UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File Number 1-7518
DOW CORNING CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-0495575
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 West Salzburg Road, Midland, Michigan 48686-0994
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 517-496-4000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: The registrant has only one class of shares outstanding. The
voting common shares are held in equal portions by Corning Incorporated and
Dow Holdings Inc., a wholly-owned subsidiary of The Dow Chemical Company.
None of the registrant's common stock has been sold or traded since the
registrant's incorporation.
Number of shares outstanding of common stock: 2,500,000
Documents incorporated by reference:
None.
The registrant qualifies under General Instruction J(1)(a) and (b) of Form
10-K and is filing this Form using the reduced disclosure format described in
General Instruction J(2).
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PART I
ITEM 1. BUSINESS
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Dow Corning Corporation (Dow Corning or the Company) was incorporated in
1943 by Corning Glass Works (now Corning Incorporated) and The Dow Chemical
Company (Dow Chemical) for the purpose of developing and producing polymers
and other materials based on silicon chemistry. Corning Incorporated provided
the basic silicone technology and Dow Chemical supplied the chemical
processing and manufacturing know-how. Both companies provided initial key
employees.
Dow Corning built a new business based on silicon chemistry. Silicon is
one of the most abundant elements in the world. Most of the Company's
products are based on polymers known as silicones which have a
silicon-oxygen-silicon backbone. Through various chemical processes, the
Company manufactures silicones that have an extremely wide variety of
characteristics, in forms ranging from fluids, gels, greases and elastomeric
materials to resins and other rigid materials. Silicones combine the
temperature and chemical resistance of glass and the versatility of plastics
and, regardless of form or application, generally possess such qualities as
electrical resistance, resistance to extreme temperatures, resistance to
deterioration from aging, water repellency, lubricating characteristics,
relative chemical and physiological inertness, and resistance to ultraviolet
radiation.
The Company currently manufactures over 8,700 products and serves
approximately 50,000 customers worldwide, with no single customer accounting
for more than three percent of the Company's sales in 1994.
Raw Materials
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The principal raw material used in the production of Dow Corning products
is silicon. The Company purchases chemical grade silicon metal from producers
who manufacture the silicon metal from quartz that has been reacted with
carbon at high temperatures. The majority of the Company's anticipated annual
requirements are satisfied by its silicon supply contracts. The Company
believes that it has adequate sources of supply of silicon and believes that
adequate supplies of quartz are available to the producers of silicon. The
Company considers worldwide production capacity of silicon to be adequate to
meet expected demand and does not expect shortages.
Dow Corning also purchases substantial quantities, and believes it has
adequate sources of supply, of methanol, methyl chloride, and other raw
materials required for its manufacturing operations. The raw materials that
the Company uses are equally accessible to all of its competitors. Although
from time to time temporary shortages of particular raw materials may exist,
Dow Corning believes that adequate sources of raw materials required to
maintain its operations exist. Generally, the Company maintains inventory
levels of raw materials in quantities sufficient to meet its short-term
production requirements.
<PAGE>3
Foreign Operations
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The foreign operations of Dow Corning, principally in Europe and Asia,
are conducted primarily through wholly-owned subsidiaries and involve sales of
substantially all Dow Corning products. These products are manufactured
either domestically or by one of the Company's foreign subsidiaries. See Note
18 of Notes to Consolidated Financial Statements included in this report for
financial information relating to foreign operations.
The Company's international operations are affected by factors normally
associated with foreign operations, including exchange controls, fluctuations
in currency values, local economic and labor conditions, dividend and payment
restrictions, political instability and international credit or financial
problems, many of which are beyond the control of the Company. While these
conditions associated with foreign business involve risks different from those
associated with domestic business activities, Dow Corning does not regard the
overall risks of its foreign operations, on the whole, to be materially
greater than those of its operations in the United States.
Competition
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Dow Corning is a leader among the various companies that produce
silicon-based products throughout the world. The Company faces substantial
competition for its products both in the United States and abroad from other
manufacturers of silicon-based products. In addition, many of the Company's
products compete with non-silicon-based products in specific applications.
The risk of product substitution is common to all Dow Corning products. The
principal competitive elements in the sale of Dow Corning products are:
product quality and performance, responsive customer service, new product
development, cost effectiveness, and application expertise.
Research and Development
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Since its inception, Dow Corning has been engaged in a continuous program
of basic and applied research on silicon-based materials to develop new
products and processes, to improve and refine existing products and processes,
and to develop new applications for existing products. The Company also
provides a wide variety of technical services to its customers. Research and
development expenditures totalled (in millions of dollars) $174.0 in 1994,
$163.9 in 1993, and $161.2 in 1992.
The Company operates research and development facilities located in the
United States, Belgium, Japan, and the United Kingdom. The Company also
operates technical service centers in the United States, Australia, Belgium,
Brazil, France, Germany, Japan, South Korea, Taiwan, and the United Kingdom.
Patents and Licenses
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Dow Corning regularly applies for United States and foreign patents and
owns, directly or indirectly, a substantial number of such patents. The
Company is a licensor under a number of patent licenses and technology
agreements. While Dow Corning considers its patents and licenses to be
valuable assets, it does not regard its business as being materially dependent
on any single patent or license or any group of related patents or licenses.
<PAGE>4
Protection of the Environment
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Dow Corning has set a goal to reduce its toxic releases within the United
States by 75% in the year 2000 compared to 1987. This goal extends beyond
voluntary commitments made by the Company under two programs with the U.S.
Environmental Protection Agency - the 33/50 Voluntary Reduction Program under
which the Company has committed to reductions of all of its toxic chemical
releases, and the Clean Air Act Early Reduction Credit Program under which the
Company has committed to major reductions in methyl chloride releases at its
largest U.S. manufacturing facilities. As of December 31, 1994, the Company
has met all voluntary commitments under the 33/50 Voluntary Reduction Program
and the Clean Air Act Early Reduction Program. As a member of the Chemical
Manufacturers Association, the Company is also committed to and is
implementing the Codes of Management Practices specified in the Chemical
Manufacturers Association's Responsible Care(R) program, a continuing chemical
industry effort to improve the management of chemicals. Responsible Care(R)
is a trademark of the Chemical Manufacturers Association.
Dow Corning expends funds consistent with its commitments to reduce the
discharge of materials into the environment. The Company expects that its
pollution control related expenditures will be partially offset through the
recovery of raw materials in the pollution control process. The Company
believes that these expenditures should not materially affect Dow Corning's
earnings or competitive position.
The Company records a charge to earnings for environmental matters when
it is probable that a liability has been incurred and the Company's costs can
be reasonably estimated. For information concerning environmental
liabilities, see Note 2 of Notes to Consolidated Financial Statements.
Employees
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Dow Corning's average employment for 1994 was 8,300 persons.
ITEM 2. PROPERTIES
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Dow Corning owns or leases extensive property for use in its business and
believes that its properties are in good operating condition and are generally
suited for the purposes for which they are presently being used.
Principal United States production plants are located in Kentucky,
Michigan and North Carolina. Principal foreign manufacturing plants are
located in Belgium, Germany, Japan and the United Kingdom. Dow Corning owns
substantially all of its manufacturing facilities. Approximately 63% of Dow
Corning's aggregate investment in plant and equipment is represented by its
United States facilities.
Dow Corning owns its executive and corporate offices, which are located
near Midland, Michigan, and certain foreign offices. The Company also owns
research and development facilities in the United States, Belgium, Japan, and
the United Kingdom. Domestic and foreign sales offices are primarily in
leased facilities. For information concerning lease commitments, see Note 17
of Notes to Consolidated Financial Statements.
<PAGE>5
ITEM 3. LEGAL PROCEEDINGS
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ENVIRONMENTAL MATTERS
The Company has agreed to participate in the Toxic Substances Control Act
Section 8(e) compliance audit program. The Company expects to pay a civil
penalty which will exceed $100,000. While the exact amount of the civil
penalty is not yet known, the United States Environmental Protection Agency
(EPA) has put a limit of $1 million on any civil penalty to be paid.
BREAST IMPLANT LITIGATION
Breast Implant Products Liability Class Action Lawsuits
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As of December 31, 1994, the Company had been named, generally as one of
several defendants, in 45 breast implant products liability class action
lawsuits filed on behalf of individuals who claim to have or have had silicone
gel breast implants. Of these lawsuits, 31 have been brought in various
Federal District Courts, 12 have been brought in various state courts, and 2
have been brought in courts in Canada.
Among the Federal District Court class action lawsuits, 27 were filed in
1992, 3 were filed in 1993, and 1 was filed in the first quarter of 1994.
These cases have been filed in the Federal District Courts for the Northern
District of Alabama, the District of Arizona, the Northern District of
California (3 cases), the Central District of California, the Southern
District of California, the District of Hawaii, the Northern District of
Illinois, the Eastern District of Kentucky, the Northern District of
Louisiana, the Eastern District of Michigan, the District of Minnesota (2
cases), the Eastern District of New York (2 cases), the Northern District of
Ohio (3 cases), the Southern District of Ohio (7 cases), the Eastern District
of Pennsylvania, the Western District of Pennsylvania (2 cases), the District
of Utah and the Eastern District of Virginia. In the class action case filed
in the Federal District Court for the Eastern District of Virginia, all
proceedings have been stayed and class certification has been denied. All of
these federal breast implant products liability class action lawsuits have
been transferred to the Federal District Court for the Northern District of
Alabama for discovery purposes (see "Consolidation of Breast Implant Products
Liability Lawsuits" below).
In one of the federal class actions filed in the Southern District of
Ohio (later transferred to the Northern District of Alabama), a class action
was conditionally certified on behalf of all breast implant recipients in the
United States and their spouses. In a case filed in the first quarter of 1994
in the Northern District of Alabama, the Judge has certified a non-mandatory
worldwide class action and has given approval to a proposed class action
settlement involving certain manufacturers (including the Company) of breast
implants and suppliers (see "Settlement to Resolve Breast Implant Claims"
below). In the class action filed in the District of Utah, a class
certification motion has been denied. In the class action filed in the
Eastern District of Michigan, that Court was asked to certify a class action
on behalf of breast implant recipients residing outside the United States;
this motion was denied, but class certification may be sought again in the
future.
Among the 12 class action lawsuits brought in various state courts, 9
were filed in 1992 and 3 were filed in the first quarter of 1994. These cases
have been filed in the following state courts: the Dade County, Florida
Eleventh Judicial Circuit Court; the District Court for the Third Judicial
District of Utah; the Philadelphia County, Pennsylvania Court of Common Pleas;
the Dauphin County, Pennsylvania Court of Common Pleas; the Cook County,
Illinois Circuit Court (2 cases); the Marion County, Indiana Superior Court;
the Civil District Court for the Parish of Orleans, Louisiana; the District
Court for Douglas County, Nebraska; the Second Judicial District Court for the
County of Bernalillo, New Mexico; and the Circuit
<PAGE>6
Court for Multnomah County, Oregon (2 cases). In 6 of these cases (the 2
cases in the Cook County, Illinois Circuit Court, the case in the District
Court for the Third Judicial District of Utah, the cases in the Philadelphia
County and the Dauphin County, Pennsylvania Courts of Common Pleas, and the
case in the Second Judicial District Court for the County of Bernalillo, New
Mexico), either the class action claims have been dismissed or class
certification has been denied. The case filed in Douglas County, Nebraska,
and one of the cases filed in Multnomah County, Oregon, were removed from
state to federal court and were then transferred to the Federal District Court
for the Northern District of Alabama; the class action claims in the Douglas
County, Nebraska case have been withdrawn. In the case filed in the Civil
District Court for the Parish of Orleans, Louisiana, that Court certified a
class of women with silicone breast implants who either reside in or received
their implants in the State of Louisiana; this order certifying a class action
has been upheld on appeal. State class action cases in Florida, Indiana,
Louisiana and Oregon remain pending, with only the Louisiana case having been
certified as a class action.
A class action was filed in Ontario, Canada during 1993 against Dow
Corning Canada, Inc., a wholly-owned subsidiary of the Company. The Judge has
entered an order certifying a class of breast implant recipients in the
Province of Ontario, Canada; the Ontario Court of Appeals has declined to hear
an appeal from this class certification order. In 1993, a petition was filed
in Montreal, Canada seeking authorization to institute a class action on
behalf of a class of breast implant recipients in the Province of Quebec,
Canada, against Dow Corning Corporation and Dow Corning Canada, Inc. The
court has authorized this class action.
The typical alleged factual bases for these lawsuits include allegations
that the plaintiffs' breast implants caused specified ailments, including,
among other things, autoimmune disease, scleroderma, systemic disorders, joint
swelling and chronic fatigue. The Company is sometimes named as the
manufacturer of silicone gel breast implants, and other times the Company is
named as the supplier of silicone raw materials to other breast implant
manufacturers.
Plaintiffs in these cases typically seek relief in the form of monetary
damages, often in unspecified amounts, and have also asked for certain types
of equitable relief such as requiring the Company to fund the removal of the
breast implants of the class members, to fund medical research into any
ailments caused by silicone gel breast implants and to fund periodic medical
checkups for the class members. The federal class action in the Federal
District Court for the Eastern District of Pennsylvania claims monetary
damages of more than $75,000 for each plaintiff. One of the federal class
actions in the Federal District Court for the Southern District of Ohio claims
monetary damages of more than $50,000 for each plaintiff. One of the federal
class actions in the Federal District Court for the District of Minnesota
claims an unspecified amount of monetary damages, but claims more than $50,000
for each plaintiff on fraud claims. The federal class action in the Federal
District Court for the Southern District of California claims more than
$50,000 for each plaintiff. One of the federal class actions in the Federal
District Court for the Western District of Pennsylvania claims damages of
$50,000 compensatory and $50,000 punitive for each plaintiff. Each other
federal class action specifies monetary damages in an unspecified amount
except that they claim the minimal jurisdictional amount. The state class
action in the Dade County, Florida Eleventh Judicial Circuit Court claims $500
million in punitive damages and unspecified compensatory damages for the
class. Each other state class action specifies monetary damages in an
unspecified amount except that they claim the minimal jurisdictional amounts.
The class action in Ontario, Canada claims $80,000 in monetary damages for
each named plaintiff and unspecified monetary damages for other members of the
class.
Monetary damages claimed in these cases in the aggregate are substantial;
however, the Company does not consider the monetary damages claimed to be a
realistic measure of the Company's ultimate resolution costs.
<PAGE>7
Individual Breast Implant Products Liability Lawsuits
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As of December 31, 1994, the Company has been named, often along with
other defendants, in approximately 19,000 individual breast implant products
liability lawsuits filed in federal courts and state courts in many different
jurisdictions; many of these cases involve multiple plaintiffs. The typical
alleged factual bases for these lawsuits include allegations that the
plaintiffs' breast implants caused specified ailments, including, among
others, autoimmune disease, scleroderma, systemic disorders, joint swelling
and chronic fatigue. The Company is sometimes named as the manufacturer of
silicone gel breast implants, and other times the Company is named as the
supplier of silicone raw materials to other breast implant manufacturers.
Plaintiffs in these cases typically seek relief in the form of monetary
damages, often in unspecified amounts. In those individual breast implant
cases where management is aware that monetary damages are specified, the
amount of monetary damages alleged ranges from approximately $100,000 to
approximately $140 million. Also, many of these cases only specify as
monetary damages an amount in excess of the jurisdictional minimum for the
courts in which such cases are filed. Monetary damages claimed in these cases
in the aggregate may be substantial; however, the Company does not consider
the monetary damages claimed to be a realistic measure of the Company's
ultimate resolution costs.
Consolidation of Breast Implant Products Liability Lawsuits
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Many of these breast implant products liability cases have been or are in
the process of being consolidated for purposes of case management in federal
and state courts. As previously reported, on June 25, 1992, the Judicial
Panel on Multidistrict Litigation in "In Re Silicone Gel Breast Implants
Products Liability Litigation" consolidated all federal breast implant cases
for discovery purposes in the Federal District Court for the Northern District
of Alabama (the "Court") under the multidistrict litigation rules "in order to
avoid duplication of discovery, prevent inconsistent pretrial rulings, and
preserve the resources of the parties, their counsel and the judiciary."
Substantially all federal breast implant cases have been consolidated in the
Federal District Court for the Northern District of Alabama. A substantial
number of breast implant cases originally filed in state courts have been
removed to federal court and either have been or are likely to be similarly
consolidated. The Company anticipates that any federal breast implant
products liability cases filed after June 25, 1992, as well as some state
breast implant cases removed to federal courts, will be transferred to the
Federal District Court for the Northern District of Alabama for discovery
purposes under the multidistrict litigation rules. In addition, the
consolidation of many state breast implant products liability cases has
proceeded in many jurisdictions where a substantial number of state breast
implant lawsuits have been filed; however, this consolidation of state cases
has not occurred in all jurisdictions. As of December 31, 1994, substantially
more than half of all breast implant cases were consolidated for pretrial
purposes at the federal and state levels. The Company views these case
consolidation measures as positive steps toward the management of these
various lawsuits and anticipates that breast implant lawsuit consolidations
will result in a reduction of litigation defense costs. For more information
on these matters, see Note 2 of Notes to Consolidated Financial Statements.
Settlement to Resolve Breast Implant Claims
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On September 9, 1993, the Company announced that representatives of
plaintiffs and defendants involved with silicone breast implant litigation had
developed a "Statement of Principles for Global Resolution of Breast Implant
Claims" (the "Statement of Principles"). The Statement of Principles
summarizes a proposed claims based structured resolution of claims arising out
of breast implants which have been or could be asserted against various
implant manufacturers, suppliers, physicians and hospitals. The Company
negotiated with other potential parties to reach a Breast Implant Litigation
Settlement Agreement similar in concept to the Statement of Principles.
<PAGE>8
On March 23, 1994, the Company, along with other defendants and
representatives of breast implant litigation plaintiffs, entered into a
settlement pursuant to a Breast Implant Litigation Settlement Agreement (as
amended by the Court, the "Settlement Agreement"). The Company's
participation in this Settlement Agreement was approved by the Company's Board
of Directors on March 28, 1994. Under the Settlement Agreement, industry
participants (the "Funding Participants") agreed to contribute up to
approximately $4.2 billion over a period of more than thirty years to
establish several special purpose funds. A related funding agreement (the
"Funding Agreement") specifies the amount that each Funding Participant would
contribute to the settlement fund and the timing of those contributions. The
Settlement Agreement provides for a claims based structured resolution of
claims arising out of silicone breast implants and defines the circumstances
under which payments from the funds would be made. The Settlement Agreement
includes provisions for (a) class membership and the ability of plaintiffs to
opt out of the class, (b) the establishment of defined funds for medical
diagnostic/evaluation procedures, explantation, ruptures, compensation for
specific diseases and administration, (c) payment terms and timing and (d)
claims administration.
The settlement covers claims of most breast implant recipients, and
related claims, brought in the courts of U.S. federal and state jurisdictions.
The settlement also covers the claims of breast implant recipients brought in
jurisdictions outside of the U.S. if payments received by those potential
claimants from the settlement fund, and related releases, serve to preclude
them from bringing legal actions in these other jurisdictions. The settlement
does not cover claims of breast implant recipients who have affirmatively
chosen not to participate in the Settlement Agreement, or whom the Court has
specifically excluded from the Settlement Agreement unless these potential
claimants affirmatively join the settlement. Breast implant recipients who
reside in Ontario or Quebec, Canada, or in Australia have been specifically
excluded by the Court. The Settlement Agreement defines various periods
during which, upon the occurrence of certain events, breast implant plaintiffs
may elect not to settle their claims by way of the Settlement Agreement and
pursue their individual breast implant litigation against manufacturers and
other defendants (the "Opt Out Plaintiffs"). The Settlement Agreement also
provides the children of breast implant recipients with the right to opt out
of the settlement in certain circumstances. Under the terms of the Settlement
Agreement, in certain circumstances, if any defendant who is a Funding
Participant considers the number of Opt Out Plaintiffs to be excessive, such
defendant may decide to exercise the option to withdraw from participation in
the settlement during a number of periods specified in the Settlement
Agreement.
On April 1, 1994, the Court preliminarily approved the Settlement
Agreement. On April 18, 1994, the Court issued notice of the Settlement
Agreement to breast implant recipients and others who may be eligible to
participate in the settlement ("Settlement Class Members"). This notice
began a 60-day period, ending June 17, 1994, during which Settlement Class
Members had the ability to become initial Opt Out Plaintiffs. This period was
extended to July 1, 1994 with respect to certain Settlement Class Members
whose Court issued notice was delayed. The Court has afforded initial Opt Out
Plaintiffs an opportunity to rejoin the settlement within specified periods
which currently end no later than March 1, 1995. A Court hearing to review
the fairness of the Settlement Agreement was completed on August 22, 1994. On
September 1, 1994, the Court granted final approval to the Settlement
Agreement, determining that it is fair, reasonable and adequate, and on
September 8, 1994, the Company's Board of Directors approved the Company's
continued participation in the Settlement Agreement.
The Court's final approval of the Settlement Agreement has been appealed
to the U.S. Court of Appeals for the Eleventh Circuit primarily by certain
providers of health care indemnity payments or services and by certain
foreign claimants.
<PAGE>9
The Settlement Agreement provides that industry participants will
contribute a total of $4.2 billion, of which the Company is obligated to
contribute up to approximately $2.02 billion, over a period of more than 30
years. The Company's required contributions under the Settlement Agreement
cannot be changed without the Company's consent. Under the terms of the
Funding Agreement, the Company has made or anticipates making settlement
payments in accordance with the following schedule:
1994 $ 42.50 million
1995 275.00 million
1997 275.00 million
1998 275.00 million
1999 through 2011 51.17 million per year
2012 through 2019 38.38 million per year
2020 through 2026 25.57 million per year
The Company's first payment of $275 million under the Funding Agreement
is due upon the earlier of (a) a resolution of these appeals which confirms
the Court's final approval of the Settlement Agreement or (b) the completion
of a second opt out process or the determination that there will be no second
opt out process (as described below). The Company has placed $275 million
into an escrow account and is required, among other things, to provide a
letter of credit in the amount of $275 million to provide financial assurance
to the Court of the Company's ability to meet its obligations under the
Settlement Agreement. After the third payment of $275 million, the amount of
the letter of credit will be reduced to $51.2 million or may be eliminated by
order of the Court. The Company is engaged in discussions with certain
financial institutions to provide this letter of credit.
Initial claims for specific disease compensation were required to be
filed with the Court in September 1994. After these claims and the supporting
medical records have been evaluated by the Court for validity, eligibility,
accuracy, and consistency, the Court will determine whether the disease
compensation settlement fund is sufficient to pay validated claims. If the
disease compensation settlement fund is not sufficient to pay validated
claims, and if such insufficiency cannot be resolved through other means,
claimants with validated claims may have the ability to opt out during another
period as specified in the Settlement Agreement. If any defendant who is a
Funding Participant considers the number of new Opt Out Plaintiffs against
said defendant to be excessive, such defendant may decide to exercise a second
option to withdraw from participation in the settlement.
Since July 1, 1994, many former Opt Out Plaintiffs have rejoined the
settlement. Based on preliminary information received from the Court as of
December 1994, approximately 5,000 of the initial U.S. Opt Out Plaintiffs and
approximately 2,000 potential foreign claimants (including initial foreign Opt
Out Plaintiffs and foreign claimants excluded from the settlement class) have
identified the Company as potentially responsible, in whole or in part, with
respect to their current or potential future claims. The Court is continuing
to collect information relating to the number of Opt Out Plaintiffs and as
information is received from the Court the Company will continue to evaluate
the nature and scope of its potential exposure with respect to the current or
potential future claims of these Opt Out Plaintiffs. Opt Out Plaintiffs may
continue to rejoin the settlement until the March 1, 1995 date established by
the Court.
The Settlement Agreement is in the process of being implemented. The
settlement implementation process can be affected by external factors as
described above such as the resolution of pending appeals and the number and
magnitude of claims filed in the settlement. However, based on its analysis
of the most current information, including assessments by knowledgeable third
parties who have been directly involved in the negotiation and implementation
of the Settlement Agreement, management believes that the aggregate amount of
the Company's obligation and the amount and timing of the related cash
payments under the Settlement Agreement are reliably determinable. Management
also believes that events will not occur which would lead to the Company's
withdrawal from the settlement and that the Settlement Agreement will be
implemented in the state currently envisioned.
<PAGE>10
OTHER LITIGATION
Due to the nature of its business as a supplier of specialty materials to
a variety of industries, the Company, at any particular time, is a defendant
in a number of products liability lawsuits for injury allegedly related to the
Company's products, and, in certain instances, products manufactured by
others. Many of these lawsuits seek damages in substantial amounts. For
example, the Company has been named in products liability lawsuits pertaining
to materials previously used in connection with temporo-mandibular joint
implant applications. The Company has followed a practice of aggressively
defending all product liability claims asserted against it. Although the
Company intends to continue this practice, currently pending proceedings and
any future claims are subject to the uncertainties attendant to litigation and
the ultimate outcome of any such proceedings or claims cannot be predicted
with certainty. Nonetheless, the Company believes that these products
liability claims will not have a material adverse effect on the Company's
results of operations or financial condition.
SECURITIES LAWS AND SHAREHOLDER DERIVATIVE LAWSUITS
Securities Laws Class Action Lawsuits
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As of December 31, 1994, the Company and certain of its directors and
officers were named, as defendants with others, in two securities laws class
action lawsuits filed by purchasers of stock of Corning Incorporated (Corning)
and The Dow Chemical Company (Dow Chemical). These cases were originally
filed as several separate cases in the Federal District Court for the Southern
District of New York in the first quarter of 1992; these cases were
consolidated in the second quarter of 1992 so that there is one case involving
claims on behalf of purchasers of stock of Corning and one case involving
claims on behalf of purchasers of stock of Dow Chemical. The plaintiffs in
these cases allege, among other things, misrepresentations and omissions of
material facts and breach of duty with respect to purchasers of stock of
Corning and Dow Chemical relative to the breast implant issue. The relief
sought in these cases is monetary damages in unspecified amounts. Motions to
dismiss both cases have been filed by all defendants.
Shareholder Derivative Lawsuits
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As of December 31, 1994, the Company and/or certain of its directors and
officers were named in three shareholder derivative lawsuits filed by
shareholders of Corning and Dow Chemical. The plaintiffs in these cases
allege various breaches of fiduciary duties claimed to be owed by the
defendants relative to the breast implant issue. The relief sought by the
shareholders filing these suits on behalf of Dow Chemical and Corning is
monetary damages in unspecified amounts. Motions to dismiss these cases have
been filed by all defendants.
GRAND JURY INVESTIGATION
On February 8, 1993, the Company received two federal grand jury
subpoenas initiated by the Assistant U.S. Attorney in Baltimore, Maryland
seeking documents and information related to silicone breast implants. The
Company has provided information in response to the subpoenas and continues to
cooperate with the Assistant U.S. Attorney as this grand jury investigation
proceeds.
<PAGE>11
LAWSUIT AGAINST INSURANCE CARRIERS
On June 30, 1993, the Company filed a complaint, which was subsequently
amended, in the Superior Court of California against 99 insurance companies
which issued occurrence based products liability insurance policies to the
Company from 1962 through 1985 ("Insurers"). The complaint also names as
defendants three state insurance guaranty funds. This action (the "California
Action") resulted from an inability of some of the Insurers to reach an
agreement with the Company on a formula for the allocation among the Insurers
of payments of defense and indemnity expenses submitted by the Company related
to breast implant products liability lawsuits and claims ("Insurance
Allocation Agreement"). The California Action was filed to seek, among other
things, a judicial enforcement of the obligations of the Insurers under the
relevant insurance policies.
On September 10, 1993, several of the Company's insurers filed a
complaint against the Company and other insurers for declaratory relief in
Wayne County Michigan Circuit Court (the "Michigan Action"). This complaint
named additional insurers, particularly the insurers that provided coverage on
a claims-made basis subsequent to 1985, and raised issues similar to those
described above for determination by the courts.
On September 13, 1993, plaintiff insurers in the Michigan Action brought
a motion in the California Action for the California Action to be stayed or
dismissed in favor of the Michigan Action on the grounds of inconvenient
forum. On October 1, 1993, the California Court dismissed the California
Action on the grounds of inconvenient forum. In light of this ruling, the
Company has elected to litigate the coverage issues on breast implant products
liability lawsuits and claims in the Michigan Action.
