<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-11885
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ALLEGIANCE CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-4095179
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Waukegan Road, McGaw Park, Illinois 60085
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(847) 689-8410
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X(*)
----- -----
(*) Registrant became subject to the filing requirements on
September 20, 1996.
The number of shares of the registrant's Common Stock, $1 par value,
outstanding as of November 1, 1996, the latest practicable date, was
54,901,000 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Allegiance Corporation
Condensed Combined Statements of Income (Unaudited)
(in millions)
- --------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $1,094.2 $1,261.6 $3,295.3 $3,747.0
Costs and expenses
Costs of goods sold 863.5 994.7 2,609.8 2,934.4
Selling, general and
administrative expenses 162.8 195.8 508.2 580.1
Restructuring charges - 76.0 - 76.0
Goodwill amortization 9.3 9.5 27.7 28.6
Benefit curtailment
gains (35.9) - (35.9) -
Other income (3.6) (269.5) (5.4) (267.5)
- --------------------------------------------------------------------------------
Total costs and
expenses 996.1 1,006.5 3,104.4 3,351.6
- --------------------------------------------------------------------------------
Income before income taxes 98.1 255.1 190.9 395.4
Income tax expense 37.6 117.3 73.1 172.2
- --------------------------------------------------------------------------------
Net income $60.5 $137.8 $117.8 $223.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed combined
financial statements.
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<TABLE>
Allegiance Corporation
Condensed Combined Balance Sheets
(in millions, except shares)
- ---------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
September 30, December 31,
1996 1995
(Unaudited)
Current assets Cash and equivalents $13.2 $0.8
Accounts receivable (net of
allowance for doubtful accounts
of $28.2 and $18.2 at September
30, 1996 and December 31, 1995,
respectively) 454.6 486.7
Notes and other current
receivables 23.0 59.2
Inventories 641.0 684.4
Short-term deferred income taxes 96.7 129.1
Prepaid expenses 27.3 11.8
--------------------------------------------------------------------
Total current assets 1,255.8 1,372.0
- ----------------------------------------------------------------------------------------
Property, At cost 1,540.8 1,307.1
plant and Accumulated depreciation
equipment and amortization (683.0) (428.9)
---------------------------------------------------------------------
Net property, plant and equipment 857.8 878.2
- ----------------------------------------------------------------------------------------
Other assets Goodwill and other intangibles 1,085.1 1,115.7
Other 101.3 77.8
--------------------------------------------------------------------
Total other assets 1,186.4 1,193.5
- ----------------------------------------------------------------------------------------
Total assets $3,300.0 $3,443.7
- ----------------------------------------------------------------------------------------
Current Current maturities of long-term debt and
liabilities lease obligations $4.0 $ -
Accounts payable and accrued liabilities 526.4 691.4
Income taxes payable 0.2 0.9
--------------------------------------------------------------------
Total current liabilities 530.6 692.3
- ----------------------------------------------------------------------------------------
Long-term debt and lease obligations 1,147.4 -
- ----------------------------------------------------------------------------------------
Long-term deferred income taxes 116.6 109.8
- ----------------------------------------------------------------------------------------
Other non-current liabilities 78.7 64.1
- ----------------------------------------------------------------------------------------
Equity Divisional retained earnings - 1,767.5
Equity investment of parent - 810.0
Common stock, par value $1.00,
authorized 200,000,000 shares,
outstanding 54,798,000 shares 54.8 -
Retained earnings 1,370.3 -
Foreign currency adjustment 1.6 -
--------------------------------------------------------------------
Total equity 1,426.7 2,577.5
- ----------------------------------------------------------------------------------------
Total liabilities and equity $3,300.0 $3,443.7
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed combined financial statements.
</TABLE>
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<TABLE>
Allegiance Corporation
Condensed Combined Statements of Cash Flows (Unaudited)
(in millions)
- ------------------------------------------------------------------------------------------------
Nine months ended September 30,
<CAPTION>
<S> <C> <C> <C>
1996 1995
(Brackets denote cash outflows)
Cash flow provided Net income $117.8 $223.2
by operations Adjustments
Depreciation and amortization 112.4 122.8
Deferred income taxes 21.9 39.2
Gain on asset dispositions, net - (190.0)
Benefit curtailment gains (35.9) -
Other 0.2 3.6
Changes in balance sheet items
Accounts receivable 55.2 29.7
Inventories 39.6 (53.0)
Accounts payable and other
current liabilities (43.7) (65.1)
Restructuring program payments (30.3) (45.1)
Other (18.4) 25.6
-------------------------------------------------------------------------
Cash flow provided by operations 218.8 90.9
- -------------------------------------------------------------------------------------------------
Investment Capital expenditures (55.5) (71.7)
transactions Acquisitions (net of cash received) (20.8) (.4)
Proceeds from asset dispositions (12.8) 565.9
-------------------------------------------------------------------------
Investment transactions, net (89.1) 493.8
- -------------------------------------------------------------------------------------------------
Financing Payments to Baxter International Inc. (1,268.6) (582.6)
transactions Issuances of debt and lease
obligations 1,151.3 -
-------------------------------------------------------------------------
Financing transactions, net (117.3) (582.6)
- -------------------------------------------------------------------------------------------------
Increase in cash and equivalents 12.4 2.1
Cash and equivalents at beginning of period 0.8 2.8
- ------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $13.2 $4.9
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed combined financial statements.
</TABLE>
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Allegiance Corporation
Notes to Condensed Combined Financial Statements (Unaudited)
1. COMPANY BACKGROUND
Allegiance Corporation ("Allegiance" or the "Company") was incorporated in
Delaware in June 1996. On September 30, 1996 (the "Distribution Date"),
Baxter International Inc. ("Baxter") and its subsidiaries transferred to
Allegiance and its subsidiaries the United States health-care distribution,
surgical and respiratory therapy products and health-care cost management
businesses, as well as certain foreign manufacturing and other operations
(the "Allegiance Business") in connection with a spin-off by Baxter of the
sAllegiance Business. The spin-off was effected on the Distribution Date
through a distribution of common stock of Allegiance ("Allegiance Stock") to
Baxter stockholders (the "Distribution"). The Distribution of approximately
54.8 million shares of Allegiance Stock, based on an exchange ratio of one
for five, was made to Baxter's stockholders of record on September 26, 1996.
No historical earnings per share data is presented as the Allegiance
Business' earnings were part of Baxter's results through the close of
business on September 30, 1996.
2. FINANCIAL INFORMATION
The unaudited interim condensed combined financial statements of Allegiance
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These interim condensed combined financial statements should be read in
conjunction with the combined financial statements and notes thereto included
in the Company's Information Statement on Form 10 dated September 30, 1996
("Form 10").
In the opinion of management, the interim condensed 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 period are not necessarily indicative of
the results of operations to be expected for the full year.
3. DIVESTITURES
Allegiance's results of operations for the nine months ended September 30,
1995, include revenues and expenses related to the Industrial and Life
Sciences division, which was sold in September 1995.
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The following table presents selected financial data for Allegiance,
excluding the revenue and expenses associated with the divested Industrial
and Life Sciences division discussed above (in millions):
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $1,094.2 $1,156.2 $3,295.3 $3,400.1
Costs and expenses
Costs of goods sold 863.5 911.5 2,609.8 2,681.0
Selling, general and
administrative expenses 162.8 179.9 508.2 525.4
Goodwill amortization 9.3 9.2 27.7 27.6
Benefit curtailment gains (35.9) -- (35.9) --
Other (income) expense (3.6) (1.4) (5.4) 1.1
-------- -------- -------- --------
Total costs and expenses 996.1 1,099.2 3,104.4 3,235.1
-------- -------- -------- --------
Pretax income 98.1 57.0 190.9 165.0
Income tax expense 37.6 21.5 73.1 63.1
-------- -------- -------- --------
Net income $ 60.5 $ 35.5 $ 117.8 $ 101.9
-------- -------- -------- --------
-------- -------- -------- --------
4.PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined statements of income present the
combined results of Allegiance and its financial position assuming that the
transactions contemplated by the Distribution and certain significant
divestitures had been completed as of January 1, 1995. The unaudited pro
forma information has been prepared utilizing the historical combined
financial statements of Allegiance. All pro forma adjustments were
substantially consistent with those disclosed in the Form 10, except for an
adjustment for curtailment gains, which is discussed in Note 8 (in millions,
except per share data).
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $1,092.8 $1,155.4 $3,294.8 $3,392.9
Costs and expenses
Costs of goods sold 864.5 911.7 2,612.1 2,679.0
Selling, general and
administrative expenses 170.6 182.9 519.6 534.2
Interest, net 22.5 22.5 67.5 67.5
Goodwill amortization 9.3 9.2 27.7 27.6
Other (income) expense (4.6) (1.4) (5.4) 1.1
-------- -------- -------- --------
Total costs and expenses 1,062.3 1,124.9 3,221.5 3,309.4
-------- -------- -------- --------
Pretax income 30.5 30.5 73.3 83.5
Income tax expense 11.6 11.1 27.5 31.1
-------- -------- -------- --------
Net income $ 18.9 $ 19.4 $ 45.8 $ 52.4
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share $ 0.34 $ 0.35 $ 0.84 $ 0.96
-------- -------- -------- --------
-------- -------- -------- --------
Average number of common
shares outstanding 54.8 54.8 54.8 54.8
-------- -------- -------- --------
-------- -------- -------- --------
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5. INVENTORIES
Inventories consisted of the following:
- -------------------------------------------------------------------------------
September 30, December 31,
(in millions) 1996 1995
- -------------------------------------------------------------------------------
Raw materials $ 63.0 $ 54.0
Work in process 51.4 49.0
Finished products 526.6 581.4
- -------------------------------------------------------------------------------
Total inventories $641.0 $684.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6. RESTRUCTURING CHARGES
The following table summarizes the Company's restructuring reserves as of
December 31, 1995 and September 30, 1996:
- -------------------------------------------------------------------------------
Divestitures
Employee- and asset Other
(in millions) related costs write-downs costs Total
- -------------------------------------------------------------------------------
December 31, 1995 balance $43.0 $62.8 $46.9 $152.7
- -------------------------------------------------------------------------------
Utilization:
Cash (13.7) (15.7) (16.6) (46.0)
Non-Cash - (22.2) - (22.2)
- -------------------------------------------------------------------------------
September 30, 1996 balance $29.3 $24.9 $30.3 $ 84.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash outflows pertain primarily to employee-related costs for severance,
outplacement assistance, relocation, implementation teams and facility
consolidations. Since the inception of the restructuring program,
approximately 2,030 of the 2,300 positions that are expected to be affected
by the program have been eliminated. 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 $22.2 million for the nine months ended September 30,
1996 relate primarily to the closure of a manufacturing facility and
consolidations of certain distribution facilities. The utilization relating
to the manufacturing facility closure and distribution facility
consolidations represents fixed asset and inventory write-downs.
7. LEGAL PROCEEDINGS
Upon the Distribution, Allegiance assumed the defense of litigation involving
claims related to the Allegiance Business, including certain claims of
alleged personal injuries as a result of exposure to natural rubber latex
gloves described below. Allegiance will be defending and indemnifying Baxter
Healthcare Corporation ("BHC"), as contemplated by the agreements between
Baxter and Allegiance, 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.
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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 manufactures, suffered allergic
reactions to the products ranging from skin irritation to systemic
anaphylaxis. The Court granted defendants' demurer to the class action
allegations. On February 29, 1996, the California Appellate Court upheld the
trail 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, BHC was served with a similar purported
class action, WOLF V. BAXTER HEALTHCARE CORP., ET AL., Circuit Court, Wayne
County, MI, 96-617844NP. BHC is the only named defendant in that suit. On
October 9, 1996, the plaintiff in one such case pending in federal court
filed a petition with the Judicial Panel on Multidistrict Litigation, IN RE
LATEX GLOVES PRODUCTS LIABILITY LITIGATION, MDL Docket No. 1148, seeking to
transfer and consolidate the cases pending in federal court for pretrial
proceedings and/or trial. All defendants in those actions have filed
oppositions to the motion. The motion is currently pending before the
Judicial Panel on Multidistrict Litigation. As of October 31, 1996, 58
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 any potential 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 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. While the self-insured retention portion of
litigation defense costs for these matters may have a material impact on
Allegiance's results of operations in the period recorded, it is not expected
that the outcome of these matters will have a material adverse affect on
Allegiance's business, cash flow or financial condition. It is currently
anticipated that a portion of these litigation costs may be incurred in the
fourth quarter.
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 cost 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 September 30, 1996, BHC had 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 $5.4 million. This amount, net
of payments of approximately $1.4 million, has been accrued and is reflected
in Allegiance's combined financial statements. The estimated exposure for the
remaining nine sites is approximately $3.9 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
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aggregate, will have a material adverse effect on Allegiance's business, cash
flow, results of operations or financial condition.
8. BENEFIT CURTAILMENT GAINS
Prior to the Distribution, Allegiance participated in Baxter-sponsored
non-contributory, defined benefit pension plans covering substantially all
domestic employees as well as Baxter-sponsored contributory health-care and
life insurance benefits for substantially all domestic retired employees.
