Deliveries, prior to the
beginning of each year.
1.5.4.4 For calendar year 1997, Baxter shall review with
Allegiance in the Council on a quarterly basis
D-4
<PAGE>
the operational and financial effects of the terms of this Agreement
regarding Incremental Deliveries of Products, and agrees to renegotiate
such terms for 1997 if necessary to keep both parties financially whole.
Without limiting the preceding sentence, Baxter shall renegotiate such
terms with Allegiance if (a) the total number of Incremental Deliveries of
Products increase substantially more rapidly than Agency Net Sales, and (b)
Allegiance's costs (net of freight) incurred in providing such Incremental
Deliveries, net of any payments by Baxter under this Section, increase
substantially.
1.5.5 FREIGHT CLAIMS. Baxter will use commercially reasonable
efforts to assist Allegiance in carrying out its responsibilities under this
Agreement regarding filing freight claims and resolving product shortages and
overages, including proof of delivery.
1.5.6 PACKAGING QUALITY AND LOAD BUILD CONFIGURATION. Quality of
packaging and load build configuration will conform to uniform distribution
standards (E.G., palletized, etc.) as agreed by the parties in the Council.
1.5.7 WAREHOUSE INVENTORY MANAGEMENT.
1.5.7.1 Baxter will specify storage requirements for the
Products.
1.5.7.2 Baxter will manage inventory levels for Baxter products
within the replenishment centers utilizing the "Compass" inventory system
or equivalent system.
1.5.8 CYCLE COUNTS AND PHYSICAL INVENTORIES.
1.5.8.1 Baxter will provide at least 5 days advance notice
prior to conducting inventory counts at any Allegiance locations.
1.5.8.2 Baxter shall not audit Allegiance cycle counts more
than 90 days after the month in which such cycle count was conducted.
1.5.8.3 For each year during the Term of this Agreement, Baxter
shall agree with Allegiance upon the day in October on which the annual
physical inventory will take place.
D-5
<PAGE>
1.5.8.4 To the extent practicable, Baxter and Allegiance shall
record any annual physical inventory adjustments into their respective
accounting records at the same time.
1.5.8.5 Baxter may audit Allegiance's physical inventory
results at any time up to 3 months after the date on which Allegiance
records its annual inventory adjustments into its accounting records.
1.5.8.6 Baxter shall be solely responsible for determining (a)
the gross variance of the dollar value of the Product inventory on TOPS for
each Allegiance facility participating in the physical inventory, and (b)
whether each such variance is within the permitted range.
1.6 PRODUCT FCAs.
1.6.1 Baxter shall provide to Allegiance in a format to be agreed upon
by the parties all information reasonably required by Allegiance to perform
Allegiance's duties in connection with Product FCAs. Such information shall
include, without limitation, product identifiers, reason priority, and any
information related to disposition plans.
1.6.2 Baxter shall have sole authority to initiate any FCA. If Baxter
is required to initiate an FCA for any Product, Baxter's Vice President of
Quality Management (or such person's designee) shall notify Allegiance's Vice
President of Quality Management (or such person's designee).
1.6.3 Baxter shall cooperate with Allegiance in performing any FCA by
identifying affected Products and customers, developing an action-specific
management plan detailing specific responsibilities, and notifying customers of
any such action. Baxter and Allegiance shall encourage customers to follow
instructions related to any FCA situation.
1.6.4 Baxter shall be solely responsible for all communications with
the U.S. Food and Drug Administration in connection with the Products.
1.7 DIVISIONAL BONUS PROGRAM.
1.7.1 Baxter shall be responsible for administering the divisional
bonus program. The divisional bonus allocation will be based on actual calendar
year-end payments and actual calendar year-end sales to applicable customers.
D-6
<PAGE>
1.7.2 Baxter shall prepare and present the divisional bonus
payments to customers, and Allegiance shall have the right to have Allegiance
representatives present at the presentation.
1.7.3 Baxter shall use commercially reasonable efforts to
cooperate with Allegiance in the event customers request that divisional bonus
payments be made by alternative means, for example, through credits on
Allegiance statements of account.