On March 11, 1994, the court in the Michigan Action ruled that certain of
the Company's primary insurers have a duty to defend the Company with respect
to breast implant products liability lawsuits. These insurers were also
directed to reimburse the Company for certain defense costs previously
incurred. On November 16, 1994, the court further ruled in favor of the
Company on allocation of defense costs. The court ruled that each primary
occurrence insurer is obligated to pay the defense costs for all cases
alleging a date of implant either before or during the insurers' policy period
and for all cases involving unknown implant dates.
Notwithstanding this litigation, the Company is continuing its
negotiations with the Insurers to obtain an Insurance Allocation Agreement as
described above.
SECURITIES AND EXCHANGE COMMISSION INFORMAL INVESTIGATION
The Company received a request, dated July 9, 1993, from the Boston
Regional Office of the Securities and Exchange Commission for certain
documents and information related to silicone breast implants. The request
stated that an informal investigation of the Company and its equity owners is
being conducted by the Boston Regional Office. On July 30, 1993, the Company
responded to this request enclosing the documents and information requested
along with related information. The Company will continue to cooperate with
the Boston Regional Office.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - - - - ------------------------------------------------------------
Item omitted in accordance with provisions of General Instruction J of
Form 10-K.
<PAGE>12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
- - - - - ---------------------------------------------------------------------
The Company's common stock is owned in equal portions by Corning
Incorporated and Dow Holdings Inc., a wholly-owned subsidiary of The Dow
Chemical Company. None of the Company's common stock has been sold or traded
since the Company's inception in 1943.
The Company did not pay dividends in 1994 or 1993.
Under the provisions of the Revolving Credit Agreement (which is
described in Note 10 of Notes to Consolidated Financial Statements), the
Company is subject to certain restrictions as to the payment of dividends or
distribution of assets for other specified purposes. The amount of the
restriction is based on a formula which considers, among other things, the
income before income taxes for the most recent fiscal year. Based on the
computation completed for the year ended December 31, 1994, the Company is
restricted from issuing dividends or distributing assets for other specified
purposes in excess of $71.9 million in 1995.
<PAGE>13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- - - - - --------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in millions of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $2,204.6 $2,043.7 $1,955.7 $1,845.4 $1,718.3
Net income (loss) (6.8)<F2> (287.0)<F2> (72.0)<F4> 152.9<F5> 171.1
Net income (loss) per
common share <F1> (2.72) (114.80) (28.80) 61.16 68.44
Financial Statistics:
Total assets $4,093.2<F2> $3,262.3<F2> $2,190.7 $2,119.9 $1,922.4
Long-term debt 335.1 314.7 298.0 286.8 267.7
Other long-term liabilities 1,639.0<F2> 1,425.8<F2> 306.5 198.5 196.9
Cash dividends per
common share <F1> - - 26.20 31.00 28.60
Working capital 310.8 298.6 258.8 361.1 319.1
Current assets to
current liabilities 1.2 to 1 1.4 to 1 1.5 to 1 1.8 to 1 1.8 to 1
Long-term debt as a
percentage of stock-
holders' equity 50% 49% 32% 26% 27%
Net income (loss) as a
percentage of average
stockholders' equity (1%) (36%) (7%) 15% 18%
Ratio of earnings to
fixed charges 1.1 <F3> 1.9 5.2 6.3
<FN>
<F1> Per share information is based upon 2,500,000 shares outstanding for all periods presented.
<F2> Net losses include pretax charges related to breast implants of $241.0 in 1994 ($151.8 net of income
tax benefit) and $640.0 in 1993 ($415.0 net of income tax benefit). Increases in total assets and other
long-term liabilities are primarily attributable to the recognition of implant insurance receivables,
deferred tax assets, and implant reserves associated with these charges. See Note 2 of Notes to
Consolidated Financial Statements for a discussion of this matter.
<F3> Earnings were inadequate to cover fixed charges. The amount of the coverage deficiency for the year
ended December 31, 1993 was $424.7.
<F4> Includes pretax charges related to breast implants and special items of $109.0 ($71.9 net of income
tax benefit); see Notes 2 and 3 of Notes to Consolidated Financial Statements for a discussion of these
matters. Also in 1992, the Company adopted Statements of Financial Accounting Standards No. 106 and 109,
which changed its methods of accounting for postretirement benefits other than pensions and deferred income
taxes. The cumulative effect of these changes as of January 1, 1992 reduced net income by $100.4 in 1992.
The effect of adopting these new rules also reduced pretax earnings by $17.4 ($11.5 net of income tax
benefit) in 1992 by increasing the recorded costs of retiree health care and life insurance benefits.
<F5> Includes pretax charges related to breast implants and special items of $54.0 ($35.6 net of income tax
benefit). Also in 1991, the Company changed its method of applying fixed costs to inventory. The
cumulative effect of the change increased net income by $16.3 in 1991. Except for the cumulative effect,
the change did not have a material effect on operating results for the periods presented.
The Selected Financial Data should be read in conjunction with the consolidated financial statements and
accompanying notes.
</TABLE>
<PAGE>14
<PAGE>
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS
- - - - - ----------------------------------------
(all amounts in millions of dollars)
Results of Operations
- - - - - ---------------------
1994 Compared to 1993
---------------------
1994 net sales increased $160.9 or 7.9% over levels reported for 1993.
The increase is principally attributable to higher sales volumes in the United
States and Europe and favorable currency effects in Asia and Europe. The
increase was offset slightly by lower selling prices.
Manufacturing cost of sales, as a percent of net sales, was 66.7% in 1994
compared to 68.7% in 1993. This decrease is due to lower personnel and
depreciation costs.
Marketing and administrative expenses, as a percent of net sales, were
18.8% in 1994 compared to 19.8% in 1993. This decrease is principally due to
lower personnel costs.
Implant costs of $241.0 in 1994 and $640.0 in 1993 represent provisions
for costs associated with breast implant litigation, claims and related
matters, as further described in Note 2 of Notes to Consolidated Financial
Statements. These costs were reported separately to better identify the
Company's profitability from ongoing operations and the financial impact
resulting from breast implant litigation.
Operating income for 1994 was $77.9 compared to an operating loss of
$404.1 in 1993. Operating results in both years have been negatively impacted
by breast implant related charges as described above.
Interest expense was $70.3 in 1994 compared to $33.3 in 1993. This
increase is principally attributable to the recognition in 1994 of $28.3 in
imputed interest on the net discounted implant liability (as further discussed
in Note 2 of Notes to Consolidated Financial Statements) and higher average
levels of debt.
Implant costs of $241.0 in 1994 and $640.0 in 1993 were offset by related
tax benefits of $89.2 in 1994 and $225.0 in 1993. Excluding the impact of
these charges and the related tax benefits, the effective tax rate was 38.0%
in 1994 compared to 34.0% in 1993. The higher effective rate in 1994 is due
to lower anticipated foreign tax credits.
1993 Compared to 1992
---------------------
1993 net sales increased $88.0 or 4.5% over levels reported for 1992.
The increase for 1993 was principally attributable to higher sales volumes,
particularly in Asia, offset slightly by lower selling prices, and
unfavorable currency effects in Europe.
Manufacturing cost of sales, as a percent of net sales, was relatively
unchanged for 1993 as compared to 1992.
Marketing and administrative expenses, as a percent of net sales, were
19.8% in 1993 compared to 21.0% in 1992. This decrease is attributable to
lower freight costs, commissions and allowances.
Implant costs of $640.0 in 1993 and $69.0 in 1992 represent provisions
for costs associated with breast implant litigation, claims and related
matters, as further described in Note 2 of Notes to Consolidated Financial
Statements. These costs were reported separately to better identify the
Company's profitability from ongoing operations and the financial impact
resulting from breast implant litigation.
<PAGE>15
Special items of $40.0 in 1992 relate to provisions for restructuring
activities, consisting largely of costs associated with the cessation of
manufacturing activities at a subsidiary in Brazil and costs involved in
global expense reduction, including elimination of low-priority activities,
redeployment of people and reduction in the value of affected facilities.
The Company incurred an operating loss in 1993 of $404.1, compared to
operating income of $93.1 in 1992. Operating results in both years have been
negatively impacted by breast implant related charges of $640.0 in 1993 and
$69.0 in 1992. Operating results were also negatively impacted in 1992 due to
special items of $40.0 described above.
Other income was $15.4 in 1993 compared to other expense of $20.6 in
1992. As a result of the turmoil in European financial markets in September
1992, the Company incurred losses in 1992 related to positions taken in
several financial instruments. These losses were generated as the market
values of these instruments were sensitive to movements in cross-currency
exchange rates and interest rates in certain foreign markets. During
September 1992, the Company offset these positions and reduced its exposure to
the effects of further instability in the European markets.
Implant costs of $640.0 described above were offset by a related tax
benefit of $225.0. Excluding the impact of this charge and the related tax
benefit, the effective tax rate was 34.0% in 1993 compared to 20.2% in 1992.
The higher effective rate in 1993 is due to lower foreign tax credits.
During 1992, the Company adopted Statements of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, and No. 109, Accounting for Income Taxes. The impact of these
changes, as further explained in Notes 13 and 15 of Notes to Consolidated
Financial Statements, reduced 1992 net income by $111.9, $100.4 of which
represented the cumulative effect of these changes for years prior to 1992.
Credit Availability
- - - - - -------------------
During 1993, the Company terminated a revolving credit agreement which
was in place at December 31, 1992, and replaced it with a revolving credit
agreement with 16 domestic and foreign banks which provides for borrowings on
a revolving credit basis until November, 1997 of up to $400.0. At December
31, 1994, there was $375.0 outstanding under this facility. Availability of
credit under this facility may be affected by certain debt restrictions and
provisions as described below and in Note 10 of Notes to Consolidated
Financial Statements.
Additionally, the Company has agreements in place whereby it may sell on
an ongoing basis fractional ownership interests in a designated pool of U.S.
trade receivables, with limited recourse, in amounts up to $65.0. As of
December 31, 1994, the Company had $32.0 outstanding under these agreements.
For information concerning receivables sold, see Note 6 of Notes to
Consolidated Financial Statements.
During 1994, the Company obtained long-term financing totaling $66.4
($6.4 of which is denominated in foreign currencies) bearing interest at rates
ranging from 5.9% to 6.7% at December 31, 1994 and with maturities ranging
from two to three years.
Management believes that the Company will generate the financial
liquidity required to meet ongoing operational needs, to meet its obligations
under the Settlement Agreement, and to resolve breast implant claims not
covered by the Settlement Agreement. This belief is based on, among other
things, management's estimate of future operational cash flows, its estimate
of the cost to resolve breast implant litigation, its assessment that recovery
of substantial amounts from the Company's insurance carriers on a timely basis
is probable, and its evaluation of current and anticipated future financing
arrangements.
<PAGE>16
Management's evaluation of current financing arrangements has considered the
fact that the Company's existing Revolving Credit Agreement provides
participating banks the right, subject to a vote of a majority in interest, to
demand repayment of amounts outstanding prior to maturity in the event that
breast implant litigation expenditures, net of insurance recoveries, exceed
certain limits.
Additional facts and circumstances may develop which could result in a
material and adverse effect on the Company's liquidity. In an effort to
provide the Company with additional financial flexibility, should such facts
and circumstances develop, the Company is currently evaluating alternative
financing arrangements. However, there can be no assurance that these
alternative financing arrangements will be concluded successfully.
Inflation
- - - - - ---------
The impact of inflation on the Company's financial position and results
of operations has been minimal. The Company expects that future impacts of
inflation will be offset by increased prices and productivity gains.
Contingencies
- - - - - -------------
For information regarding contingencies, including a discussion of breast
implant litigation and the Company's environmental liabilities, see Note 2 of
Notes to Consolidated Financial Statements.
Management Changes
- - - - - ------------------
On September 16, 1994, Keith R. McKennon, formerly Chairman of the Board,
retired from the Board of Directors and was named Director Emeritus. Richard
A. Hazleton, formerly President and Chief Executive Officer, was elected
Chairman of the Board and will continue as Chief Executive Officer. Gary E.
Anderson, formerly Executive Vice President, was elected President.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - - - - ----------------------------------------------------
See the "Index to Financial Statements" included in this report, as well
as the "Report of Independent Accountants."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- - - - - --------------------------------------------------------------------
None.
<PAGE>17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - - - - ------------------------------------------------------------
Item omitted in accordance with provisions of General Instruction J of
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- - - - - --------------------------------
Item omitted in accordance with provisions of General Instruction J of
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - - - - ------------------------------------------------------------------------
Item omitted in accordance with provisions of General Instruction J of
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - - - - --------------------------------------------------------
Item omitted in accordance with provisions of General Instruction J of
Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- - - - - --------------------------------------------------------------------------
Documents filed as part of Form 10-K for the year ended December 31, 1994
are as follows:
(a) Financial Statements and Financial Statement Schedules:
See the "Index to Financial Statements" included in this report, as
well as the "Report of Independent Accountants."
(b) Reports on Form 8-K:
A report on Form 8-K dated January 20, 1995, was filed in connection
with a special charge to reflect the Company's best estimate of the costs of
resolving breast implant litigation and related matters.
(c) Exhibits:
See the "Exhibit Index" which is located on page 50.
<PAGE>18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DOW CORNING CORPORATION
Date January 31, 1995 By R. A. Hazleton
---------------- ---------------------------------------
R. A. Hazleton
Chairman and Chief Executive Officer
Date January 31, 1995 By J. W. Churchfield
---------------- ---------------------------------------
J. W. Churchfield
Vice President for Planning and Finance
and Chief Financial Officer
Date January 31, 1995 By G. P. Callaghan
---------------- ---------------------------------------
G. P. Callaghan
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (a majority of the Board
of Directors) on behalf of the registrant and in the capacities and on the
dates indicated.
Date January 31, 1995 By G. E. Anderson
---------------- ---------------------------------------
G. E. Anderson
Director, Dow Corning Corporation
Date January 31, 1995 By V. C. Campbell
---------------- ---------------------------------------
V. C. Campbell
Director, Dow Corning Corporation
Date January 31, 1995 By E. C. Falla
---------------- ---------------------------------------
E. C. Falla
Director, Dow Corning Corporation
Date January 31, 1995 By R. A. Hazleton
---------------- ---------------------------------------
R. A. Hazleton
Director, Dow Corning Corporation
Date January 31, 1995 By J. R. Houghton
---------------- ---------------------------------------
J. R. Houghton
Director, Dow Corning Corporation
Date January 31, 1995 By F. P. Popoff
---------------- ---------------------------------------
F. P. Popoff
Director, Dow Corning Corporation
Date January 31, 1995 By L. A. Reed
---------------- ---------------------------------------
L. A. Reed
Director, Dow Corning Corporation
Date January 31, 1995 By D. R. Weyenberg
---------------- ---------------------------------------
D. R. Weyenberg
Director, Dow Corning Corporation
<PAGE>19
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR
------------------------------------------
FINANCIAL STATEMENTS
--------------------
The management of Dow Corning Corporation is responsible for the
preparation, presentation and integrity of the consolidated financial
statements and other information included in this annual report on Form 10-K.
The financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and
necessarily include amounts based on management's best estimates and
judgments.
In meeting its responsibility for the reliability of these financial
statements, Dow Corning maintains comprehensive systems of internal accounting
control. These systems are designed to provide reasonable assurance at
reasonable cost that corporate assets are protected against loss or
unauthorized use and that transactions and events are properly recorded. Such
systems are reinforced by written policies, selection and training of
competent financial personnel, appropriate division of responsibilities and a
program of internal audits.
The financial statements have been audited by our independent
accountants, Price Waterhouse LLP. Their responsibility is to express an
independent professional opinion with respect to the consolidated financial
statements on the basis of an audit conducted in accordance with generally
accepted auditing standards. In addition to the audit performed by the
independent accountants, Dow Corning maintains a professional staff of
internal auditors whose audit coverage is coordinated with that of the
independent accountants.
The Board of Directors, through its Audit Committee, is responsible for
reviewing and monitoring Dow Corning's financial reporting and accounting
practices and recommending annually the appointment of the independent
accountants. The Committee, composed of non-management directors, meets
periodically with management, the internal auditors and the independent
accountants to review and assess the activities of each. Both the independent
accountants and the internal auditors meet with the Committee, without
management present, to review the results of their audits and their assessment
of the adequacy of the system of internal accounting controls and the quality
of financial reporting.
January 20, 1995
R. A. Hazleton J. W. Churchfield
- - - - - ------------------------------ ---------------------------------------
R. A. Hazleton J. W. Churchfield
Chairman and Vice President for Planning and Finance
Chief Executive Officer and Chief Financial Officer
<PAGE>20
Suite 3900 Telephone 313 259 0500
200 Renaissance Center
Detroit, MI 48243
Price Waterhouse LLP
REPORT OF INDEPENDENT ACCOUNTANTS
January 20, 1995
To the Stockholders and
Board of Directors of
Dow Corning Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Dow Corning Corporation and its subsidiaries at December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Company is involved in
product liability litigation and claims related to breast implants for which
it is seeking recovery from insurance carriers. The Company has recorded a
liability for its obligations under a settlement agreement and an estimated
liability for costs not covered by the settlement agreement. Additionally,
the Company has recorded an estimated insurance receivable related to these
liabilities. The estimated amounts were recorded based upon all currently
available information. However, as additional facts and circumstances
develop, it may be necessary for the Company to revise its estimate of the
costs not covered by the settlement agreement as well as the estimate of the
insurance receivable.
In 1992, the Company changed its method of accounting for postretirement
benefits other than pensions to conform with Statement of Financial Accounting
Standards No. 106 as discussed in Note 13 and its method of accounting for
income taxes to conform with Statement of Financial Accounting Standards No.
109 as discussed in Note 15.
Price Waterhouse LLP
<PAGE>21
(THIS PAGE INTENTIONALLY BLANK)
<PAGE>22
DOW CORNING CORPORATION
-----------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
Consolidated balance sheets at December 31, 1994 and 1993 23
Consolidated statements of operations and retained earnings for
the years ended December 31, 1994, 1993 and 1992 25
Consolidated statements of cash flow for the years ended
December 31, 1994, 1993 and 1992 26
Notes to consolidated financial statements 27
Supplementary Data for the years ended December 31, 1994 and 1993:
Quarterly financial information 47
Financial Statement Schedules for the years ended
December 31, 1994, 1993 and 1992:
VIII - Valuation and qualifying accounts and reserves 48
All other supplementary data and financial statement schedules are
omitted because they are not applicable or the required information is shown
in the consolidated financial statements or the accompanying notes.
<PAGE>23
DOW CORNING CORPORATION
-----------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in millions of dollars)
ASSETS
------
December 31,
--------------------------
1994 1993
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 201.1 $ 263.0
-------- --------
Short-term investments 0.7 0.9
-------- --------
Accounts and notes receivable -
Trade (less allowance for doubtful accounts
of $10.2 in 1994 and $8.4 in 1993) 380.4 318.5
Anticipated implant insurance receivable 157.5 -
Other receivables 35.8 54.5
-------- --------
573.7 373.0
-------- --------
Inventories 308.4 285.6
-------- --------
Other current assets -
Deferred income taxes 252.9 118.4
Implant deposit 275.0 -
Other 24.0 28.3
-------- --------
551.9 146.7
-------- --------
Total current assets 1,635.8 1,069.2
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 150.8 130.9
Buildings 467.0 436.0
Machinery and equipment 2,181.9 2,011.3
Construction-in-progress 135.2 132.5
-------- --------
2,934.9 2,710.7
Less - Accumulated depreciation (1,743.0) (1,544.6
-------- --------)
1,191.9 1,166.1
-------- --------
OTHER ASSETS:
Anticipated implant insurance receivable 943.6 663.7
Deferred income taxes 182.7 229.6
Other 139.2 133.7
-------- --------
1,265.5 1,027.0
-------- --------
$4,093.2 $3,262.3
======== ========
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
<PAGE>24
DOW CORNING CORPORATION
-----------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in millions of dollars except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
--------------------------
1994 1993
---- ----
CURRENT LIABILITIES:
Notes payable $ 404.9 $ 233.7
Current portion of long-term debt 41.9 33.5
Trade accounts payable 160.2 147.1
Income taxes payable 42.6 18.6
Accrued payrolls and employee benefits 61.8 60.4
Accrued taxes, other than income taxes 18.3 19.6
Implant reserve 475.4 158.7
Other current liabilities 119.9 99.0
-------- --------
Total current liabilities 1,325.0 770.6
-------- --------
LONG-TERM DEBT 335.1 314.7
-------- --------
OTHER LONG-TERM LIABILITIES:
Implant reserve 1,286.9 1,100.0
Deferred income taxes 3.4 14.6
Other 348.7 311.2
-------- --------
1,639.0 1,425.8
-------- --------
CONTINGENT LIABILITIES (NOTE 2)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 117.9 102.8
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $5 par value - 2,500,000 shares
authorized and outstanding 12.5 12.5
Retained earnings 597.5 604.3
Cumulative translation adjustment 66.2 31.6
-------- --------
Stockholders' equity 676.2 648.4
-------- --------
$4,093.2 $3,262.3
======== ========
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
<PAGE>25<PAGE>
<TABLE>
DOW CORNING CORPORATION
-----------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-----------------------------------------------------------
(in millions of dollars except share data)
<CAPTION>
Year ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET SALES $2,204.6 $2,043.7 $1,955.7
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Manufacturing cost of sales 1,470.3 1,403.9 1,343.2
Marketing and administrative expenses 415.4 403.9 410.4
Implant costs 241.0 640.0 69.0
Special items - - 40.0
-------- -------- --------
2,126.7 2,447.8 1,862.6
-------- -------- --------
OPERATING INCOME (LOSS) 77.9 (404.1) 93.1
OTHER INCOME (EXPENSE):
Interest income, currency gains (losses) and other, net 7.0 15.4 (20.6)
Interest expense (70.3) (33.3) (22.5)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 14.6 (422.0) 50.0
Income tax provision (benefit) 7.9 (150.9) 10.1
Minority interests' share in income 13.5 15.9 11.5
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECTS OF
CHANGES IN ACCOUNTING PRINCIPLES (1994 - $(2.72) per share;
1993 - $(114.80) per share; 1992 - $11.36 per share) (6.8) (287.0) 28.4
Cumulative effect of adopting Statement of Financial Accounting
Standards No. 106 - Employers' Accounting for Postretirement
Benefits Other Than Pensions, net of applicable income taxes
($(46.72) per share) - - (116.8)
Cumulative effect of adopting Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes ($6.56 per share) - - 16.4
-------- -------- --------
NET INCOME (LOSS) (1994 - $(2.72) per share; 1993 - $(114.80) per
share; 1992 - $(28.80) per share) (6.8) (287.0) (72.0)
Retained earnings at beginning of year 604.3 891.3 1,028.8
Cash dividends (1992 - $26.20 per share) - - (65.5)
-------- -------- --------
Retained earnings at end of year $ 597.5 $ 604.3 $ 891.3
======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
<PAGE>26
<TABLE>
DOW CORNING CORPORATION
-----------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(in millions of dollars)
<CAPTION>
Year ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before cumulative effects of changes
in accounting principles $ (6.8) $(287.0) $ 28.4
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities -
Depreciation and amortization 189.7 197.1 190.6
Deferred income taxes (96.8) (211.5) (40.7)
Implant charges including imputed interest 269.3 640.0 69.0
Implant payments (240.4) (91.2) (47.8)
Implant insurance reimbursement 71.4 - -
Implant deposit (275.0) - -
Special items - - 40.0
Other 27.2 18.5 17.2
Changes in assets and liabilities -
Accounts and notes receivable (29.2) (44.8) (7.5)
Inventories (11.4) 44.0 14.8
Accounts payable 5.5 18.3 (10.3)
Income taxes payable 22.4 (24.7) 11.2
Other current liabilities 11.9 19.2 (8.4)
------- ------- -------
Cash provided by (used for) operating activities (62.2) 277.9 256.5
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (177.6) (182.3) (214.6)
Proceeds from sale of assets - 66.3 -
Business acquisitions, net of cash acquired - - (29.8)
Other (13.0) 9.6 (5.1)
------- ------- -------
Cash used for investing activities (190.6) (106.4) (249.5)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 92.3 58.8 82.5
Payments on long-term debt (69.2) (49.9) (81.9)
Payments on revolving credit agreement - (100.0) -
Proceeds from revolving credit agreement 225.0 150.0 100.0
Net change in other short-term borrowings (57.2) 25.0 (41.7)
Dividends paid to stockholders - - (65.5)
------- ------- -------
Cash provided by (used for) financing activities 190.9 83.9 (6.6)
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (0.8) 0.1
------- ------- -------
CHANGES IN CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (61.9) 254.6 0.5
Cash and cash equivalents at beginning of year 263.0 8.4 7.9
------- ------- -------
Cash and cash equivalents at end of year $ 201.1 $ 263.0 $ 8.4
======= ======= =======
<FN>
The Notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
<PAGE>
<PAGE>27
DOW CORNING CORPORATION
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(in millions of dollars except where noted)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - - - - ---------------------------------------------------
Principles of Consolidation
- - - - - ---------------------------
The accompanying consolidated financial statements include the accounts
of Dow Corning Corporation and all of its wholly-owned and majority-owned
domestic and foreign subsidiaries (the Company). The Company's interests in
20% to 50% owned affiliates are carried on the equity basis and are included
in other assets. Intercompany transactions and balances have been eliminated
in consolidation.
Cash Equivalents and Short-Term Investments
- - - - - -------------------------------------------
Cash equivalents include all highly liquid investments purchased with an
original maturity of ninety days or less. All other temporary investments are
classified as short-term investments. The carrying amounts for cash
equivalents and short-term investments approximate their fair values.
Inventories
- - - - - -----------
Inventories are stated at the lower of cost or market. The cost of the
majority of inventories is determined using the last-in, first-out (LIFO)
method and the remainder is valued using the first-in, first-out (FIFO)
method.
Property and Depreciation
- - - - - -------------------------
Property, plant and equipment are carried at cost and are depreciated
principally using accelerated methods over estimated useful lives ranging from
10 to 20 years for land improvements, 10 to 45 years for buildings and 3 to 20
years for machinery and equipment. Upon retirement or other disposal, the
asset cost and related accumulated depreciation are removed from the accounts
and the net amount, less any proceeds, is charged or credited to income.
Expenditures for maintenance and repairs are charged against income as
incurred. Expenditures which significantly increase asset value or extend
useful asset lives are capitalized.
The Company follows the policy of capitalizing interest as a component of
the cost of capital assets constructed for its own use. Interest capitalized
was $14.3 in 1994, $12.0 in 1993, and $11.8 in 1992.
Intangibles
- - - - - -----------
Other assets include $24.8 and $27.0 of intangible assets at December 31,
1994 and 1993, respectively, representing the excess of cost over net assets
of businesses acquired. These intangible assets are being amortized on a
straight-line basis over 10 years. Other identifiable intangible assets are
amortized on a straight-line basis over their estimated useful lives.
<PAGE>28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- - - - - ---------------------------------------------------
Deferred Investment Grants
- - - - - --------------------------
Included in other long-term liabilities are deferred investment
incentives (grants) which the Company has received related to certain capital
expansion projects in Belgium, Canada and the United Kingdom. Such grants are
deferred and recognized in income over the service lives of the related
assets. At December 31, 1994 and 1993, gross deferred investment incentives
were $89.7 and $84.6 with related accumulated amortization of $72.8 and $62.8,
respectively.
Income Taxes
- - - - - ------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes, effective on
January 1, 1992. SFAS 109 requires a company to recognize deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in a company's financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
Research and Development Costs
- - - - - ------------------------------
Research and development costs are charged to operations when incurred
and are included in manufacturing cost of sales. These costs totalled $174.0
in 1994, $163.9 in 1993, and $161.2 in 1992.
Currency Translation
- - - - - --------------------
Assets and liabilities of certain foreign subsidiaries are translated
into U.S. dollars at end-of-period exchange rates; translation gains and
losses, hedging activity and related tax effects from these subsidiaries are
reported as a separate component of stockholders' equity. Assets and
liabilities of other foreign subsidiaries are remeasured into U.S. dollars
using end-of-period and historical exchange rates; remeasurement gains and
losses, hedging activity and related tax effects for these subsidiaries are
recognized in the statement of operations. Revenues and expenses for all
foreign subsidiaries are translated at average exchange rates during the
period. Foreign currency transaction gains and losses are included in current
earnings.