Effective on the Distribution Date, Allegiance did not replace these Baxter
plans. The pension liability related to Allegiance employees' service prior
to the Distribution Date remained with Baxter. Additionally, the
post-retirement liabilities for Allegiance employees that retired prior to
the Distribution Date also remained with Baxter. As a result, Allegiance
recognized curtailment gains of $35.9 million related to these plans as of
September 30, 1996. Curtailment gains have been excluded from Allegiance's
pro forma financial information as presented in Note 4.
9. CREDIT FACILITIES
On September 23, 1996, the Company entered into two unsecured revolving
credit agreements (the "Credit Facilities"), providing for up to an aggregate
of $1.5 billion in borrowings. One of the Credit Facilities provided for
borrowings up to an aggregate of $1.2 billion and expires in September 2001.
The other Credit Facility provided for borrowings up to an aggregate of $300
million and expires in September 1997. As of September 30, 1996,
approximately $1.1 billion was outstanding under the $1.2 billion credit
facility, all of which has been classified as long-term debt as it is
supported by a long-term credit facility and will continue to be refinanced.
No amounts were outstanding under the $300 million credit facility. Amounts
borrowed under the Credit Facilities were used to fund distributions to
Baxter and for working capital requirements.
10. SUBSEQUENT EVENT - DEBT
On October 15, 1996, Allegiance offered $200 million in aggregate principal
amount of the Company's 7.30% notes due October 15, 2006, $150 million in
aggregate principal amount of the Company's 7.80% debentures due October 15,
2016, and $200 million in aggregate principal amount of the Company's 7.00%
debentures due October 15, 2026. The net proceeds to the Company from the sale
of these securities were used to reduce the amounts outstanding under the
Company's $1.2 billion credit facility.
On October 23, 1996, the Company's Credit Facilities were reduced to provide
for borrowings up to an aggregate of $900 million expiring September 30, 2001
and $150 million expiring in September 1997.
11. SUBSEQUENT EVENT - GOODWILL
As part of Baxter, Allegiance followed the accounting policies established by
Baxter for its consolidated group. At September 30, 1996, goodwill, net of
accumulated amortization, was approximately $1,060 million. Baxter's policy
was to evaluate the overall recoverability of goodwill using projected
undiscounted cash flows.
Subsequent to the Distribution Date, the market value of Allegiance's stock
was substantially below its historical book value. As a result of this market
value and management's expectations that cost-containment efforts in the
health-care industry will continue to result in intense competitive pressures
among health-care suppliers, management reevaluated its accounting policy
regarding goodwill impairment. In October 1996, the Company's board of
directors approved the adoption of a new policy for assessing goodwill
impairment based upon a fair value
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approach. The Company believes that fair value is a preferable method to
assess goodwill as it is a more objective indicator of the Company's inherent
value as a separate publicly-traded entity and will be reflective of the
challenges and pressures that continue to be a fundamental part of the U.S.
health-care system.
The change in the method of assessing goodwill impairment will result in a
fourth quarter charge of $550 million to operations. This charge will result
in net losses for the three and twelve month periods ended December 31, 1996.
This policy change will also result in a reduction of $18.9 million and $4.7
million of goodwill amortization expense on an annual and quarterly basis,
respectively, for the next twenty-nine years.
The Company computes fair value based upon the price/earnings ("P/E")
multiple for a group of similar companies. This P/E multiple, calculated
based on actual quoted market prices per share and analysts' consensus
earnings estimates for these companies, is applied to management's best
estimate of earnings for Allegiance to arrive at an overall fair value of the
Company. Management will continue to utilize the same group of companies in
order to determine this multiple, provided that there are no significant
changes in the underlying characteristics of such companies.
The Company will assess goodwill for impairment every quarter based upon the
above methodology. In addition, when evaluating the need to record a charge
for goodwill impairment, the Company will evaluate whether such impairments
are of a temporary or permanent nature, and will record appropriate charges
(if any) to operations for permanent goodwill impairments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management discussion and analysis describes material changes
in the Company's financial condition since December 31, 1995. Trends of a
material nature are discussed to the extent known and considered relevant.
This discussion should be read in conjunction with the historical and pro
forma combined financial statements, related notes thereto and management's
discussion and analysis of financial condition and results of operations
included in the Form 10.
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, including statements relating to potential
fourth quarter charges and litigation defense costs, 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.
RESULTS OF OPERATIONS
Allegiance's results of operations as of September 30, 1995, include revenues
and expenses related to the Industrial and Life Sciences division, which was
sold in September 1995.
The following table presents selected financial data for Allegiance,
excluding the revenue and expenses associated with the divested Industrial
and Life Sciences division discussed above (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net sale $1,094.2 $1,156.2 $3,295.3 $3,400.1
Costs and expenses
Cost of goods sold 863.5 911.5 2,609.8 2,681.0
Selling, general and
administrative expenses 162.8 179.9 508.2 525.4
Goodwill amortization 9.3 9.2 27.7 27.6
Benefit curtailment gains (35.9) - (35.9) -
Other (income) expense (3.6) (1.4) (5.4) 1.1
-------- -------- -------- --------
Total costs and expenses 996.1 1,099.2 3,104.4 3,235.1
-------- -------- -------- --------
Pretax income 98.1 57.0 190.9 165.0
Income tax expense 37.6 21.5 73.1 63.1
-------- -------- -------- --------
Net income $ 60.5 $ 35.5 $ 117.8 $ 101.9
======== ======== ======== ========
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SALES
The following table summarizes net sales, excluding the divested business
discussed previously, by major geographic region (in millions):
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Geographic region
United States $1,019.4 $1,086.4 $3,068.1 $3,182.3
% (decrease) (6.2)% (3.6)%
International 74.8 69.8 227.2 217.8
% increase 7.2% 4.3%
-------- -------- -------- --------
Total net sales $1,094.2 $1,156.2 $3,295.3 $3,400.1
% (decrease) (5.4)% (3.1)%
-------- -------- -------- --------
-------- -------- -------- --------
The decline in Allegiance's domestic net sales for the three and nine months
ended September 30, 1996 as compared to the same period in the prior year is
principally the result of planned attempts to reduce sales growth in lower
margin, distributed products in the U.S., thereby improving overall
profitability. International sales increased in 1996 as compared to 1995 as a
result of continued focus on the penetration of surgical products into
international markets.
COSTS AND EXPENSES
The following table summarizes Allegiance's gross margin and expense ratios,
excluding the divested business discussed previously (in millions):
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Gross margin 21.1% 21.2% 20.8% 21.1%
Selling, general and
administrative expenses 14.9% 15.6% 15.4% 15.5%
Gross margin declined for the three and nine month periods ended September
30, 1996 as compared with the same periods in 1995, due to pricing pressure
in the U.S., combined with pricing pressures in Allegiance's higher margin
surgical products. Allegiance plans to stabilize its gross margin by
offsetting pricing pressures with manufacturing cost efficiencies, managing
its product mix more effectively, and instituting price increases.
Excluding the impact of a $6 million reversal of the Company's portion of an
unearned incentive compensation program that was based on combined results of
Allegiance and Baxter businesses, selling, general and administrative
expenses as a percentage of sales would have been 15.4% for the three month
period ended September 30, 1996. The decrease in selling, general and
administrative expenses for the three month period resulted from the impact
of expense reduction initiatives which management implemented in both the
current and prior periods.
Selling, general and administrative expenses as a percent of sales for the
nine months ended September 30, 1996 decreased slightly as a result of a $5.7
million first quarter non-recurring reversal of excess reserves related to a
downsizing program and the third quarter reversal of unearned incentive
compensation discussed above. Excluding these adjustments, selling, general
and administrative expenses for the nine months ended September 30, 1996
would have been $518.9 million or 15.7% of sales. Total selling, general and
administrative expenses, excluding the adjustments discussed above, declined
$6.5 million or 1.2% for the nine months ended
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September 30, 1996, as compared to the same period in 1995. However, such
expenses as a percent of sales for the period increased 0.2 percentage points
over the prior year. The increase in the ratio for the nine months ended
September 30, 1996, as compared to the same period in the prior year, is the
result of the sales decline discussed above, as the timing of expense
reduction initiatives lagged the planned reduction in lower-margin product
sales.
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 6 to "Notes to the Condensed Combined Financial Statements"
for discussions related to cash and non-cash utilization of the 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 nine months of 1996, Allegiance utilized $68
million of restructuring reserves, including $46 million in cash payments.
Cash outflows pertain primarily to employee-related costs for severance,
outplacement assistance, relocation, implementation teams and facility
consolidation. As of September 30, 1996, Allegiance had eliminated
approximately 2,030 positions of the approximately 2,300 positions that are
expected to be affected by the program. The majority of the remaining
reductions will occur in 1996 and 1997, as facility closures and
consolidations are completed as planned. Management believes that the program
is on target to achieve anticipated direct savings of approximately $125
million in 1996, $155 million in 1997 and exceeding $155 million in 1998, and
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.
BENEFIT CURTAILMENT GAINS
Nonrecurring gains associated with the curtailment of Baxter-sponsored
noncontributory, defined benefit pension plans amounted to $17.4 million and
the curtailment of Baxter-sponsored contributory healthcare and life
insurance benefits amounted to $18.5 million. Refer to Note 8 to "Notes to
the Condensed Combined Financial Statements" for discussions of these former
plans.
OTHER INCOME AND EXPENSE
Other income for the three and nine months ended September 30, 1996 was $3.6
million and $5.4 million, respectively, and consisted primarily of revenue
from miscellaneous non-operating service fees.
Other income and expense for the three and nine months ended September 30,
1995, excluding the divested business discussed previously (which included a
gain on the sale of the divested business), consisted primarily of revenue
from miscellaneous non-operating service fees offset by net losses associated
with the disposal or discontinuance of minor, non-strategic businesses.
<PAGE>
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PRETAX INCOME
Excluding the divested business, the benefit plan curtailment gains and the
adjustment for the Company's portion of an unearned incentive compensation
program discussed previously, pretax income decreased by $0.8 million, or
1.4%, for the three months ended September 30, 1996, as compared to the same
period in 1995. This decrease is primarily attributed to the decline in net
sales noted above, partially offset by a reduction in selling, general and
administrative expenses.
Excluding the divested business, the benefit plan curtailment gains and the
selling, general and administrative expense adjustments discussed previously,
pretax income decreased by $21.7 million or 13.2% for the nine months ended
September 30, 1996, as compared to the same period in 1995. This decrease was
a result of the decline in net sales, partially offset by the decrease in
selling, general and administrative expenses, and the increase in other income.
INCOME TAXES
Allegiance's effective tax rate, excluding the divested business discussed
previously, remained relatively flat for the three and nine months ended
September 30, 1996, as compared to the same period in 1995.
NET INCOME
Excluding the divested business, the benefit plan curtailment gains and the
selling, general and administrative expense adjustments discussed previously,
net income decreased $0.8 million or 2.2% for the three months ended
September 30, 1996 as compared to the same period in 1995, and decreased
$13.4 million or 13.2% for the nine months ended September 30, 1996 as
compared to the same period in 1995. These changes are consistent with the
change in pretax income discussed previously.
ADOPTION OF NEW ACCOUNTING STANDARDS AND POLICIES
As part of Baxter, Allegiance followed the accounting policies established by
Baxter for its consolidated group. At September 30, 1996, goodwill, net of
accumulated amortization, was approximately $1,060 million. Baxter's policy
was to evaluate the overall recoverability of goodwill using projected
undiscounted cash flows.
Subsequent to the Distribution Date, the market value of Allegiance's stock
was substantially below its historical book value. As a result of this market
value and management's expectations that cost-containment efforts in the
health-care industry will continue to result in intense competitive pressures
among health-care suppliers, management reevaluated its accounting policy
regarding goodwill impairment. In October 1996, the Company's board of
directors approved the adoption of a new policy for assessing goodwill
impairment based upon a fair value approach. The Company believes that fair
value is a preferable method to assess goodwill as it is a more objective
indicator of the Company's inherent value as a separate publicly-traded
entity and will be reflective of the challenges and pressures that continue
to be a fundamental part of the U.S. health-care system.
The change in the method of assessing goodwill impairment will result in a
fourth quarter charge of $550 million to operations. This charge will result
in net losses for the three and twelve month periods ended December 31, 1996.
This policy change will also result in a reduction of $18.9 million and $4.7
million of goodwill amortization expense on an annual and quarterly basis,
respectively, for the next twenty-nine years.
<PAGE>
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The Company computes fair value based upon the price/earnings ("P/E")
multiple for a group of similar companies. This P/E multiple, calculated
based on actual quoted market prices per share and analysts' consensus
earnings estimates for these companies, is applied to management's best
estimate of earnings for Allegiance to arrive at an overall fair value of the
Company. Management will continue to utilize the same group of companies in
order to determine this multiple, provided that there are no significant
changes in the underlying characteristics of such companies.
The Company will assess goodwill for impairment every quarter based upon the
above methodology. In addition, when evaluating the need to record a charge
for goodwill impairment, the Company will evaluate whether such impairments
are of a temporary or permanent nature, and will record appropriate charges
(if any) to operations for permanent goodwill impairments.