2. AGENCY MODEL AND DIRECT SALES.
2.1 CUSTOMER SERVICE. Baxter shall be responsible for order entry,
pricing and invoicing for all Products sold under the Agency Model or sold
directly to customers. Beginning January 1, 1997, Baxter shall be responsible
for all customer service support for all Products sold under the Agency Model or
sold directly to customers.
2.1.1 PRE-SALES SERVICES. Baxter shall perform the following pre-
sales services:
2.1.1.1 PRODUCT/SERVICE SPECIFICATIONS - Baxter shall provide
Product information as resident on Baxter systems. Additional information
shall be provided through the Product Information Center or as requested by
Allegiance Customer Service. (Requests for Product information not
available on Allegiance systems shall be forwarded to Baxter customer
service).
2.1.1.2 PRODUCT AVAILABILITY - Baxter shall provide fill rate
and product availability information to all service personnel and regions,
and such information shall reside in Allegiance and Baxter systems.
2.1.2 ORDER FULFILLMENT/SALES PROCESS.
2.1.2.1 ORDER TRACKING - Baxter shall maintain the ability to
identify to customers the location of Products in the order process.
2.1.2.2 SPECIAL REQUEST PROCESSING - Baxter customer service
personnel will be required to identify special handling requests by
customer such as drop shipping, alternate shipping, special handling, lot
holding, etc., and will work within contract guidelines and procedural
boundaries to service the customer.
D-7
<PAGE>
2.1.3 POST-SALES SERVICE.
2.1.3.1 CREDIT AND COLLECTION - Baxter is responsible for
collecting on outstanding invoices. Baxter shall use commercially
reasonable efforts to advise Allegiance of any significant customer credit
problems.
2.1.3.2 CREDITS FOR RETURNED GOODS, SHORTAGES, DAMAGES, AND
MISDELIVERIES - Baxter shall be responsible for issuing all credits to
customers and resolving customer issues relating to returned goods,
shortages, damages and misdeliveries. Baxter shall use commercially
reasonable efforts to advise Allegiance of any Product-related credits or
other customer resolutions likely to affect Allegiance's relationship with
the customer.
2.1.3.3 RETURN GOODS MANAGEMENT - In the event of returned
Products, a return goods authorization will be issued by Baxter. Baxter
shall resolve the returned Products problem (issue credit, deliver
substitute, etc.).
2.1.3.4 BACK ORDER STATUS AND RESOLUTION - Baxter will be
accountable for managing customer communication of back orders to provide
accurate and timely information on resolution. Baxter will communicate
appropriate product substitution information to customers.
2.1.3.5 PRODUCT COMPLAINT - Initial customer Product complaints
will be logged by Baxter customer service. Such complaints may be
escalated for resolution.
2.1.3.6 TECHNICAL SUPPORT- Basic Product -related information
as resident on Baxter's computer system will be provided. Additional
information including technical letters and clinical information will be
provided by Baxter's product information center.
2.1.3.7 TECHNICAL SERVICE, PARTS AND REPAIR - Parts information
as provided in Baxter's computer system or Product file will be shared with
customer by Baxter customer service. Baxter will also provide, as
appropriate, additional transfer or access to specialist.
2.1.4 OTHER ISSUES/SERVICES.
2.1.4.1 TELEMARKETING - Telemarketing can be provided by
Allegiance or Baxter as needed for deployment
D-8
<PAGE>
purposes and strategic account management. Fees to be determined as
needed.
2.2 PRICING/BILLING.
2.2.1 Pricing will be solely Baxter's responsibility. Baxter will
negotiate the delivered product price with the customer. Baxter will submit all
requests for bids, bilaterals, quotes, etc., to the customer.
2.2.2 Baxter will contract directly with the customer at a product
price which includes Standard Delivery. Should a customer require services in
excess of Standard Delivery, Baxter will discuss with Allegiance the method of
reimbursing Allegiance for additional delivery services. Baxter will determine
the method of charging the customer therefor.