Interest and Currency Rate Derivatives
- - - - - --------------------------------------
The Company enters into a variety of interest rate and currency swaps,
interest rate caps and floors, options and forward exchange contracts in its
management of interest rate and foreign currency exposures. The differential
to be paid or received on interest rate swaps, including interest rate
elements in combined currency and interest rate swaps, interest rate caps and
floors is recognized over the life of the agreements as an adjustment to
interest expense. Gains and losses on terminated interest rate instruments
that were entered into for the purpose of changing the nature of underlying
debt obligations are deferred and amortized to income as an adjustment to
interest expense. Currency option premiums are amortized over the option
period. Gains and losses on purchased currency options that are designated
and effective as hedges are deferred and recognized in income in the same
period as the hedged transaction. Realized and unrealized gains and losses on
currency swaps, including currency elements in combined currency and interest
rate swaps, and forward exchange contracts are recognized currently in other
income and expense, or, if such contracts are effective as net investment
hedges, in stockholders' equity.
<PAGE>29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- - - - - ---------------------------------------------------
New Accounting Standard
- - - - - -----------------------
In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Post-employment Benefits." This
new standard requires, among other things, that the expected costs of benefits
paid to former or inactive employees after employment but before retirement be
recognized when the benefits are earned or become payable when certain
conditions are met rather than the previous method which recognized these
costs when they were paid. The adoption of this new standard did not
materially impact the Company's consolidated financial condition or results of
operations.
Reclassifications
- - - - - -----------------
Certain reclassifications of prior year amounts have been made to conform
to the presentation adopted in 1994.
NOTE 2 - CONTINGENCIES
- - - - - ----------------------
Breast Implant Litigation and Claims
- - - - - ------------------------------------
Prior to January 6, 1992, the Company, directly and through its
wholly-owned subsidiary, Dow Corning Wright Corporation, was engaged in the
manufacture and sale of silicone gel breast implants and the raw material
components of these products. As part of a review process initiated in 1991
by the United States Food and Drug Administration (FDA) of Premarket Approval
Applications (PMAA) for silicone gel breast implants, on January 6, 1992, the
FDA asked breast implant producers and medical practitioners to voluntarily
halt the sale and use of silicone gel breast implants pending further review
of the safety and effectiveness of such devices, and the Company complied with
the FDA's request and suspended shipments of implants. Subsequently, the
Company announced that it would not resume the production or sale of silicone
gel breast implants and that it would withdraw its PMAA for silicone gel
breast implants from consideration by the FDA.
Since late 1991, there has been considerable publicity associated with
the breast implant controversy, and the Company experienced a substantial
increase in the number of lawsuits against the Company relating to breast
implants. As of December 31, 1994, the Company has been named, often together
with other defendants, in approximately 19,000 pending breast implant products
liability lawsuits filed by or on behalf of individuals who claim to have or
have had silicone gel breast implants. Many of these cases involve multiple
plaintiffs. In addition, there were 45 breast implant products liability
class action lawsuits which had been filed against the Company as of December
31, 1994. It is anticipated that the Company will be named as a defendant in
additional breast implant lawsuits in the future by those breast implant
recipients not participating in the Breast Implant Litigation Settlement
Agreement (as described below). The typical alleged factual bases for these
lawsuits include allegations that the plaintiffs' breast implants caused
specified ailments, including, among other things, autoimmune disease,
scleroderma, systemic disorders, joint swelling and chronic fatigue. The
Company is sometimes named as the manufacturer of silicone gel breast
implants, and other times the Company is named as the supplier of silicone raw
materials to other breast implant manufacturers. The Company is vigorously
defending this litigation asserting, among other defenses, that there is no
causal connection between silicone breast implants and the ailments alleged by
the plaintiffs in these cases. Once the Breast Implant Litigation Settlement
Agreement (as described below) becomes final and binding, it is anticipated
that lawsuits brought by those breast implant plaintiffs participating in the
settlement will be dismissed.
<PAGE>30
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
Consolidation of a substantial number of breast implant lawsuits for
pretrial purposes has occurred in federal court (U.S. District Court for the
Northern District of Alabama, the "Court") and various state courts where a
substantial number of breast implant lawsuits have been filed. As of December
31, 1994, substantially more than half of all breast implant cases have been
consolidated for pretrial purposes at the federal and state levels. The
Company anticipates that breast implant lawsuit consolidations and
implementation of the Breast Implant Litigation Settlement Agreement will
result in a reduction of litigation defense costs.
On September 9, 1993, the Company announced that representatives of
plaintiffs and defendants involved with silicone breast implant litigation had
developed a "Statement of Principles for Global Resolution of Breast Implant
Claims" (the "Statement of Principles"). The Statement of Principles
summarizes a proposed claims based structured resolution of claims arising out
of breast implants which have been or could be asserted against various
implant manufacturers, suppliers, physicians and hospitals. The Company
negotiated with other potential parties to reach a Breast Implant Litigation
Settlement Agreement similar in concept to the Statement of Principles.
On March 23, 1994, the Company, along with other defendants and
representatives of breast implant litigation plaintiffs, entered into a
settlement pursuant to a Breast Implant Litigation Settlement Agreement (as
amended by the Court, the "Settlement Agreement"). The Company's
participation in this Settlement Agreement was approved by the Company's Board
of Directors on March 28, 1994. Under the Settlement Agreement, industry
participants (the "Funding Participants") agreed to contribute up to
approximately $4.2 billion over a period of more than thirty years to
establish several special purpose funds. A related funding agreement (the
"Funding Agreement") specifies the amount that each Funding Participant would
contribute to the settlement fund and the timing of those contributions. The
Settlement Agreement provides for a claims based structured resolution of
claims arising out of silicone breast implants and defines the circumstances
under which payments from the funds would be made. The Settlement Agreement
includes provisions for (a) class membership and the ability of plaintiffs to
opt out of the class, (b) the establishment of defined funds for medical
diagnostic/evaluation procedures, explantation, ruptures, compensation for
specific diseases and administration, (c) payment terms and timing and (d)
claims administration.
The settlement covers claims of most breast implant recipients, and
related claims, brought in the courts of U.S. federal and state jurisdictions.
The settlement also covers the claims of breast implant recipients brought in
jurisdictions outside of the U.S. if payments received by those potential
claimants from the settlement fund, and related releases, serve to preclude
them from bringing legal actions in these other jurisdictions. The settlement
does not cover claims of breast implant recipients who have affirmatively
chosen not to participate in the Settlement Agreement, or whom the Court has
specifically excluded from the Settlement Agreement unless these potential
claimants affirmatively join the settlement. Breast implant recipients who
reside in Ontario or Quebec, Canada, or in Australia have been specifically
excluded by the Court. The Settlement Agreement defines various periods
during which, upon the occurrence of certain events, breast implant plaintiffs
may elect not to settle their claims by way of the Settlement Agreement and
pursue their individual breast implant litigation against manufacturers and
other defendants (the "Opt Out Plaintiffs"). The Settlement Agreement also
provides the children of breast implant recipients with the right to opt out
of the settlement in certain circumstances. Under the terms of the Settlement
Agreement, in certain circumstances, if any defendant who is a Funding
Participant considers the number of Opt Out Plaintiffs to be excessive, such
defendant may decide to exercise the option to withdraw from participation in
the settlement during a number of periods specified in the Settlement
Agreement.
<PAGE>31
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
On April 1, 1994, the Court preliminarily approved the Settlement
Agreement. On April 18, 1994, the Court issued notice of the Settlement
Agreement to breast implant recipients and others who may be eligible to
participate in the settlement ("Settlement Class Members"). This notice began
a 60-day period, ending June 17, 1994, during which Settlement Class Members
had the ability to become initial Opt Out Plaintiffs. This period was
extended to July 1, 1994 with respect to certain Settlement Class Members
whose Court issued notice was delayed. The Court has afforded initial Opt Out
Plaintiffs an opportunity to rejoin the settlement within specified periods
which currently end no later than March 1, 1995. A Court hearing to review
the fairness of the Settlement Agreement was completed on August 22, 1994. On
September 1, 1994, the Court granted final approval to the Settlement
Agreement, determining that it is fair, reasonable and adequate, and on
September 8, 1994, the Company's Board of Directors approved the Company's
continued participation in the Settlement Agreement.
The Court's final approval of the Settlement Agreement has been appealed
to the U.S. Court of Appeals for the Eleventh Circuit primarily by certain
providers of health care indemnity payments or services and by certain foreign
claimants.
The Settlement Agreement provides that industry participants will
contribute a total of $4.2 billion, of which the Company is obligated to
contribute up to approximately $2.02 billion, over a period of more than 30
years. The Company's required contributions under the Settlement Agreement
cannot be changed without the Company's consent. Under the terms of the
Funding Agreement, the Company has made or anticipates making settlement
payments in accordance with the following schedule:
1994 $ 42.50
1995 275.00
1997 275.00
1998 275.00
1999 through 2011 51.17 per year
2012 through 2019 38.38 per year
2020 through 2026 25.57 per year
The Company's first payment of $275.0 under the Funding Agreement is due
upon the earlier of (a) a resolution of these appeals which confirms the
Court's final approval of the Settlement Agreement or (b) the completion of a
second opt out process or the determination that there will be no second opt
out process (as described below). The Company has placed $275.0 into an
escrow account and is required, among other things, to provide a letter of
credit in the amount of $275.0 to provide financial assurance to the Court of
the Company's ability to meet its obligations under the Settlement Agreement.
After the third payment of $275.0, the amount of the letter of credit will be
reduced to $51.2 or may be eliminated by order of the Court. The Company is
engaged in discussions with certain financial institutions to provide this
letter of credit.
Initial claims for specific disease compensation were required to be
filed with the Court in September 1994. After these claims and the supporting
medical records have been evaluated by the Court for validity, eligibility,
accuracy, and consistency, the Court will determine whether the disease
compensation settlement fund is sufficient to pay validated claims. If the
disease compensation settlement fund is not sufficient to pay validated
claims, and if such insufficiency cannot be resolved through other means,
claimants with validated claims may have the ability to opt out during another
period as specified in the Settlement Agreement. If any defendant who is a
Funding Participant considers the number of new Opt Out Plaintiffs against
said defendant to be excessive, such defendant may decide to exercise a second
option to withdraw from participation in the settlement.
<PAGE>32
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
Since July 1, 1994, many former Opt Out Plaintiffs have rejoined the
settlement. Based on preliminary information received from the Court as of
December 1994, approximately 5,000 of the initial U.S. Opt Out Plaintiffs and
approximately 2,000 potential foreign claimants (including initial foreign Opt
Out Plaintiffs and foreign claimants excluded from the settlement class) have
identified the Company as potentially responsible, in whole or in part, with
respect to their current or potential future claims. The Court is continuing
to collect information relating to the number of Opt Out Plaintiffs and as
information is received from the Court the Company will continue to evaluate
the nature and scope of its potential exposure with respect to the current or
potential future claims of these Opt Out Plaintiffs. Opt Out Plaintiffs may
continue to rejoin the settlement until the March 1, 1995 date established by
the Court.
The Settlement Agreement is in the process of being implemented. The
settlement implementation process can be affected by external factors as
described above such as the resolution of pending appeals and the number and
magnitude of claims filed in the settlement. However, based on its analysis
of the most current information, including assessments by knowledgeable third
parties who have been directly involved in the negotiation and implementation
of the Settlement Agreement, management believes that the aggregate amount of
the Company's obligation and the amount and timing of the related cash
payments under the Settlement Agreement are reliably determinable. Management
also believes that events will not occur which would lead to the Company's
withdrawal from the settlement and that the Settlement Agreement will be
implemented in the state currently envisioned.
The Company believes that a substantial portion of the indemnity,
settlement and defense costs related to breast implant lawsuits and claims
will be covered by the Company's products liability insurance. Substantially
all of the Company's insurers have reserved the right to deny coverage, in
whole or in part, due to differing theories regarding, among other things,
when coverage may attach, and their respective obligations relative to other
insurers. The Company has a substantial amount of unexhausted claims-made
insurance coverage with respect to lawsuits and claims commencing in 1986 and
thereafter. For lawsuits and claims involving implant dates prior to 1986,
substantial coverage exists under a number of primary and excess occurrence
policies having various limits. Because defense costs and disposition of
particular breast implant lawsuits and claims may be covered, in whole or in
part, both by the claims-made coverage issued from and after 1986, and one or
more of the occurrence policies issued prior to 1986, determination of
aggregate insurance coverage depends on, among other things, how defense and
indemnity costs are allocated among the various policy periods. Also, a
number of the breast implant lawsuits pending against the Company request
punitive damages and compensatory damages arising out of alleged intentional
torts. Depending on policy language, applicable law and agreements with
insurers, any such damages which may be awarded pursuant to such lawsuits may
or may not be covered, in whole or in part, by insurance.
Discussions among the Company and its primary insurers have occurred and
are continuing with a view toward reaching an agreement as to the allocation
of costs of breast implant litigation among the various insurers issuing
products liability insurance policies to the Company relative to breast
implants and other products. In 1993, the Company commenced a lawsuit against
certain of these insurers seeking, among other things, a judicial enforcement
of the obligations of the insurers under certain of these insurance policies.
Approximately 85% of the anticipated implant insurance receivable recorded in
the financial statements is currently subject to litigation. This litigation
principally involves those insurers who provided coverage on an occurrence
basis and generally does not involve insurers who provided coverage on a
claims made basis.
Management continues to believe that it is probable that the Company will
recover from its insurers a substantial amount of breast implant related
payments which have been or may be made by the Company. In reaching this
belief, the Company has analyzed its insurance policies, considered its
history of coverage and insurance reimbursement for these types of claims, and
consulted with knowledgeable
<PAGE>33
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
third parties with significant experience in insurance coverage matters. This
belief is further supported by the fact that the Company received insurance
recoveries of $71.4 in 1994 and entered into settlements with certain insurers
for future reimbursement. These settlements relate to only a small number of
the Company's insurers and a small portion of the Company's total insurance
program.
The Company has recorded an anticipated insurance receivable which is
less than the amount for which the Company will seek reimbursement; a
substantial portion of this anticipated insurance receivable relates to
insurers who provided coverage on an occurrence basis. The principal
uncertainties which exist with respect to the ultimate realization of this
asset include the method applied in allocating losses between insurers who
provided coverage on a claims made basis and insurers who provided coverage
on an occurrence basis, the method applied in allocating losses among the
insurers who provided coverage on an occurrence basis, potential delays in
reimbursement if the insurers fail to pay on a timely basis, and the extent to
which insurers may become insolvent in the future. The Company has taken
these factors into account when estimating the amount of insurance recovery to
record in the financial statements. Specifically, the Company selected a
reasonable and legally sound allocation theory which is one of several
generally accepted allocation theories in circumstances involving product
liability claims; the allocation theory selected is supported by recent
developments in the ongoing insurance litigation. The Company also assumed a
reasonable delay between the time the Company makes breast implant related
payments and the time the Company receives reimbursement from the insurers,
and an allowance for insolvent insurers has been provided.
The Company has made efforts in the past to reflect anticipated financial
consequences to the Company of the breast implant situation. During 1991 and
1992, the Company recorded $25.0 and $69.0, respectively, of pretax costs
related to breast implant matters. In 1993 the Company recorded a pretax
charge of $640.0. This charge included the Company's best estimate of its
potential liability for breast implant litigation based on settlement
negotiations, and also included provisions for legal, administrative, and
research costs related to breast implants, for a total of $1.24 billion, less
anticipated insurance recoveries of $600.0. As discussed below, the Company
recorded the liability attributable to the Settlement Agreement and the
related insurance receivable on a present value basis.
On January 20, 1995, the Company announced a pretax charge of $241.0
($151.8 after tax) for the fourth quarter of 1994. This charge reflects the
Company's best current estimate of additional costs to resolve breast implant
litigation and claims outside of the Settlement Agreement, and includes
provisions for legal, administrative, and research costs related to breast
implants. This pretax charge of $241.0 consists of a $647.0 liability less
anticipated insurance recoveries of $406.0. These amounts were recorded on an
undiscounted basis.
As a result of the provisions described above, as of December 31, 1994
the Company's financial statements reflect a total liability of $1,762.3 and a
total anticipated implant insurance receivable of $1,101.1. Of these amounts,
a liability of $603.6 and an anticipated implant insurance receivable of
$398.3 have been recorded to reflect costs and insurance recoveries,
respectively, relevant to breast implant liabilities not covered by the
Settlement Agreement; these amounts are recorded on an undiscounted basis.
Because the amount and timing of the liability attributable to the Settlement
Agreement is reliably determinable, the Company recorded this liability and
the related anticipated implant insurance receivable on a present-value basis
using a discount rate of 7.0% over a period of more than 30 years. This rate
approximated the interest rate on monetary assets that are risk free and that
have maturities corresponding with the scheduled cash payments. The
Settlement Agreement liability recorded in the financial statements at
December 31, 1994 is $1,158.7; this amount is $1,976.2 on an undiscounted
basis. The Settlement Agreement anticipated implant insurance receivable
recorded in the financial statements at December 31, 1994 is $702.8; this
amount is $1,156.2 on an undiscounted basis.
<PAGE>34
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
Differences between discounted amounts recorded in the financial statements
and undiscounted amounts represent interest to be recorded over the life of
the net liability. The net amount of imputed interest recorded in 1994 was
$28.3. Amounts recorded in the financial statements related to the Settlement
Agreement are adjusted as insurance proceeds are received, as payments are
made against reserves and as imputed interest is recorded on discounted
amounts.
Implant reserves less the anticipated implant insurance receivable
reflects management's best current estimate of the cost of ultimate resolution
of breast implant litigation and claims. The liability under the Settlement
Agreement is reliably determinable. However, additional facts and
circumstances may develop which could affect the reliability and precision of
the estimate of costs not covered by the Settlement Agreement as well as the
estimate of the anticipated implant insurance receivable. Those facts and
circumstances include, among other things, the ultimate number and extent of
claims not covered by the Settlement Agreement, the ultimate cost of resolving
those claims, the amount and timing of insurance recoveries, and the
allocation of insurance payments among the Company's insurers. Management
cannot currently estimate the impact that these factors may have on the
current estimate of costs not covered by the Settlement Agreement as well as
the estimate of the anticipated implant insurance receivable. As additional
facts and circumstances develop, the estimate may be revised, or provisions
may be necessary to reflect any additional costs of resolving breast implant
litigation and claims not covered by the settlement. Future charges resulting
from any revisions or provisions, if required, could have a material adverse
effect on Dow Corning's financial position or results of operations in the
period or periods in which such charges are recorded.
Other Litigation
- - - - - ----------------
Due to the nature of its business as a supplier of specialty materials to
a variety of industries, the Company, at any particular time, is a defendant
in a number of products liability lawsuits for injury allegedly related to the
Company's products, and, in certain instances, products manufactured by
others. Many of these lawsuits seek damages in substantial amounts. For
example, the Company has been named in products liability lawsuits pertaining
to materials previously used in connection with temporo-mandibular joint
implant applications. The Company has followed a practice of aggressively
defending all product liability claims asserted against it. Although the
Company intends to continue this practice, currently pending proceedings and
any future claims are subject to the uncertainties attendant to litigation and
the ultimate outcome of any such proceedings or claims cannot be predicted
with certainty. Nonetheless, the Company believes that these products
liability claims will not have a material adverse effect on the Company's
results of operations or financial condition.
Environmental Matters
- - - - - ---------------------
The Company has been advised by the United States Environmental
Protection Agency (EPA) or by similar state regulatory agencies that the
Company, together with others, is a Potentially Responsible Party (PRP) with
respect to a portion of the cleanup costs and other related matters involving
a number of abandoned hazardous waste disposal facilities. Management
believes that there are 13 sites at which the Company may have some liability,
although management currently expects to settle the Company's liability for a
majority of these sites for de minimis amounts. Based upon preliminary
estimates by the EPA or the PRP groups formed with respect to these sites, the
aggregate liabilities for all PRPs at these sites at which management
currently believes the Company may have more than the de minimis liability is
$106.0. Management cannot currently estimate the aggregate liability for all
PRPs at those sites at which management expects the Company has a de minimis
liability.
<PAGE>35
NOTE 2 - CONTINGENCIES (Continued)
- - - - - ----------------------
The Company records accruals for environmental matters when it is
probable that a liability has been incurred and the Company's costs can be
reasonably estimated. The amount accrued for environmental matters at
December 31, 1994 was $16.2, although possible costs could range up to $32.0.
While there are a number of uncertainties with respect to the Company's
estimate of its ultimate liability for cleanup costs at these sites, it is the
opinion of the Company that the possibility that costs in excess of those
accrued or disclosed will have a material adverse impact on the Company's
consolidated financial position or results of operations is remote. This
opinion is based upon the number of identified PRPs at each site, the number
of such PRPs that are believed by management to be financially capable of
paying their share of the ultimate liability, and the portion of waste sent to
the sites for which management believes the Company might be held responsible
based on available records.
DOW CORNING FIRE STOP(R)
- - - - - ------------------------
In May, 1993, the Company began communicating additional information and
test results to the owners of buildings which contain DOW CORNING FIRE STOP(R)
Intumescent Wrap Strip 2002, recommending that the owners conduct a review
with a qualified Fire Protection Engineer to determine whether remedial action
is warranted, including possible replacement of the product due to uncertainty
about its ability to perform consistently and predictably over time. DOW
CORNING FIRE STOP(R) Intumescent Wrap Strip 2002 is a non-silicone,
resin-based fire stop product which was installed in buildings as a passive
fire protection product. The Company ceased the sale of this product in 1992.
Management believes that the ultimate resolution of this issue will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
NOTE 3 - SPECIAL ITEMS
- - - - - ----------------------
Charges of $40.0 in 1992 relate to provisions for restructuring
activities, consisting largely of costs associated with the cessation of
manufacturing activities at a subsidiary in Brazil and costs involved in
global expense reduction, including elimination of low-priority activities,
redeployment of people and reduction in the value of affected facilities.
NOTE 4 - SALE OF ASSETS AND ACQUISITIONS
- - - - - ----------------------------------------
On July 1, 1993, the Company sold the metal orthopedic device assets for
approximately $66.3 in cash. The Company's investment in assets was
approximately $70.0, most of which represented current assets. The sale of
the metal orthopedic device business did not have a material effect on the
Company's consolidated net sales, financial position or results of operations.
On July 14, 1992, the Company acquired ARA - Werk Kraemer GmbH (ARA), a
German supplier of sealants, polyurethane foam products and related
application tools. The purchase price included $18.9 of cash and $19.2 in
notes to be paid within one year of the acquisition date. The acquisition was
accounted for by the purchase method of accounting, and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at date of acquisition. The
excess of purchase price over estimated fair values of the net assets acquired
was $25.6 and has been recorded as goodwill, which is being amortized over 10
years. The operating results of ARA are included in the Company's
consolidated results from the acquisition date. Consolidated net sales, net
income and related per share amounts for the year ended December 31, 1992,
would not have been materially different had this acquisition taken place at
the beginning of 1992.
<PAGE>36
NOTE 4 - SALE OF ASSETS AND ACQUISITIONS (Continued)
- - - - - ----------------------------------------
On November 2, 1992, the Company acquired for $12.8 an additional 40%
interest in Lucky-DC Silicone Co., Ltd., a company in which Dow Corning
previously had held a 50% interest. In addition, under the terms of the
agreement with the partner, Lucky Ltd., the Company will acquire for $3.2 the
remaining 10% interest by November 1995, subject to the approval by the
Government of South Korea. Consolidated net sales, net income and related per
share amounts for the year ended December 31, 1992, would not have been
materially different had this acquisition taken place at the beginning of
1992.
NOTE 5 - FOREIGN CURRENCY
- - - - - -------------------------
Following is an analysis of the changes in the cumulative translation
adjustment:
1994 1993 1992
---- ---- ----
Balance, beginning of year $31.6 $28.3 $66.2
Translation adjustments and gains (losses) from
certain hedges and intercompany balances 31.3 (0.2) (37.5)
Income tax effect of current year activity 3.3 3.5 (0.4)
----- ----- -----
Balance, end of year $66.2 $31.6 $28.3
===== ===== =====
Net foreign currency gains (losses) currently recognized in income
amounted to $(4.8) in 1994, $(8.1) in 1993, and $(35.2) in 1992.
NOTE 6 - RECEIVABLES SOLD
- - - - - -------------------------
The Company sells certain receivables with limited recourse provisions.
Dow Corning Corporation sells on an ongoing basis substantially all of its
U.S. trade receivables, with limited recourse, to Bay Asset Funding
Corporation ("BAFC"), a wholly owned but separate corporate entity of the
Company. BAFC has agreements in place with third parties whereby it may sell
on an ongoing basis fractional ownership interests in such trade receivables,
with limited recourse, for a purchase price of up to $65.0. The agreements
contemplate that (a) the trade receivables sold to BAFC by the Company are
solely the assets of BAFC, (b) the creditors of BAFC are separate from the
creditors of the Company, and (c) in the event of a liquidation of BAFC, such
creditors would be entitled to satisfy their claims from BAFC's assets prior
to any distribution to the Company.
Net of related reserves, the amount of receivables sold under third party
agreements which remained uncollected at December 31, 1994 and 1993 was $32.0
and $63.2, respectively. The sale of such receivables resulted in net
proceeds of approximately $62.6 in 1994, $74.7 in 1993, and $73.5 in 1992.
NOTE 7 - IMPLANT DEPOSIT
- - - - - ------------------------
In connection with the Settlement Agreement, the Company has entered into
an agreement whereby $275.0 in cash and cash equivalents is restricted to use
for future breast implant settlement payments. Accordingly, this amount is
included in the caption "Implant deposit" in the accompanying consolidated
balance sheet and statement of cash flows.
<PAGE>37
NOTE 8 - INVENTORIES
- - - - - --------------------
Following is a summary of inventories by costing method at December 31:
1994 1993
---- ----
Raw material, work-in-process and finished goods:
Valued at LIFO $204.7 $197.0
Valued at FIFO 103.7 88.6
------ ------
$308.4 $285.6
====== ======
Under the dollar value LIFO method used by the Company, it is
impracticable to separate inventory values by classifications. Inventories
valued using LIFO at December 31, 1994 and 1993 are stated at approximately
$69.5 and $70.9, respectively, less than they would have been if valued at
replacement cost.
NOTE 9 - INVESTMENTS
- - - - - --------------------
Excluding investments accounted for on the equity basis, the carrying
amount for investments at December 31, 1994 and 1993 was $27.6 and $24.6,
respectively. Carrying amounts approximate fair values. Fair values are
determined based on quoted market prices or, if quoted market prices are not
available, on market prices of comparable instruments. Investments are
included in the captions "Short-term investments" and "Other assets" in the
accompanying consolidated balance sheets.
NOTE 10 - NOTES PAYABLE AND CREDIT FACILITIES
- - - - - ---------------------------------------------
Notes payable at December 31 consisted of:
1994 1993
---- ----
Revolving Credit Agreement $375.0 $150.0
Other bank borrowings 29.9 83.7
------ ------
$404.9 $233.7
====== ======
During 1993, the Company terminated a revolving credit agreement which
was in place at December 31, 1992, and replaced it with a Revolving Credit
Agreement with 16 domestic and foreign banks which provides for borrowings on
a revolving credit basis until November, 1997, of up to $400.0. At December
31, 1994, the interest rate on amounts outstanding under the Revolving Credit
Agreement was 6.8125%. Amounts outstanding under short-term lines of credit
are described as "Other bank borrowings" in the table above. The carrying
amounts of the Company's short-term borrowings approximate their fair value.
Certain of the Company's debt agreements, including the Revolving Credit
Agreement, contain debt restrictions and provisions relating to property
liens, sale and leaseback transactions, debt to tangible capital ratio, and
funds flow. In addition, the Revolving Credit Agreement provides
participating banks the right, subject to a vote of a majority in interest, to
demand payment in the event that breast implant litigation expenditures, net
of insurance recoveries, exceed certain limits. At December 31, 1994, the
Company was in compliance with all debt restrictions and provisions.