POTENTIAL FOURTH QUARTER COSTS AND CHARGES
Management is currently evaluating the incurrence of certain spin-off related
costs in the fourth quarter, including corporate identity, name recognition,
and incremental compensation costs. Management is also evaluating programs
involving manufacturing consolidations and the rationalization of certain
business initiatives and investments. The outcome of these evaluations is
expected to be completed by December 31, 1996, and any charges that may
result therefrom will be recorded at that time. Such costs and charges could
have a material impact on the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Allegiance's current assets exceeded current liabilities by $725.2 million at
September 30, 1996 versus an excess of $679.7 million at December 31, 1995.
Current assets at September 30, 1996 included accounts and notes receivable
of $471.0 million and inventories of $639.9 million. These sources of
liquidity are convertible into cash over a relatively short period of time
and thus, could be available to help Allegiance satisfy normal operating cash
requirements.
DEBT AND FINANCIAL INSTRUMENTS
On September 23, 1996, the Company entered into two unsecured revolving
credit agreements (the "Credit Facilities"), providing for up to an aggregate
of $1.5 billion in borrowings. One of the Credit Facilities provided for
borrowings up to an aggregate of $1.2 billion and expires in September 2001.
The other Credit Facility provided for borrowings up to an aggregate of $300
million and expires in September 1997. As of September 30, 1996,
approximately $1.1 billion was outstanding under the $1.2 billion credit
facility, all of which has been classified as long-term debt as it is
supported by a long-term credit facility and will continue to be refinanced.
No amounts were outstanding under the $300 million credit facility. Amounts
borrowed under the Credit Facilities were used to fund distributions to
Baxter and for working capital requirements.
On October 15, 1996, Allegiance offered $200 million in aggregate principal
amount of the Company's 7.30% notes due October 15, 2006, $150 million in
aggregate principal amount of the Company's 7.80% debentures due October 15,
2016, and $200 million in aggregate principal amount of the Company's 7.00%
debentures due October 15, 2026. The net proceeds to the Company from the
sale of these securities were used to reduce the amounts outstanding under
the Company's $1.2 billion credit facility.
On October 23, 1996, the Company's Credit Facilities were reduced to provide
for borrowings up to an aggregate of $900 million expiring September 30, 2001
and $150 million expiring in September 1997.
Allegiance's long-term debt as a percent of total capital was 44.6% at
September 30, 1996. The Company intends to fund its short-term and long-term
obligations as they mature through cash flow from operations, existing credit
facilities or issuance of debt. Management believes it has credit facilities
adequate to support ongoing operational, capital and
<PAGE>
-16-
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 was $218.8 million and $90.9 million for the
nine months ended September 30, 1996 and 1995, respectively. This increase in
cash flow from operations during 1996 resulted primarily from improved
balance sheet management (primarily accounts receivable and inventories),
partially offset by the decrease in earnings discussed previously.
INVESTMENT TRANSACTIONS
Net investment transactions for Allegiance are comprised of the following:
- ------------------------------------------------------------------------------
September 30, September 30,
1996 1995
(in millions)
- ------------------------------------------------------------------------------
Capital expenditures $(55.5) $(71.7)
Acquisitions (20.8) (0.4)
Proceeds from asset dispositions (12.8) 565.9
- ------------------------------------------------------------------------------
Total investment transactions, net $(89.1) $493.8
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital expenditures decreased by $16.2 million for the nine months ended
September 30, 1996 as compared to the same period in 1995. This decrease is
primarily the result of the timing of planned capital projects. Allegiance
management expects to invest in capital expenditures at levels consistent
with 1995, principally for improvements of its existing facilities,
productivity enhancing equipment and system upgrades.
Acquisitions (net of cash received) increased by $20.4 million for the nine
months ended September 30, 1996 as compared to the same period in 1995. These
acquisitions involved no significant change to Allegiance's strategic
direction, and were made for the purpose of broadening product lines and
service offerings or expanding market coverage.
The net use of cash related to asset dispositions for the nine months ended
September 30, 1996 primarily related to cash payments associated with the
settlement of certain programs associated with the divestitures of the
Industrial and Life Sciences division and the diagnostics manufacturing
businesses. The proceeds for the nine months ended September 30, 1995
primarily related to Allegiance's divestiture of its Industrial and Life
Sciences division in September 1995 and the collection of notes receivable
related to the December 1994 divestiture of Allegiance's diagnostics
manufacturing businesses.
LITIGATION
See Note 7 to "Notes to Condensed Combined Financial Statements" for a
detailed description of the status of Allegiance's litigation.
Under the U.S. Superfund statute and many state laws, generators of hazardous
waste which is sent to a disposal or recycling site are liable for cleanup of
the site if contaminants from that property later leak into the environment.
The law provides that potentially responsible parties may be held jointly and
severally liable for the cost of investigating and
<PAGE>
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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 September 30, 1996, BHC had 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 $5.4 million. This amount, net
of payments of approximately $1.4 million, has been accrued and is reflected
in Allegiance's combined financial statements. The estimated exposure for the
remaining nine sites is approximately $3.9 million, which has been accrued
and reflected in Allegiance's combined financial statements.
Upon resolution of any of the uncertainties described in Note 7 to "Notes to
Condensed Combined Financial Statements", Allegiance may incur charges in
excess of available reserves. While the self-insured retention portion of
litigation defense costs for such matters may have a material impact on
Allegiance's results of operations in the period recorded, 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.
<PAGE>
-18-
PART II. OTHER INFORMATION
Allegiance Corporation
Item 1. Legal Proceedings
Upon the Distribution, Allegiance assumed the defense of litigation involving
claims related to the Allegiance Business, including certain claims of
alleged personal injuries as a result of exposure to natural rubber latex
gloves described below. Allegiance will be defending and indemnifying Baxter
Healthcare Corporation ("BHC"), as contemplated by the agreements between
Baxter and Allegiance, 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' demurer 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, BHC was served with a similar purported
class action, WOLF V. BAXTER HEALTHCARE CORP., ET AL., Circuit Court, Wayne
County, MI, 96-617844NP. BHC is the only named defendant in that suit. On
October 9, 1996, the plaintiff in one such case pending in federal court
filed a petition with the Judicial Panel on Multidistrict Litigation, IN RE
LATEX GLOVES PRODUCTS LIABILITY LITIGATION, MDL Docket No. 1148, seeking to
transfer and consolidate the cases pending in federal court for pretrial
proceedings and/or trial. All defendants in those actions have filed
oppositions to the motion. The motion is currently pending before the
Judicial Panel on Multidistrict Litigation. As of October 31, 1996, 58
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 any potential 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 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. While the self-insured retention portion of
litigation defense costs for these matters may have a material impact on
Allegiance's results of operations in the period recorded, it is not expected
that the outcome of these matters will have a material adverse effect on
Allegiance's business, cash flow or financial condition. It is currently
anticipated that a portion of these litigation costs may be incurred in the
fourth quarter.
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 cost 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.
<PAGE>
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As of September 30, 1996, BHC had 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 $5.4 million. This amount, net
of payments of approximately $1.4 million, has been accrued and is reflected
in Allegiance's combined financial statements. The estimated exposure for the
remaining nine sites is approximately $3.9 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.
<PAGE>
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index hereto.
(b) Report on Form 8-K
A report on Form 8-K, dated November 1, 1996, was filed with the SEC
under Item 5, Other Events, to file information disclosing the Company's
change in its accounting policy for assessing goodwill impairment.
<PAGE>
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGIANCE CORPORATION
-----------------------------------
(Registrant)
Date: November 14, 1996 By: /s/Peter B. McKee
-----------------------------------
Peter B. McKee
Senior Vice President and
Chief Financial Officer
<PAGE>
-22-
Exhibits Filed with Securities and Exchange Commission
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of Allegiance
Corporation, including Certificate of
Designation relating to Series A Junior Participating
Preferred Stock of Allegiance Corporation.
4.1 Indenture dated as of October 1, 1996
between Allegiance Corporation and
PNC Bank, Kentucky, Inc.
4.2 Board Resolutions creating the 7.30%
Notes due October 15, 2006, the 7.80%
Debentures due October 15, 2016 and the
7.00% Debentures due October 15, 2026.
10.1+ Agency Services and Distribution Agreement
dated as of September 30, 1996 between
Allegiance Corporation and Baxter
International Inc.
27 Financial Data Schedule. *
(All other exhibits are inapplicable.)
+ Confidential treatment requested for certain portions of this document.
* Shown only in the original filed with the Securities and Exchange Commission.
- -------------------------------------------------------------------------------
Copies of the above exhibits are available at a charge of 35 cents per page
upon written request to the Benefits Department, Allegiance Corporation, 1430
Waukegan Road, McGaw Park, IL 60085. Copies are also available at a charge of
at least 25 cents per page from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C.,
20549.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLEGIANCE CORPORATION
* * * * *
Allegiance Corporation, a Delaware corporation, initially incorporated on June
26, 1996, has duly adopted by action of its Board of Directors and stockholders
the following amended and restated certificate of incorporation in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law of
Delaware.
FIRST: The name of the Corporation is Allegiance Corporation.
SECOND: The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of the registered agent of the Corporation is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is Two Hundred Twenty Million (220,000,000) shares, of which
Twenty Million (20,000,000) shares, par value $.01 per share, shall be preferred
stock (the "Preferred Stock") and of which Two Hundred Million (200,000,000)
shares, par value $ 1.00 per share, shall be common stock (the "Common Stock").
Authority is hereby expressly granted to and vested in the Board of Directors of
the Corporation to issue Preferred Stock in one or more series and in connection
therewith to fix by resolutions providing for the issue of such series the
number of shares to be included in such series and the designations and such
voting powers, full or limited, or no voting powers, and such of the preferences
and relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof, of such series of the
Preferred Stock which are not fixed by the certificate of incorporation, to the
full extent now or hereafter permitted by the laws of the State of Delaware.
Without limiting the generality of the grant of authority contained in the
preceding sentence, the Board of Directors is authorized to determine any or all
of the following, and the shares of each series may vary from the shares of any
other series in any or all of the following respects:
1. The number of shares of such series (which may subsequently be
increased, except as otherwise provided by the resolutions of the
Board of Directors providing for the issue of such series, or
decreased to a number not less than the number of shares then
outstanding) and the distinctive designation thereof;
2. The dividend rights, if any, of such series, the dividend preferences,
if any, as between such series and any other class or series of stock,
whether and the extent to which shares of such series shall be
entitled to participate in dividends with
<PAGE>
shares of any other series or class of stock, whether and the extent
to which dividends on such series shall be cumulative, and any
limitations, restrictions or conditions on the payment of such
dividends;
3. The time or times during which, the price or prices at which, and any
other terms or conditions on which the shares of such series may be
redeemed, if redeemable;
4. The rights of such series, and the preferences, if any, as between
such series and any other class or series of stock, in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and whether and the extent to which shares of any such
series shall be entitled to participate in such event with any other
class or series of stock;
5. The voting powers, if any, in addition to the voting powers prescribed
by law of shares of such series and, to the extent not prohibited by
applicable law, voting powers which may exceed one vote per share, and
the terms of exercise of such voting powers;
6. Whether shares of such series shall be convertible into or
exchangeable for shares of any other series or class of stock, or any
other securities, and the terms and conditions, if any, applicable to
such rights; and
7. The terms and conditions, if any, of any purchase, retirement or
sinking fund which may be provided for the shares of such series.
FIFTH: Subject to any rights of the holders of the Preferred Stock or any
terms thereof to elect additional directors under specified circumstances, the
number of directors which shall constitute the whole Board of Directors of the
Corporation shall be the number from time to time fixed by the Board of
Directors. A decrease in the number of directors shall not affect the term of
office of any director then in office.
Subject to any rights of the holders of the Preferred Stock or any series
thereof to fill any newly created directorships or vacancies, any vacancy on the
Board of Directors that results from an increase in the number of directors or
for any other reason, may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Subject to the rights of the holders of any series of Preferred Stock, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of at least a majority of the then outstanding shares
entitled to vote for the election of such director.
Unless the Corporation's bylaws specify otherwise, the election of directors of
the Corporation need not be by written ballot.
SIXTH: The directors, other than those who may be elected by the holders of
any series of Preferred Stock under specified circumstances, shall be divided,
with respect to the time for which they severally hold office, into three
classes, with the term of office of the first class to expire at the 1997 annual
meeting of stockholders, the term of office of the second class to expire at the
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<PAGE>
1998 annual meeting of stockholders and the terms of office of the third class
to expire at the 1999 annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and qualified.
The directors chosen to succeed those whose terms are expiring shall be
identified as being of the same class as the directors whom they succeed and
shall be elected for a term expiring at the third succeeding annual meeting of
stockholders or thereafter in each case until their respective successors are
elected and qualified, subject to death, resignation, retirement or removal from
office.
Any new positions created as a result of the increase in the number of directors
shall be allocated to make the classes of directors as nearly equal as possible.
Any director elected to fill a term resulting from an increase in the number of
directors shall have the same term as the other members of his class. A
director elected to fill any other vacancy shall have the same remaining term as
that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of the
certificate of incorporation applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article SIXTH unless
expressly provided by such terms.