2.2.3 Baxter will bill the customer on its computer system.
2.2.4 When utilizing the dealer management group as an agent to
service Alternate Site Distributors and Alternate Acute Care Distributors:
2.2.4.1 Baxter will set pricing including guidelines for the
Allegiance dealer management group for pricing to Alternate Site
Distributors and Alternate Acute Care Distributors;
2.2.4.2 Baxter will work with the customer to obtain the
appropriate two-party contract signed between the customer and Baxter to
adjust Baxter's obligations under any existing bilateral agreement;
2.2.4.3 Baxter will be responsible for determining all pricing
and contract terms for a Baxter agreement with a Alternate Site Distributor
or an Alternate Acute Care Distributor.
2.2.5 Baxter will set the price including guidelines for the
Allegiance surgery center sales force when such sales force solicits orders from
surgery centers, and Baxter will process all billing relating to surgery center
customers on Baxter's computer system.
3. DISTRIBUTOR MODEL.
D-9
<PAGE>
3.1 If a customer approaches Baxter rather than Allegiance in connection
with a Distributor Model transaction, Baxter will advise the customer that the
customer must obtain the delivered price from Allegiance, and Baxter will advise
Allegiance of the Suggested Sales Price. Baxter may inform the customer that it
will provide a Suggested Sales Price to Allegiance, and Allegiance could use the
Suggested Sales Price as a starting point. Nevertheless, Allegiance shall have
the sole right to set the delivered price.
3.2 Baxter will transfer to Allegiance's computer system all inventory
level information related to the Products.
3.3 Baxter will cooperate with Allegiance in developing and implementing
Allegiance's proposed vendor managed inventory ("VMI")system.
3.4 Baxter will administer customer contracts on its computer system
including, without limitation, account number set-up, ship-to/sold-to
information, licensing information and ongoing customer contract maintenance.
3.5 Baxter will transfer to Allegiance's computer system the Suggested
Sales Price related to the Products.
D-10
<PAGE>
AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT E
SUPPLIER SCOREBOARD
E-1
<PAGE>
AGENCY, SERVICES AND DISTRIBUTION AGREEMENT
EXHIBIT F
INTERIM DISTRIBUTOR MODEL
1. GENERAL PROVISIONS.
1.1 All transactions under the Distributor Model during the Interim Period
will follow the Interim Distributor Model set forth in this Exhibit F.
1.2 Except as expressly stated in or necessarily implied by this Exhibit F,
all provisions of the body of this Agreement having general applicability, and
all provisions specifically relating to the Distributor Model, shall also apply
to the Interim Distributor Model set forth in this Exhibit F.
1.3 Allegiance will use commercially reasonable efforts, and Baxter will
cooperate with Allegiance to install all necessary systems and make all other
necessary preparations to permit terminating the Interim Distributor Model and
implementing the Distributor Model as set forth in the main text of this
Agreement as soon as possible, but in no event later than September 30, 1997.
2. INTERIM DISTRIBUTOR MODEL. Notwithstanding Section 3.3 of this Agreement,
for all transactions under the Interim Distributor Model:
Allegiance shall maintain the principal contractual relationship with the
customer for sales, sales support, customer invoicing, accounts receivable, and
customer service in connection with the supply of the Products under the Interim
Distributor Model. Such Interim Distributor Model shall apply to the provision
by Allegiance of Kits (except BCS Kits), Cost Management, ValueLink, and other
services consolidated on an Allegiance invoice for Products and, in some
instances Allegiance products (as required by the customer). Baxter shall use
reasonable efforts to cooperate with Allegiance and to facilitate Allegiance's
fulfillment of its obligations hereunder. Baxter shall sell the Products to
Allegiance at a price generally applicable to all of Baxter's distributors of
the Products (the "Distributor List Price"). Baxter shall not change its
Distributor List Price for any Product more frequently than once per calendar
year. Baxter shall provide to Allegiance a
F-1
<PAGE>
Suggested Sales Price for the Products; provided, however, that Allegiance shall
have the sole right and responsibility for negotiating and contracting with each
customer the delivered price of the Products. If the customer has a then-
current contract with Baxter for such Products, the Suggested Sales Price shall
be the then-current contract price. If Baxter has an agreement with any
customer for Baxter's provision of Products to such customer and such customer
subsequently requests (a) Kits (except BCS Kits), and/or (b) Cost Management,
ValueLink, and other services consolidated on an Allegiance invoice for such
Products and, in some instances, Allegiance products, then all such Interim
Distributor Model sales of Products to such customer shall apply to any minimum
purchase commitments or quantity discounts contained in Baxter's agreement with
such customer.