<PAGE>38
NOTE 10 - NOTES PAYABLE AND CREDIT FACILITIES (Continued)
- - - - - ---------------------------------------------
Under the provisions of the Revolving Credit Agreement, the Company is
subject to certain restrictions as to the payment of dividends or distribution
of assets for other specified purposes. The amount of the restriction is
based on a formula which considers, among other things, the income before
income taxes for the most recent fiscal year. Based on the computation
completed for the year ended December 31, 1994, the Company is restricted from
issuing dividends or distributing assets for other specified purposes in
excess of $71.9 in 1995.
NOTE 11 - LONG-TERM DEBT
- - - - - ------------------------
Long-term debt at December 31 consisted of:
1994 1993
---- ----
9.625% Sinking Fund Debentures due 2005 $ - $ 4.8
9.375% Debentures due 2008 75.0 75.0
8.15% Debentures due 2029 50.0 50.0
8.125%-9.50% Medium-term Notes due 1995-2001,
8.82% average rate at December 31, 1994 36.5 54.5
5.77% Term Loans, maturing serially 1995-1999 26.6 32.1
Variable-rate Notes due 1995-1998,
5.9%-6.984% at December 31, 1994 123.3 55.2
Variable-rate Note, maturing serially 1997-1999,
6.44% at December 31, 1994 20.0 20.0
5.55%-6.5% Japanese Yen Notes due 1996-1998 33.0 33.4
Other obligations due 1995-1999 12.6 23.2
------ ------
377.0 348.2
Less - Payments due within one year 41.9 33.5
------ ------
$335.1 $314.7
====== ======
The fair value of the Company's long-term debt was approximately $7.2
higher than book value at December 31, 1994 and $45.0 higher than book value
at December 31, 1993. The fair value was based largely on interest rates
offered on U.S. Treasury obligations with comparable maturities using
discounted cash flow analysis. These rates were not adjusted to reflect the
premium that the Company might pay over U.S. Treasury rates. A one percentage
point increase in these rates would decrease the fair value by approximately
$11.1.
The Company has $400.0 of debt securities registered with the Securities
and Exchange Commission at December 31, 1994, of which $275.0 had been
designated to medium-term note programs and another $125.0 had been issued in
debentures. At December 31, 1994, $100.0 had been issued under the medium-
term note programs, of which $36.5 was still outstanding.
The 9.375% and 8.15% debentures are not redeemable by the Company prior
to their maturity; however, the holders of the 8.15% debentures may elect to
have all or a portion of their debentures repaid on October 15, 1996, at 100%
of the principal amount.
<PAGE>39
NOTE 11 - LONG-TERM DEBT (Continued)
- - - - - ------------------------
Aggregate annual maturities of long-term debt are: $41.9 in 1995, $27.8
in 1996, $84.0 in 1997, $71.1 in 1998, $17.9 in 1999 and $84.3 thereafter.
Excluded from such maturities are $50.0 of 8.15% debentures, due in 2029,
which are subject to early redemptions at the holders' option in 1996. Cash
paid during the year for interest, net of amounts capitalized, was $40.7 in
1994, $31.8 in 1993, and $20.8 in 1992.
NOTE 12 - INTEREST AND CURRENCY RATE DERIVATIVES
- - - - - ------------------------------------------------
The Company utilizes a variety of financial instruments, several with
off-balance sheet risks, in its management of current and future interest rate
and foreign currency exposures. These financial instruments include interest
rate swaps, interest rate caps and floors, interest rate options, currency
swaps, currency options, and forward exchange contracts.
These instruments involve, to varying degrees, elements of credit and
market risk in excess of the amount recognized in the consolidated balance
sheet. Methods used by the Company to monitor and control credit risk include
limiting counterparties to only major banks and substantial financial
institutions, and monitoring the credit-worthiness of these counterparties on
an ongoing basis. In the event of default by a counterparty, the risk in
these transactions is limited to the cost of replacing the instrument at
current market rates. The contract or notional amounts of these instruments
are used to measure the volume of these agreements and do not represent
exposure to credit loss. Methods used by the Company to monitor and control
market risk include entering into offsetting positions that essentially
counterbalance with each other, and continued monitoring of market conditions.
Although the Company may be exposed to losses in the event of nonperformance
by counterparties and interest and currency rate movements, it does not
anticipate significant losses due to these financial arrangements.
The Company enters into interest rate swaps to exchange fixed and
variable interest payment obligations without an exchange of the underlying
principal amounts in order to manage interest rate exposures. The Company
also enters into interest rate caps and floors, and interest rate options in
order to transfer, modify, or reduce interest rate risk. These instruments
are used to hedge specific elements of the Company's debt portfolio. Hedge
accounting is used to recognize the differential to be paid or received as an
adjustment to interest expense over the life of the agreements. Interest rate
swaps, interest rate caps and floors, and interest rate options are shown in
the following table.
<TABLE>
CAPTION
<PAGE>
December 31, 1994 December 31, 1993
--------------------------------- -----------------------------------
Weighted Weighted
Fair Book Notional Average Fair Book Notional Average
Value Value Amount Maturity Value Value Amount Maturity
----- ----- -------- -------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate swaps where
the Company pays fixed rates $1.8 $(1.4) $190.0 5.6 years $(24.3) $(2.4) $225.0 5.6 years
Interest rate swaps where the
Company pays variable rates (2.5) 0.2 115.0 2.5 years 5.5 0.7 115.0 3.4 years
Interest rate caps (0.2) 0.9 55.0 1.4 years - - 100.0 1.6 years
Interest rate floors (0.3) - 40.0 1.9 years 0.4 - 55.0 2.1 years
Interest rate options (1.6) - 80.0 4.4 years (4.3) - 125.0 4.7 years
<FN>
At December 31, 1994, the weighted average interest rates paid and received on interest rate swaps
where the Company pays a fixed rate are 7.4% and 5.9%, respectively. At December 31, 1994, the weighted
average interest rates paid and received on interest rate swaps where the Company pays a variable rate are
6.7% and 6.7%, respectively.
</TABLE>
<PAGE>40
NOTE 12 - INTEREST AND CURRENCY RATE DERIVATIVES (Continued)
- - - - - ------------------------------------------------
<PAGE>
The Company enters into currency swaps, currency options, and forward
exchange contracts primarily to hedge working capital not denominated in
functional currencies. Gains and losses on these contracts are recognized
concurrent with the gains and losses from the associated exposures. Currency
swaps, currency options and forward exchange contracts are shown in the
following table. The book values of these instruments approximate fair
values.<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
December 31, 1993
------------------------------ ----------
- - - - - --------------------
Weighted
Weighted
Book Notional Average Book
Notional Average
Value Amount Maturity Value
Amount Maturity
----- -------- -------- -----
- - - - - -------- --------
<S> <C> <C> <C> <C>
<C> <C>
Currency swaps $(34.3) $100.0 2.0 years $(21.2)
$100.0 3.0 years
Currency options - - - -
26.8 <F1>
Forward exchange contracts:
-to buy British Pounds (1.1) 95.1 <F1> -
- -
-to sell British Pounds 2.8 129.4 <F1> (0.4)
44.6 <F1>
-to buy ECU (0.3) 15.4 <F1> -
- -
-to sell ECU (0.1) 23.3 <F1> (0.2)
40.8 <F1>
-to buy German Marks (0.4) 18.1 <F1> (0.1)
18.7 <F1>
-to sell German Marks 0.6 33.8 <F1> -
12.4 <F1>
-to buy Japanese Yen (2.8) 62.7 <F1> (3.8)
101.3 <F1>
-to sell Japanese Yen 0.2 10.1 <F1> -
- -
-to buy other currencies (0.2) 22.6 <F1> -
16.5 <F1>
-to sell other currencies 0.4 52.3 <F1> 0.2
32.1 <F1>
<FN>
<F1>Weighted average maturity is less than one year.
</TABLE>
<PAGE>
The fair value of interest rate swaps, interest rate caps and floors,
interest rate options, currency swaps, and currency options is estimated by
obtaining quoted market prices of comparable instruments, adjusted through
interpolation where necessary for maturity differences. The fair value of
forward exchange contracts is estimated by obtaining quotes from brokers. The
fair values shown above represent the amount the Company would receive (or
pay, if denoted by brackets) to terminate the agreements at the reporting
date.
NOTE 13 - POST EMPLOYMENT BENEFITS
- - - - - ----------------------------------
The Company maintains defined benefit employee retirement plans covering
most domestic and certain foreign employees. The Company also has various
defined contribution and savings plans covering certain employees. Plan
benefits for defined benefit employee retirement plans are based primarily on
years of service and compensation. The Company's funding policy is consistent
with national laws and regulations. Plan assets include marketable equity
securities, insurance contracts, corporate and government debt securities,
real estate and cash.
<PAGE>41
NOTE 13 - POST EMPLOYMENT BENEFITS (Continued)
- - - - - ----------------------------------
The components of pension expense for the Company's domestic and foreign
plans are set forth below.
1994 1993 1992
---- ---- ----
Defined benefit plans:
Service cost (benefits earned during the period) $ 20.9 $ 16.1 $ 14.1
Interest cost on projected benefit obligations 43.9 38.0 35.4
Actual return on plan assets 0.2 (73.4) (24.7)
Net amortization 4.7 1.6 1.2
Difference between actual and expected
return on plan assets (40.2) 35.0 (8.6)
------ ------ ------
29.5 17.3 17.4
------ ------ ------
Defined contribution and savings plans 12.0 10.1 12.6
------ ------ ------
$ 41.5 $ 27.4 $ 30.0
====== ====== ======
The following table presents reconciliations of defined benefit plans'
funded status with amounts recognized in the Company's consolidated balance
sheets as part of other assets and other long-term liabilities. Plans with
assets exceeding the accumulated benefit obligation (ABO) are segregated by
column from plans with ABO exceeding assets. Assets exceed ABO for all
domestic plans.
1994 1993
---------------- ----------------
Assets ABO Assets ABO
exceed exceeds exceed exceeds
ABO assets ABO assets
------ ------- ------ -------
Actuarial present value
of benefit obligations:
Vested $387.7 $ 35.5 $396.9 $ 32.9
Nonvested 41.9 4.4 25.2 5.3
------ ------ ------ ------
Accumulated benefit obligation 429.6 39.9 422.1 38.2
Provision for future salary increases 92.1 12.6 104.3 13.1
------ ------ ------ ------
Projected benefit obligation 521.7 52.5 526.4 51.3
Plan assets at fair value 480.3 7.2 484.9 6.4
------ ------ ------ ------
Plan assets in excess of (less than)
projected benefit obligation (41.4) (45.3) (41.5) (44.9)
Unrecognized net loss (gain) 25.1 5.7 20.2 8.9
Unrecognized (negative) prior service
costs 40.9 (7.8) 43.7 (5.3)
Unrecognized net transition obligation 5.7 1.7 6.5 1.9
------ ------ ------ ------
Prepaid (accrued) pension cost $ 30.3 $(45.7) $ 28.9 $(39.4)
====== ====== ====== ======
<PAGE>42
NOTE 13 - POST EMPLOYMENT BENEFITS (Continued)
- - - - - ----------------------------------
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation for defined benefit plans
was 8.1% in 1994 and 7.3% in 1993. The weighted average rate of increase in
future compensation levels was determined using an age specific salary scale
and was 5.5% in 1994 and 5.6% in 1993. The weighted average expected
long-term rate of return on plan assets was 8.5% in 1994 and 8.6% in 1993.
In addition to providing pension benefits, the Company, primarily in the
United States, provides certain health care and life insurance benefits for
most retired employees. In 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. The Company elected to immediately recognize
the cumulative effect of the change in accounting for postretirement benefits
of $176.9 ($116.8 net of income tax benefit) which represents the accumulated
postretirement benefit obligation existing at January 1, 1992. In addition,
the effect of adopting the new rules increased 1992 net periodic
postretirement benefit cost by $17.4 ($11.5 net of income tax benefit). Prior
to 1992, the cost of retiree health care and life insurance benefits was
recognized as an expense as benefits were paid. The cost of providing these
benefits to retirees outside the United States is not significant. Net
periodic postretirement benefit cost includes the following components:
1994 1993 1992
---- ---- ----
Service cost $ 3.4 $ 6.0 $ 6.6
Interest cost 9.3 10.3 15.6
Amortization of negative
prior service cost (13.2) (14.3) -
----- ----- -----
$(0.5) $ 2.0 $22.2
===== ===== =====
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheets as part of
other long-term liabilities:
December 31, December 31,
1994 1993
------------ ------------
Accumulated postretirement benefit obligation:
Retirees $ 66.3 $ 55.5
Fully eligible, active plan participants 36.2 52.6
Other active plan participants 25.5 37.7
------ ------
128.0 145.8
Unrecognized negative prior service cost 67.9 61.5
Unrecognized net loss (9.9) (16.8)
------ ------
Accrued postretirement benefit cost $186.0 $190.5
====== ======
In December 1992, the Company amended its retiree health care benefit
plan to require that, beginning in 1994, employees have a certain number of
years of service to be eligible for any retiree health care benefit. The
retiree health care plan provides for certain cost-sharing changes which limit
the Company's share of retiree health care costs. The Company continues to
fund benefit costs on a pay-as-you-go basis with the retiree paying a portion
of the costs.
<PAGE>43
NOTE 13 - POST EMPLOYMENT BENEFITS (Continued)
- - - - - ----------------------------------
The health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.02% in 1994 and was assumed to
decrease gradually to 5.75% in 2005 and remain at that level thereafter. For
retirees under age 65, plan features limit the health care cost trend rate
assumption to a maximum of 8% for years 1994 and later. The health care cost
trend rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation by
4% and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1994 by 6%.
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.25% at December 31, 1994 and 7.25% at December 31,
1993.
NOTE 14 - RELATED PARTY TRANSACTIONS
- - - - - ------------------------------------
The Company purchased raw materials and services totalling $46.8 in 1994,
$39.4 in 1993, and $43.5 in 1992 from The Dow Chemical Company and its
affiliates. The Company believes that the costs of such purchases were
competitive with alternative sources of supply. Other transactions between
the Company and related parties were not material.
NOTE 15 - INCOME TAXES
- - - - - ----------------------
The components of income (loss) before income taxes are as follows:
1994 1993 1992
---- ---- ----
U.S. companies $ (47.2) $(516.7) $(20.8)
Non-U.S. companies 61.8 94.7 70.8
------- ------- ------
$ 14.6 $(422.0) $ 50.0
======= ======= ======
The components of the income tax provision (benefit) are as follows:
1994 1993 1992
---- ---- ----
Current
U.S. $ 62.6 $ 14.3 $ 4.7
Non-U.S. 47.5 37.9 59.9
------ ------- ------
110.1 52.2 64.6
------ ------- ------
Deferred
U.S. (96.0) (205.4) (26.7)
Non-U.S. ( 6.2) 2.3 (27.8)
------ ------- ------
(102.2) (203.1) (54.5)
------ ------- ------
$ 7.9 $(150.9) $ 10.1
====== ======= ======
<PAGE>44
NOTE 15 - INCOME TAXES (Continued)
- - - - - ----------------------
The tax effects of the principal temporary differences giving rise to
deferred tax assets and liabilities were as follows:
December 31, December 31,
1994 1993
------------ ------------
Implant costs $288.0 $225.0
Accrued expenses 97.2 62.8
Postretirement health care and life insurance 61.7 63.0
Basis in inventories 24.9 24.8
Tax credit and net operating loss carry forwards 2.5 5.6
Other 26.4 20.9
------ ------
500.7 402.1
Valuation allowance (1.0) (3.5)
------ ------
499.7 398.6
------ ------
Property, plant and equipment (66.3) (60.1)
Other - (5.8)
------ ------
(66.3) (65.9)
------ ------
Net deferred tax asset $433.4 $332.7
====== ======
At December 31, 1994, income and remittance taxes have not been recorded
on $217.9 of undistributed earnings of foreign subsidiaries, either because
any taxes on dividends would be offset substantially by foreign tax credits or
because the Company intends to indefinitely reinvest those earnings. Cash
paid during the year for income taxes, net of refunds received, was $62.4 in
1994, $72.5 in 1993, and $68.2 in 1992.
The effective rates of 54.1% for 1994, (35.8)% for 1993, and 20.2% for
1992 differ from the U.S. federal statutory income tax rate in effect during
those years for the following reasons:
Year ended December 31,
--------------------------------
1994 1993 1992
---- ---- ----
Income tax provision (benefit)
at statutory rate $ 5.1 $(147.7) $17.0
Foreign taxes, net 10.6 0.4 (8.2)
Foreign sales corporation (3.7) (2.1) (1.0)
State income taxes (12.6) 1.7 1.6
Other, net 8.5 (3.2) 0.7
----- ------- -----
Income tax provision (benefit)
at effective rate $ 7.9 $(150.9) $10.1
===== ======= =====
In the first quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, which
requires an asset and liability approach in the measurement of deferred taxes.
Financial statements prior to 1992 have not been restated for this change in
accounting principle. The cumulative effect of adopting SFAS 109 as of
January 1, 1992, increased 1992 net income by $16.4. Except for the
cumulative effect, the change did not have a material effect on operating
results for the periods presented.
NOTE 16 - COMMON STOCK
- - - - - ----------------------
The outstanding shares of the Company's common stock are held in equal
portions by Corning Incorporated and Dow Holdings Inc., a wholly-owned
subsidiary of The Dow Chemical Company. There were no changes in outstanding
shares during 1994, 1993 or 1992.
<PAGE>45
NOTE 17 - COMMITMENTS AND GUARANTEES
- - - - - ------------------------------------
The Company leases certain real and personal property under agreements
which generally require the Company to pay for maintenance, insurance and
taxes. Rental expense was $45.5 in 1994, $46.2 in 1993, and $48.4 in 1992.
The minimum future rental payments required under noncancellable operating
leases at December 31, 1994, in the aggregate are $141.8, including the
following amounts due in each of the next five years: 1995 - $39.7, 1996 -
$28.2, 1997 - $20.8, 1998 - $17.5, and 1999 - $15.1.
NOTE 18 - INDUSTRY SEGMENT AND FOREIGN OPERATIONS
- - - - - -------------------------------------------------
The Company's operations are classified as a single industry segment.
Financial data by geographic area are presented below:
1994 1993 1992
---- ---- ----
Net sales to customers:
United States $ 888.3 $ 830.6 $ 822.6
Europe 554.5 490.9 528.7
Asia 652.0 619.9 500.8
Other 109.8 102.3 103.6
-------- -------- --------
Net sales $2,204.6 $2,043.7 $1,955.7
======== ======== ========
Interarea sales:
United States $ 317.6 $ 219.6 $ 228.3
Europe 46.9 54.7 45.1
Asia 9.5 9.2 6.6
Other 0.3 0.3 1.9
-------- -------- --------
Total interarea sales $ 374.3 $ 283.8 $ 281.9
======== ======== ========
Operating profit:
United States $ 338.8 $ 192.3 $ 131.8
Europe 36.0 59.2 23.8
Asia 53.8 68.7 64.4
Other and eliminations 14.2 7.1 9.7
-------- -------- --------
442.8 327.3 229.7
General corporate expenses (401.7) (703.6) (123.4)
Unallocated income (expense), net (26.5) (45.7) (56.3)
-------- -------- --------
Income (loss) before income taxes $ 14.6 $ (422.0) $ 50.0
======== ======== ========
Identifiable assets:
United States $1,083.0 $1,071.2 $1,091.4
Europe 486.4 423.6 455.5
Asia 593.8 498.1 490.0
Other and eliminations 38.9 37.3 64.1
-------- -------- --------
2,202.1 2,030.2 2,101.0
Corporate assets 1,891.1 1,232.1 89.7
-------- -------- --------
Total assets $4,093.2 $3,262.3 $2,190.7
======== ======== ========
<PAGE>46
NOTE 18 - INDUSTRY SEGMENT AND FOREIGN OPERATIONS (Continued)
- - - - - -------------------------------------------------
Interarea sales are made on the basis of arm's length pricing. Interarea
sales in 1993 and 1992 for Asia have been restated to reflect the combination
of the former Japan and Pacific areas. Operating profit is total sales less
certain operating expenses. General corporate expenses, equity in earnings of
associated companies, interest income and expense, certain currency gains
(losses), minority interests' share in income, and income taxes have not been
reflected in computing operating profit.
General corporate expenses include implant costs, certain research and
development costs, and corporate administrative personnel and facilities costs
not specifically identified with a geographic area. Identifiable assets are
those operating assets identified with the operations in each geographic area.
Corporate assets are principally cash and cash equivalents, short-term
investments, anticipated implant insurance receivables, intangible assets,
investments accounted for on the equity basis, and corporate facilities.
<PAGE>47
DOW CORNING CORPORATION
-----------------------
SUPPLEMENTARY DATA - QUARTERLY FINANCIAL INFORMATION
----------------------------------------------------
YEARS ENDED DECEMBER 31, 1994 AND 1993 (Unaudited)
--------------------------------------------------
(in millions of dollars, except per share amounts)
QUARTER ENDED: March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1994:
Net sales $509.1 $552.4 $559.7 $583.4
Gross profit 177.8 192.7 182.7 181.1
Net income (loss) 37.2 40.5 34.7 (119.2)<F1>
Net income (loss) per share 14.88 16.20 13.88 (47.68)
1993:
Net sales $490.8 $519.9 $512.0 $521.0
Gross profit 161.2 166.9 162.6 149.1
Net income (loss) 30.7 36.3 30.2 (384.2)<F1>
Net income (loss) per share 12.28 14.52 12.08 (153.68)
[FN]
<F1> Includes a pretax charge related to breast implants of $241.0 in 1994
($151.8 net of income tax benefit) and $640.0 in 1993 ($415.0 net of income
tax benefit); see Note 2 of Notes to Consolidated Financial Statements for a
discussion of this matter.
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
[/FN]
<PAGE>48
<TABLE>
<CAPTION>
DOW CORNING CORPORATION
-----------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------
(in millions of dollars)
Additions
charged to
Balance at operating Uncollectible Balance
beginning costs and accounts SFAS No. 52 at end
of year expenses written off adjustments of year
---------- ---------- -------------- ----------- -------
Description
- - - - - -----------
Allowance for doubtful
accounts - deducted
from accounts and
notes receivable in
the balance sheet
<S> <C> <C> <C> <C> <C>
1994 $ 8.4 $ 3.5 $ 1.5 $(0.2) $10.2
===== ===== ===== ===== =====
1993 $ 8.4 $ 0.9 $ 0.9 $ - $ 8.4
===== ===== ===== ===== =====
1992 $ 7.7 $ 2.3 $ 1.0 $(0.6) $ 8.4
===== ===== ===== ===== =====
/TABLE
<PAGE>
<PAGE>49
(THIS PAGE INTENTIONALLY BLANK)
<PAGE>50
DOW CORNING CORPORATION
-----------------------
EXHIBIT INDEX
-------------
These exhibits are numbered in accordance
with the exhibit table of Item 601 of Regulation S-K
Exhibit
Number Description Page
- - - - - ------- ----------- ----
3.1 Restated Articles of Incorporation of Dow Corning
Corporation dated March 25, 1988 are incorporated
by reference from Item 14(c) of Form 10-K for
the fiscal year ended December 31, 1993
3.2 By-Laws of Dow Corning Corporation dated September 16, 1994 51
4 Dow Corning Corporation agrees to furnish the
Securities and Exchange Commission upon its request a
copy of any instrument which defines the rights of
holders of long-term debt of the registrant and all of its
subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed.
10 Breast Implant Litigation Settlement Agreement 90
12 Computation of ratio of earnings to fixed charges 197
21 Subsidiaries of the Registrant -- has been omitted in
accordance with provisions of General Instruction J of
Form 10-K.
23 Consent of Price Waterhouse LLP 198
Exhibits 3.2, 10, 12, and 23 were appended to the manually signed
original and have not been included in this printed copy.
<PAGE>
DOW CORNING CORPORATION
BY-LAWS
Adopted at
Annual Shareholders' Meeting
June 12, 1973
As Amended
December 13, 1974
October 1, 1975
February 2, 1977
March 3, 1978
March 23, 1981
March 2, 1984
March 25, 1988
February 6, 1992
February 12, 1992
December 4, 1992
June 25, 1993
September 16, 1994
<PAGE>
DOW CORNING CORPORATION
BY-LAWS
TABLE OF CONTENTS
ARTICLE I - LOCATION OF OFFICES . . . . . . . . . . . PAGE 1
ARTICLE II - NOTICES . . . . . . . . . . . . . . . . PAGE 1
SECTION 1 - DELIVERY . . . . . . . . . . . . . . PAGE 1
SECTION 2 - WAIVER . . . . . . . . . . . . . . . PAGE 2
ARTICLE III - SHAREHOLDERS . . . . . . . . . . . . . PAGE 2
SECTION 1 - PLACE OF MEETINGS . . . . . . . . . . PAGE 2
SECTION 2 - ANNUAL MEETING . . . . . . . . . . . PAGE 2
SECTION 3 - NOTICE OF ANNUAL MEETING . . . . . . PAGE 3
SECTION 4 - SPECIAL MEETINGS . . . . . . . . . . PAGE 3
SECTION 5 - NOTICE OF SPECIAL MEETINGS . . . . . PAGE 4
SECTION 6 - ACTION WITHOUT A MEETING . . . . . . PAGE 4
SECTION 7 - FIXING OF RECORD DATE . . . . . . . . PAGE 4
SECTION 8 - VOTING LISTS . . . . . . . . . . . . PAGE 5
SECTION 9 - QUORUM . . . . . . . . . . . . . . . PAGE 6
SECTION 10 - PROXIES . . . . . . . . . . . . . . PAGE 6
SECTION 11 - VOTING OF SHARES - . . . . . . . . . PAGE 7
ELECTION OF DIRECTORS
SECTION 12 - VOTING OF SHARES - . . . . . . . . . PAGE 7
OTHER THAN ELECTION OF DIRECTORS
SECTION 13 - REQUEST FOR FINANCIAL STATEMENT . . PAGE 7
SECTION 14 - REMOVAL OF DIRECTORS . . . . . . . . PAGE 8
<PAGE>
TABLE OF CONTENTS (CONTINUED)
ARTICLE IV - BOARD OF DIRECTORS . . . . . . . . . . . PAGE 8
SECTION 1 - GENERAL POWERS . . . . . . . . . . . PAGE 8
SECTION 2 - NUMBER, TENURE AND QUALIFICATIONS . . PAGE 9
SECTION 3 - REGULAR MEETINGS . . . . . . . . . . PAGE 9
SECTION 4 - SPECIAL MEETINGS . . . . . . . . . . PAGE 10
SECTION 5 - NOTICE OF SPECIAL MEET1NGS . . . . . PAGE 10
SECTION 6 - PARTICIPATION . . . . . . . . . . . PAGE 10
SECTION 7 - ACTION WITHOUT A MEETING . . . . . . PAGE 1l
SECTION 8 - QUORUM AND MANNER OF ACTING . . . . PAGE 11
SECTION 9 - VACANCIES . . . . . . . . . . . . . PAGE 11
SECTION 10 - COMPENSATION . . . . . . . . . . . PAGE 12
SECTION 11 - COMMITTEES OF THE BOARD . .. . . . PAGE 12
SECTION 12 - POWERS OF COMMITTEES . . . . . . . PAGE 13
SECTION 13 - DIRECTORS' ANNUAL STATEMENT . . . . PAGE 14
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . PAGE 14
SECTION 1 - ELECTION AND TERM OF OFFICE . . . . PAGE 14
SECTION 2 - OFFICES . . . . . . . . . . . . . . PAGE 15
SECTION 3 - VACANCIES . . . . . . . . . . . . . PAGE 15
SECTION 4 - CHAIRMAN OF THE BOARD . . . . . . . PAGE 15
SECTION 5 - PRESIDENT . . . . . . . . . . . . . PAGE 16
SECTION 6 - VICE PRESIDENTS . . . . . . . . . . PAGE 16
SECTION 7 - SECRETARY . . . . . . . . . . . . . PAGE 17
SECTION 8 - TREASURER . . . . . . . . . . . . . PAGE 17
<PAGE>
TABLE OF CONTENTS (CONTINUED)
SECTION 9 - GENERAL COUNSEL . . . . . . . . . . PAGE 18
SECTION 10 - CONTROLLER . . . . . . . . . . . . PAGE 18
SECTION 11 - AUDITOR . . . . . . . . . . . . . . PAGE 19
SECTION 12 - ASSISTANT OFFICERS . . . . . . . . PAGE 19
ARTICLE VI - EXECUTION OF INSTRUMENTS AND APPOINTMENT
OF PROXIES AND AGENTS . . . . . . . . . PAGE 20
SECTION 1 - CONTRACTS AND CONVEYANCES . . . . . PAGE 20
SECTION 2 - LOANS . . . . . . . . . . . . . . . PAGE 20
SECTION 3 - CHECKS, DRAFTS AND SO FORTH. . . . . PAGE 20
SECTION 4 - APPOINTMENT OF PROXIES AND AGENTS . PAGE 21
ARTICLE VII - SEAL . . . . . . . . . . . . . . . . . PAGE 21
ARTICLE VIII - CERTIFICATES OF SHARES AND
THEIR TRANSFER . . . . . . . . . . . PAGE 21
SECTION 1 - SHARE CERTIFICATES . . . . . . . . . PAGE 21
SECTION 2 - TRANSFER OF SHARES - . . . . . . . . PAGE 23
ONLY ON BOOKS OF CORPORATION
SECTION 3 - REGISTERED SHAREHOLDERS . . . . . . PAGE 24
ARTICLE IX - FISCAL YEAR . . . . . . . . . . . . . . PAGE 24
ARTICLE X - DIVIDENDS AND RESERVES . . . . . . . . . PAGE 24
SECTION 1 - DIVIDENDS AND OTHER DISTRIBUTIONS . PAGE 24
SECTION 2 - SOURCE OF DIVIDENDS . . . . . . . . PAGE 25
SECTION 3 - RESERVES . . . . . . . . . . . . . . PAGE 26
ARTICLE XI - INDEMNIFICATION OF OFFICERS,
DIRECTORS AND EMPLOYEES . . . . . . . . PAGE 26
SECTION 1 - ACTION OR SUIT BY OTHERS THAN
THE CORPORATION . . . . . . . . . . PAGE 26
<PAGE>
TABLE OF CONTENTS (CONTINUED)
SECTION 2 - ACTION OR SUIT BY THE CORPORATION . PAGE 28
SECTION 3 - INDEMNIFICATION AGAINST EXPENSES . . PAGE 30
SECTION 4 - REIMBURSEMENT OF EXPENSES . . . . . PAGE 31
SECTION 5 - RIGHT NOT EXCLUSIVE . . . . . . . . PAGE 31
SECTION 6 - RIGHT TO INDEMNIFICATION SURVIVES . PAGE 32
SECTION 7 - INSURANCE TO PROTECT OFFICERS,
DIRECTORS, EMPLOYEES, AND AGENTS . . PAGE 32
SECTION 8 - MERGED AND REORGANIZED CORPORATION . PAGE 33
ARTICLE XII - AMENDMENT OF BY-LAWS . . . . . . . . . PAGE 33
<PAGE>
DOW CORNING CORPORATION
BY-LAWS
ARTICLE I - LOCATION OF OFFICES
The registered office shall be at the offices of The Corporation Company,
615 Griswold Street, Detroit, Michigan 48226. The principal office for the
transaction of business shall be at the Dow Corning Center in Williams Township,
Bay County, State of Michigan. The corporation may also have offices at such
other places as the Board of Directors may from time to time appoint or the
business of the corporation may require.