SEVENTH: The Board of Directors shall have such powers as are permitted by the
General Corporation Law of Delaware, including, without limitation, without the
assent or vote of the stockholders, to make, alter, amend, change, add to, or
repeal the bylaws of the Corporation, to fix and vary the amount to be reserved
as working capital; to authorize and cause to be executed mortgages and liens
upon all the property of the Corporation, or any part thereof, to determine the
use and disposition of any surplus or net profits over and above the capital
stock paid in, and to fix the times for the declaration and payment of
dividends.
EIGHTH: The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its capital
stock or other securities or property, rights entitling the holders thereof to
purchase from the Corporation shares of stock or other securities of the
Corporation or any other corporation. The times at which and the terms upon
which such rights are to be issued will be determined by the Board of Directors
and set forth in the contracts or instruments that evidence such rights. The
authority of the Board of Directors or any duly authorized committee thereof
with respect to such rights shall include, but not be limited to, determination
of the following:
(A) the initial purchase price per share or other unit of the capital
stock or other securities or property to be purchased upon exercise of
such rights;
(B) provisions relating to the times at which and the circumstances under
which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other capital stock or
other securities of the Corporation;
Page 3
<PAGE>
(C) provisions which adjust the number or exercise price of such rights or
amount or nature of the capital stock or other securities or property
receivable upon exercise of such rights in the event of a combination,
split or recapitalization of any capital stock of the Corporation, a
change in ownership of the Corporation's capital stock or other
securities or a reorganization, merger, consolidation, sale of assets
or other occurrence relating to the Corporation or any capital stock
of the Corporation, and provisions restricting the ability of the
Corporation to enter into any such transaction absent an assumption by
the other party or parties thereto of the obligations of the
Corporation under such rights;
(D) provisions which deny the holder of a specified percentage of the
outstanding capital stock or other securities of the Corporation the
right to exercise such rights and/or cause the rights held by such
holder to become void;
(E) provisions which permit the Corporation to redeem or exchange such
rights; and
(F) the appointment of a rights agent with respect to such rights.
NINTH: Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least two-thirds of
the voting power of the then outstanding Voting Stock (as defined below), voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, the bylaws of the Corporation or Articles FIFTH,
SIXTH and EIGHTH of this Certificate of Incorporation. For the purposes of this
Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of Directors.
TENTH: No person who is, or was at any time but is no longer serving as, a
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director, provided that the provisions of this Article TENTH shall
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation 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 General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. No amendment to or repeal of this Article TENTH shall have the effect
of increasing the liability or alleged liability of any director of the
Corporation for or with respect to any act or omission of such director
occurring prior to such amendment or repeal.
ELEVENTH: The Corporation shall indemnify and advance expenses to each
person who serves as an officer or director of the Corporation or a subsidiary
of the Corporation and each person who serves or may have served at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise from any
liability incurred as a result of such service to the fullest extent permitted
by the General Corporation Law of Delaware as it may from time to time be
amended, except with respect to an
Page 4
<PAGE>
action commenced by such director or officer against the Corporation or by such
director or officer as a derivative action by or in the right of the
Corporation. Each person who is or was an employee or agent of the Corporation
and each officer or director who commences any action against the Corporation or
a derivative action by or in the right of the Corporation may be similarly
indemnified and receive an advance of expenses at the discretion of the Board of
Directors.
The indemnification and advancement of expenses provided by, or granted pursuant
to, the certificate of incorporation shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office.
The Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of this Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
this certificate of incorporation or Delaware law.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this certificate of incorporation shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
TWELFTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation. No amendment to
this certificate of incorporation or repeal of any article of this certificate
of incorporation shall increase the liability or alleged liability or reduce or
limit the right to indemnification of any directors, officers, employees or
agents of the Corporation for acts or omissions of such person occurring prior
to such amendment or repeal.
THIRTEENTH: Effective from and after the date upon which the Corporation shall
first have more than one stockholder, no action which requires the vote or
consent of stockholders of the Corporation may be taken without a meeting and
vote of stockholders and the power of stockholders to consent thereafter in
writing without a meeting to the taking of any action is specifically denied.
IN WITNESS WHEREOF, Allegiance Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Lester B. Knight, its chairman of
the board and chief executive officer this 29th day of August, 1996.
ALLEGIANCE CORPORATION
By /s/ Lester B. Knight
--------------------
(Name)
Page 5
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
ALLEGIANCE CORPORATION
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned do hereby certify that the following resolution was
duly adopted by the Board of Directors of Allegiance Corporation, a Delaware
corporation (the "Corporation"), at a meeting duly convened and held on
September 16, 1996, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Certificate of Incorporation, the board of
directors does hereby create, authorize and provide for the issue of a series of
Preferred Stock, par value $.01 per share, of the Corporation, to be designated
"Series A Junior Participating Preferred Stock" (hereinafter referred to as the
"Series A Preferred Stock"), initially consisting of 2,000,000 shares, and to
the extent that the designations, powers, preferences and relative and other
special rights and the qualifications, limitations or restrictions of the Series
A Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 2,000,000.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first business day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $1.00 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time after September 30, 1996 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a small number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); PROVIDED, HOWEVER, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of
-2-
<PAGE>
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 be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date 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
-3-
<PAGE>
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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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 holderss 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 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
-6-
<PAGE>
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 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.
-7-
<PAGE>
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 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
-8-
<PAGE>
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 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.
-9-
<PAGE>
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.
-10-
<PAGE>
IN WITNESS WHEREOF, Allegiance Corporation has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Lester B.
Knight, its Chairman of the Board and Chief Executive Officer, and the same to
be attested to by William L. Feather, its Secretary, this 30th day of September,
1996.
ALLEGIANCE CORPORATION
By: /s/ Lester B. Knight
------------------------------
Name: Lester B. Knight
Title: Chairman of the Board
and Chief Executive
Officer
(Corporate Seal)
Attest:
/s/ William L. Feather
- ----------------------------
Name: William L. Feather
Title: Senior Vice President
and General Counsel
-11-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALLEGIANCE CORPORATION
TO
PNC BANK, KENTUCKY, INC.
TRUSTEE
--------------
INDENTURE
DATED AS OF OCTOBER 1, 1996
--------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
----------
PAGE
----
RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions:
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate; control. . . . . . . . . . . . . . . . . . . . . 2
Attributable Debt . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent. . . . . . . . . . . . . . . . . . . . 3
Board of Directors. . . . . . . . . . . . . . . . . . . . . 3
Board Resolution. . . . . . . . . . . . . . . . . . . . . . 3
Business Day. . . . . . . . . . . . . . . . . . . . . . . . 3
Commission. . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request; Company Order. . . . . . . . . . . . . . . 3
Consolidated Net tangible Assets. . . . . . . . . . . . . . 3
Corporate Trust Office. . . . . . . . . . . . . . . . . . . 4
corporation . . . . . . . . . . . . . . . . . . . . . . . . 4
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 4
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest. . . . . . . . . . . . . . . . . . . . . 4
Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . 4
Depositary. . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default. . . . . . . . . . . . . . . . . . . . . . 4
Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . 4
Expiration Date . . . . . . . . . . . . . . . . . . . . . . 5
Global Security . . . . . . . . . . . . . . . . . . . . . . 5
Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 5
interest. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . . . . . . . . 5
Investment Company Act. . . . . . . . . . . . . . . . . . . 5
Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Nonrecourse Obligation. . . . . . . . . . . . . . . . . . . 5
Notice of Default . . . . . . . . . . . . . . . . . . . . . 6
Officers' Certificate . . . . . . . . . . . . . . . . . . . 6
Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . 6
Original Issue Discount Security. . . . . . . . . . . . . . 6
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 6
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . 7
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NOTE: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
PAGE
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Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Place of Payment. . . . . . . . . . . . . . . . . . . . . . 7
Predecessor Security. . . . . . . . . . . . . . . . . . . . 7
Principal Property. . . . . . . . . . . . . . . . . . . . . 8
Redemption Date . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Price. . . . . . . . . . . . . . . . . . . . . . 8
Regular Record Date . . . . . . . . . . . . . . . . . . . . 8
Restricted Security . . . . . . . . . . . . . . . . . . . . 8
Sale and Lease-Back Transaction . . . . . . . . . . . . . . 8
Securities. . . . . . . . . . . . . . . . . . . . . . . . . 8
Securities Act. . . . . . . . . . . . . . . . . . . . . . . 8
Security Register and Security Registrar. . . . . . . . . . 8
Special Record Date . . . . . . . . . . . . . . . . . . . . 9
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . 9
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . 9
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 9
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 9
U.S. Government Obligation. . . . . . . . . . . . . . . . . 9
Vice President. . . . . . . . . . . . . . . . . . . . . . . 9
Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . 9
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . . 10
SECTION 103. Form of Documents Delivered to Trustee. . . . . . . . . . . 10
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . 11
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . 13
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . 14
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . 14
SECTION 108. Effect of Headings and Table of Contents. . . . . . . . . . 14
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . . . 14
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . 15
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . 15
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 202. Form of Face of Security. . . . . . . . . . . . . . . . . . 16
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . 16
SECTION 204. Form of Legend for Global Securities. . . . . . . . . . . . 23
SECTION 205. Form of Trustee's Certificate of Authentication . . . . . . 23
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ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series. . . . . . . . . . . . 24
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 303. Execution, Authentication, Delivery and Dating. . . . . . . 27
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . . . . 28
SECTION 305. Registration, Registration of Transfer and Exchange . . . . 29
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . 31
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . . 32
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . 33
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . 34
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . 34
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . . 35
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . 35
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . . 37
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . . . 39
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . 39
SECTION 505. Trustee May Enforce Claims Without Possession
of Securities . . . . . . . . . . . . . . . . . . . . . 40
SECTION 506. Application of Money Collected. . . . . . . . . . . . . . . 40
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . 41
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest. . . . . . . . . . . . . . . . . . 41
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . . 42
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . 42
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PAGE
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SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . 42
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . 42
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 43
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . 43
SECTION 515. Waiver of Usury, Stay or Extension Laws . . . . . . . . . . 43
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . 44
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . 44
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . 44
SECTION 604. Not Responsible for Recitals or Issuance of Securities. . . 45
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . 46
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . 46
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . . . . 46
SECTION 608. Conflicting Interests . . . . . . . . . . . . . . . . . . . 47
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . 47
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . 47
SECTION 611. Acceptance of Appointment by Successor. . . . . . . . . . . 49
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 613. Preferential Collection of Claims Against Company . . . . . 50
SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . 50
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses
of Holders. . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 702. Preservation of Information; Communication
to Holders. . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . 53
SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . . . . 53
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<PAGE>
PAGE
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms . . . . . . . . . . . . . . . . . . . . . 54
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . 55
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders. . . . . 55
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . 57
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . . 58
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . 58
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . 58
SECTION 906. Reference in Securities to Supplemental Indentures. . . . . 58
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest. . . . . . . . . 59
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . 59
SECTION 1003. Money for Securities Payments to Be Held in Trust . . . . . 59
SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . 61
SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . 61
SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . 61
SECTION 1008. Limitation on Liens . . . . . . . . . . . . . . . . . . . . 62
SECTION 1009. Limitation on Sale and Lease-Back Transactions. . . . . . . 64
SECTION 1010. Limitation on Subsidiary Debt . . . . . . . . . . . . . . . 64
SECTION 1011. Waiver of Certain Covenants . . . . . . . . . . . . . . . . 65
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article. . . . . . . . . . . . . . . . . . 65
SECTION 1102. Election to Redeem; Notice to Trustee . . . . . . . . . . . 66
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PAGE
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SECTION 1103. Selection by Trustee of Securities to Be Redeemed . . . . . 66
SECTION 1104. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 67
SECTION 1105. Deposit of Redemption Price . . . . . . . . . . . . . . . . 67
SECTION 1106. Securities Payable on Redemption Date . . . . . . . . . . . 68
SECTION 1107. Securities Redeemed in Part . . . . . . . . . . . . . . . . 68
SECTION 1108. Right of Repayment. . . . . . . . . . . . . . . . . . . . . 68
SECTION 1109. Form of Option to Elect Repayment . . . . . . . . . . . . . 69
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article. . . . . . . . . . . . . . . . . . 70
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities . . . 70
SECTION 1203. Redemption of Securities for Sinking Fund . . . . . . . . . 71
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance . . . . . . . . . . . . . . . . . . 71
SECTION 1302. Defeasance and Discharge. . . . . . . . . . . . . . . . . . 71
SECTION 1303. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 72
SECTION 1304. Conditions to Defeasance or Covenant Defeasance . . . . . . 72
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Miscellaneous Provisions . . . . . 74
SECTION 1306. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 75
..............................................................