For all Products sold under the Interim Distributor Model, Allegiance will
deduct from its purchase payments to Baxter an amount equal to the amount, if
any, by which the Distributor List Price exceeds the Suggested Sales Price (the
"Vendor Rebate"). Such Vendor Rebate shall be in addition to the service fee
and other payments set forth in Section 6 of this Agreement.
3. INVOICING AND PAYMENTS FOR INTERIM DISTRIBUTOR MODEL. Notwithstanding any
contrary provisions of Section 8 of this Agreement:
3.1 On or before the fifth business day of each calendar month during the
Interim Period, Baxter shall provide to Allegiance a service fee report in a
format to be agreed upon, showing the service fees payable for Products sold
under the Interim Distributor Model during the previous month. On or before the
second business day of each month during the Interim Period, Allegiance shall
report to Baxter its aggregate sales and returns of Products for the preceding
month by code and by customer for Interim Distributor Model transactions, and
such reports shall also include the Suggested Sales Price, the Distributor List
Price, and the applicable Vendor Rebate for such Products.
3.2 Allegiance shall pay Baxter for its aggregate purchases of Products
under the Interim Distributor Model, net 60 days from the date of Baxter's
invoice to Allegiance. Allegiance may deduct from such purchase payments to
Baxter any Vendor Rebates then owed to Allegiance by Baxter.
3.3 Baxter shall pay Allegiance any applicable service fees in connection
with sales of Products under the Interim Distributor Model on the 15th day of
the month following the month in which such sales are reported.
F-2
<PAGE>
3.4 Notwithstanding the foregoing provisions of this Section 3 of Exhibit
F, Allegiance's payment for Products transferred by Baxter to Allegiance prior
to October 1, 1996 shall occur on November 15, 1996.
4. TRANSFER OF TITLE AND RISK OF LOSS UNDER THE INTERIM DISTRIBUTOR MODEL.
4.1 Notwithstanding Section 13 of this Agreement, title and risk of loss
with respect to Products to be sold pursuant to the Interim Distributor Model
shall pass from Baxter to Allegiance upon issuance of Baxter's invoice to
Allegiance for such Products.
4.2 Notwithstanding Section 4.1 of this Exhibit F and Sections 6.17 and
6.18 of this Agreement, if any Products purchased by Allegiance under the
Interim Distributor Model are damaged, lost or stolen while in an Allegiance-
owned replenishment center or distribution center, and Allegiance is responsible
under this Agreement for carton failure and such damage, theft or loss, (1)
Baxter will issue a credit memo to Allegiance for such damaged, lost or stolen
Products, but not carton failure, at Baxter's applicable Distributor List Price,
and (2) Baxter will invoice Allegiance monthly for such damaged, lost or stolen
Products at its applicable standard cost as stated in Baxter's inventory
valuation reports.
4.3 Notwithstanding Section 1.6.7.2 of Exhibit C of the Agreement, during
the Interim Period, Allegiance rather than Baxter shall have the right to any
amounts recovered with respect to freight claims for Products shipped from
Allegiance facilities to customers under the Interim Distributor Model.
5. TERMINATION OF INTERIM DISTRIBUTOR MODEL.
5.1 On the date agreed upon for termination of the Interim Distributor
Model and the transition to the Distributor Model, but no later than September
30, 1997, Baxter will purchase from Allegiance all Products then in Allegiance's
inventory at Baxter's Distributor List Price. Baxter will issue Allegiance a
credit memorandum reflecting such purchase within 30 days after receipt of
Allegiance's invoice for such inventory. Baxter and Allegiance will cooperate
with each other in providing any inventory reports or conducting any audits in
connection with such transition.