ARTICLE II - NOTICES
Section 1 - Delivery
--------
Whenever under the provisions of these By-Laws, notice is required to be
given to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may also be given in writing, by mail, by depositing the
same in a post office or letter box, in a post-paid sealed wrapper, addressed to
such director or shareholder, at the address designated by him for that purpose,
or, if none is designated, at his last known address and such notice shall be
deemed to be given at the time when the same shall be deposited.
1
<PAGE>
Section 2 - Waiver
------
When the corporation, board or committee thereof may take action after
notice to any person or after lapse of a prescribed period of time, the action
may be taken without notice and without lapse of the period of time, if at any
time before or after the action is completed the person entitled to notice or to
participate in the action to be taken submits a signed waiver of such
requirements.
ARTICLE III - SHAREHOLDERS
Section 1 - Place of Meetings
-----------------
Meetings of the shareholders shall be held at Dow Corning Center in Williams
Township, Bay County, State of Michigan, or at such other place either within or
without the State of Michigan as shall be stated in the notice of meeting.
Section 2 - Annual Meeting
--------------
Unless otherwise agreed to by unanimous consent of the shareholders, the
annual meeting of shareholders shall be held on the first Friday following the
first Wednesday of March in each year, if not a legal holiday, and if a legal
holiday, then on the next business day following, at 9:00 a.m., for the purpose
of electing, by a plurality vote, a board of directors to serve until the next
annual meeting of
2
<PAGE>
shareholders and until their successors are elected or chosen and qualify, and
for the transaction of such other business as may properly come before the
meeting.
Section 3 - Notice of Annual Meeting
------------------------
Written notice of the time, place and purposes of the annual meeting shall
be given to each shareholder entitled to vote at the meeting, not less than ten
(10) nor more than sixty (60) days before the date of the meeting.
Section 4 - Special Meetings
----------------
Special meetings of the shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the chairman of the board or
the president, and shall be called by the chairman of the board or the president
or secretary at the request in writing by shareholders owning 50 percent in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at all special meetings shall be confined
to the purpose or purposes stated in the call.
3
<PAGE>
Section 5 - Notice of Special Meetings
--------------------------
Written notice of a special meeting of shareholders stating the time, place
and purposes thereof, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each shareholder entitled to vote
at the meeting.
Section 6 - Action Without a Meeting
------------------------
Any action required or permitted to be taken at an annual or special meeting
of shareholders may be taken without a meeting, without prior notice and without
a vote, if all the shareholders entitled to vote thereon consent thereto in
writing.
Section 7 - Fixing of Record Date
---------------------
(1) For the purpose of determining shareholders entitled to notice of and to
vote at a meeting of shareholders or an adjournment thereof, or to express
consent or to dissent from a proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of a dividend or allotment
of a right, or for the purpose of any other action, the board of directors may
fix, in advance, a date as the record date for any such determination of
shareholders. The date shall not be more than sixty (60) nor less than ten (10)
days before the date
4
<PAGE>
of the meeting, nor more than sixty (60) days before any other action.
(2) If a record date is not fixed (a) the record date for determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day next preceding the day on which the
meeting is held, and (b) the record date for determining shareholders for any
purpose other than that specified in subdivision (a) shall be the close of
business on the day on which the resolution of the board relating thereto is
adopted.
Section 8 - Voting Lists
------------
The secretary shall make and certify a complete list of the shareholders
entitled to vote at a shareholders' meeting or any adjournment thereof. The list
shall:
(a) Be arranged alphabetically within each class and series, with the
address of, and the number of shares held by, each shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during the whole time of
the meeting.
5
<PAGE>
(d) Be prima facie evidence as to who are the shareholders entitled to
examine the list or to vote at the meeting.
Section 9 - Quorum
------
Shares entitled to cast a majority of the votes at a meeting constitute a
quorum at the meeting. The shareholders present in person or by proxy at such
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. Whether or not a
quorum is present, the meeting may be adjourned by a vote of the shares present.
Section 10 - Proxies
-------
A shareholder entitled to vote at a meeting of shareholders or to express
consent or dissent without a meeting may authorize other persons to act for him
by proxy. A proxy shall be signed by the shareholder or his authorized agent or
representative and filed with the secretary before or at the time of the meeting
or action. A proxy is not valid after the expiration of three (3) years from its
date unless otherwise provided in the proxy.
6
<PAGE>
Section 11 - Voting of Shares - Election of Directors
----------------------------------------
Every shareholder entitled to vote at an election for directors may vote in
person or by proxy the number of shares of stock owned by him for as many
persons as there are directors to be elected and for whose election he has the
right to vote or to cumulate his votes by giving one (1) candidate as many votes
as the number of such directors multiplied by the number of his shares, or by
distributing his votes on the same principle among any number of the candidates.
The entire number of directors to be elected shall be balloted for at one and
the same time and not separately.
Section 12 - Voting of Shares - Other than Election of Directors
---------------------------------------------------
Each outstanding share entitled to vote shall be entitled to one (1) vote
upon each matter submitted to a vote at a meeting of shareholders.
Section 13 - Request for Financial Statement
-------------------------------
(1) Upon written request of a shareholder, the secretary shall mail to the
shareholder its balance sheet as at the end of the preceding fiscal year; its
statement of
7
<PAGE>
income for such fiscal year; and, if prepared by the corporation, its statement
of source and application of funds for such fiscal year.
(2) A person who is a shareholder of record of the corporation, upon at
least ten (10) days' written demand may examine for any proper purpose in person
or by agent or attorney, during usual business hours, its minutes of
shareholders' meetings and record of shareholders and make extracts therefrom.
Section 14 - Removal of Directors
--------------------
At any meeting of shareholders a director may, by a vote of a majority of
shares entitled to vote at an election of directors, be removed from office,
with or without cause and another elected in his place. If the shareholders
remove a director and fail to elect another in his place the vacancy may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the board.
ARTICLE IV - BOARD OF DIRECTORS
Section 1 - General Powers
--------------
The business and affairs of the corporation shall be managed by its board of
directors which may exercise all
8
<PAGE>
such powers of the corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these By-Laws directed or
required to be exercised or done by the shareholders.
Section 2 - Number, Tenure and Qualifications
---------------------------------
The maximum number of directors which shall constitute the whole board shall
be seventeen (17). Directors need not be shareholders. Directors shall be
elected by the shareholders at the annual meeting of shareholders of the
corporation, and each director shall be elected to serve until the next annual
meeting of shareholders and until his successor shall be elected and shall
qualify.
Section 3 - Regular Meetings
----------------
A regular meeting of the board of directors shall be held without other
notice than this by-law immediately after, and at the same place as, the annual
meeting of shareholders. The board of directors may provide, by resolution, the
time and place, either within or without the State of Michigan for the holding
of additional regular meetings without other notice than such resolution.
9
<PAGE>
Section 4 - Special Meetings
----------------
Special meetings of the board of directors may be called by or at the
request of the chairman, the president, the secretary, or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or without the State of Michigan, as the place
for holding any special meeting of the board of directors called by them.
Section 5 - Notice of Special Meetings
--------------------------
Written or telegraphic notice of any special meeting shall be given to each
director at least five (5) days prior thereto. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
Section 6 - Participation
-------------
A member of the board or a committee designated by the board may participate
in a meeting by means of conference telephone or similar communications
equipment by means of
10
<PAGE>
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to the Section constitutes presence in
person at the meeting.
Section 7 - Action Without a Meeting
------------------------
Action required or permitted to be taken pursuant to authorization voted at
a meeting of the board or a committee thereof, may be taken without a meeting
if, before or after the action, all members of the board or of the committee
consent thereto in writing. The written consents shall be filed with the minutes
of the proceedings of the board or committee. The consent has the same effect as
a vote of the board or committee for all purposes.
Section 8 - Quorum and Manner of Acting
---------------------------
A majority of the directors then in office shall constitute a quorum. The
acts of a majority of the directors present at any meeting at which a quorum is
present shall be the acts of the board of directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 9 - Vacancies
---------
Vacancies in the board of directors may be filled by the affirmative vote of
a majority of the remaining
11
<PAGE>
directors and each person so elected to fill a vacancy shall be a director until
his successor is elected by the shareholders who may make such election at the
next annual meeting of the shareholders or any special meeting duly called for
that purpose and held prior thereto.
Section 10 - Compensation
------------
Directors shall receive such salary for their services as shall from time to
time be determined by resolution of the board, provided that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 11 - Committees of the Board
-----------------------
(1) The board may designate one (1) or more committees; each committee to
consist of one (1) or more of the directors of the corporation. The board may
designate one (1) or more directors as alternate members of a committee, who may
replace an absent or disqualified member at a meeting of the committee.
In the absence or disqualification of a member of the committee, the members
thereof present at a meeting and not disqualified from voting, whether or not
they constitute a quorum, may unanimously appoint another member of the board
12
<PAGE>
to act at the meeting in place of such an absent or disqualified member.
(2) A committee, and each member thereof, shall serve at the pleasure of the
board.
Section 12 - Powers of Committees
--------------------
A committee designated pursuant to Article IV, Section 11 to the extent
provided in the resolution of the board, may exercise all powers and authority
of the board in management of the business and affairs of the corporation.
However, such a committee does not have power or authority to:
(a) Amend the Articles of Incorporation.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to shareholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets.
(d) Recommend to shareholders a dissolution of the corporation or a
revocation of a dissolution.
(e) Amend the By-laws of the corporation.
(f) Fill vacancies in the board.
(g) Fix compensation of the directors for serving on the board or on a
committee.
(h) Declare a dividend or to authorize the issuance of stock.
13
<PAGE>
(i) Elect or appoint a chairman, president, vice presidents, secretary or
treasurer.
Section 13 - Directors' Annual Statement
---------------------------
The directors shall at least once in each year cause a financial report of
the corporation for the preceding fiscal year to be made and distributed to each
shareholder thereof within four (4) months after the end of the fiscal year. The
report shall include the corporation's statement of income, its year-end balance
sheet and, if prepared by the corporation, its statement of source and
application of funds and such other information required by law.
ARTICLE V - OFFICERS
Section 1 - Election and Term of Office
---------------------------
The officers of the corporation shall be elected or appointed by the
directors immediately after the annual meeting of shareholders. The officers
shall hold office until the first meeting of the board of directors following
the next annual meeting of shareholders and until their respective successors
are chosen and qualify, or until their resignation or removal. Any officer
elected or appointed by the board may be removed at any time by the board with
or without cause. An officer may resign by written notice to the corporation.
The resignation is effective upon its
14
<PAGE>
receipt by the corporation or at a subsequent time specified in the notice of
resignation.
Section 2 - Offices
-------
The officers of the corporation shall be a chairman of the board, a
president, a secretary, and a treasurer. Other officers if desired shall be one
or more vice presidents (the number thereof to be determined by the board of
directors), a general counsel, controller and an auditor. Such other officers
and assistant officers as may be deemed necessary may be elected or appointed by
the board of directors. Any three of the aforesaid offices may be held by the
same person, but no officer may execute, acknowledge or verify any instrument in
more than one capacity.
Section 3 - Vacancies
---------
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the board of directors for the
unexpired portion of the term.
Section 4 - Chairman of the Board
---------------------
The chairman of the board shall be the chief executive officer of the
corporation and under the direction of the board, shall have general management
and direction of the affairs and business of the corporation. He shall, when
15
<PAGE>
present, preside at all meetings of the shareholders and of the board of
directors.
Section 5 - President
---------
The president shall, under the direction of the chairman of the board, have
general management and direction of the affairs and business of the Corporation.
He shall also perform assignments from time to time as delegated by the chairman
of the board and board of directors. In the absence of the chairman of the
board, he shall preside at all meetings of the shareholders and of the board of
directors.
Section 6 - Vice Presidents
---------------
The vice presidents shall perform the function and duties delegated to them
by the board of directors, the chairman of the board, or the president. The
board may designate one or more vice presidents as executive vice presidents for
the purpose of assisting the chairman of the board or the president in the
management of the business and affairs of the corporation.
16
<PAGE>
Section 7 - Secretary
---------
The secretary shall attend all meetings of the shareholders and board of
directors, and when directed by the board, of other committees, and preserve in
books of the company true minutes of all proceedings, including a record of all
votes. He shall give all notices required by statute, by-law or resolution. He
shall safely keep in his custody the seal of the corporation and shall have
authority to affix the same to all instruments where its use is required. He
shall perform such other duties as may be delegated to him by the board of
directors or the chairman of the board, under whose supervision he shall be.
Section 8 - Treasurer
---------
The treasurer shall have the custody of all corporate funds and securities
and shall keep in books belonging to the corporation full and accurate accounts
of all receipts and disbursements; he shall deposit all moneys, securities and
other valuable effects in the name of the corporation in such depositories as
may be designated for that purpose by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board, taking proper
vouchers for such disbursements, and shall render to the chairman of the board,
the president, and the directors at the regular meetings of the board, and
whenever requested by
17
<PAGE>
them, an account of all his transactions as treasurer and of the financial
condition of the corporation. He shall perform such other and further duties as
may be assigned to him by the board of directors, the chairman of the board, or
the president. The board of directors may secure the fidelity of the treasurer
or any assistant treasurer by bond or otherwise.
Section 9 - General Counsel
---------------
The general counsel shall act as attorney, legal advisor to, and counsel for
the corporation, the board of directors, the chairman of the board, the
president and other officers in matters relating to the business, properties and
affairs of the corporation, and shall, when authorized by the corporation,
institute, prosecute and defend on its behalf suits and other proceedings before
the courts and administrative agencies. He may employ or retain special counsel
to assist in the above.
Section 10 - Controller
----------
The controller shall be in charge of the accounts of the corporation. He
shall have such powers and perform such
18
<PAGE>
duties as may be assigned to him by the board of directors, chairman of the
board, or the president. He shall submit such reports and records to the board
of directors as may be requested by it.
Section 11 - Auditor
-------
The auditor shall be in charge of the internal auditing of the corporation.
He shall report to the Audit Committee of the board of directors. He shall have
such powers and perform such duties as may be assigned to him by the board of
directors, chairman of the board, or the president. He shall submit such reports
and records to the board of directors as may be requested by it.
Section 12 - Assistant Officers
------------------
There may be appointed one or more assistant secretaries, assistant
treasurers, and assistant controllers each of whom shall perform such duties as
shall be assigned to them by the secretary, the treasurer, the controller, or
the board of directors.
19
<PAGE>
ARTICLE VI - EXECUTION OF INSTRUMENTS AND APPOINTMENT OF PROXIES AND AGENTS
Section 1 - Contracts and Conveyances
-------------------------
Except as otherwise prescribed by the board of directors, the officers of
the corporation shall sign and execute all contracts, instruments, conveyances
and documents in the name of the corporation.
Section 2 - Loans
-----
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the board of directors. Such authority may be general or confined to specific
instances.
Section 3 - Checks, Drafts and So Forth
---------------------------
All checks, drafts and orders of payment of money shall be signed in the
name of the corporation by either the chairman, the president, the treasurer or
such other officer or officers or such other person or persons as the board of
directors may from time to time designate, provided, however, that the board of
directors may authorize the treasurer to change the authorized signatories for
any bank account of the corporation. No check, draft, or orders for payment of
money shall be signed in blank.
20
<PAGE>
Section 4 - Appointment of Proxies and Agents
---------------------------------
The board may by resolution appoint proxies to vote shares owned by the
corporation in another corporation. In the absence of such resolution shares
owned by the corporation in another corporation may be voted by the chairman of
the board or president or by proxy appointed by either. The board may appoint
such agents as they deem necessary for the transaction of the business of the
corporation.
ARTICLE VII - SEAL
The corporate seal shall have inscribed thereon the name of the corporation,
the year of its organization and the words "Corporate Seal, Michigan." The seal
may be used by causing it or a facsimile thereof to be impressed or reproduced.
ARTICLE VIII - CERTIFICATES OF SHARES AND THEIR TRANSFER
Section 1 - Share Certificates
------------------
(1) The shares of the corporation shall be represented by certificates
signed by the chairman of the board, president or a vice president and by the
treasurer, assistant treasurer, secretary or assistant secretary of the
corporation, and may be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the
21
<PAGE>
officers may be facsimiles if the certificate is countersigned by the transfer
agent or registered by a registrar other than the corporation itself or its
employee. In case an officer who has signed or whose facsimile signature has
been placed upon a certificate ceases to be such officer before the certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer at the date of issue.
(2) A certificate representing shares shall state upon its face:
(a) That the corporation is formed under the laws of this state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation of the
series, if any, which the certificate represents.
(d) The par value of each share represented by the certificate, or a
statement that the shares are without par value.
(3) A certificate representing shares shall set forth on its face or back or
state that the corporation will furnish to a shareholder upon request and
without charge a full statement of the designation, relative rights, preferences
and limitations of the shares of each class authorized to be issued, and if the
corporation is
22
<PAGE>
authorized to issue any class of shares in series, the designation, relative
rights, preferences and limitations of each series so far as the same have been
prescribed and the authority of the board to designate and prescribe the
relative rights, preferences and limitations of other series.
(4) Each certificate representing shares of the corporation shall, among
other things contain substantially the following notice: "The shares represented
by this certificate cannot be mortgaged, pledged or otherwise encumbered and are
held and may be sold, assigned, or transferred only subject to the terms and
conditions of an agreement between Corning Glass Works and The Dow Chemical
Company, dated February 9, 1943, a copy of which is lodged with this
corporation."
Section 2 - Transfer of Shares - Only on Books of Corporation
-------------------------------------------------
Shares shall be transferable only on the books of the corporation by the
person named in the certificate, or by his attorney-in-fact lawfully constituted
in writing, and upon surrender of the certificate therefor. A record shall be
made of each such transfer and issue. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by
23
<PAGE>
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transfer upon its books.
Section 3 - Registered Shareholders
-----------------------
The corporation shall have the right to treat the registered holder of any
share as the absolute owner thereof, and shall not be bound to recognize any
equitable or other claim to, or interest in, such share on the part of any other
person, whether or not the corporation shall have express or other notice
thereof, save as may be otherwise provided by the statutes of Michigan.
ARTICLE IX - FISCAL YEAR
The fiscal year of the corporation shall begin the first day of January and
terminate on the thirty-first day of December each year.
ARTICLE X - DIVIDENDS AND RESERVES
Section 1 - Dividends and Other Distributions
---------------------------------
The board of directors of this corporation may declare and pay dividends or
make other distribution in cash, its bonds or its property, including the shares
or bonds of other corporations, on its outstanding shares, except when
24
<PAGE>
currently the corporation is insolvent or would thereby be made insolvent, or
when the declaration, payment or distribution would be contrary to any
restriction contained in the Articles of Incorporation.
Section 2 - Source of Dividends
-------------------
Dividends may be declared or paid and other distributions may be made out of
surplus only. "Surplus" is the excess of the net assets of the corporation over
its stated capital. In determining surplus either the book value or the current
fair market value of the properties and rights of the corporation may be
included whether or not realized. A dividend paid or any other distribution
made, in any part, from sources other than earned surplus, shall be accompanied
by a written notice (a) disclosing the amounts by which the dividend or
distribution affects stated capital, capital surplus and earned surplus, or (b)
if such amounts are not determinable at the time of the notice, disclosing the
approximate effect of the dividend or distribution upon stated capital, capital
surplus and earned surplus and stating that the amounts are not yet
determinable.
25
<PAGE>
Section 3 - Reserves
--------
Before the payment of any dividends the directors may set apart out of any
funds of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve created by the board.
ARTICLE XI - INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
Section 1 - Action or Suit by Others Than the Corporation
---------------------------------------------
The board of directors may authorize the indemnification of any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the full extent provided by the Michigan Business Corporation Act
from time to time in effect; if he acted in good faith and
26
<PAGE>
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to be the best
interests of the corporation or its shareholders, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful; provided, however, that except with respect to actions, suits or
proceedings initiated by any such person to enforce his or her rights to
indemnification or advancement of expenses under this Article or otherwise, the
corporation shall indemnify any such person in connection with an action, suit
or proceeding initiated by such person only if such action, suit or proceeding
was authorized or ratified by the Board of Directors of the corporation.
"Proceeding" as used in this Article shall include any proceeding within an
action or suit.
27
<PAGE>
Section 2 - Action or Suit by the Corporation
---------------------------------
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of his or her,
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for a violation of Section 551(1) of the
Michigan Business Corporation Act, (iv) for any transaction from which the
director derived an improper personal benefit, or (v) for an act or omission
occurring before the date that this amendment to the Articles of Incorporation
becomes effective in accordance with the pertinent provisions of the Michigan
Business Corporation Act. In addition to the circumstances in which a director
of the Corporation is not personally liable as set forth in the preceding
sentence, a director shall not be liable to the fullest extent permitted by any
amendment to the Michigan Business Corporation Act hereafter enacted that
further limits the liability of a director. Any repeal, amendment or other
modification of this section shall not adversely affect any right or protection
of any director of the corporation existing at the time of such repeal,
amendment or other modification for or with respect to any
28
<PAGE>
act or omission occurring prior to the time of such repeal
amendment or other modification.
The board of directors may authorize the indemnification of any person who
was or is a party to or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was an
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, or proceeding
to the full extent provided by the Michigan Business Corporation Act from time
to time in effect; if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation or its
shareholders and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the
29
<PAGE>
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonable entitled to indemnity for such expenses which
such court shall deem proper.
Section 3 - Indemnification Against Expenses
--------------------------------
(1) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1 or 2 of this Article, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(2) Any indemnification under Section 1 or 2 of this Article (unless ordered
by a court) shall be made only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 and 2 of this Article. Such determination shall
be made in either of the following ways:
(a) By a majority vote of a quorum of the board consisting of
directors who were not parties to the action, suit or proceeding.
30
<PAGE>
(b) If such quorum described in subdivision (a) is not obtainable,
then by a majority vote of a committee of directors who are not
parties to the action. The committee shall consist of not less
than 2 disinterested directors.
(c) By independent legal counsel in a written opinion.
(d) By the shareholders.
Section 4 - Reimbursement of Expenses
-------------------------
If authorized by the board of directors, expenses incurred in defending a
civil or criminal action, suit or proceeding described in Section 1 or 2 of this
Article may be paid in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in subsection (2) of Section 3
of this Article upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation.
Section 5 - Right Not Exclusive
-------------------
Nothing contained in Sections 1 through 4 of this Article shall affect any
rights to indemnification to which
31
<PAGE>
persons other than directors and officers may be entitled by contract or
otherwise by law.
Section 6 - Right to Indemnification Survives
---------------------------------
The indemnification provided in Sections 1 through 4 of this Article
continues 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 person.
Section 7 - Insurance to Protect Officers, Directors, Employees, and Agents
---------------------------------------------------------------
The board of directors may authorize the purchase and maintenance of
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 the 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 power to indemnify him against
such liability under the laws of the State of Michigan.
32
<PAGE>
Section 8 - Merged and Reorganized Corporations
-----------------------------------
For the purposes of Sections 1 through 7 of this Article references to the
corporation include all constituent corporations absorbed in a consolidation or
merger and the resulting or surviving corporation, so that a person who is or
was a director, officer, employee or agent of such constituent corporation or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this section with respect to the resulting or surviving corporation as he
would if he had served the resulting or surviving corporation in the same
capacity.
ARTICLE XII - AMENDMENT OF BY-LAWS
These by-laws may be altered or amended or repealed by the affirmative vote
of a majority of the shares entitled to vote at any regular or special meeting
of the shareholders, or by the affirmative vote of a majority of the members of
the board then in office; provided that the board of
33
<PAGE>
directors shall not make or alter any by-laws fixing their qualifications, or
term of office or the number of shares which shall constitute a quorum at a
meeting of shareholders
34
<PAGE>
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
In re: )
SILICONE GEL BREAST IMPLANTS ) Master File No. CV-92-P-10000-S
PRODUCTS LIABILITY LITIGATION )
MDL 926 )
)
)
This Agreement relates to: )
)
ALL ACTIONS. )
)
HEIDI LINDSEY, et al., on behalf of ) Case No. CV-94-P-11558-S
themselves and all others similarly )
situated, )
) Honorable Sam C. Pointer, Jr.