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . 608
610
Section 311(a) . . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . 613
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<PAGE>
Section 312(a) . . . . . . . . . . . . . . . . . . . . 701
702
(b) . . . . . . . . . . . . . . . . . . . . 702
(c) . . . . . . . . . . . . . . . . . . . . 702
Section 313(a) . . . . . . . . . . . . . . . . . . . . 703
(b) . . . . . . . . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . . . . . . . . 703
Section 314(a) . . . . . . . . . . . . . . . . . . . . 704
(a)(4) . . . . . . . . . . . . . . . . . . . . 101
1004
(b) . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . 502
512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . 104
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . 107
- --------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
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<PAGE>
INDENTURE, dated as of October 1, 1996, between Allegiance Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 1430 Waukegan
Road, McGaw Park, Illinois 60085, and PNC Bank, Kentucky, Inc., a corporation
duly organized and existing under the laws of Kentucky, as Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting prin-
<PAGE>
ciples" with respect to any computation required or permitted hereunder shall
mean such accounting principles as are generally accepted at the date of such
computation;
(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" when used in connection with a Sale and Lease-Back
Transaction involving a Principal Property means, at the time of determination,
the lesser of: (a) the fair value of such property (as determined in good faith
by the Board of Directors of the Company); or (b) the present value of the total
net amount of rent required to be paid under such lease during the remaining
term thereof (including any renewal term or period for which such lease has been
extended), discounted at the rate of interest set forth or implicit in the terms
of such lease or, if not practicable to determine such rate, the weighted
average interest rate per annum (in the case of Original Issue Discount
Securities, the imputed interest rate) borne by the Securities of each series
outstanding pursuant to the Indenture compounded semi-annually. For purposes of
the foregoing definition, rent shall not include amounts required to be paid by
the lessee, whether or not designated as rent or additional rent, on account of
or contingent upon maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall be the lesser of the
net amount determined assuming termination upon the first date such lease may be
terminated (in which case the net amount shall also include the amount of the
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) and the net
amount determined assuming no such termination.
-2-
<PAGE>
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee. In the event the Board of Directors
shall delegate to any director or officer of the Company or any group consisting
of directors of the Company, officers of the Company or directors and officers
of the Company the authority to take any action which under the terms of this
Indenture may be taken by "Board Resolution," then any action so taken by, and
set forth in a resolution adopted by, the director, officer or group within the
scope of such delegation shall be deemed to be a "Board Resolution" for purposes
of this Indenture.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.
"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Net Tangible Assets" means, as of any particular time, total
assets (excluding applicable reserves and other properly deductible items) less:
(a) total current liabilities, except for (1) notes and loans payable,
(2) current maturities of long-term debt, and (3) current maturities of
obligations under capital leases; and (b) goodwill, patents and trademarks, to
the extent included in total assets; all as set forth on the most
-3-
<PAGE>
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
and computed in accordance with generally accepted accounting principles.
"Corporate Trust Office" means the principal office of the Trustee in
Louisville, Kentucky at which at any particular time its corporate trust
business shall be administered.
"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) the maximum fixed redemption or repurchase
price of redeemable stock of such Person at the time of determination, (vi)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Lease-back Transaction to which such Person is a party
and (vii) every obligation of the type referred to in Clauses (i) through (vi)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
-4-
<PAGE>
"Expiration Date" has the meaning specified in Section 104.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 204 (or such
legend as may be specified as contemplated by Section 301 for such Securities).
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring"
shall have the meanings correlative to the foregoing); PROVIDED, HOWEVER, that a
change in generally accepting accounting principles that results in an
obligation of such Person that exists at such time becoming Debt shall not be
deemed an Incurrence of such Debt.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively. The term "Indenture" shall also include the terms of particular
series of Securities established as contemplated by Section 301.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an instalment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any
-5-
<PAGE>
Restricted Subsidiary or (ii) the financing of a project involving the
development or expansion of properties of the Company or any Restricted
Subsidiary, as to which the obligee with respect to such indebtedness or
obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
"Notice of Default" means a written notice of the kind specified in
Section 501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 1004 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, EXCEPT:
(1) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Securities; PROVIDED that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 1302; and
-6-
<PAGE>
(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands such Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502,
(B) if, as of such date, the principal amount payable at the Stated Maturity of
a Security is not determinable, the principal amount of such Security which
shall be deemed to be Outstanding shall be the amount as specified or determined
as contemplated by Section 301, (C) the principal amount of a Security
denominated in one or more foreign currencies or currency units which shall be
deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of
such date in the manner provided as contemplated by Section 301, of the
principal amount of such Security (or, in the case of a Security described in
Clause (A) or (B) above, of the amount determined as provided in such Clause),
and (D) Securities owned by the Company or any other obligor upon the Securities
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment", when used with respect to the Securities of any
series, means the place or places where the principal of and any premium and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security;
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and, for the purposes of this definition, any Security authenticated and
delivered under Section 306 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.
"Principal Property" means the land, land improvements, buildings and
fixtures (to the extent they constitute real property interests), (including any
leasehold interest therein) constituting the principal corporate office, any
manufacturing facility, or any distribution center (whether now owned or
hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is
located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 1.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"Restricted Subsidiary" means any Subsidiary which owns any Principal
Property.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property which property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
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"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of principal thereof or interest thereon, means the date specified in
such Security as the fixed date on which the principal of such Security or such
instalment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding voting stock having the power to elect a majority of the board of
directors of such corporation is at the time owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; PROVIDED, HOWEVER, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligation" has the meaning specified in Section 1304.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel
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may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by
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the Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, PROVIDED that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; PROVIDED that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of
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Outstanding Securities of the relevant series on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities of the relevant series in the manner
set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day PROVIDED that no Expiration Date shall be later than the 180th day
after the applicable record date; and PROVIDED, FURTHER, that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the other party hereto in writing, and to each Holder of Securities of the
relevant series in the manner set forth in Section 106, on or prior to the
existing Expiration Date. If an Expiration Date is not designated with respect
to any record date set pursuant to this Section, the party hereto which set such
record date shall be deemed to have initially designated the 180th day after
such record date as the Expiration Date with respect thereto, subject to its
right to change the Expiration Date as provided in this paragraph.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to
or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company addressed
to it at the address of its principal office specified in the first paragraph
of this instrument or at any other address previously furnished in writing to
the Trustee by the Company.
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SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
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SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
(other than a provision of any Security which specifically states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and premium, if any) need not be made at such Place of Payment on such date,
but may be made on the next succeeding Business Day at such Place of Payment
with the same force and effect as if made on the Interest Payment Date or
Redemption Date, or at the Stated Maturity.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or
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permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution thereof. If the form
of Securities of any series is established by action taken pursuant to a Board
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by
Section 303 for the authentication and delivery of such Securities.
The definitive Securities shall be typewritten, printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. FORM OF FACE OF SECURITY.
[INSERT ANY LEGEND REQUIRED BY THE INTERNAL REVENUE CODE AND THE
REGULATIONS THEREUNDER.]
..........................................................
..........................................................................
No. ......... $ ........
.........................., a corporation duly organized and existing
under the laws of ............... (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to
..............................................., or registered assigns, the
principal sum of ...................................... Dollars on
........................................................ [IF THE SECURITY IS TO
BEAR INTEREST PRIOR TO MATURITY, INSERT -- , and to pay interest thereon from
............. or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on ............ and
............ in each year, commencing ........., at the rate of ....% per annum,
until the principal hereof is paid or made available for payment [IF APPLICABLE,
INSERT -- , PROVIDED that any principal and premium, and any such instalment of
interest, which is overdue shall bear interest at the rate of ...% per annum (to
the extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date
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for such interest, which shall be the ....... or ....... (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than
10 days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture].
[IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption[, repayment]
or at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of ....% per annum (to the extent that
the payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. [Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of ......% per annum (to the extent that the payment of such
interest on interest shall be legally enforceable), from the date of such demand
until the amount so demanded is paid or made available for payment. Interest on
any overdue interest shall be payable on demand.]]
Payment of the principal of (and premium, if any) and [if applicable,
insert ___ any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in ............, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts [IF APPLICABLE, INSERT -- ;
PROVIDED, HOWEVER, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register].
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
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Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
..................................................
By................................................
Attest:
.........................................
SECTION 203. FORM OF REVERSE OF SECURITY.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or
more series under an Indenture, dated as of ............... (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and ..................., as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof [IF APPLICABLE,
INSERT -- , limited in aggregate principal amount to $...........].
[IF APPLICABLE, INSERT -- The Securities of this Series are subject to
repayment on or after ________, ____, at the option of the Holder upon not less
than 30 days' (but not more than 60 days') notice by mail to the Paying Agent
prior to the repayment date including (a) appropriate wire instructions and (b)
either (i) the Security with the form entitled Option to Elect Repayment (as set
forth below) attached to the Security duly completed or (ii) a telegram, telex,
facsimile transmission or letter from a member of a national securities exchange
or the National Association of Securities Dealers, Inc. or a commercial bank or
trust company in the United States setting forth the name of the Holder of such
Security, the principal amount of such Debenture, the portion of the principal
amount of such Security to be repaid, the certificate number or a description
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of the tenor and terms of such Security, a statement that the option to elect
repayment is being exercised thereby and a guarantee that such Security to be
repaid with the form entitled Option to Elect Repayment (substantially in the
form set out in the Indenture) attached to such Security duly completed will be
received by the Paying Agent not later than five Business Days after the date of
such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable. The repayment option may be exercised by the Holder of such
Security for less than the entire principal amount of the Security provided that
the principal amount of the Security remaining outstanding after repayment is an
authorized denomination. No registration of, transfer or exchange of such
Security (or, in the event that such Security is to be repaid in part, the
portion of the Security to be repaid) will be permitted after exercise of a
repayment option.]
[IF APPLICABLE, INSERT -- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, [IF APPLICABLE, INSERT --
(1) on ........... in any year commencing with the year ...... and ending with
the year ...... through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)] at any time [IF
APPLICABLE, INSERT -- on or after .........., 19..], as a whole or in part, at
the election of the Company, at the following Redemption Prices (expressed as
percentages of the principal amount): If redeemed [IF APPLICABLE, INSERT -- on
or before ..............., ...%, and if redeemed] during the 12-month period
beginning ............. of the years indicated,
Redemption Redemption
Year Price Year Price
- ---- ---------- ---- ----------
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
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[IF APPLICABLE, INSERT -- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, (1) on ............ in
any year commencing with the year .... and ending with the year .... through
operation of the sinking fund for this series at the Redemption Prices for
redemption through operation of the sinking fund (expressed as percentages of
the principal amount) set forth in the table below, and (2) at any time [IF
APPLICABLE, INSERT -- on or after ............], as a whole or in part, at the
election of the Company, at the Redemption Prices for redemption otherwise than
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below: If redeemed during the 12-month period
beginning ............ of the years indicated,
Redemption Price
For Redemption Redemption Price For
Through Operation Redemption Otherwise
of the Than Through Operation
Year Sinking Fund of the Sinking Fund
- ---- ----------------- ----------------------
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]
[IF APPLICABLE, INSERT -- Notwithstanding the foregoing, the Company may
not, prior to ............., redeem any Securities of this series as
contemplated by [IF APPLICABLE, INSERT -- Clause (2) of] the preceding paragraph
as a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an interest cost to the
Company (calculated in accordance with generally accepted financial practice) of
less than .....% per annum.]
[IF APPLICABLE, INSERT -- The sinking fund for this series provides for
the redemption on ............ in each year beginning with the year ....... and
ending with the year ...... of [IF APPLICABLE, INSERT -- not less than
$.......... ("mandatory sinking fund") and not
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more than] $......... aggregate principal amount of Securities of this series.
Securities of this series acquired or redeemed by the Company otherwise than
through [IF APPLICABLE, INSERT -- mandatory] sinking fund payments may be
credited against subsequent [IF APPLICABLE, INSERT -- mandatory] sinking fund
payments otherwise required to be made [IF APPLICABLE, INSERT -- , in the
inverse order in which they become due].]
[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT -- In the
event of redemption of this Security in part only, a new Security or Securities
of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.]
[IF APPLICABLE, INSERT -- The Indenture contains provisions for defeasance
at any time of [the entire indebtedness of this Security] [or] [certain
restrictive covenants and Events of Default with respect to this Security] [, in
each case] upon compliance with certain conditions set forth in the Indenture.]
[IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]
[IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an
Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE
AMOUNT. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer of this Security or in exchange for
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or in lieu of this Security, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $....... and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
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Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES.
Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificates of authentication shall be in substantially the
following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
..........................................,
AS TRUSTEE
By.........................................