5.2 Once the parties have made the transition to the Distributor Model as
contemplated in Section 1.2 of this Exhibit F, the provisions of this Exhibit F
relating to the Interim
F-3
<PAGE>
Distributor Model shall have no further effect, except that both parties shall
have the right to receive any amounts owed under the Interim Distributor Model.
F-4
<PAGE>
Allegiance Corporation
SIGNIFICANT SUBSIDIARIES
(as at August 1, 1996)
Name State of Organization
---- ---------------------
Allegiance Corporation Delaware (parent)
Allegiance Healthcare Corporation Delaware (100% owned)
Allegiance Healthcare International Delaware (100% owned)
Inc.
<PAGE>
Exh. 23.2
[LETTERHEAD]
[September 30, 1996]
Mr. Arthur Staubitz
Senior Vice President, Secretary
and General Counsel
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
Dear Mr. Staubitz:
We hereby consent to (i) the inclusion of our opinion letters, dated [September
30, 1996], to the Board of Directors of Baxter International Inc. ("Baxter") as
exhibits to the Information Statement on Form 10, as amended, of Allegiance
Corporation ("Allegiance") relating to the proposed distribution to the
stockholders of Baxter of all of the outstanding shares of common stock of
Allegiance and (ii) all references made to our firm and such opinions in such
Information Statement under the caption "THE DISTRIBUTION - Opinions of
Financial Advisor". In giving such consent, we do not admit that we come within
the category of persons whose consent is required under, and we do not admit and
we disclaim that we are "experts" for purposes of, the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
Very truly yours,
CS FIRST BOSTON CORPORATION
By:
------------------------
Richard H. Bott
Managing Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the combined
balance sheets as of June 30, 1996, December 31, 1995 and 1994 and the combined
statements of income for the six months ended June 30, 1996 and the fiscal
years ended December 31, 1995 and 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 5 1
<SECURITIES> 0 0
<RECEIVABLES> 503<F1> 564<F1>
<ALLOWANCES> 27 18
<INVENTORY> 656 684
<CURRENT-ASSETS> 1,272 1,372
<PP&E> 1,523 1,307
<DEPRECIATION> 663 429
<TOTAL-ASSETS> 3,293 3,444
<CURRENT-LIABILITIES> 550 692
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2560 2578
<TOTAL-LIABILITY-AND-EQUITY> 3293 3444
<SALES> 2201 4922
<TOTAL-REVENUES> 2201 4922
<CGS> 1746 3878
<TOTAL-COSTS> 2108 4446
<OTHER-EXPENSES> (1) (302)
<LOSS-PROVISION> 9 7
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 93 476
<INCOME-TAX> 36 203
<INCOME-CONTINUING> 37 273
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 57 273
<EPS-PRIMARY> 0<F2> 0<F2>
<EPS-DILUTED> 0<F2> 0<F2>
<FN>
<F1>gross
<F2>Information not applicable for periods presented.
</FN>
</TABLE>
<PAGE>
99.1
[LETTERHEAD]
[September 30, 1996] DRAFT TO BE CIRCULATED FOR COMMENTS
SOLELY AS TO FORM
Board of Directors
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the
stockholders of Baxter International Inc. ("Baxter"), from a financial point of
view, of the distribution (the "Distribution") to the stockholders of Baxter of
all of the outstanding common shares of Allegiance Corporation, currently a
wholly owned subsidiary of Baxter ("Allegiance"). The term "New Baxter" shall
be deemed to refer to Baxter as constituted immediately following the
Distribution.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to Baxter, New Baxter and
Allegiance which we believe is relevant to our review. We have also reviewed a
draft of the information statement dated [September ___, 1996], which you have
informed us is substantially the form in which it will be sent to Baxter
stockholders in connection with the Distribution (the "Information Statement")
as well as certain other information provided to us prior to the date hereof by
Baxter and Allegiance, including financial forecasts, and have met with Baxter
and Allegiance management to discuss the business and prospects of Baxter, New
Baxter and Allegiance.