Plaintiffs, )
)
v. )
)
DOW CORNING CORPORATION, et al. )
Defendants. )
)
- - - - - ---------------------------------------
BREAST IMPLANT LITIGATION SETTLEMENT AGREEMENT
----------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
1. DEFINITIONS
II. REQUIRED EVENTS; COOPERATION ....................................11
111. SETTLEMENT TERMS ................................................12
A. Certification Of Settlement Class ............................12
B. Monetary Terms/Establishment Of Settlement Fund ..............13
C. Establishment Of Designated Funds And Disease
Compensation Program For The Benefit Of Settlement
Class Members ................................................14
1. Designated Funds ..........................................14
a. Fund I -- Medical Diagnostic/Evaluation Fund...........14
b. Fund II - Explantation Fund............................15
c. Fund III - Rupture Fund................................15
d. Fund IV-- Breast Implant Recipient Compensation Fund...16
e. Fund V- Reserve Fund...................................16
f. Fund VI - Settlement Class Costs, Expenses and Fees....16
g. Adjustment in the Event of Withdrawal or
Final Default..........................................17
2. Disease Compensation Program ..............................17
a. Compensation for Eligible Current Claimants
Under the Disease Compensation Program.................17
(1) Limitation on Aggregate Payment for
Current Claimants..................................17
(2) Determination of Payment Amounts...................17
(3) Possible Reduction of Payment Amounts..............18
(4) Settlement Class Members' Opt Out Rights In the
Event of Reduction in the Disease
Compensation Schedule..............................19
b. Compensation for Ongoing Claimants
Under the Disease Compensation Program.................19
</TABLE>
i
<PAGE>
(1) Ongoing Claimants/Eligibility Requirements............19
(2) Limitation of Compensatory Funds for Ongoing
Claimants/Annual Payment Ceiling/Adjustments..........20
(3) Compensation Amount for Ongoing Claims................21
(4) Possible Adjustment of Payment Amounts
for Eligible Ongoing Claims...........................22
(5) Opt Out Rights for Eligible Ongoing Claimants.........23
c. Additional Compensable Individuals: Recipients
of Implants. Manufactured by McGhan Medical
Corp. After August 3, 1984................................24
d. Treatment of Claims Regarding Bioplasty and Mentor........25
e. Compensation for Pre-Existing Diseases
Under the Disease Compensation Program/Compensation
for Multiple Diseases/New Diseases........................26
f. Benefits for Children Of Breast Implant Recipients........28
g. Adjustment in the Event of Withdrawal
or Final Default..........................................28
3. Appointment of Medical Panel/Additions to
Disease Definitions and to Disease
Compensation Schedule ........................................28
D. Children Of Breast Implant Recipients
1. Settlement Class Children .....................................30
2. Benefits to Children ..........................................30
3. Additional Opt Out Rights .....................................31
a. Opt Out Conditions. ........................................31
b. Waiver of Certain Defenses..................................31
c. Remedies Available to Opt Out Children. ....................31
E. Compensation For Foreign Claimants/Calculation/Limitations........31
F. Power To Transfer ................................................32
G. Third Party Claims ...............................................32
ii
<PAGE>
IV. CLAIMS ADMINISTRATION ...............................................33
A. Establishment Of Claims Office/Appointment Of
Claims Administrator..............................................33
B. Deadlines For Registration And Claims By Settlement
Class Members.....................................................33
1. Eligibility For Current Claims; Deadline .....................33
2. Registration; Deadlines ......................................34
3. Extension of Registration Date ...............................34
4. Late Registrants .............................................34
5. Claim and Registration Forms .................................35
6. Notice of Deadlines and Reductions ...........................35
C. Claims To Disease Compensation Program ...........................36
1. Submission of Claim Forms and Medical Records ................36
2. Claims Acceptance and Certification Under
Disease Compensation Program..................................36
3. Appeal of Claim Classification ...............................37
4. Determination of Payment Reduction ...........................37
5. Distribution of Payments .....................................38
D. Retention Of Records/Review Of Records By Defendants..............38
V. DEFENDANTS' RIGHT OF WITHDRAWAL/EFFECT OF WITHDRAWAL/PLAINTIFFS'
RIGHT OF WITHDRAWAL .................................................38
A. Signatory Defendants' Right Of Withdrawal ........................38
B. Effect Of Withdrawal On Signatory Defendants .....................39
C. Effect Of Withdrawal On Settlement Class Members .................39
D. Effect Of Withdrawal On Other Defendants .........................40
E. Plaintiffs' Right To Withdraw ....................................40
VI. EFFECT OF PRIOR SETTLEMENTS AND JUDGMENTS ...........................40
VII. EXCLUSIVE REMEDY/DISMISSAL OF ACTION/IURISDICTION OF COURT...........41
A. Exclusive Remedy/Settled Claims ..................................41
iii
<PAGE>
B. Dismissal Of Actions ...........................................41
C. Continuing Jurisdiction Of Court ...............................42
VIII. RELEASES ..........................................................42
A. Release Of Settled Claims Against Defendants
And Released Parties............................................42
B. Reservation Of Rights Against Non-Settling Defendants ..........43
C. Release And Dismissal Of Cross
Claims/Contribution/lndemnity Claims............................43
IX. ENTRY OF GOOD FAITH BAR ORDER ON CONTRIBUTION AND INDEMNITY
CLAIMS/INDEMNIFICATION.............................................43
X. ADMINISTRATIVE EXPENSES/COUNSEL FEES AND COSTS.....................45
Xl. TAX STATUS OF SETTLEMENT FUND......................................45
XII. COURT'S SETTLEMENT APPROVAL ORDER..................................45
XIII. EFFECT OF DEFAULT OF ANY DEFENDANT.................................46
XIV. ASSURANCE OF DEFENDANTS' OBLIGATIONS...............................48
XV. DEFENDANTS' INSURANCE PROCEEDS.....................................48
XVI. REPRESENTATIONS AND WARRANTIES ....................................50
XVII. MISCELLANEOUS PROVISIONS ..........................................50
XVIII. INSURER NOTIFICATION ..............................................51
XIX. TERMINATION OF THE AGREEMENT ......................................52
iv
<PAGE>
EXHIBITS
--------
EXHIBIT A -- DEFENDANTS
EXHIBIT B -- RELEASED PARTIES
Defendants and Released Parties Associated with Signatory
Defendants Medical Engineering Corporation and Bristol-Myers
Squibb Company for Purposes of Section V.B. of the Agreement
Defendants and Released Parties Associated with Signatory
Defendants Baxter International Inc. and Baxter Healthcare
Corporation for Purposes of Section V.B. of the Agreement
Defendants and Released Parties Associated with Dow Corning
Corporation for Purposes of Section V.B. of the Agreement
EXHIBIT C -- FUNDING AGREEMENT
EXHIBIT D -- SCHEDULES OF DEFENDANTS' PAYMENTS
EXHIBIT E -- MEDICAL CONDITIONS AND CHARACTERISTICS: OUTLINE
OF DEFINITIONS AND CLASSIFICATION CRITERIA
EXHIBIT F -- DISEASE COMPENSATION SCHEDULE
EXHIBIT G -- ANNUAL PAYMENT CEILING FOR ONGOING DISEASE
COMPENSATION PROGRAM
v
<PAGE>
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
In re: )
SILICONE GEL BREAST IMPLANTS ) Master File No. CV-92-P-10000-S
PRODUCTS LIABILITY LITIGATION )
MDL 926 )
)
This Agreement relates to: )
)
ALL ACTIONS. )
)
HEIDI LINDSEY, et al., on behalf of ) Case No. CV-94-P11558-S
themselves and all others )
similarly situated, )
) Honorable Sam C. Pointer, Jr.
Plaintiffs, )
)
DOW CORNING CORPORATION, et al. )
)
Defendants. )
- - - - - -----------------------------------------)
BREAST IMPLANT LITIGATION SETTLEMENT AGREEMENT
----------------------------------------------
The Plaintiff Settlement Class, by and through the undersigned Plaintiffs'
Negotiating Counsel, and the Defendants listed on Exhibit A hereto ("tee
Parties"), hereby enter into this Settlement Agreement (the "Agreement")
providing for settlement of the claims described below, pursuant to the terms
and conditions set forth below, subject to the approval of the Court.
WHEREAS, a number of individual civil actions and class actions have been
filed against Defendants regarding Breast Implants and Breast Implant Materials,
many of which have been transferred to this Court for all Pretrial purposes;
-1-
<PAGE>
WHEREAS, the Court appointed a Plaintiffs' Steering Committee, and
Plaintiffs' Negotiating Counsel were selected from the Plaintiffs' Steering
Committee and other plaintiffs' counsel to conduct settlement negotiations with
Defendants with the advice and counsel of Plaintiffs' Steering Committee and
Plaintiffs' Settlement Advisory Committee;
WHEREAS, Defendants are named as defendants in various personal injury
actions and class actions alleging injury related to Breast Implants and Breast
Implant Materials;
WHEREAS, the Class Action Complaint filed in Lindsey. et al. v. Dow
Corning Corporation. et al., Case No. CV-94-P-11558-S (the "Complaint") alleges
federal claims and pendent state claims for compensatory and punitive damages
and equitable relief against Defendants for injuries related to Breast Implants
and Breast Implant Materials;
WHEREAS, Defendants have denied and continue to deny Plaintiffs' claims
in the Complaint and other similar actions, have denied any wrongdoing or
liability to Plaintiffs of any kind, and have raised numerous affirmative
defenses;
WHEREAS, the parties to this Agreement have conducted a thorough
examination and investigation of the facts and law relating to the matters set
forth in the Complaint and have conducted extensive pretrial discovery regarding
the claims and defenses asserted in this matter;
WHEREAS, the Parties to this Agreement have engaged in extensive, arms-
length negotiations extending for a period in excess of one year regarding the
settlement of claims involving Breast Implants and Breast Implant Materials;
WHEREAS, based upon extensive analysis of the facts and the law
applicable to Plaintiffs' claims, taking into account the extensive burdens and
expense of litigation, including the risks and uncertainties associated with
protracted trials and appeals, as well as the fair, cost-effective and assured
method of resolving claims of the Settlement Class provided in this Agreement,
the undersigned Plaintiffs' Negotiating Counsel have concluded that this
Agreement provides substantial
-2-
<PAGE>
benefits to the Settlement Class and is fair, reasonable, adequate and in the
best interests of the Settlement Class;
WHEREAS, the Defendants have similarly concluded that this Agreement
is desirable in order to avoid the time, risk and expense of defending multiple
and protracted litigation, and to resolve finally and completely the pending and
potential claims of the Settlement Class Members;
WHEREAS, Defendants intend by this Agleement to resolve all of the
present and future claims for or relating in any way to Breast Implants and
Breast Implant Materials of all Settlement Class Members under the terms of this
Agreement for so long as Settlement Class Members remain in the Settlement
Class; and
WHEREAS, the Parties agree that all Settlement Class Members shall
have the right to exclude themselves ("opt out") under Fed. R. Civ. P. 23(b)(3)
and (c)(2) at specified stages of the settlement approval and administration
process as provided in this Agreement. such that participation in the settlement
program shall be voluntary;
NOW, THEREFORE, the undersigned Parties stipulate and agree that all
claims of the Settlement Class against Defendants and Released Parties regarding
Breast Implants and Breast Implant Materials shall be finally settled and
resolved on the terms and conditions set forth below, subject to Court approval
of this Agreement as a good faith, fair, reasonable and adequate settlement
under Fed. R. Civ. P. 23(e).
I. DEFINITIONS
As used in this Agreement and its Exhibits, the following terms shall
have the meanings set forth below. Terms used in the singular shall be deemed to
include the plural and vice versa.
"BREAST IMPLANT" shall mean any mammary prosthesis containing or
consisting of silicone, silicone gel, polyurethane or polyurethane covering, an
elastomer made of silicone and/or a saline-filled silicone envelope.
-3-
<PAGE>
"BREAST IMPLANT MATERIALS" shall mean materials, products and/or
components that were used in the manufacture of Breast Implants. For purposes of
this Agreement. Breast Implant Materials shall not include silicone injections.
"BREAST IMPLANT RECIPIENTS" shall mean persons in whose bodies one or
more Included Breast Implants have been or are now implanted, regardless of
whether such Breast Implant has been or may in the future be removed.
"BREAST IMPLANT RELATED" shall mean related to or arising from Breast
Implants or Breast Implant Materials.
"CLAIM FOR CONTRIBUTION AND/OR INDEMNIFICATION" shall mean any claim
asserted in any court or tribunal (or any judgment entered with respect to such
a claim) by any third party alleging that any Defendant or Released Party is or
may be liable to said third party for all or part of a claim for damages
asserted against said third party by any member of the Settlement Class for
personal injury or death, medical monitoring and/or other injunctive or
equitable relief resulting from Breast Implants or Breast Implant Materials.
"CLAIMANTS" shall mean all Settlement Class Members who timely take
the actions required in this Agreement to participate in one or more of the
Designated Funds and/or Disease Compensation Program claims processes described
in Sections III and IV of this Agreement.
"CLAIMS ADMINISTRATOR" shall mean the person selected by the Parties
and appointed by the Court as provided in Section IV.A. of this Agreement.
"COMPLAINT" shall mean the Class Action Complaint filed in Lindsey. et
al. v. Dow Coming Corporation. et al., Case No. CV-94-P-11558-S (N.D. Ala.), as
an action included in In re Silicone Gel Breast Implants Products Liability
Litigation. MDL No. 926.
"COURT" shall mean the United States District Court for the Nor them
District of Alabama, Southem Division and the Honorable Sam C. Pointer, Jr. or
his successor.
-4-
<PAGE>
"CURRENT CLAIM" shall mean a claim for compensation under the Disease
Compensation Program made by an Eligible Claimant during the Initial Claims
Period in compliance with Section IlI.C.2.a. of this Agreement.
"DEFENDANTS" shall mean any one or more of the persons and entities
named as defendants in the Complaint and listed on Exhibit A to this Agreement.
which is incorporated herein by reference.
"DESIGNATED FUND" shall mean one or more of the funds described in
Section III.C.1. of this Agreement.
"DISEASE COMPENSATION PROGRAM" shall mean the program described in
Section III.C.2. of this Agreement.
"DISEASE COMPENSATION SCHEDULE" shall mean the schedule setting forth
the payment amounts for the various diseases and conditions listed in the
Disease Definitions based on levels of severity and/or disability, and age at
onset of qualifying symptoms. The Disease Compensation Schedule is attached
hereto as Exhibit F and incorporated into this Agreement by reference.
"DISEASE DEFINITIONS" shall mean the list and descriptions of "Medical
Conditions and Characteristics: Outline Of Definitions And Classification
Criteria" attached hereto as Exhibit E and incorporated into this Agreement by
reference.
"ELIGIBLE CLAIMANT" shall mean a Claimant who has been implanted with
an Included Breast Implant or an individual or entity that makes a claim on
behalf or in respect of a Breast Implant Recipient as the Recipient's personal
representative or on behalf of the Recipient's estate.
"ELIGIBLE CURRENT CLAIM/CLAIMANT" shall mean a Current Claim/Claimant
that is approved for payment by the Claims Administrator.
"ELIGIBLE ONGOING CLAIM/CLAIMANT" shall mean an Ongoing Claim/Claimant
that is approved for payment by the Claims Administrator.
-5-
<PAGE>
"FINAL" shall mean that no timely appeals have been taken or that all
appeals have been exhausted from the Final Order and Judgment approving this
Agreement.
"FINAL DEFAULT" shall mean a default as described in Section Xlll.B of
this Azreement.
"FINAL ORDER AND JUDGMENT" shall mean the Order to be entered by the
Court, approving the Agreement as fair, adequate and reasonable under Fed. R.
Civ. P. 23(e) confirming the Settlement Class Certification under Fed. R. Civ.
P. 23(b)(3) and 23(e), and making such other findings and determinations as the
Court deems necessary and appropriate to effectuate the terms of this Agreement.
"FIRST OPT OUT PERIOD" shall mean the period prescribed by the Court
for individual members of the Settlement Class to elect to be excluded from the
Settlement Class prior to the Formal Fairness Hearing.
"FORMAL FAIRNESS HEARING" shall mean the hearing conducted by the
Court in connection with the determination of the fairness, adequacy and
reasonableness of this Agreement under Fed. R. Civ. P. 23(e). The date of the
Formal Fairness Hearing shall be set by the Court and communicated to the
Settlement Class in a Court-approved Breast Implant Litigation Settlement Notice
("Notice") under Fed. R. Civ. P. 23(c)(2).
"FUNDING AGREEMENT" shall mean the agreement governing the timing,
amount and terms of each Defendant's obligation to make payments in accordance
with this Agreement. The Funding Agreement is attached hereto as Exhibit C and
incorporated into this Agreement by reference.
"INCLUDED BREAST IMPLANTS" shall mean Breast Implants that were
manufactured, distributed, designed, fabricated, sold, produced or otherwise
placed in the stream of commerce by any Defendant or any Released Party.
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"INCLUDED BREAST IMPLANT MATERIALS" shall mean Breast Implant
Materials that were manufactured, distributed, designed, fabricated, sold,
produced or otherwise placed in the stream of commerce by any Defendant or any
Released Party.
"INITIAL CLAIMS PERIOD" shall mean the period prescribed by the Court
for the submission of Current Claims under the Disease Compensation Program.
"INITIAL PAYMENT" shall mean the sum approximating 31.6% of the
aggregate Maximum Settlement Amounts for all Signatory Defendants as set forth
in the Funding Agreement, which shall be funded by Signatory Defendants in
annual installment payments commencing within five (5) business days of the date
the Final Order and Judgment is Final, or such other date as provided in the
Funding Agreement, to fund, inter alia, the payment of Eligible Current Claims
under the Disease Compensation Program.
"INSURERS" shall mean those insurance companies which issued
insurance policies which will or may be called upon to pay some or all of the
obligations of Defendants and/or Released Parties under this Agreement and the
Funding Agreement.
"MEDICAL PANEL" shall mean the panel of individuals to be selected
pursuant to Section Ill.C.3. of this Agreement.
"NON-SETTLING DEFENDANT" shall mean any person or entity that is not
a Defendant or Released Party as defined herein but that is named as a defendant
in any pending or future action or litigation alleging injury or damage as a
result of the implantation of any Breast Implant or Breast Implant Materials.
"ONGOING CLAIM" shall mean a claim for compensation from the Disease
Compensation Program that is made and/or becomes eligible for payment after the
Initial Claims Period.
"ONGOING OPT OUTS" shall mean Settlement Class Members who timely
elect to exclude themselves from the Settlement Class during the ongoing claims
period subsequent to the
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Second Opt Out Period, under the conditions and procedures described in Section
IlI.C.2.b.(5) of this Agreement.
"PLAINTIFFS" means the individuals named as Plaintiffs in the
Complaint.
"PLAINTIFFS' NEGOTIATING COUNSEL" shall mean the following counsel:
Margaret Moses Branch, Elizabeth J. Cabraser, Stanley M. Chesley, Michael T.
Gallagher and Ralph 1. Knowles, Jr. Said counsel were authorized by the Court to
conduct negotiations with Defendants, and to act on behalf of Plaintiffs and all
Settlement Class Members, subject to further Order, with respect to all acts or
consents pursuant to this Agreement.
"PLAINTIFFS' SETTLEMENT COMMITTEE" or "SETTLEMENT COMMITTEE" shall mean
the Plaintiffs' Counsel to be appointed by the Court from the Settlement
Advisory Committee of the Plaintiffs' Steering Committee, or others, to serve
upon a "Plaintiffs' Settlement Committee" or "Settlement Cornmittee" for
purposes of the ongoing administration and implementation of this Agreement. as
set forth in this Agreement. including but not limited to the administration of
the Disease Compensation Program. Settlement Class Counsel and Settlement
Committee Members shall serve as fiduciaries of the interests of the Settlement
Class as a whole, regardless of their representation of individual Settlement
Class Members, and shall be subject to the continuing jurisdiction and
supervision of the Court.
"PRELIMINARY APPROVAL" means the Court's conditional certification of
the Settlement Class and preliminary approval of this Agreement pursuant to Fed.
R. Civ. P., Rule 23(b)(3), Rule 23(c)(1) and Rule 23(e), and entry of Orders
providing for class notice.
"RELEASED PARTY/PARTIES" shall mean and shall be limited to persons and
entities that are to be released pursuant to this Agreement. Released Parties
are listed on Exhibit B attached to this Agreement and are incorporated into
this Agreement by reference. Released Parties shall not include any Defendant
and any entity or affiliated entity including parents, subsidiaries, and joint
venturers of any Defendant that withdraw from or are in Final Default under this
Agreement; provided that (1) the
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withdrawal or Final Default of Dow Corning shall neither require nor be deemed
to constitute a waiver by The Dow Chemical Company or Corning Incorporated of
any rights, defenses or objections, as against any Settlement Class Member
arising from or as a result of the December 2, 1993 Opinion and Order granting
the motions of Dow Chemical and Corning for summary judgment or other judgment
that may be granted by the Court in their favor, which shall retain all force
and effect, except to the extent it may be modified, amended, reconsidered, or
reversed by the Court or on appeal, and (2) the vithdrawal of Medical
Engineering Corporation or Bristol-Myers Squibb Company shall not be deemed to
constitute a waiver by Bristol-Myers Squibb Company of any rights, defenses, or
objections arising from or as a result of a summary or other judgment that may
be granted by the Court in its favor, which shall retain all force and effect,
except to the extent it may be modified, amended, reconsidered, or reversed by
the Court or on appeal.
"SECOND OPT OUT PERIOD" shall mean the period prescribed by the Court
under this Agreement during which Settlement Class Members may elect to Opt out
in the event payments on the Disease Compensation Schedule are reduced under
Section IlI.C.2.a.(4) of this Agreement.
"SETTLED CLAIM" shall mean any and all claims, including assigned
claims, whether known or unknown, asserted or unasserted, regardless of the
legal theory, that are or may be asserted now or in the future by any and/or all
Settlement Class Members against any or all of the Defendants and the Released
Parties arising out of or relating to Breast Implants, including Breast Implant
Materials, or any other claims addressed in and/or arising out of the subject
matter of this Agreement and/or the Complaint, including, without limitation:
(1) any and all claims of personal injury and/or bodily injury, damage, death,
emotional or mental harm; (2) any and all claims for medical monitoring and
claims for injunctive or declaratory relief based on, arising out of or relating
to Breast Implants and/or Breast Implant Materials; (3) any and all claims for
loss of support, services, consortium, companionship, and/or society by spouses,
parents, children, other relatives or "significant others" of persons implanted
with Breast Implants; and (4) any and all wrongful death or survival actions
based on arising out of or related to Breast Implants or Breast Implant
Materials.
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"SETTLEMENT AMOUNT" shall mean the amount each Defendant is obligated
to pay under the Funding Agreement.
"SETTLEMENT CLASS" shall be defined as: All persons and entities
wherever located, who have or may in the future have any claim (whether filed or
unfiled, existing or contingent, and specifically including claims for injuries
or damages not yet known or manifest), including assigned claims, in any state
or federal courts of the United States or the courts of its territories or
possessions, against any of the Defendants and/or Released Parties arising out
of, based upon, related to or involving Breast Implants or Breast Implant
Materials manufactured prior to June 1, 1993, including (1) all persons who have
been implanted with one or more Included Breast Implant(s) or with any Breast
Implant(s) made with Included Breast Implant Materials manufactured prior to
June 1, 1993 (whether or not such Breast Implant has been or may be removed);
and (2) all children of persons impIanted with one or more Included Breast
Implant(s) or with any Breast Implant(s) made with lncluded Breast Implant
Materials manufactured prior to June 1, 1993 (regardless of whether such Breast
Implants have been or may be removed), born after the date of implantation and
prior to the date of the issuance of a notice of this Agreement to the
Settlement Class in this matter; and (3) all persons, including spouses,
parents, children, relatives, significant others, and estates, that, because of
a personal relationship with Breast Implant Recipients, have or may have claims
based on Breast Implants or Breast Implant Materials manufactured prior to June
1, 1993.
"SETTLEMENT CLASS COUNSEL" shall mean counsel to be appointed by the
Court for purposes of the commencement and completion of the settlement approval
process described in Section II of this Agreement. The Court shall have
continuing jurisdiction to designate additional counsel to serve as Settlement
Class Counsel.
"SETTLEMENT CLASS MEMBERS" shall mean all persons included in the
Settlement Class, except those persons who have filed valid and timely requests
for exclusion during the First, Second or
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Ongoing Opt Out Periods, and who in fact individually exercise their right to
opt out under the terms of this Agreement.
"Unreimbursed Costs" shall mean medical costs paid by Settlement Class
Members to the extent not reimbursed or paid by a third party (e.g., a private
insurance company, Medicare, or Medicaid) despite the Claimant's application
therefor.
II. REQUIRED EVENTS; COOPERATION
A. Promptly after execution of this Agreement, the Parties shall submit this
Agreement to the Court for its preliminary approval and shall move the Court for
one or more orders which by their terms shall:
1. Appoint Representative Plaintiffs as the representatives of the
Settlement Class;
2. Appoint Settlement Class Counsel;
3. Preliminarily and conditionally certify the Settlement Class under
Fed. R. Civ. P. 23(b)(3) and 23(e) and preliminarily approve this Agreement for
purposes of issuing notice;
4. Determine or approve the form, contents and method of dissemination of
the formal Notice to be given to the potential members of the Settlement Class
and the date of the Formal Fairness Hearing;
5. Schedule appropriate opt out, objection, claims registration, and
other settlement-related dates and deadlines for inclusion in the Notice;
6. Schedule the Formal Fairness Hearing to review comments regarding this
Agreement, to consider its fairness, reasonableness and adequacy under Fed. R.
Civ. P. 23(e), and to enter its Final Order and Judgment approving this
Agreement.
B. The Parties shall cooperate, assist and undertake all reasonable actions
in order to accomplish the above on the schedule set by the Court.
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III. SETTLEMENT TERMS
A. Certification Of Settlement Class.
1. Subject to the Court's approval, the Parties stipulate that the
Settlement Class be certified for settlement purposes only, pursuant to Fed. R.
Civ. P. 23(b)(3) and 23(e), in the Lindsey action, without prejudice to the
Parties' ability to contest or oppose class certification in any other action or
for any other purpose.
2. The exclusion rights (opt out rights) of Settlement Class Members
shall be exercised under this Agreement with respect to all Breast Implant
Related claims arising from the implantation of Breast Implants and Breast
Implant Materials in each Breast Implant Recipient, such that the derivative
claims of all persons and entities, including spouses, parents, children,
relatives, significant others and estates, that because of a personal
relationship with that Breast Implant Recipient have or may have claims, shall
remain in the Settlement Class if that Breast Implant Recipient retains
Settlement Class Membership and shall be excluded from the Settlement Class if
and when that Breast Implant Recipient opts out.
3. For purposes of this Agreement, all statutes of limitation and
statutes of repose on the Breast Implant Related claims of each Settlement Class
Member shall be deemed tolled or suspended from January 24, 1992, the date of
commencement of Dante, et al. v. Dow Corning, et al., No. C-1-92-057 ("the Dante
class action") for a period of thirty (30) days after the completion of the opt
out (which includes completion of non-binding mediation with respect to Ongoing
Opt Outs) of that Settlement Class Member under the First, Second and Ongoing
Opt Out procedures of this Agreement, except where this Agreement provides for
the waiver of past periods of limitations and repose with respect to children of
Breast Implant Recipients (Section III.D.3.b.) and with respect to the Ongoing
Disease Compensation Program (Section III.C.2.b.(5)(c)). The Dante class action
shall remain in full force and effect for purposes of tolling statutes of
limitation and repose for Settlement Class Members unless and until this
Agreement becomes Final. Nothing in this Agreement shall
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constitute or be deemed to constitute a waiver by Defendants or Released Parties
of defenses based on statutes of limitations or repose with respect to any
Settlement Class Member who opts out of this Agreement during the First or
Second Opt Out Periods and whose claim was barred by the applicable statutes of
limitations or repose as of the date of execution of this Agreement.
B. MONETARY TERMS/ESTABLISHMENT OF SETTLEMENT FUND.
1. Subject to all of the conditions contained in this Agreement, and
in accordance with the terms and conditions of the Funding Agreement, the
Defendants shall be obligated to pay up to the aggregate Maximum Settlement
Amount set forth in the Funding Agreement in consideration for this Agreement.
Each Defendant's obligation to pay under this Agreement is limited to the
obligations set forth in the Funding Agreement (attached hereto as Exhibit C),
and set forth in the Schedules of Defendants' Payments (attached hereto as
Exhibit D).
2. All monies due and owing by Defendants under this Agreement shall
be paid when due under the Funding Agreement by wire transfer into a "Settlement
Fund" to be established, maintained, invested, and administered by Settlement
Class Counsel under the continuing jurisdiction and supervision of the Court.