AUTHORIZED OFFICER
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ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the first
issuance of a Security of any series,
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest;
(4) the date or dates on which the principal of any Securities of the
series is payable;
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any such interest payable on any
Interest Payment Date;
(6) the place or places where the principal of and any premium and
interest on any Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or
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in part, at the option of the Company and, if other than by a Board
Resolution, the manner in which any election by the Company to redeem the
Securities shall be evidenced;
(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous provisions
or at the option of the Holder thereof and the period or periods within
which, the price or prices at which and the terms and conditions upon which
any Securities of the series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;
(11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and the
manner of determining the equivalent thereof in the currency of the United
States of America for any purpose, including for purposes of the definition
of "Outstanding" in Section 101;
(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those
in which such Securities are stated to be payable, the currency, currencies
or currency units in which the principal of or any premium or interest on
such Securities as to which such election is made shall be payable, the
periods within which and the terms and conditions upon which such election is
to be made and the amount so payable (or the manner in which such amount
shall be determined);
(13) if other than the entire principal amount thereof, the portion of
the principal amount of any Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 502;
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or which
shall be deemed to be Outstanding as of any date prior
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to the Stated Maturity (or, in any such case, the manner in which such amount
deemed to be the principal amount shall be determined);
(15) if applicable, that the Securities of the series, in whole or any
specified part, shall be defeasible pursuant to Section 1302 or Section 1303
or both such Sections and, if other than by a Board Resolution, the manner in
which any election by the Company to defease such Securities shall be
evidenced;
(16) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in such
case, the respective Depositaries for such Global Securities, the form of any
legend or legends which shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 204 and any circumstances
in addition to or in lieu of those set forth in Clause (2) of the last
paragraph of Section 305 in which any such Global Security may be exchanged
in whole or in part for Securities registered, and any transfer of such
Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global Security or a nominee
thereof;
(17) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or
the requisite Holders of such Securities to declare the principal amount
thereof due and payable pursuant to Section 502;
(18) any addition to or change in the covenants set forth in Article Ten
which applies to Securities of the series; and
(19) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture, except as permitted by Section
901(5)).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 303) set forth, or
determined in the manner provided, in the Officers' Certificate referred to
above or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
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SECTION 302. DENOMINATIONS.
The Securities of each series shall be issuable only in registered form
without coupons and only in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such specified denomination
with respect to the Securities of any series, the Securities of such series
shall be issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture; and
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(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are typewritten, printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions,
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omissions, substitutions and other variations as the officers executing such
Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged, the temporary Securities of
any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of any authorized denominations and of like tenor and aggregate
principal amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the
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same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
If the Securities of any series (or of any series and specified tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of any
such Securities selected for redemption under Section 1103 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and
no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or
a nominee thereof unless (A) such Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (C) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have
been specified for this purpose as contemplated by Section 301.
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(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Security or any portion thereof shall be registered
in such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or
1107 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture
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equally and proportionately with any and all other Securities of that series
duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Except as otherwise provided as contemplated by Section 301 with respect
to any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to each Holder of Securities of such series in the
manner set forth in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special
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Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may
be listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 307) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so
delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
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SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose money in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal and any premium
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and interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and any premium and
interest for whose payment such money has been deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for a
period of 30 days; or
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(2) default in the payment of the principal of or any premium on any
Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as due
by the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with or which has expressly been included in this Indenture solely for
the benefit of series of Securities other than that series), and continuance
of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 10% in principal amount of
the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company (including a default with
respect to Securities of any series other than that series), or under any
mortgage, indenture or instrument (including this Indenture) under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company having an aggregate principal
amount outstanding of at least $10 million, whether such indebtedness now
exists or shall hereafter be created, which default (A) shall constitute a
failure to pay any portion of the principal of such indebtedness when due and
payable after the expiration of any applicable grace period with respect
thereto or (B) shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without, in the case of Clause (A), such indebtedness
having been discharged or without, in the case of Clause (B), such
indebtedness having been discharged or such acceleration having been
rescinded or annulled, in each such case, within a period of 10 days after
there shall have been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
10% in principal amount of the Outstanding Securities of that series a
written notice specifying such default and requiring the Company to cause
such indebtedness to be discharged or cause such acceleration to be rescinded
or annulled, as the case may be, and stating that such notice is a "Notice of
Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any of its Restricted
Subsidiaries in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law
or (B) a decree or order adjudging the Company or any of its Restricted
Subsidiaries a bankrupt or insolvent, or approving
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as properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company or any of its Restricted
Subsidiaries under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any of its Restricted Subsidiaries or of
any substantial part of its property (or that of any such Restricted
Subsidiary), or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive days;
or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company or any of its Restricted Subsidiaries in
an involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
or the filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any of its Restricted Subsidiaries or of
any substantial part of its property ( or that of any such Restricted
Subsidiary), or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by the
Company or any of its Restricted Subsidiaries in furtherance of any such
action; or
(8) any other Event of Default provided with respect to Securities of
that series.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount of all the Securities of that
series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in Section 501(6)
or 501 (7) with respect to Securities of any series at the time Outstanding
occurs, the principal amount of all the Securities of that series (or, if any
Securities of that series are Original Issue Discount
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Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) shall automatically, and without any declaration
or other action on the part of the Trustee or any Holder, become immediately due
and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue interest on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal and premium and on any overdue interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
and
SECOND: To the payment of the amounts then due and unpaid for principal
of and any premium and interest on the Securities in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable
on such Securities for principal and any premium and interest, respectively.
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SECTION 507. LIMITATION ON SUITS.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
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(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on any
Security of such series, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company.
SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or
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impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
If a default occurs hereunder with respect to Securities of any series,
the Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default of the character specified in
Section 501(4) with respect to Securities of such series, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to Securities of such series.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
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(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be
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accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
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SECTION 608. CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be one (and only one) Trustee hereunder with
respect to the Securities of each series, which may be Trustee hereunder for
Securities of one or more other series. Each Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such has a combined
capital and surplus of at least $50,000,000 and has its Corporate Trust Office
in Louisville, Kentucky. If any such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of its supervising or
examining authority, then for the purposes of this Section and to the extent
permitted by the Trust Indenture Act, the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. If at any time the Trustee
with respect to the Securities of any series shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.
The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
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If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Securities
of that or those series (it being understood that any such successor Trustee may
be appointed with respect to the Securities of one or more or all of such series
and that at any time there shall be only one Trustee with respect to the
Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
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The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities of such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts
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and duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to
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authenticate Securities of such series issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
........................................,
AS TRUSTEE
By......................................,
AS AUTHENTICATING AGENT
By.......................................
AUTHORIZED OFFICER
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than January 15 and July 15 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of Securities of each series as of the
preceding December 31 or June 30, as the case may be, and
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(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner
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provided pursuant to such Act; PROVIDED that any such information, documents or
reports required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act shall be filed with the Trustee within 15 days after the
same is so required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of and any premium and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a mortgage, pledge, lien, security interest or other
encumbrance which would not be permitted by this Indenture, the Company or
such successor Person, as the case may be, shall take
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such steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) all indebtedness secured thereby; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely
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for the benefit of such series) or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such additional Events of
Default are to be for the benefit of less than all series of Securities,
stating that such additional Events of Default are expressly being included
solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the issuance
of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, PROVIDED that any
such addition, change or elimination (A) shall neither (i) apply to any
Security of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (ii) modify the
rights of the Holder of any such Security with respect to such provision or
(B) shall become effective only when there is no such Security Outstanding;
or
(6) to secure the Securities pursuant to the requirements of Section
1008 or otherwise; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series
and to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of
Section 611; or
(9) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, PROVIDED that such action pursuant to this Clause (9) shall
not adversely affect the interests of the Holders of Securities of any
series.
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SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; PROVIDED, HOWEVER,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original
Issue Discount Security or any other Security which would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change any Place of Payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1010, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 1010, or the
deletion of this proviso, in accordance with the requirements of Sections 611
and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the Securities of that series in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for payment, where Securities of that series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of that series and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or
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otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of or any
premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will (1) comply with the provisions of
the Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York City,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
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SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and
(2) all lawful claims for labor, materials and
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supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1008. LIMITATION ON LIENS.
The Company will not issue, incur, create, assume or guarantee, and will
not permit any Restricted Subsidiary to issue, incur, create, assume or
guarantee, any debt for borrowed money secured by a mortgage, security interest,
pledge, lien, charge or other encumbrance ("mortgages") upon any Principal
Property of the Company or any Restricted Subsidiary or upon any shares of stock
or indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares or indebtedness are now existing or owned or hereafter created or
acquired) without in any such case effectively providing concurrently with the
issuance, incurrence, creation, assumption or guarantee of any such secured
debt, or the grant of a mortgage with respect to any such indebtedness, that the
Securities (together with, if the Company shall so determine, any other
indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Securities) shall be secured equally and ratably with
(or, at the option of the Company, prior to) such secured debt. The foregoing
restriction, however, will not apply to:
(1) mortgages on property existing at the time of acquisition thereof by
the Company or any Subsidiary, provided that such mortgages were in existence
prior to the contemplation of such acquisition;
(2) mortgages on property, shares of stock or indebtedness or other
assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary;
(3) mortgages on property, shares of stock or indebtedness existing at
the time of acquisition thereof by the Company or a Restricted Subsidiary or
mortgages thereon to secure the payment of all or any part of the purchase
price thereof, or mortgages on property, shares of stock or indebtedness to
secure any indebtedness for borrowed money incurred prior to, at the time of
or within 270 days after, the latest of the acquisition thereof, or, in the
case of property, the completion of construction, the completion of
improvements, or the commencement of substantial commercial operation of such
property for the purpose of financing all or any part of the purchase price
thereof, such construction, or the making of such improvements;
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(4) mortgages to secure indebtedness owing to the Company or to a
Restricted Subsidiary;
(5) mortgages existing at the date of this Indenture;
(6) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation as an entirety or substantially as an entirety to
the Company or a Restricted Subsidiary, provided that such mortgage was not
incurred in anticipation of such merger or consolidation or sale, lease or
other disposition;
(7) mortgages in favor of the United States or any State, territory or
possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States or any State,
territory or possession thereof (or the District of Columbia), to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of constructing or
improving the property subject to such mortgages;
(8) mortgages created in connection with the acquisition of assets or a
project financed with, and created to secure, a Nonrecourse Obligation; and
(9) extensions, renewals, refinancings or replacements of any mortgage
referred to in the foregoing clauses (1), (2), (3), (5), (6), (7) and (8)
provided, however, that any mortgages permitted by any of the foregoing
clauses (1), (2), (3), (5), (6), (7) and (8) shall not extend to or cover any
property of the Company or such Restricted Subsidiary, as the case may be,
other than the property, if any, specified in such clauses and improvements
thereto, and provided further that any refinancing or replacement of any
mortgages permitted by the foregoing clauses (7) and (8) shall be of the type
referred to in such clauses (7) or (8), as the case may be.
Notwithstanding the restrictions set forth in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise by subject
to such restrictions, without equally and ratably securing the Securities,
provided that after giving effect thereto, the aggregate amount of all debt so
secured by mortgages (not including mortgages permitted under clauses (1)
through (9) above) does not exceed 10% of the Consolidated Net Tangible Assets
of the Company as most recently determined on or prior to such date.
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SECTION 1009. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS.
The Company will not, nor will it permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction with respect to any Principal
Property, other than any such transaction involving a lease for a term of not
more than three years or any such transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, unless: (1) the
Company or such Restricted Subsidiary would be entitled to incur indebtedness
secured by a mortgage on the Principal Property involved in such transaction at
least equal in amount to the Attributable Debt with respect to such Sale and
Lease-Back Transaction, without equally and ratably securing the Securities,
pursuant to Section 1008; or (2) the Company shall apply an amount equal to the
greater of the net proceeds of such sale or the Attributable Debt with respect
to such Sale and Lease-Back Transaction within 180 days of such sale to either
(or a combination of) the retirement (other than any mandatory retirement,
mandatory prepayment or sinking fund payment or by payment at maturity) of debt
for borrowed money of the Company or a Restricted Subsidiary that matures more
than 12 months after the creation of such indebtedness or the purchase,
construction or development of other comparable property.
SECTION 1010. LIMITATION ON SUBSIDIARY DEBT.
The Company shall not permit any Subsidiary of the Company to Incur or suffer
to exist any Debt except:
(1) Debt outstanding on the date of this Indenture;
(2) Debt issued to and held by the Company or a Wholly Owned Subsidiary of
the Company (provided that such Debt is at all times held by the Company or a
Person which is a Wholly Owned Subsidiary of the Company);
(3) Debt Incurred by a Person prior to the time (a) such Person became a
Subsidiary of the Company, (b) such Person merges into or consolidates with a
Subsidiary of the Company or (c) another Subsidiary of the Company merges into
or consolidates with such Person (in a transaction in which such Person becomes
a Subsidiary of the Company), which Debt was not Incurred in anticipation of
such transaction and was outstanding prior to such transaction;
(4) Debt which is exchanged for, or the proceeds of which are used to
refinance or refund, any Debt permitted to be outstanding pursuant to Clauses
(1) through (3) hereof (or any extension or renewal thereof), in an aggregate
principal amount not to exceed the principal amount of the Debt so exchanged,
refinanced or refunded and provided such refinancing or refunding Debt by its
terms, or by the terms of any agreement or instrument pursuant to which such
Debt is issued (x) does not provide for payments of principal at the stated
maturity of such Debt or by way of a sinking fund applicable to
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such Debt or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the stated maturity of the Debt being
refinanced or refunded and (y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the Company) of such Debt at
the option of the holder thereof prior to the stated maturity of the Debt being
refinanced or refunded, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to purchase
made by the Company) which is conditioned upon the change of control of the
Company; and
(5) Debt having a principal amount and liquidation value not in excess of
20% of the Consolidated Net Tangible Assets of the Company in the aggregate.