We have also considered certain financial and stock market data of Baxter and
certain financial data of New Baxter and Allegiance and we have compared that
data with similar data for other publicly held companies in businesses similar
to those of Baxter, New Baxter and Allegiance and have considered the financial
terms of certain other transactions similar to the Distribution which have
recently been effected. We also considered prevailing market conditions and
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the Information Statement) and have relied on its
being complete and accurate in all material respects. We assume no
responsibility for and express no view as to such financial forecasts or the
assumptions on which they are based. With respect to the financial forecasts
referred to above, the management of Baxter and Allegiance have advised us that
such financial forecasts have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management as to the future
financial performance of New Baxter and Allegiance, and we have relied upon
such advice. We have also assumed, with your consent, that (i) no income, gain
or loss will be recognized by Baxter or its affiliates, New Baxter or
Allegiance for U.S. federal or state income tax purposes as a result of the
Distribution or any related transactions, and (ii) with the exception of the
receipt by stockholders of Baxter of (x) cash in lieu of fractional common
shares of
<PAGE>
Allegiance and (y) Allegiance stock distributed with respect to restricted
shares of Baxter stock held by Baxter employees, the receipt of the Allegiance
common shares will be tax-free for U.S. federal and state income tax purposes
to the stockholders of Baxter.
In addition, we have neither made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Baxter or Allegiance, nor
have we been furnished with any such appraisals. Further, our opinion is
necessarily based on financial, economic, monetary and market conditions as
they exist and can be evaluated on the date hereof. We are not expressing any
opinion as to what the market value of the securities of Allegiance or New
Baxter actually will be following the consummation of the Distribution. The
combined actual market value of the New Baxter and Allegiance securities could
be higher or lower than the current market value of Baxter securities depending
upon, among other things, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors which generally
influence the price of securities. We are acting as financial advisor to
Baxter in connection with the Distribution and will receive a fee for our
services, a portion of which is contingent upon the consummation of the
Distribution. CS First Boston and its affiliates have acted, and may in the
future act, as an underwriter for, and have participated as members of
underwriting syndicates with respect to, offerings of Baxter securities, and CS
First Boston has effected transactions for Baxter and performed financial
advisory services in connection with certain acquisitions and dispositions by
Baxter. CS First Boston has received fees from Baxter in the past for these
services. CS First Boston may in the future serve as an underwriter of
Allegiance securities.
In the ordinary course of their business, CS First Boston and its affiliates
may actively trade the debt and equity securities of Baxter for their own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Baxter only, in connection with its consideration of the
Distribution, and neither this letter nor CS First Boston's advice is to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus, or proxy statement, or in any other written document used in
connection with the offering or sale of securities, nor shall this letter or CS
First Boston's advice be used for any other purposes, without CS First Boston's
prior written consent.
Based upon and subject to the foregoing and current market conditions, it is
our opinion that as of the date hereof, the Distribution is fair to the
stockholders of Baxter from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: ______________________________
Richard H. Bott
Managing Director
<PAGE>
99.2
[LETTERHEAD]
[September 30, 1996] DRAFT TO BE CIRCULATED FOR COMMENTS
SOLELY AS TO FORM
Board of Directors
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
Ladies and Gentlemen:
You have asked us to advise you, from a financial point of view, with respect to
the financial viability of Baxter International Inc. ("Baxter") following the
distribution (the "Distribution") to the stockholders of Baxter of all of the
outstanding common shares of Allegiance Corporation, currently a wholly owned
subsidiary of Baxter ("Allegiance"). For all purposes of our advice, we are
using the term "financial viability" to mean and refer exclusively to the
ability of New Baxter (which term shall be deemed to refer to Baxter as
constituted immediately following the Distribution) to finance its currently
anticipated operating and capital requirements (as projected in the financial
forecasts provided to us by Baxter and Allegiance) during the period immediately
following the Distribution through the end of fiscal year 1998 (the period for
which we have been provided forecasts).