The assets of the Settlement Fund shall be invested, in the discretion of
Settlement Class Counsel, in a manner intended to achieve maximum earnings
consistent with safety and appropriate liquidity to pay claims without undue
delay. Any and all interest and earnings of the Settlement Fund assets shall
accumulate and become part of the Settlement Fund.
3. Except as specifically set oath in Sections V and XIX of this
Agreement and in the Funding Agreement, Defendants and Released Parties shall
have no ownership or reversionary interest in the Settlement Fund. Defendants
and Released Parties shall have no interest in or responsibility for allocations
or distributions therefrom and do not guarantee any earnings from any portion of
the Settlement Fund assets that may be invested to generate income to satisfy
claims.
4. Each Defendant shall be responsible and liable only for its
individual obligations under this Agreement and under the Funding Agreement.
Defendants' obligations under
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this Agreement and the Funding Agreement are not intended to and shall not
create nor be deemed to create any joint or joint and several obligation on the
part of the Defendants and Released Parties.
C. ESTABLISHMENT OF DESIGNATED FUNDS AND DISEASE COMPENSATION PROGRAM FOR THE
BENEFIT OF SETTLEMENT CLASS MEMBERS.
The Settlement Amounts paid by the Defendants shall be used: (1) to
establish and fund the Designated Funds as specified in this Agreement; and (2)
to establish and fund the Disease Compensation Program. The assets of the
Designated Funds and the Disease Compensation Program shall be used for the
benefit of the Settlement Class. Settlement Class Members' inability,
notwithstanding reasonable efforts, as determined by the Claims Administrator,
to identify the manufacturers of their Breast Implants shall not affect their
status as Eligible Claimants.
1. DESIGNATED FUNDS.
The Designated Funds I-V described below shall be established with an
amount aggregating approximately 16.8% of the aggregate Maximum Settlement
Amounts to be paid by the Signatory Defendants under the Funding Agreement. The
Notice shall advise Settlement Class Members of the amounts initially allocated
by Settlement Class Counsel to Funds I-V, and by the Court to Fund VI. Each
Designated Fund shall be used for the purposes described below, subject to the
power, as described in Section III.F. below, to reallocate the assets of the
Designated Funds as necessary and appropriate to ensure fairness to Eligible
Claimants, and subject to the funding requirements of Fund VI to implement the
Court's orders regarding costs, fees and expenses. Except as otherwise provided,
Settlement Class Members may be eligible for payments from more than one Fund
and for payments from the Disease Compensation Program. Criteria for
eligibility, allocation and distribution of each of the Designated Funds shall
be subject to Court approval.
a. FUND I -- MEDICAL DIAGNOSTIC/EVALUATION FUND.
Fund I shall be established for the purpose of paying certain
Unreimbursed Costs for medical diagnoses and evaluations with respect to
Included Breast Implant Related medical problems on an ongoing basis, and to
provide information for the benefit of Claimants. Recipients of payments
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from Fund I shall assign their rights of reimbursement against third parties to
the Settlement Fund, which would be entitled to seek reimbursement as assignee.
Third parties shall not be entitled to seek reimbursement from this Fund.
All Eligible Claimants who are living Breast Implant Recipients may
make application for payment of or reimbursement for medical evaluations and
diagnoses pursuant to guidelines and payment schedules to be determined by
Settlement Class Counsel and approved by the Court. Settlement Class Counsel
may, in their discretion, establish one or more experienced practitioners or
researchers to serve as medical evaluation advisors who may provide advice and
assistance for the benefit of the evaluating doctors and their patients. Costs
associated with the establishment and maintenance of such advisors shall be paid
from the assets of Fund I.
b. FUND II - EXPLANTATION FUND.
Fund II shall be established to pay or reimburse Eligible Claimants
for certain Unreimbursed Costs associated with explantation of Breast Implants
and related necessary surgery. Guidelines for eligibility for and amounts of
individual payments to Eligible Claimants from Fund II shall be determined by
Settlement Class Counsel and approved by the Court. Claimants shall not be
reimbursed for the cost of any surgery performed to implant any Breast Implants
after June 1, 1993, or for the removal of any Breast Implants implanted after
June 1, 1993.
c. FUND III - RUPTURE FUND.
Fund III shall be established to provide payment to Eligible
Claimants who have had one or more ruptures of an Included Breast Implant and
who are not Eligible Current Claimants under the Disease Compensation Program.
Guidelines for eligibility for compensation from Fund III, and the schedule of
payments to rupture claimants, will be determined by Settlement Class Counsel
and approved by the Court.
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D. FUND IV -- BREAST IMPLANT RECIPIENT COMPENSATION FUND.
Fund IV shall be established to provide payment to Eligible Claimants
who are not Eligible Current Claimants under the Disease Compensation Program,
and who do not qualify for a payment under Fund III (Rupture Fund). Claimants
who meet these criteria are eligible to receive a share of this fund as
determined by Settlement Class Counsel and approved by the Court.
E. FUND V - RESERVE FUND.
Fund V shall be established as a Reserve Fund to be used as Settlement
Class Counsel deems necessary and appropriate under this Agreement for the
benefit of Settlement Class Members, subject to Court approval.
F. FUND VI - SETTLEMENT CLASS COSTS, EXPENSES AND FEES.
Fund VI shall be established by Court order to fund all costs of
settlement notice and claims administration, and to pay such reimbursement of
costs and expenses and awards of fees as the Court may approve to counsel who
represent individual Settlement Class Members and/or the Settlement Class. Fund
VI shall be funded, as directed by the Court, by a specified percentage of the
aggregate Settlement Amount and shall not constitute an additional obligation of
Defendants. All payments of costs and expenses and awards of attorneys' fees
incurred in connection with Settlement Class Members' rights and claims under
this Agreement shall be subject to Court approval and, if approved, shall be
paid from Fund VI. Payments to Settlement Class Members from the other
Designated Funds and from the Disease Compensation Program shall be net payments
to Eligible Claimants for the purpose of preserving payment parity, such that
similarly situated Eligible Claimants shall receive similar amounts without
regard to their individual fee agreements with counsel, if any. Settlement Class
Members shall have no other attorneys' fees, expenses or cost obligations with
respect to benefits under this Agreement and payments from any Designated Fund
or from the Disease Compensation Program.
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g. ADJUSTMENT IN THE EVENT OF WITHDRAWAL OR FINAL DEFAULT.
In the event of the withdrawal or Final Default of a Defendant,
amounts allocated to the above Funds shall be adjusted in accordance with the
provisions of Sections V and XIII of this Agreement.
2. DISEASE COMPENSATION PROGRAM.
The Disease Compensation Program shall be a program under which
Eligible Claimants who satisfy the diagnostic criteria set forth in the Disease
Definitions shall be entitled to receive payment in accordance with the Disease
Compensation Schedule, subject to the procedures and adjustments to the Disease
Compensation Schedule prescribed below. The Disease Compensation Program shall
be maintained for the Initial Claims Period and a thirty (30) year ongoing
period ("the Ongoing Disease Compensation Program").
a. COMPENSATION FOR ELIGIBLE CURRENT CLAIMANTS UNDER THE DISEASE
COMPENSATION PROGRAM.
(1) LIMITATION ON AGGREGATE PAYMENT FOR CURRENT CLAIMANTS.
The Initial Payment shall be paid as set forth in the Funding
Agreement (Exhibit C hereto) and Schedules of Defendants' Payments (Exhibit D
hereto) to fund the Disease Compensation Program for Eligible Current Claimants.
If the total dollar amount of Eligible Current Claims paid under the Disease
Compensation Program is less than the Initial Payment, the unused portion of the
Initial Payment shall be applied to pay Eligible Ongoing Claims under the
Disease Compensation Program, if and when needed as provided in Section
III.C.2.b.(2)(c) of this Agreement. Application of the unused portion of the
Initial Payment to pay Eligible Ongoing Claims shall not reduce the Settlement
Amount.
(2) DETERMINATION OF PAYMENT AMOUNTS.
Each Eligible Current Claimant shall receive a payment as
prescribed for the appropriate disease, level of severity, and age category on
the Disease Compensation Schedule (Exhibit F hereto). This amount may be
adjusted as provided below. Additionally, a percentage to be
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determined by the Court may be deducted for purposes of funding Fund VI.
Payments to Eligible Current Claimants may be made on a lump-sum basis or in
installments, depending on fund availability, as recommended by Settlement Class
Counsel and approved by the Court.
(3) Possible Reduction of Payment Amounts.
In the event that the aggregate dollar amount of Eligible Current
Claims exceeds the Initial Payment, amounts specified in the Disease
Compensation Schedule shall be reduced as follows:
(a) if the total dollar amount of Eligible Current Claims that
qualify for payment under the Disease Compensation Schedule in categories "B"
and "C" of atypical neurological disease syndrome ("AND"), atypical connective
tissue disease ("ACTD"), atypical rheumatic syndrome ("ARS") and non-specific
autoimmune condition exceeds one-third (33 1/3%) of the total dollar amount in
accordance with the Disease Compensation Schedule of all Eligible Current
Claims, the payment amounts for the Eligible Current Claims in the above-
described categories shall be reduced pro rata until either (i) the total dollar
amount of all Eligible Current Claims does not exceed the Initial Payment, or
(ii) the payment amounts for the Eligible Current Claims in the above described
categories are reduced by twenty-five percent (25%) of their original amount,
whichever occurs first.
(b) If the total dollar amount of the Eligible Current Claims in
the above-described categories is equal to or less than one-third (33 1/3%), and
the total dollar amount of all Eligible Current Claims exceeds the Initial
Payment, the payment amounts for all Eligible Current Claims shall be reduced
pro rata until the total amount of all Eligible Current Claims does not exceed
the Initial Payment.
(c) If, after the reduction in payment amounts described in
subparagraph (a) above, the total dollar amount of all Eligible Current Claims
still exceeds the Initial Payment, the payment amounts for all Eligible Current
Claims (including AND, ACTD, ARS and
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non-specific autoimmune condition claims reduced under subparagraph (a) above)
shall be further reduced until the total dollar amount of all Eligible Current
Claims does not exceed the Initial Payment.
(4) Settlement Class Members' Opt Out Rights In the Event of
Reduction in the Disease Compensation Schedule.
(a) In the event that any payment amount set forth on the Disease
Compensation Schedule is reduced as specified in subparagraph (3) above, the
Court and Settlement Class Counsel shall notify Settlement Class Members as
provided in Section IV.B.6. of this Agreement. Settlement Class Members shall
then have the right to opt out of the Agreement, pursuant to procedures and
within a time period to be established by the Court ("Second Opt Out Period").
Prior to notifying Settlement Class Members of the reduction in payment amounts,
Settlement Class Counsel and counsel for Defendants shall have thirty (30) days
to meet and to discuss in good faith the available methods and options for
reducing potential opt outs.
(b) Any Settlement Class Member who elects to opt out of the
Agreement during the Second Opt Out Period as prescribed in subparagraph (4)(a)
above shall retain all rights under applicable law that existed prior to the
execution and approval of this Agreement.
b. Compensation for Ongoing Claimants Under the Disease Compensation
Program.
(1) Ongoing Claimants/Eligibility Requirements.
Any Eligible Claimant who satisfies the requirement(s) for
compensation under the Disease Definitions (as they may be amended pursuant to
the procedures set forth in Section III.C.3 below) while the Ongoing Disease
Compensation Program is in effect, shall be eligible to receive a payment as an
Ongoing Claimant, pursuant to the following guidelines and conditions.
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(2) Limitation of Compensatory Funds for Ongoing Claimants/Annual
Payment Ceiling/Adjustments.
(a) An amount aggregating approximately 51.6% of the aggregate
Maximum Settlement Amounts to be paid by the Signatory Defendants under the
Funding Agreement shall be used to fund the Ongoing Disease Compensation
Program. In each year of the Ongoing Disease Compensation Program, there shall
be established an "Annual Payment Ceiling," as set forth in Exhibit G hereto,
which is incorporated into this Agreement by reference. For purposes of
computing the amount of the Annual Payment Ceiling only, not the date of
payment, Program Year 1 shall mean the first year that claims are processed
under the Ongoing Disease Compensation Program. The timing of all payments by
Defendants is governed by the Funding Agreement and the Schedule of Defendants'
Payments.
(b) The Annual Payment Ceiling shall be used to determine the
amounts to be paid to individual Eligible Ongoing Claimants in accordance with
the adjustment procedures set forth in Section III.C.2.b.(4)(b) below, and to
determine any adjustments to the Schedule of Payments as provided in
subparagraphs (c) and (d) below. The establishment of such Annual Payment
Ceiling is not intended to nor shall it modify in any way the payment
obligations or payment schedules of the Defendants as specified under the
Funding Agreement and Schedules of Defendants' Payments.
(c) If the total dollar amount of Eligible Ongoing Claims submitted
in Program Year 1 and payable is less than the sum of (1) the portion, if any,
of the Initial Payment not used to pay Eligible Current Claims, and (2) the
Annual Payment Ceiling for Program Year 1, then Defendants shall be entitled to
adjustments in their Annual Funding Obligations in succeeding years as set forth
below and as prescribed in the Funding Agreement:
i) The Defendants in the aggregate shall be entitled to a
downward adjustment equal to the amount by which the sum of (1) and (2) above
exceeds the
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total dollar amount of Eligible Ongoing Claims submitted in Program Year 1
("Total Initial Adjustment").
ii) The amount and timing of each Defendant's share of the Total
Initial Adjustment shall be calculated as set forth in the Funding Agreement.
iii) If the total dollar amount of Eligible Ongoing Claims
submitted in any subsequent Program Year and payable exceeds the Annual Payment
Ceiling for such year, then Defendants shall be required, as necessary, to
increase their Annual Funding Obligations, as set forth in the Funding
Agreement; provided, however, that the aggregate amount of this increase shall
not exceed the amount of the Total Initial Adjustment.
(d) In the event that the total dollar amount of claims made in a
given year by Eligible Ongoing Claimants is less than that Program Year's Annual
Payment Ceiling, then Defendants shall receive a credit in the amount of the
difference between the amount of that Program Year's claims and the Annual
Payment Ceiling for that Program Year. Such a credit shall be available for the
payment of Eligible Ongoing Claims in any prior or subsequent year, as set forth
in the Funding Agreements as the dollar amount of such Eligible Ongoing Claims
may require and as the Court may direct. Defendants shall not be required to pay
any such credited amounts unless and until the Eligible Ongoing Claims do
require and the Court does direct.
(e) Nothing in this Section shall cause or be construed to cause any
Defendant to pay more than the Settlement Amount.
(3) Compensation Amount for Ongoing Claims.
Eligible Ongoing Claimants in the Ongoing Disease Compensation
Program shall be compensated at the level actually paid to Eligible Current
Claimants under the Disease Compensation Schedule (as reduced pursuant to
Section III.C.2.a.(3) above (hereafter, the "Disease Rates Paid to Eligible
Current Claimants")) subject to further adjustments as provided in Section
III.C.2.b.(4) below (providing for adjustments to the payment amounts for
Eligible Ongoing
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Claimants in the event the dollar amount of Eligible Ongoing Claims submitted
and approved for payment in a particular Program Year exceeds that year's
Available Payment Amount) and, Sections V and XIII below (providing for
adjustments to payments in the event of the withdrawal or Final Default of
certain Defendants). Payments to Eligible Ongoing Claimants may be made on a
lump sum basis or in installments, depending on fund availability, as determined
by Settlement Class Counsel and approved by the Court.
(4) Possible Adjustment of Payment Amounts for Eligible Ongoing Claims.
(a) Eligible Ongoing Claimants who received a payment from either Fund
III or Fund IV shall not have their Disease Compensation Program payment reduced
by the amount previously paid from either Fund.
(b) The payments for Eligible Ongoing Claims shall be reduced in any
Program Year in which the total dollar amount of the Eligible Ongoing Claims
submitted during that Program Year exceeds the "Available Payment Amount." The
"Available Payment Amount" is the sum of (i) the "Annual Payment Ceiling"
established for that Program Year and (ii) any amounts credited to the Ongoing
Disease Compensation Program pursuant to subparagraph (2)(d) above that the
Court orders be applied to such Program Year's claims, and (iii) any amounts
earned by the investment of Settlement Fund assets that the Court directs be
applied to establish the amount payable to that Program Year's Eligible Ongoing
Claimants. In the event the dollar amount of Eligible Ongoing Claims in a given
year exceeds that year's Available Payment Amount, payment to that year's
Eligible Ongoing Claimants shall be adjusted in the same manner that payments to
Eligible Current Claimants shall be adjusted if the dollar amount of Eligible
Current Claims exceeds the Initial Payment as specified in Section III.C.2.a.(3)
above.
(c) The Disease Compensation Schedule applicable to Ongoing Claimants
may be increased to reflect a "cost of living" adjustment, pursuant to an
appropriate index
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and subject to Court approval, if funds are available and provided such
adjustment does not affect the total obligation of any of the Defendants under
the Funding Agreement.
(5) Opt Out Rights for Eligible Ongoing Claimants.
Eligible Ongoing Claimants shall be permitted to opt out of the
Agreement as follows:
(a) Opt Out Rights in the Event of Ongoing Claim Payment Reductions.
Any Eligible Ongoing Claimant whose individual payment amount is adjusted
pursuant to subparagraph (4)(b) above, shall be permitted to opt out of this
Agreement and to pursue a claim for compensatory damages in accordance with the
conditions specified in subparagraph (5)(b) below. No Eligible Ongoing Claimant
shall be permitted to opt out in the event the Claimant is paid an amount equal
to the Disease Rates Paid to Eligible Current Claimants, as may be adjusted
under Sections V and XIII.
(b) Conditions of Filing Suit for Ongoing Claimants Who Opt Out. All
Eligible Ongoing Claimants who elect to opt out of the Ongoing Disease
Compensation Program must participate in non-binding mediation, in accordance
with procedures established by the Court after consultation with the Parties, in
an effort to resolve their claims against Defendants and Released Parties as a
precondition to commence or reactivate suit against any Defendant or Released
Party.
(c) Waiver of Certain Defenses. Defendants and Released Parties shall
waive defenses based upon statutes of limitation and repose with respect to
Eligible Ongoing Claimants who opt out pursuant to subparagraph (5)(a) above,
provided that such individuals in fact file a lawsuit within a period equal to
the otherwise applicable statutes of limitation and repose after the date of opt
out. The claims of Eligible Ongoing Claimants who elect to opt out of the
Ongoing Disease Compensation Program shall be deemed to accrue, for purposes of
the commencement of statutes of limitations and repose periods, as of thirty
(30) days after the date of opt out or the termination of non-binding mediation
with Defendants and Released Parties, whichever is later.
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(d) Waiver of Punitive Damages Claims. Any and all Settlement Class
Members who exercise a right to opt out of the Ongoing Disease Compensation
Program pursuant to subparagraph (5)(a) above, hereby waive and shall be deemed
to have waived any punitive, exemplary, treble, or statutory multiple damage
claims against all Defendants and Released Parties. In no event shall any
Ongoing Opt Out be permitted to seek or recover such damages in any litigation
brought against any Defendant or Released Party regarding claims addressed by
and/or arising out of the subject matter of this Agreement and/or the Complaint.
(e) Offset for Payments Received from Settlement Fund. Any monetary
award against a Defendant or Released Party obtained in any court or tribunal by
any Ongoing Opt Out shall be reduced by the dollar amount any such ongoing
Claimant has received under this Agreement.
c. Additional Compensable Individuals: Recipients of Implants
Manufactured by McGhan Medical Corp. After August 3,1984.
The Parties agree that in the event that: (1) McGhan Medical
Corporation (a Non-Settling Defendant) is subjected to reorganization or
liquidation proceedings under the United States Bankruptcy Code, or federal or
state receivership proceedings, whether commenced voluntarily or involuntarily;
and (2) it is determined finally as a matter of law that Minnesota Mining &
Manufacturing Co. ("3M") is not responsible to pay claims arising from Breast
Implants manufactured by McGhan Medical Corp. after August 3, 1984 and before
June 1, 1993 ("Post-August 3, 1984 McGhan Implant"), then recipients of such
Breast Implants shall be eligible to participate in this Agreement and to obtain
the benefits granted to Settlement Class Members subject to the terms and
conditions of this Agreement. The granting of settlement benefits to such
individuals shall not impair or in any way affect the right of such individuals
to pursue any claim they may have against McGhan Medical Corp., INAMED or 3M. In
the event any such individuals in fact obtain compensation from McGhan Medical
Corp., INAMED or 3M, they shall reimburse the Settlement Fund for settlement
payments made to them. Further, in the event that persons implanted with a Post-
August 3, 1984
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McGhan Implant participate in or obtain benefits under this Agreement, they
shall assign their claims and rights against the McGhan receivership, bankruptcy
estate and/or McGhan Insurers to the Settlement Committee or other appropriate
entities or assignees, under assignment procedures to be approved by the Court,
to pursue such assigned claims for the benefit of the Settlement Fund. Nothing
in this Section is intended to affect the rights under this Agreement of
Settlement Class Members who have been implanted with a Post-August 3, 1984
McGhan Implant but who also have been implanted with an Included Breast Implant.
d. Treatment of Claims Regarding Bioplasty and Mentor.
Settlement Class Members with Breast Implant Related claims against
Mentor Corporation; Mentor Polymer Technologies, Inc.; Mentor O&O, Inc.; Mentor
H/S, Inc.; Mentor Urology, Inc.; Mentor International, Inc.; Teknar Corp.; and
their respective predecessors, successors, parent and subsidiary companies and
divisions, and current and former attorneys, officers, directors, agents,
distributors, sales agents, and employees (the "Mentor Defendants") and against
Bioplasty, Inc., Bio-Manufacturing, Inc.; and Uroplasty, Inc. (the "Bioplasty
defendants") may participate in this Agreement as follows:
(1) Settlement Class Members with Breast Implants or Breast Implant
Materials manufactured or supplied by the Mentor Defendants whose claims are
released by operation of the Court's MDL No. 926 Order No. 14 granting final
approval to the $25.8 million mandatory class action settlement are entitled to
make claims on the same basis as other Settlement Class Members. The proceeds
and benefits of the Mentor settlement, not otherwise distributed pursuant to
Court Order, which have been and shall be collected under the Mentor settlement
shall become part of the Settlement Fund. Settlement Class Members with Breast
Implant Related claims against the Mentor Defendants may exclude themselves (opt
out) under this Agreement on the same basis as other Settlement Class Members,
except that the mandatory settlement with the Mentor Defendants, as set
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forth in the Court's MDL No. 926 Order No. 14, precludes them from pursuing
claims against or assigned by the Mentor Defendants.
(2) Settlement Class Members with Breast Implants or Breast Implant
Materials manufactured or supplied by the Bioplasty defendants are entitled to
make claims on the same basis as other Settlement Class Members. The Court in
the Bioplasty bankruptcy proceedings (In re Bioplasty. Inc., No. Bk 4-93-2600;
In re Bio-Manufacturing, Inc., No. Bk. 4-93-2603; and In re Uroplasty, Inc.,
No. Bk 4-93-2604) has approved a plan of reorganization which creates a Products
Claimants Trust for the benefit of all those with Breast Implant Related claims
against Bioplasty. This Trust includes $4 million in insurance proceeds, a $1
million secured promissory note from New Uroplasty, 32% of New Uroplasty common
stock, and 50% ownership of certain avoidance actions to be pursued by the
Bankruptcy Trustee. The portion of these assets attributable to Settlement Class
Members will, at an appropriate time, be transferred by the bankruptcy court to
the jurisdiction of the Court for the benefit of the Settlement Class.
Settlement Class Members with Breast Implant Related claims against the
Bioplasty defendants may elect to exclude themselves (opt out) under this
Agreement on the same basis as other Settlement Class Members, except that the
stay orders of the bankruptcy court preclude the pursuit of their claims against
the Bioplasty defendants.
e. Compensation for Pre-Existing Diseases Under the Disease Compensation
Program/Compensation for Multiple Diseases/New Diseases.
(1) Claimants shall not be eligible to receive compensation under the
Disease Compensation Program for a disease or condition that became manifest
prior to the implantation of a Breast Implant except as expressly provided for
in subparagraphs (a) - (c) below. For the purposes of this Section, the term
"post implant" or "post-implant action" shall mean any time after the Eligible
Claimant is implanted with a Breast Implant.
(a) If an Eligible Current or Ongoing Claimant develops a scheduled
disease that the Claimant did not have before receiving a Breast Implant, the
Eligible
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Claimant shall be entitled to receive the payment amount prescribed in the
Disease Compensation Schedule (as adjusted or reduced) for the disease or
condition that developed post-implant.
(b) If the Eligible Current or Ongoing Claimant develops a more
serious level of a pre-existing scheduled disease post-implant (e.g., the
Eligible Current or Ongoing Claimant moves from Scleroderma-Group C to
Scleroderma-Group A), the Eligible Current or Ongoing Claimant shall be entitled
to receive the difference between (i) the amount of compensation to which other
Claimants in the higher compensated group are entitled (e.g., Scleroderma-Group
A) and (ii) the amount of compensation to which other Claimants in the lower
compensated group are entitled (e.g., Scleroderma-Group C) at the time the claim
is approved.
(c) If an Eligible Current or Ongoing Claimant develops the requisite
number of listed symptoms necessary to qualify for compensation under the ACTD
category in the Disease Definitions post-implant, that Eligible Current or
Ongoing Claimant shall be entitled to receive compensation under the ACTD
category even if the Eligible Current or Ongoing Claimant had suffered from
other symptoms listed in the ACTD category prior to implant. If an Eligible
Claimant had a listed symptom prior to implantation, there is a presumption
against the use of that symptom. However, the Claims Administrator may
determine, based upon the records and information nation presented, that the
post-implant symptom arose separately and apart from the pre-implant symptom and
can be used to qualify for compensation.
(2) Any Eligible Current or Ongoing Claimant who at the time of
submission of a claim meets the eligibility requirements for more than one
category under the Disease Definitions shall be entitled to receive the payment
amount applicable only to the most highly compensated disease or condition for
which that Eligible Current or Ongoing Claimant qualifies.
(3) Any Eligible Current or Ongoing Claimant who obtains a payment
under the Disease Compensation Program and who subsequently develops an
additional disease or condition that is compensable under the Disease
Definitions shall be entitled to compensation under
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the Disease Compensation Program, as otherwise provided in this Agreement, in an
amount equal to the difference (if any) between (i) the compensation amount (as
adjusted) for the original compensable disease or condition, at the age of onset
of the original compensable disease or condition, and (ii) the amount (as
adjusted) applicable to the new disease or condition at the age of onset of the
new disease or condition, if the latter amount is greater than the former
amount.
f. Benefits for Children Of Breast Implant Recipients.
---------------------------------------------------
The Disease Compensation Program may also provide payments for
certain children of Breast Implant Recipients as provided in Section III.D.
below.
g. Adjustment in the Event of Withdrawal or Final Default.
-------------------------------------------------------
In the event of the withdrawal or Final Default of a Defendant,
amounts allocated to the Designated Funds and to the Disease Compensation
Program for Eligible Current and Ongoing Claimants may be adjusted in accordance
with the provisions of Sections V and XIII of this Agreement.
3. Appointment of Medical Panel/Additions to Disease Definitions and to
Disease Compensation Schedule.
--------------------------------------------------------------------
a. Evolving medical and scientific evidence may in the future
indicate, by a preponderance of the evidence, that diseases or medical
conditions not listed in the Disease Definitions are caused by Breast Implants.