SECTION 1011. WAIVER OF CERTAIN COVENANTS.
Except as otherwise specified as contemplated by Section 301 for
Securities of such series, the Company may, with respect to the Securities of
any series, omit in any particular instance to comply with any term, provision
or condition set forth in any covenant provided pursuant to Section 301(18),
901(2) or 901(7) for the benefit of the Holders of such series or in any of
Sections 1008 to 1010, inclusive, if before the time for such compliance the
Holders of at least 66 2/3% in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
ARTICLE ELEVEN
REDEMPTION OR REPAYMENT OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable or repayable before their
Stated Maturity shall be redeemable or repayable in accordance with their terms
and (except as otherwise specified as contemplated by Section 301 for such
Securities) in accordance with this Article.
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SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution or in another manner specified as contemplated by Section 301
for such Securities. In case of any redemption at the election of the Company of
less than all the Securities of any series (including any such redemption
affecting only a single Security), the Company shall, at least 60 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the
principal amount of Securities of such series to be redeemed and, if applicable,
of the tenor of the Securities to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security of such series, PROVIDED that
the unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
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For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series consisting
of more than a single Security are to be redeemed, the identification (and,
in the case of partial redemption of any such Securities, the principal
amounts) of the particular Securities to be redeemed and, if less than all
the Outstanding Securities of any series consisting of a single Security are
to be redeemed, the principal amount of the particular Security to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where each such Security is to be surrendered
for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and
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hold in trust as provided in Section 1003) an amount of money sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that, unless otherwise specified as
contemplated by Section 301, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
SECTION 1107. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
SECTION 1108. RIGHT OF REPAYMENT.
In order for any Security that is subject to repayment at the option of
the Holder to be repaid, the Paying Agent must receive at least 30 days but not
more than 60 days prior to the repayment date (a) appropriate wire instructions
and (b) either (i) the Security
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with the form entitled Option to Elect Repayment (as set forth below) attached
to the Security duly completed or (ii) a telegram, telex, facsimile transmission
or letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of such Security, the
principal amount of such Debenture, the portion of the principal amount of such
Security to be repaid, the certificate number or a description of the tenor and
terms of such Security, a statement that the option to elect repayment is being
exercised thereby and a guarantee that such Security to be repaid with the form
entitled Option to Elect Repayment attached to such Security duly completed will
be received by the Paying Agent not later than five Business Days after the date
of such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable, except as otherwise provided in the Board Resolution establishing
the term of the Security. The repayment option may be exercised by the Holder of
such Security for less than the entire principal amount of the Security provided
that the principal amount of the Security remaining outstanding after repayment
is an authorized denomination. No registration of, transfer or exchange of such
Security (or, in the event that such Security is to be repaid in part, the
portion of the Security to be repaid) will be permitted after exercise of a
repayment option. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Security for repayment will be determined by
the Company, whose determination will be final, binding and non-appealable.
SECTION 1109. FORM OF OPTION TO ELECT REPAYMENT
The following text shall be attached to each Security to which the
provisions of Section 1108 apply:
FORM OF OPTION TO ELECT REPAYMENT ON ___________, __________
I or we hereby irrevocably elect to exercise the option to have the
principal sum of together with accrued
interest thereon to __________, ___ repaid by the Company on ________________,
______. If less than the entire principal amount of the Security is to be
repaid specify the denomination or denominations (which shall be in authorized
denominations) of the Securities to be issued to the Holder for the portion of
the within Security not being repaid (in the absence of any such specification,
one such Security will be issued for the portion not being repaid.
- --------------------------------------------------------------------------------
Dated:
-------------------------------------------------------------------------
Signed:
------------------------------------------------------------------------
Signature Guarantee:
----------------------------------------------
(Signature must be guaranteed by
an eligible institution within
the meaning of Rule 17A(d)-15
under the Securities Exchange
Act of 1934, as amended)
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ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities is herein referred to as a "mandatory sinking fund payment",
and any payment in excess of such minimum amount provided for by the terms of
such Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to any Securities of such series required to be made pursuant to the terms of
such Securities as and to the extent provided for by the terms of such
Securities; PROVIDED that the Securities to be so credited have not been
previously so credited. The Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption Price, as specified
in the Securities so to be redeemed, for redemption through operation of the
sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
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SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 30 days prior to each sinking fund payment date for any
Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash and the portion thereof, if
any, which is to be satisfied by delivering and crediting Securities pursuant to
Section 1202 and will also deliver to the Trustee any Securities to be so
delivered. Not less than 20 days prior to each such sinking fund payment date,
the Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may elect, at its option at any time, to have Section 1302 or
Section 1303 applied to any Securities or any series of Securities, as the case
may be, designated pursuant to Section 301 as being defeasible pursuant to such
Section 1302 or 1303, in accordance with any applicable requirements provided
pursuant to Section 301 and upon compliance with the conditions set forth below
in this Article. Any such election shall be evidenced by a Board Resolution or
in another manner specified as contemplated by Section 301 for such Securities.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, the
Company shall be deemed to have been discharged from its obligations with
respect to such Securities as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Securities and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
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same), subject to the following which shall survive until otherwise
terminated or discharged hereunder: (1) the rights of Holders of such Securities
to receive, solely from the trust fund described in Section 1304 and as more
fully set forth in such Section, payments in respect of the principal of and any
premium and interest on such Securities when payments are due, (2) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article. Subject to compliance with this Article, the
Company may exercise its option (if any) to have this Section applied to any
Securities notwithstanding the prior exercise of its option (if any) to have
Section 1303 applied to such Securities.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be,
(1) the Company shall be released from its obligations under Section 801(3),
Sections 1006 through 1010, inclusive, and any covenants provided pursuant to
Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such
Securities and (2) the occurrence of any event specified in Sections 501(4)
(with respect to any of Section 801(3), Sections 1006 through 1010, inclusive,
and any such covenants provided pursuant to Section 301(18), 901(2) or 901(7)),
501(5) and 501(8) shall be deemed not to be or result in an Event of Default, in
each case with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 1304 are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, such Covenant
Defeasance means that, with respect to such Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such specified Section (to the extent so specified
in the case of Section 501(4)), whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document, but the
remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of Section 1302
or Section 1303 to any Securities or any series of Securities, as the case may
be:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee which satisfies the
requirements contemplated by Section 609 and agrees to comply with the
provisions of this Article applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefits of the Holders of such
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Securities, (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof, in
each case sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or any such other qualifying trustee) to pay and discharge, the
principal of and any premium and interest on such Securities on the
respective Stated Maturities, in accordance with the terms of this Indenture
and such Securities. As used herein, "U.S. Government Obligation" means
(x) any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United
States of America is pledged or (ii) an obligation of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
(i) or (ii), is not callable or redeemable at the option of the issuer
thereof, and (y) any depositary receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S.
Government Obligation which is specified in Clause (x) above and held by such
bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, PROVIDED that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depositary receipt from any
amount received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal or interest evidenced by such depositary
receipt.
(2) In the event of an election to have Section 1302 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this instrument, there has
been a change in the applicable Federal income tax law, in either case (A) or
(B) to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Securities will not recognize gain or loss for Federal
income tax purposes as a result of the deposit, Defeasance and discharge to
be effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.
(3) In the event of an election to have Section 1303 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit and
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Covenant Defeasance to be effected with respect to such Securities and will
be subject to Federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit and Covenant
Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that neither such Securities nor any other
Securities of the same series, if then listed on any securities exchange,
will be delisted as a result of such deposit.
(5) No event which is, or after notice or lapse of time or both would
become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit
or, with regard to any such event specified in Sections 501(6) and (7), at
any time on or prior to the 90th day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.
(9) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee or other qualifying trustee (solely for purposes of this Section and
Section 1306, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 1304 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any such Paying Agent (including the Company acting as its
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<PAGE>
own Paying Agent) as the Trustee may determine, to the Holders of such
Securities, of all sums due and to become due thereon in respect of principal
and any premium and interest, but money so held in trust need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1304 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Securities.
SECTION 1306. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and such Securities from which the Company has been discharged or
released pursuant to Section 1302 or 1303 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1305 with respect to such Securities
in accordance with this Article; PROVIDED, HOWEVER, that if the Company makes
any payment of principal of or any premium or interest on any such Security
following such reinstatement of its obligations, the Company shall be subrogated
to the rights (if any) of the Holders of such Securities to receive such payment
from the money so held in trust.
-----------------------------
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<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ALLEGIANCE CORPORATION
By /s/ Leonard G. Kuhr
--------------------------------------
Attest:
/s/ William L. Feather
- --------------------------------------
PNC BANK, KENTUCKY, INC.
By /s/ Patricia C. Mc Fadden
--------------------------------------
Attest:
/s/
- --------------------------------------
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<PAGE>
State of Illinois )
) ss.:
County of Lake )
On the 9th day of October, 1996, before me personally came Leonard G.
Kuhr, to me known, who, being by me duly sworn, did depose and say that he is
V.P/Treasurer of Allegiance Corporation, one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.
/s/ Peggy K. Snow
----------------------------------------
State of Kentucky )
) ss.:
County of Jefferson )
On the 9th day of October, 1996, before me personally came Patricia C.
McFadden, to me known, who, being by me duly sworn, did depose and say that
he is Vice President of PNC Bank, Kentucky, Inc., one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation; and that he signed his name thereto by like authority.
/s/ Mary D. Callan
----------------------------------------
Notary Public, State at Large, KY
My Commision expires
June 10, 2000
<PAGE>
ALLEGIANCE CORPORATION
CERTIFICATE OF AUTHORIZED OFFICERS
The undersigned, pursuant to resolutions adopted by the Board of
Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on
September 16, 1996 (the "Board Resolutions"), hereby certify that there is
hereby approved and established pursuant to Section 301 of the Indenture, dated
as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC
Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the
Company under the Indenture whose terms shall be as follows (capitalized terms
used but not defined herein have the meanings ascribed thereto in the
Indenture):
1. The Securities of such series shall be known and designated as
the "7.30% Notes due October 15, 2006" of the Company.
2. The aggregate principal amount of the Securities of such series
which may be authenticated and delivered under the Indenture is limited to
$200,000,000 (except for Securities of such series authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of such series pursuant to Section 304, 305, 306, 906
or 1107 of the Indenture and except for Securities which, pursuant to
Section 303 of the Indenture, are deemed never to have been authenticated
and delivered thereunder).
3. The Stated Maturity of the principal of the Securities of such
series shall be October 15, 2006.
4. The Securities of such series shall bear interest at the rate of
7.30% per annum, which will accrue from October 15, 1996, or from the most
recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable semi-annually on April 15 and
October 15 in each year, commencing April 15, 1997, to the Person in whose
name such Securities of such series (or one or more Predecessor Securities)
are registered at the close of business on the Regular Record Date next
preceding the
<PAGE>
Interest Payment Date. Each April 15 and October 15 shall be an "Interest
Payment Date" for such Securities of such series, and the March 31 and
September 30 (whether or not a Business Day), as the case may be, next
preceding an Interest Payment shall be the "Regular Record Date" for the
interest payable on such Interest Payment Date.
5. Payment of the principal of and interest on the Securities of
such series will be made at the office or agency of the Company maintained
for such purposes in the City of Louisville, Kentucky; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
6. The Securities of such series will not be redeemable at the
option of the Company.
7. The Company shall not be obligated to redeem or purchase the
Securities of such series pursuant to any sinking fund or analogous
provision, or at the option of any Holder thereof.
8. The Securities of such series shall be issued in the form of one
or more permanent Global Securities registered in the name of The
Depository Trust Company or its nominee.
9. The Trustee shall act as paying agent with respect to the
Securities of such series.
10. The Securities of such series shall be in such form or forms as
may be approved by the officers of the Company as provided in the Board
Resolutions, such approval to be evidenced by such officers' manual or
facsimile signatures on the Securities of such series, provided that such
form or forms of the Securities are not inconsistent with the requirements
of the Indenture or the Board Resolutions.
* * * *
-2-
<PAGE>
IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th
day of October, 1996.
/s/ Peter B. McKee
-----------------------------------
Name: Peter B. McKee
Title: Chief Financial Officer
/s/ Leonard G. Kuhr
-----------------------------------
Name: Leonard G. Kuhr
Title: Corporate Vice President and
Treasurer
-3-
<PAGE>
ALLEGIANCE CORPORATION
CERTIFICATE OF AUTHORIZED OFFICERS
The undersigned, pursuant to resolutions adopted by the Board of
Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on
September 16, 1996 (the "Board Resolutions"), hereby certify that there is
hereby approved and established pursuant to Section 301 of the Indenture, dated
as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC
Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the
Company under the Indenture whose terms shall be as follows (capitalized terms
used but not defined herein have the meanings ascribed thereto in the
Indenture):
1. The Securities of such series shall be known and designated as
the "7.80% Debentures due October 15, 2016 of the Company.
2. The aggregate principal amount of the Securities of such series
which may be authenticated and delivered under the Indenture is limited to
$150,000,000 (except for Securities of such series authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of such series pursuant to Section 304, 305, 306, 906
or 1107 of the Indenture and except for Securities which, pursuant to
Section 303 of the Indenture, are deemed never to have been authenticated
and delivered thereunder).