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to Baxter, New Baxter and Allegiance which we
believe is relevant to our review. We have also reviewed a draft of the
information statement dated [September ___, 1996], which you have informed us is
substantially in the form in which it will be sent to Baxter stockholders in
connection with the Distribution (the "Information Statement"), as well as
certain other information provided to us prior to the date hereof by Baxter and
Allegiance, including financial forecasts and the Information Statement, and
have met with Baxter and Allegiance management to discuss the business and
prospects of Baxter, New Baxter and Allegiance.
We have also considered certain financial and stock market data of Baxter and
certain financial data of New Baxter and Allegiance and we have compared that
data with similar data for other publicly held companies in businesses similar
to those of Baxter, New Baxter and Allegiance and we have considered the
financial terms of certain other transactions similar to the Distribution which
have recently been effected. We also considered prevailing market conditions and
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the Information Statement) and have relied on its being
complete and accurate in all material respects. We assume no responsibility for
and express no view as to such financial forecasts or the assumptions on which
they are based. With respect to the financial forecasts referred to above, the
management of Baxter and Allegiance have advised us that such financial
forecasts have been reasonably prepared on bases reflecting the best currently
available
<PAGE>
estimates and judgments of management as to the future financial performance of
New Baxter and Allegiance, and we have relied upon such advice. We have also
assumed, with your consent, that (i) no income, gain or loss will be recognized
to Baxter or its affiliates, New Baxter or Allegiance for U.S. federal or state
income tax purposes as a result of the Distribution or any related transactions,
and (ii) with the exception of the receipt by Baxter shareholders of (x) cash in
lieu of fractional common shares of Allegiance and (y) Allegiance stock
distributed with respect to restricted shares of Baxter stock held by Baxter
employees, the receipt of the Allegiance common shares will be tax-free for U.S.
federal and state income tax purposes to the stockholders of Baxter.
In addition, we have neither made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of New Baxter, nor have we been
furnished with any such appraisals. Further, our opinion is necessarily based
on financial economic, monetary and market conditions as they exist and can be
evaluated on the date hereof . We are not expressing any opinion as to what the
market value of the securities of New Baxter actually will be following the
consummation of the Distribution. The combined actual market value of the New
Baxter and Allegiance securities could be higher or lower than the current
market value of Baxter securities depending upon, among other things, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors which generally influence the price of securities.
We are acting as financial advisor to Baxter in connection with the Distribution
and will receive a fee for our services, a portion of which is contingent upon
the consummation of the Distribution. CS First Boston and its affiliates have
acted, and may in the future act, as an underwriter for, and have participated
as members of underwriting syndicates with respect to, offerings of Baxter
securities, and CS First Boston has effected securities transactions for Baxter
and performed financial advisory services in connection with certain
acquisitions and dispositions by Baxter. CS First Boston has received fees from
Baxter in the past for these services. CS First Boston may in the future serve
as an underwriter of Allegiance securities.
In the ordinary course of their business, CS First Boston and its affiliates may
actively trade the debt and equity securities of Baxter for their own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Baxter only, in connection with its consideration of the
Distribution, and neither this letter nor CS First Boston's advice is to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus, or proxy statement, or in any other written document used in
connection with the offering or sale of securities, nor shall this letter or CS
First Boston's advice be used for any other purposes, without CS First Boston's
prior written consent.
<PAGE>
Based upon and subject to the foregoing, and assuming that current financial,
economic and market conditions continue to prevail, it is our opinion, as of the
date hereof, that the Distribution would not have a material adverse effect on
the financial viability of New Baxter during the period immediately following
the Distribution through the end of fiscal year 1998.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: ______________________________
Richard H. Bott
Managing Director
<PAGE>
99.3
[LETTERHEAD]
[September 30, 1996] DRAFT TO BE CIRCULATED FOR COMMENTS
SOLELY AS TO FORM
Board of Directors
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
Ladies and Gentlemen:
You have asked us to advise you, from a financial point of view, with respect to
the financial viability of Allegiance Corporation ("Allegiance"), currently a
wholly owned subsidiary of Baxter International Inc. ("Baxter"), which,
following the distribution (the "Distribution") to the stockholders of Baxter of
all of the outstanding common shares of Allegiance, will become a separate
public company. For all purposes of our advice, we are using the term
"financial viability" to mean and refer exclusively to the ability of Allegiance
to finance its currently anticipated operating and capital requirements (as
projected in the financial forecasts prepared by the management of Baxter and
Allegiance) during the period immediately following the Distribution through the
end of fiscal year 1998 (the period for which we have been provided forecasts).