3. The Stated Maturity of the principal of the Securities of such
series shall be October 15, 2016.
4. The Securities of such series shall bear interest at the rate of
7.80% per annum, which will accrue from October 15 , 1996, or from the most
recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable semi-annually on April 15 and
October 15 in each year, commencing April 15, 1997, to the Person in whose
name such Securities of such series (or one or more Predecessor Securities)
are registered at the close
-1-
<PAGE>
of business on the Regular Record Date next preceding the Interest Payment
Date. Each April 15 and October 15 shall be an "Interest Payment Date" for
such Securities of such series, and the March 31 and September 30 (whether
or not a Business Day), as the case may be, next preceding an Interest
Payment shall be the "Regular Record Date" for the interest payable on such
Interest Payment Date.
5. Payment of the principal of and interest on the Securities of
such series will be made at the office or agency of the Company maintained
for such purposes in the City of Louisville, Kentucky; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
6. The Securities of such series will not be redeemable at the
option of the Company.
7. The Company shall not be obligated to redeem or purchase the
Securities of such series pursuant to any sinking fund or analogous
provision, or at the option of any Holder thereof.
8. The Securities of such series shall be issued in the form of one
or more permanent Global Securities registered in the name of The
Depository Trust Company or its nominee.
9. The Trustee shall act as paying agent with respect to the
Securities of such series.
10. The Securities of such series shall be in such form or forms as
may be approved by the officers of the Company as provided in the Board
Resolutions, such approval to be evidenced by such officers' manual or
facsimile signatures on the Securities of such series, provided that such
form or forms of the Securities are not inconsistent with the requirements
of the Indenture or the Board Resolutions.
* * * *
-2-
<PAGE>
IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th
day of October, 1996.
/s/ Peter B. McKee
-----------------------------------
Name: Peter B. McKee
Title: Chief Financial Officer
/s/ Leonard G. Kuhr
-----------------------------------
Name: Leonard G. Kuhr
Title: Corporate Vice President and
Treasurer
-3-
<PAGE>
ALLEGIANCE CORPORATION
CERTIFICATE OF AUTHORIZED OFFICERS
The undersigned, pursuant to resolutions adopted by the Board of
Directors of Allegiance Corporation, a Delaware corporation (the "Company"), on
September 16, 1996 (the "Board Resolutions"), hereby certify that there is
hereby approved and established pursuant to Section 301 of the Indenture, dated
as of October 1, 1996 (the "Indenture"), among the Company, as issuer, and PNC
Bank, Kentucky, Inc., as trustee (the "Trustee"), a series of Securities of the
Company under the Indenture whose terms shall be as follows (capitalized terms
used but not defined herein have the meanings ascribed thereto in the
Indenture):
1. The Securities of such series shall be known and designated as
the "7.00% Debentures due October 15, 2026" of the Company.
2. The aggregate principal amount of the Securities of such series
which may be authenticated and delivered under the Indenture is limited to
$200,000,000 (except for Securities of such series authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of such series pursuant to Section 304, 305, 306, 906
or 1107 of the Indenture and except for Securities which, pursuant to
Section 303 of the Indenture, are deemed never to have been authenticated
and delivered thereunder).
3. The Stated Maturity of the principal of the Securities of such
series shall be October 15, 2026.
4. The Securities of such series shall bear interest at the rate of
7.00% per annum, which will accrue from October 15, 1996, or from the most
recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable semi-annually on April 15 and
October 15 in each year, commencing April 15, 1997, to the Person in whose
name such Securities of such series (or one or more Predecessor Securities)
are registered at the close of business on the Regular Record Date next
preceding the
-4-
<PAGE>
Interest Payment Date. Each April 15 and October 15 shall be an "Interest
Payment Date" for such Securities of such series, and the March 31 and
September 30 (whether or not a Business Day), as the case may be, next
preceding an Interest Payment shall be the "Regular Record Date" for the
interest payable on such Interest Payment Date.
5. Payment of the principal of and interest on the Securities of
such series will be made at the office or agency of the Company maintained
for such purposes in the City of Louisville, Kentucky; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
6. The Securities of such series will not be redeemable at the
option of the Company.
7. The Company shall not be obligated to redeem or purchase the
Securities of such series pursuant to any sinking fund or analogous
provision, or at the option of any Holder thereof, except that any Holder
of a Security of this series may elect to have that Security, or any
portion of the principal amount thereof that is a multiple of $1,000,
repaid on October 15, 2003 at 100% of the principal amount thereof,
together with accrued interest to October 15, 2003. In order for the Holder
to exercise this option, the Company must receive at its office or agency
in Louisville, Kentucky, during the period beginning on August 15, 2003 and
ending at 5:00 p.m. (New York City time) on September 15, 2003, this
Security with the form "Option to Elect Repayment on October 15, 2003" duly
completed. Any such notice received by the Company during the period
beginning on August 15, 2003, and ending at 5:00 p.m. (New York City time)
on September 15, 2003 (or, if September 15, 2003 is not a Business Day, the
next succeeding Business Day) shall be irrevocable.
8. The Securities of such series shall be issued in the form of one
or more permanent Global Securities registered in the name of The
Depository Trust Company or its nominee.
9. The Trustee shall act as paying agent with respect to the
Securities of such series.
10. The Securities of such series shall be in such form or forms as
may be approved by the officers of the Company as provided in the Board
Resolutions, such approval to be evidenced by such officers' manual or
facsimile signatures on the Securities of such series, provided that such
form or forms of the Securities are not inconsistent
-5-
<PAGE>
with the requirements of the Indenture or the Board Resolutions.
* * * *
-6-
<PAGE>
IN WITNESS WHEREOF, we have hereunto signed our names as of this 9th
day of October, 1996.
/s/ Peter B. McKee
-----------------------------------
Name: Peter B. McKee
Title: Chief Financial Officer
/s/ Leonard G. Kuhr
-----------------------------------
Name: Leonard G. Kuhr
Title: Corporate Vice President and
Treasurer
-7-
<PAGE>
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
6. Prices and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7. The Council.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
8. Invoicing and Payments. . . . . . . . . . . . . . . . . . . . . . . . . .22
9. Allegiance's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . .22
10. Baxter's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
11. Standard of Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
12. Alternative Acute Care Distribution . . . . . . . . . . . . . . . . . . .22
13. Transfer of Title and Risk of Loss. . . . . . . . . . . . . . . . . . . .24
14. Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
15. Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
16. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
19. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . .33
20. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
21. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
22. Limitation of Liability and Remedy. . . . . . . . . . . . . . . . . . . .37
23. Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . . . . .38
24. Dispute Resolution and Arbitration. . . . . . . . . . . . . . . . . . . .40
25. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
i
<PAGE>
26. Authority.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
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, 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
<PAGE>
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 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
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<PAGE>
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 dealer, 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 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
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<PAGE>
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
dealer, 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.
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.
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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 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
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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. Subject to
Section 23.5 hereof, this Agreement shall be interpreted and construed to the
maximum extent possible so as to uphold the enforceability of each of the terms
and provisions hereof, it being understood and acknowledged that this Agreement
was entered into by the parties after substantial and extended negotiations and
with full awareness by the parties of the terms and provisions hereof and the
consequences thereof.
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 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
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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 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
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"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 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
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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.
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;
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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 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
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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 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 11.5% 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.
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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 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 11.5% 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,
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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 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 of I.V. Products to resellers
and subdistributors actually managed by Allegiance's dealer management group and
that are 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 for such
services, and payment shall be due on the fifteenth day of each month; 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 for such services,
and payment shall be due on the fifteenth day of each month; 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 fifteen days after receipt
by Baxter of a monthly invoice from Allegiance 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
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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 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.
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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 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
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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.
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
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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.
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 (including, without limitation, expenses for repackaging and
return of Product) incurred in respect of failure of shipping cartons for
Products, provided that such failure is not due to Allegiance's acts or
omissions. 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
replenishment center or distribution center, and
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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 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
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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 at the aggregate
Suggested Sales Prices, 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 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
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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 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
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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 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
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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 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.
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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, 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-
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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 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
Ultimate Parent of the Affected Party or any Affiliate of the Ultimate Parent of
the Affected Party of any Person that (a) is a Rival of the Ultimate Parent 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 from
products competitive with products sold by Baxter and its Affiliates greater
than *** of the total annual consolidated net revenues of Baxter
International during its most recently completed fiscal year; and (b) with
respect to Allegiance, any Person (including an
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Affiliate of such Person) that during its most recently completed fiscal year
has annual net revenues from medical, surgical, and laboratory products greater
than * * * of the total annual consolidated 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.
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
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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 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
17.1.5 any claim for personal injury, wrongful death or property
damage arising out of the use of a Product;
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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 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.
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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 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
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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.
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
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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
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)
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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 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
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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 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
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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;
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.
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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.
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
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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 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
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if to Allegiance to:
Allegiance Healthcare Corporation
McGaw Park Building A/B
1430 Waukegan Road
McGaw Park, Illinois 60085
Attention: General Counsel
with a copy to:
Allegiance Healthcare Corporation
McGaw Park Building A/B
1430 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
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nondefaulting party may have with respect to the same or any future default.
23.5 SEVERABILITY. In the event that any of the provisions of this
Agreement is held to be invalid, illegal, void or otherwise unenforceable in any
jurisdiction by reason of any rule of law, administrative decision, judicial
decision, public policy or otherwise, such provision shall be ineffective in
such jurisdiction to the extent of such invalidity, illegality, voidness or
unenforceability without affecting, impairing or invalidating the remaining
provisions, if any, of this Agreement. Any such invalid, illegal, void or
otherwise unenforceable provisions shall be replaced by valid and enforceable
substitute provisions which are as similar as possible to such invalid, illegal,
void or otherwise unenforceable provisions in terms of economic and other
commercial effect upon the parties, which substitute provisions shall be
established pursuant to the dispute resolution procedure set forth in Section
24.2.
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 guidelines of the other party existing from time to time. Each party
has advised the other of its respective guidelines 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.
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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 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, claim or controversy arising out of or
relating to this Agreement, or the breach or validity hereof, whether at common
law or pursuant to any statute, regulation, rule or policy, that is not resolved
by good faith negotiations in the spirit of mutual cooperation 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 member of the National
Health Lawyers Association or another mutually agreeable 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.
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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 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.
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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. 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: /s/ Jack L. McGinley By: /s/ William L. Feather
---------------------- --------------------------
Name: Jack L. McGinley Name: William L. Feather
Title: Group Vice President-- Title: Senior Vice President
I.V. Systems and General Counsel
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT A
I.V. PRODUCTS
See attached listing.
A-1
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT B
NUTRITION PRODUCTS
See attached listing.
B-1
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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, inter alia, 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.
1.1.2 FUTURE AGREEMENTS. For any corporate bonus agreements
entered into on or after the effective date of this
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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 (including sales to Surgery Centers and to
Alternate Site Distributors) 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 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
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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.
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.
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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
$6.50/order to cover the overhead associated with receiving, storing, and
shipping the Products.
1.4.6 Allegiance shall apply special handling charges to priority
shipments as follows: (a) next day shipments will be charged an additional
$7.00; and (b) second day air shipments will be charged an additional $5.50.
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.
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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.
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
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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.
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.
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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.
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
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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.
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.
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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),
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;
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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:
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.
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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.
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 routine 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 extraordinary
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
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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 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 $150,600.
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.
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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.
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.
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2.3.1.2 Allegiance's dealer management group will perform the
billing function for Baxter using Baxter's computer system.
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 (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
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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 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.
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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 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.
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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.
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 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
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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 reports 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.
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.
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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 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
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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 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.
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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.
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,
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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.
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
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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.
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.
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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 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;
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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.
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3. DISTRIBUTOR MODEL.
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.
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AGENCY, SERVICES, AND DISTRIBUTION AGREEMENT
EXHIBIT E
SUPPLIER SCOREBOARD
See attached.
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 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
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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 fifteenth day
of the month following the month in which such sales are reported.
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.
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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 at the time Allegiance receives the
Products in Allegiance's computer systems.
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
replenishment center or distribution center - (1) Baxter will issue a credit
memo to Allegiance for such damaged, lost or stolen Products at Baxter's
applicable Distributor List Price, and (2) Baxter will invoice Allegiance
monthly for such damaged, lost or stolen Products (but not carton failure) 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 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-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONDENSED COMBINED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 506<F1>
<ALLOWANCES> 28
<INVENTORY> 641
<CURRENT-ASSETS> 1,256
<PP&E> 1,541
<DEPRECIATION> 683
<TOTAL-ASSETS> 3,300
<CURRENT-LIABILITIES> 531
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 1,372
<TOTAL-LIABILITY-AND-EQUITY> 3,300
<SALES> 3,295
<TOTAL-REVENUES> 3,295
<CGS> 2,610
<TOTAL-COSTS> 3,104
<OTHER-EXPENSES> (5)
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 191
<INCOME-TAX> 73
<INCOME-CONTINUING> 118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>GROSS
<F2>INFORMATION NOT APPLICABLE FOR PERIODS PRESENTED
</FN>
</TABLE>