Baxter after the Distribution is hereinafter referred to as "New Baxter."
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to Baxter, New Baxter and Allegiance which we
believe is relevant to our review. We have also reviewed a draft of the
information statement dated [September ___, 1996], which you have informed us is
substantially in the form of which it will be sent to Baxter stockholders in
connection with the Distribution (the "Information Statement"), as well as
certain other information provided to us prior to the date hereof by Baxter and
Allegiance, including financial forecasts and the Information Statement, and
have met with Baxter and Allegiance management to discuss the business and
prospects of Baxter, New Baxter and Allegiance.
We have also considered certain financial and stock market data of Baxter and
certain financial data of New Baxter and Allegiance and we have compared that
data with similar data for other publicly held companies in businesses similar
to those of Baxter, New Baxter and Allegiance and we have considered the
financial terms of certain other transactions similar to the Distribution which
have recently been effected. We also considered prevailing market conditions and
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the Information Statement) and have relied on its being
complete and accurate in all material respects. We assume no responsibility for
and express no view as to such financial forecasts or the assumptions on which
they are based. With respect to the financial forecasts referred to above, the
management of Baxter and Allegiance have advised us that such financial
forecasts have been reasonably prepared on bases reflecting the best currently
available
<PAGE>
estimates and judgments of management as to the future financial performance of
New Baxter and Allegiance, and we have relied upon such advice. We have also
assumed, with your consent, that (i) no income, gain or loss will be recognized
by Baxter or its affiliates, New Baxter or Allegiance for U.S. federal or state
income tax purposes as a result of the Distribution or any related transactions,
and (ii) with the exception of the receipt by Baxter stockholders of (x) cash in
lieu of fractional common shares of Allegiance and (y) Allegiance stock
distributed with respect to restricted shares of Baxter stock held by Baxter
employees, the receipt of the Allegiance common shares will be tax-free for U.S.
federal and state income tax purposes to the stockholders of Baxter.
In addition, we have neither made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Allegiance, nor have we been
furnished with any such appraisals. Further, our opinion is necessarily based
on financial, economic, monetary and market conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to what the
market value of the securities of Allegiance actually will be following the
consummation of the Distribution. The combined actual market value of the New
Baxter and Allegiance securities could be higher or lower than the current
market value of Baxter securities depending upon, among other things, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors which generally influence the price of securities.
We are acting as financial advisor to Baxter in connection with the Distribution
and will received a fee for our services, a portion of which is contingent upon
the consummation of the Distribution. CS First Boston and its affiliates have
acted, and may in the future act, as an underwriter for, and have participated
as members of underwriting syndicates with respect to, offerings of Baxter
securities, and CS First Boston has effected securities transactions for Baxter
and performed financial advisory services in connection with certain
acquisitions and dispositions by Baxter. CS First Boston has received fees from
Baxter in the past for these services. CS First Boston may in the future serve
as an underwriter of Allegiance securities.
It is understood that this letter is for the information of the Board of
Directors of Baxter only, in connection with its consideration of the
Distribution, and neither this letter nor CS First Boston's advice is to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus, or proxy statement, or in any other written document used in
connection with the offering or sale of securities, nor shall this letter or CS
First Boston's advice be used for any other purposes, without CS First Boston's
prior written consent.
<PAGE>
Based upon and subject to the foregoing, and assuming that current financial,
economic and market conditions continue to prevail, it is our opinion, as of the
date hereof, that the Distribution would not have a material adverse effect on
the financial viability of Allegiance during the period immediately following
the Distribution through the end of fiscal year 1998.
Very truly yours,
CS FIRST BOSTON CORPORATION
By:
------------------------
Richard H. Bott
Managing Director