These may be added to the Disease Definitions by the Claims Administrator, upon
the determination of a Court-appointed Medical Panel, subject to Settlement
Committee recommendation and Court approval. The appropriate level of
compensation shall be proposed by the Settlement Committee and approved by the
Court. Such diseases or conditions shall be added to the Disease Definitions and
compensated under the Disease Compensation Schedule without increasing the total
obligation of Defendants under the Funding Agreement.
b. The Court shall appoint a Medical Panel to perform specific
functions as prescribed in this Agreement. The Medical Panel shall consist of
five members, two of whom shall be selected by the Court from a list of names to
be supplied by the Settlement Committee, two of
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whom shall be selected by the Court from a list of names to be supplied by
Defendants, and one of whom shall be selected by the Court in whatever manner it
deems appropriate.
c. At any time after the conclusion of the Initial Claims Period, any
Settlement Class Member may propose that additional diseases or conditions not
included in the Disease Definitions as of the date of this Agreement be added to
the Disease Definitions and Disease Compensation Schedule. A disease or
condition shall be added to the Disease Definitions if: (i) a majority of the
Medical Panel determines that a preponderance of the medical and scientific
evidence existing at the time indicates that the disease or condition so
submitted is caused by Breast Implants; and (ii) the Settlement Committee
recommends and the Court approves the addition of such disease or condition to
the Disease Definitions.
d. The determination of the Medical Panel shall have no validity,
application or effect other than as set forth above. The work product and
determinations of the Medical Panel shall be placed under seal, may not be
published in medical or scientific media, and will not be admissible, under the
Agreement and the terms of the Court's order appointing the Medical Panel, in
this or any other action, litigation or proceeding.
e. In the event any disease or condition is added to the Disease
Definitions pursuant to this Section, the level of compensation for such disease
or condition shall be proposed by the Settlement Committee and approved by the
Court. If the Medical Panel determines that a disease or condition under
consideration for addition to the Disease Definitions is caused by Breast
Implants as to only some Claimants or as to a particular subclass, category or
group of Claimants (e.g., but without limitation, children of Breast Implant
Recipients), the Medical Panel shall limit eligibility for compensation
accordingly, subject to approval by the Court.
f. The addition of any diseases and conditions to the Disease
Definitions and the compensation of such diseases and conditions under the
Disease Compensation Schedule shall not increase the total funding obligation of
any Defendant under the Funding Agreement and shall not
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modify in any way the funding established under this Agreement for the Current
and Ongoing Disease Compensation Program as set forth in the Funding Agreement
and Schedules of Defendants' Payments.
g. The Claims Administrator shall notify all Claimants and their
attorneys, in such manner as the Court shall direct, of the addition of any
diseases to the Disease Compensation Schedule, and the appropriate level(s) of
compensation.
h. Any and all Eligible Claimants shall have the right to make
Ongoing Claims if and when diseases or conditions with which they are diagnosed
are added to the Disease Definitions.
D. Children Of Breast Implant Recipients.
--------------------------------------
1. Settlement Class Children.
--------------------------
Children of Breast Implant Recipients who were born after the date of
their mother's first implantation with a Breast Implant and who are in being as
of the date Notice of this Agreement is issued by the Court are included in the
Settlement Class.
2. Benefits to Children.
---------------------
Upon determination of the Medical Panel and approval by the Court
there may be added to the Disease Definitions a provision that would permit
compensation for the children of Breast Implant Recipients and prescribe the
conditions governing eligibility for such compensation for the claims
administration process. Any payment to be provided such Settlement Class Members
shall be determined by the Medical Panel upon the recommendation of the
Settlement Committee and subject to Court approval. Payments made to or for the
benefit of minor children of Breast Implant Recipients shall be made under the
Ongoing Disease Compensation Program and must be approved by the Court. In no
event shall the addition of these benefits modify or increase in any way the
total funding obligation under the Funding Agreement.
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3. Additional Opt Out Rights.
--------------------------
Children of Breast Implant Recipients who do not opt out during the
First or Second Opt Out Periods may opt out of this Agreement as follows:
a. Opt Out Conditions.
-------------------
Children of Breast Implant Recipients may opt out of this Agreement
within a period of two years from the time that any disease or condition they
claim is related to their mother's Breast Implants or Breast Implant Materials
manifests itself, whether or not the disease or condition is approved for
compensation, or within a period of two years from the date of majority under
the laws of their state of residence, whichever is later; except that children
of Breast Implant Recipients shall not be entitled to opt out to pursue claims
arising from a disease or condition which was approved by the Court and paid by
the Claims Administrator under the Disease Compensation Program.
b. Waiver of Certain Defenses.
---------------------------
Defendants and Released Parties shall waive defenses of statutes of
limitations and repose as to claims asserted by children of Breast Implant
Recipients who opt out as prescribed in subparagraph a above, provided that such
individuals in fact file a lawsuit within a period equal to the applicable
statutes of limitations and repose after the date of the above-referenced opt
out.
c. Remedies Available to Opt Out Children.
---------------------------------------
All children of Breast Implant Recipients who opt out as prescribed in
subparagraph a above can seek any remedy available through the tort system with
an offset for any payment they receive under this Agreement.
E. Compensation For Foreign Claimants/Calculation/Limitations.
-----------------------------------------------------------
1. Foreign Claimants are defined as Claimants who are not citizens of
the United States and who reside outside the United States and whose implants
were implanted outside of the United States. Settlement Class Members who have
received Breast Implant Related compensation under the laws or procedures of
other countries are not eligible for any benefits under this Agreement.
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Foreign Claimants shall, by making claims under this Agreement, waive all rights
to any other compensation and the right to sue on an individual or class basis,
except as provided in this Agreement. Foreign Settlement Class Members who are
not Claimants may pursue claims, if any, outside of the United States, its
territories and possessions.
2. A maximum of three percent (3%) of the aggregate amount allocated to
the Disease Compensation Program shall be set aside for the benefit of Foreign
Claimants. The total amount to be set aside for the benefit of Foreign Claimants
within this three percent ceiling shall be subject to the determination of the
Court. The monies in this set aside fund shall be apportioned among Foreign
Claimants in such manner as the Court may direct. The Parties anticipate the
establishment of compensation guidelines for individual countries in which
Foreign Claimants reside that shall be comparable with the relative compensatory
damage awards typically permitted in settlement in the relevant country for
similar claims.
F. Power To Transfer.
------------------
Settlement Class Counsel shall have the power, subject to Court
approval, to transfer monies allocated to Designated Funds I, II, III, IV, and V
among those Funds and to the Disease Compensation Program as necessary and
appropriate to ensure fairness.
G. Third Party Claims.
-------------------
Neither the Settlement Fund, the Designated Funds, the Disease
Compensation Program, the Settlement Class Members and their counsel, the
Defendants and Released Parties and their counsel, nor Settlement Class Counsel
and the Settlement Committee shall be subject to subrogation or other third
party claims by the terms of this Agreement. Payments for Eligible Claims shall
be made directly to the Eligible Claimants without regard to or deduction for
third party claims, and payments from Fund VI shall be made directly to the
recipients designated by the Court's awards without regard to or deduction for
third party claims.
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IV. CLAIMS ADMINISTRATION
A. Establishment Of Claims Office/Appointment Of Claims Administrator.
-------------------------------------------------------------------
The Parties shall jointly select a Claims Administrator to be
appointed by the Court. In the event the Parties cannot agree on a Claims
Administrator, the Court shall select a Claims Administrator in consultation
with the Parties. The Claims Administrator shall have the authority to appoint
as many "Claims Officers" as are necessary to carry out expeditiously the duties
of the "Claims Office." The Claims Office shall receive, process, classify and
pay claims as provided below. The Claims Administrator shall establish claims
processing procedures, and shall operate under the continuing supervision of the
Settlement Committee and the jurisdiction of the Court. The Claims Administrator
and Claims Officers may be appointed as Special Masters and shall have, insofar
as the Court deems appropriate, the immunities and attributes of judicial
officers with respect to their administrative functions. Claims processing and
claims administration (but not claims payment) shall proceed as provided in this
Section, notwithstanding the commencement or pendency of any appeals.
B. Deadlines For Registration And Claims By Settlement Class Members.
------------------------------------------------------------------
1. Eligibility For Current Claims; Deadline.
-----------------------------------------
In order to become an Eligible Current Claimant, Settlement Class
Members shall be given 120 days (the "Eligible Current Claimant Deadline") after
dissemination of the Court-approved Notice to return the appropriate executed
Claim Form or Forms, together with the supporting documents specified in this
Agreement, to the Claims Administrator. Settlement Class Members who do not
return these documents within the time period specified in this Section shall
not be considered as Eligible Current Claimants. Nothing in this Section shall
be construed to prevent the Claims Administrator from permitting Settlement
Class Members to remedy deficiencies in the documentation as otherwise provided
in this Agreement.
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2. Registration; Deadlines.
------------------------
In order to be eligible for compensation from any of the Designated
Funds and in order to be eligible to participate as Ongoing Claimants,
Settlement Class Members must timely "Register" with the Claims Administrator.
In order to Register in a timely fashion, a Settlement Class Member must return
to the Claims Administrator a Registration Form, completed by the Settlement
Class Member to the best of that Member's knowledge at that time and executed by
the Settlement Class Member, by the Registration Date, which shall be 120 days
after the Eligible Current Claimant Deadline.
3. Extension of Registration Date.
-------------------------------
Settlement Class Members who have not Registered in a timely fashion
under Section IV.B.2 may have their Registration Date extended, in the Court's
discretion, upon application and for good cause shown.
4. Late Registrants.
-----------------
Other than persons whose Registration Date has been extended pursuant
to Section IV.B.3 above:
(a) A person who fails to Register by the Registration Date shall
be deemed a "Late Registrant".
(b) Late Registrants may or may not be entitled to the same level
of benefits under the Designated Funds to which comparable Eligible Claimants
are entitled or have received, depending upon the amount of Designated Fund
claims filed by Late Registrants and the amount of available monies in such
Funds as of the filing of a claim by the Late Registrant.
(c) The claims of Late Registrants who file to receive benefits
under the Ongoing Disease Compensation Program shall be considered for payment
in the order in which they are filed. No such claim filed by a Late Registrant
may be considered for payment in any Program
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Year unless and until all Eligible Ongoing Claims and all previously filed
claims by Late Registrants have been paid.
(d) The Court shall establish a date after which a Settlement Class
Member shall not be eligible to be a Late Registrant.
5. Claim and Registration Forms.
-----------------------------
The Claim Forms specified in Section IV.B.1 and the Registration Forms
specified in Section IV.B.2 shall be designed to allow Settlement Class Members
to specify whether they wish to participate in Funds I, II, III, IV, and the
Disease Compensation Program, either as Current or Ongoing Claimants, and shall
not request information in a manner inconsistent with the provisions of Section
IV.C.1 of this Agreement. Such Forms shall contain provisions for Settlement
Class Members to state their intention to participate in the Ongoing Disease
Compensation Program. The Claim and Registration Forms shall request, among
other reasonably available information, the date(s) of implantation and the
manufacturer(s) of their Breast Implants, if and to the extent known to the
Settlement Class Member. The inability of Settlement Class Members to identify
the manufacturer(s) of their Breast Implants, after reasonable effort, as
determined by the Claims Administrator, shall not, in and of itself, result in
the disqualification of their claims.
6. Notice of Deadlines and Reductions.
-----------------------------------
Notice of the Registration Date, all claims deadlines, and any Disease
Compensation payment reductions will be disseminated pursuant to procedures
approved by the Court, including but not limited to mailed notice to all
Settlement Class Members whose names can reasonably be determined (under
guidelines to be set by the Court), including all who have submitted claims for
consideration as Eligible Current Claimants, pursuant to Section IV.B.1, all who
have Registered as set forth in Section IV.B.2, all who have provided necessary
information via the toll-free Breast Implant Settlement Information Line to be
established in conjunction with the dissemination of Notice, and all who have
otherwise provided address information to the Claims Office. Settlement Class
Members
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shall be advised in the Notice of their continuing obligation to provide current
address information to the Claims Office in order to receive Registration Forms,
Claim Forms and deadline notices.
C. Claims To Disease Compensation Program.
---------------------------------------
1. Submission of Claim Forms and Medical Records.
----------------------------------------------
To apply for benefits under the Disease Compensation Program, a
Settlement Class Member must submit a claim form approved by the Court. In
addition to the claim form, a Settlement Class Member must submit either (a) a
Statement or Diagnosis from a Qualified Medical Doctor (an appropriate Board
Certified Specialist), and the medical records on which it is based, which will
enable the Claims Office to place the Claimant within a category on the Disease
Definitions and Disease Compensation Schedule, or (b) medical records which, by
themselves, enable the Claims Office to place the Claimant within a category on
the Disease Definitions and Disease Compensation Schedule. The Claim Form shall
be designed and the Claims Office shall institute procedures to assure that the
identity of a Settlement Class Member may be kept confidential upon the request
of such Settlement Class Member.
2. Claims Acceptance and Certification Under Disease Compensation Program.
-----------------------------------------------------------------------
a. The Claims Administrator, in conjunction with the Claims Officers,
shall promptly process claims as filed and report the results to the Parties and
to the Court. The Claims Officer shall not have the right to challenge or ignore
the Statement or Diagnosis of a Claimant's Qualified Medical Doctor except where
the signs, symptoms or findings in the medical records or in the Statement or
Diagnosis do not satisfy the eligibility requirements as set forth in the
Disease Definitions. In this event, the Claims Officer shall seek additional
information on which to base his or her decision. If the Claims Administrator
has a reasonable basis to believe a claim is fraudulent, he/she shall bring the
claim to the Court for resolution.
b. In the event that an applicant does not have a Statement or
Diagnosis from a Qualified Medical Doctor or the applicant's medical records are
insufficient to enable the Claims
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Officer to process the claim, the Claims Administrator shall send a notice to
the applicant and, where applicable, to the applicant's counsel, within thirty
days of receipt of the claim stating the deficiencies in the information and
requesting further medical evidence. If further supplementation is not mailed to
the Claims Administrator or Claims Office within thirty (30) days after mailing
of the notice of deficiency, the Claims Office shall classify the claim on (or
exclude it from) the Disease Compensation Schedule to the best of its ability
based on the information available.
c. Before final certification that a claim is eligible for payment
under the Disease Compensation Schedule, the claim shall be reviewed by a second
Claims Officer. Unless the reviewing Claims Officer determines that there is no
basis in fact for the original placement on the Disease Compensation Schedule,
the Claims Office shall certify the claim on the Disease Compensation Schedule
as eligible and final and pay the claim. No claim may be certified as final if
the Claimant does not have a Statement or Diagnosis from a Qualified Medical
Doctor or if the medical records, as originally submitted or supplemented, are
insufficient to enable the Claims Office to process the claim.
3. Appeal of Claim Classification.
-------------------------------
An adversely affected claimant may appeal the final claims
classification first to the Claims Administrator and then to the Court with
jurisdiction over this Agreement. The procedures governing such appeals shall be
established by the Court. Defendants shall have no rights of appeal from claims
classifications.
4. Determination of Payment Reduction.
-----------------------------------
Following classification of the claims under the Disease Compensation
Program either with respect to the Eligible Current Claims or in any Program
Year in which Ongoing Claims are processed, the Claims Administrator shall
promptly calculate the total dollar amount of the Eligible Current Claims or
Eligible Ongoing Claims and report to the Court and the Parties as to the
amount, if
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any, of any necessary reductions in the Disease Compensation Schedule payments
as set forth in Section III.2. above.
5. Distribution of Payments.
-------------------------
Payments to Eligible Current and Ongoing Claimants under the Disease
Compensation Program shall be made after the Claims Administrator performs the
reduction described above, after Eligible Current and Ongoing Claimants are
notified of any such reduction and provided an opportunity to opt out as
prescribed herein, and after expiration of any withdrawal periods as specified
in Section V below.
D. Retention Of Records/Review Of Records By Defendants.
-----------------------------------------------------
The Claims Officer shall retain all records relating to the payment of
claims under the Designated Funds and the Disease Compensation Program.
Defendants and Defendants' Insurers may, at their expense, and pursuant to
procedures approved by the Court, inspect the Claims Office records, including
Claimants' medical records, upon reasonable notice. Defendants and Defendants'
Insurers shall maintain the confidentiality of claims information to the extent
necessary to protect the identity and privacy of individual Claimants. Such a
review of records shall not constitute or be deemed to constitute a waiver of
any Claimant's physician/patient privilege for any other purpose or as to any
other communication or documents and shall not affect the eligibility of any
claims.
V. DEFENDANTS' RIGHT OF WITHDRAWAL/EFFECT OF WITHDRAWAL/PLAINTIFFS'
RIGHT OF WITHDRAWAL
A. Signatory Defendants' Right Of Withdrawal.
------------------------------------------
Certain Defendants have executed the Funding Agreement attached to
this Agreement as Exhibit C, and these Defendants executing the Funding
Agreement are known as Signatory Defendants. If, in a Signatory Defendant's
view, an excessive number of individuals have opted out of this Agreement, each
Signatory Defendant shall have the independent right to withdraw from this
Agreement. Whether the number of individuals who have opted out is excessive
shall be determined by each Signatory Defendant in its sole discretion.
Signatory Defendants may exercise this right of withdrawal no later than sixty
(60) days after the conclusion of the First Opt Out Period and no later
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than ninety (90) days after the conclusion of any Second Opt Out Period. To
ensure that these time periods are sufficient, Signatory Defendants shall have
access to all information submitted by opt-outs as information is received.
Settlement Class Members who have filed individual Breast Implant Related
actions shall disclose their identity in submitting their signed exclusion
requests. Notwithstanding any other provisions of this Agreement, only Signatory
Defendants shall have the right to withdraw from this Agreement.
B. Effect Of Withdrawal On Signatory Defendants.
---------------------------------------------
In the event a Signatory Defendant withdraws from this Agreement, this
Agreement and all orders and judgments issued to implement this Agreement shall
have no further force and effect as to such Defendant, and its associated
Defendants, and Released Parties as set forth on Exhibits A and B to this
Agreement, except as provided in this Section. All monies deposited by a
Withdrawing Defendant shall be returned except that monies already disbursed for
notice, administration, and other costs or disbursements for the benefit of the
Settlement Class shall not be returned. Any Withdrawing Defendant shall be
deemed and treated as a Non-Settling Defendant for purposes of the good faith
bar order described in Section IX of this Agreement. Nothing in this Section
shall prevent a Defendant or a Released Party from asserting the good faith bar
order described in Section IX of this Agreement against a Released Party
associated with a withdrawing Defendant, and nothing in this Section shall be
construed to allow a Released Party associated with a withdrawing Defendant to
benefit from the protection of the good faith bar order described in Section IX
of this Agreement.
C. Effect Of Withdrawal On Settlement Class Members.
-------------------------------------------------
Settlement Class Members shall be restored to their positions
immediately prior to the execution of this Agreement with respect to a
Withdrawing Defendant. Settlement Class Members shall be permitted to assert any
and all claims against any such Withdrawing Defendant. Any Settlement Class
Member all of whose Breast Implants were manufactured either by (a) a
Withdrawing Defendant or (b) a Withdrawing Defendant and a Non-Settling
Defendant shall not be eligible for benefits under this Agreement. Settlement
Class Members whose Breast Implants were manufactured by at least one Defendant
in addition to the Withdrawing Defendant(s), are eligible to make claims under
this Agreement. Such claims shall be reduced by the percentage equal to the
Withdrawing
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Defendant's Funding Percentage (as set forth in the Funding Agreement), and such
Settlement Class Members may pursue their claims against Withdrawing Defendants
without set-off or reduction in any damages they may obtain from such
Withdrawing Defendants as a result of benefits received under this Agreement,
except that Withdrawing Defendants that are suppliers of Breast Implant
Materials but not manufacturers of Breast Implants shall retain whatever set-off
rights they may have.
D. Effect Of Withdrawal On Other Defendants.
-----------------------------------------
Except as specifically provided in this Section, the withdrawal of a
Defendant shall not affect the rights or obligations of any other Defendant or
Released Party under this Agreement. Nothing in this Section shall constitute,
nor shall it be deemed to constitute a waiver or modification of any of the
terms of this Agreement including orders entered hereunder, as to any other
Defendant or Released Party; and the withdrawal of a Defendant shall not be
deemed to permit any Settlement Class Member to bring any action against any
other Defendant or Released Party.
E. Plaintiffs' Right To Withdraw.
------------------------------
Settlement Class Counsel, on behalf of Plaintiffs, retain the right to
withdraw from this Agreement within thirty (30) days following any Defendant's
withdrawal, if, in their discretion, the exercise by any Defendant of the
withdrawal right set forth in this Section frustrates the purpose of this
Agreement.
VI. EFFECT OF PRIOR SETTLEMENTS AND JUDGMENTS
A. A Breast Implant Recipient is not barred from obtaining payment under
this Agreement on the ground that the claim is foreclosed by a statute of
limitations or repose.
B. Settlement Class Members who were represented by counsel in
negotiating previous settlements or who, prior to the effective date of the
Agreement, have received aggregate settlements of Breast Implant Related claims
in the amount of $15,000 or more shall not be eligible to receive any benefit
under this Agreement. Settlement Class Members who were unrepresented by counsel
in negotiating previous settlements and who settled Breast Implant Related
claims for less than $15,000,
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and any Settlement Class Members who demonstrate that their previous settlements
were induced by Defendant's fraud, are eligible for compensation, with an offset
of the amounts previously received.
C. Settlement Class Members who have obtained and collected judgments for
compensatory and/or punitive damages against one or more Defendants, and
Settlement Class Members against whom final judgments have been entered by the
finder of fact in courts of general jurisdiction (i.e., not courts of limited
jurisdiction, small claims courts, or courts without jury availability) after a
full trial on the merits in any Defendant's or Released Party's favor, shall not
be permitted to obtain benefits under this Agreement.
VII. EXCLUSIVE REMEDY/DISMISSAL OF
ACTION/JURISDICTION OF COURT
A. Exclusive Remedy/Settled Claims.
-------------------------------
This Agreement shall be the exclusive remedy for any and all Settled
Claims of Settlement Class Members and for any claim arising out of the subject
matter of this Agreement and the Complaint by any Settlement Class Member
against the Defendants and Released Parties. No Defendant or Released Party
shall be subject to liability or expense of any kind to any Settlement Class
Member with respect to any Settled Claim, except as provided herein. Upon entry
of the Final Order and Judgment by the Court approving this Agreement, pursuant
to the Formal Fairness Hearing, each of the Settlement Class Members shall be
barred from initiating, asserting or prosecuting any Settled Claims against any
Defendant or any Released Party, except that any Settlement Class Member who
opts out pursuant to the Second Opt Out and Ongoing Opt Out procedures of this
Agreement shall be permitted thereafter to bring certain actions against
Defendants and Released Parties subject to the conditions set forth herein.
B. Dismissal Of Actions.
--------------------
When the Court's Final Order and Judgment approving this Agreement
becomes Final, the Complaint shall be dismissed subject to the reactivation of
claims as provided in Sections V, XIII and XIX of this Agreement. Settlement
Class Counsel shall cooperate with Defendants and Released Parties to stay or
dismiss, as appropriate, any other action of any Settlement Class Member pending
in state or federal court. Settlement Class Members may not commence or actively
prosecute actions
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against the Defendants or Released Parties once the Final Order and Judgment is
entered, except that Settlement Class Members who opt out in accordance with
this Agreement shall be permitted to bring actions subject to the terms and
conditions of this Agreement.
C. Continuing Jurisdiction Of Court.
--------------------------------
The Court shall retain exclusive and continuing jurisdiction of the
Complaint and all Parties named or described therein, including all Settlement
Class Members and Defendants and Released Parties, and over this Agreement with
respect to the performance of the terms and conditions of this Agreement, to
assure that all disbursements are properly made and to interpret and enforce
this Agreement's terms, conditions and obligations. The Court shall have the
power to approve the Settlement Committee's designation, appointment and removal
of auditors, consultants, and disbursing agents, and the execution of contracts
as necessary and appropriate to assure the administration of this Agreement.
VIII. RELEASES
A. Release Of Settled Claims Against Defendants And Released Parties.
-----------------------------------------------------------------
Upon approval of this Agreement as a good faith, fair, adequate, and
reasonable settlement and entry of the Final Order and Judgment, every Settled
Claim by a Settlement Class Member against the Defendant(s) and the Released
Parties shall be conclusively compromised, settled, and released; provided,
however, that Settlement Class Members shall not be prevented from bringing suit
or otherwise proceeding against Defendant(s) and/or Released Parties where and
to the extent expressly permitted under Section III.C.2.a.(4) (providing opt out
rights for Settlement Class Members in the event of a reduction in the Disease
Compensation Schedule), under Section III.C.2.b.(5) (providing opt out rights
for certain Eligible Ongoing Claimants) and under Section III.C.2.f. (providing
opt out rights for children of Breast Implant Recipients). Nothing in this
Agreement is intended to effect, nor shall it effect, a waiver by The Dow
Chemical Company or Corning Incorporated of any rights, defenses or objections,
as against any Settlement Class Member arising
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from or as a result of the December 2, 1993 Opinion and Order granting the Dow
Chemical and Corning motions for summary judgment, or other judgment that may be
granted by this Court in their favor, which shall retain all force and effect as
the Court directs, except to the extent it may be modified, amended,
reconsidered, or reversed by the Court or on appeal; nor shall it effect a
waiver by Bristol-Myers Squibb Company of any rights, defenses, or objections
arising from or as a result of a summary or other judgment that may be granted
by the Court in its favor, and such order shall retain such force and effect as
the Court directs, except to the extent it may be modified, amended,
reconsidered, or reversed by the Court or on appeal.
B. Reservation Of Rights Against Non-Settling Defendants.
-----------------------------------------------------
Except as otherwise provided herein, nothing in this Agreement shall
prejudice or in any way interfere with the rights of the Settlement Class
Members to pursue all of their rights and remedies against Non-Settling
Defendants and Withdrawing Defendants.
C. Release And Dismissal Of Cross Claims/Contribution/Indemnity Claims.
-------------------------------------------------------------------
Upon the Court's entry of its Final Order and Judgment approving this
Agreement, any and all claims of any kind asserted or that may be asserted by
any Defendant or Released Party against any other Defendant or Released Party
arising from or relating to any Settled Claims of Settlement Class Members shall
be conclusively compromised, settled and released and no Defendant or Released
Party may bring or pursue any action or claim against any other Defendant or
Released Party regarding any Settled Claim of any Settlement Class Member unless
and until the Defendant withdraws or Finally Defaults under Sections V and XIII
of this Agreement. Nothing in this Agreement shall affect or release claims
available to Defendants in any other circumstance, including, without
limitation, any claims available against any Defendant by a person who opts out
of this Agreement or out of the Settlement Class.
IX. ENTRY OF GOOD FAITH BAR ORDER ON CONTRIBUTION
AND INDEMNITY CLAIMS/INDEMNIFICATION
A. The Parties shall request that the Court enter an order barring and
enjoining the commencement and prosecution of any claim or action by any Non-
Settling Defendant or other third
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party against any Defendant or Released Party, including but not limited to any
contribution, indemnity and/or subrogation claim, seeking reimbursement for
payments made or to be made to any Settlement Class Member for Breast Implant
Related injuries or for expenses incurred in defending against any such claims
or actions. Defendants and Released Parties shall be entitled to dismissal with
prejudice of any Non-Settling Defendant's claims against them which violate or
are inconsistent with this bar.
B. Additionally, the Settlement Class Members agree to cooperate with and
to indemnify Defendants and Released Parties from Claims for Contribution and/or
Indemnification asserted by Non-Settling Defendants or other third parties to
the following extent only:
1. The Settlement Class Members shall forego or return any judgment
amounts that they obtain against such Non-Settling Defendants or third parties
which any court shifts to any Defendant or Released Party notwithstanding the
bar, with the effect that, although Settlement Class Members shall be free to
pursue claims and collect judgments from such Non-Settling Defendants or third
parties, without limitation, no Settlement Class Member shall recover, directly
or indirectly, any sums from any Defendants and/or Released Party or group of
Defendants and/or Released Parties in excess of those received from Designated
Funds and/or the Disease Compensation Program.
2. The Settlement Class Members shall move jointly with such
Defendants or Released Parties for severance and continuance of the trial of
such Contribution and/or Indemnification.
3. The Settlement Class Members shall refrain from volunteering or
agreeing to assist any Non-Settling Defendant or third party in pursuing its
claims for Contribution and/or Indemnification against such Defendants or
Released Parties.
4. Nothing in the preceding paragraphs shall be deemed to limit the
right of any Settlement Class Member to pursue an action against or collect a
judgment against any person or entity that is not a Defendant or Released Party
under this Agreement.
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<PAGE>
X. ADMINISTRATIVE EXPENSES/COUNSEL
FEES AND COSTS
All expenses incurred in administering this Agreement, including cost
of notice and compensation to any Court appointed Claims Administrators or
Claims Officers, or to any member of the Medical Panel, and the fees and costs
of Settlement Class Counsel and Claimants' Counsel, as determined and approved
by the Court, shall be paid from Fund VI as ordered by the Court and shall not
be the separate or individual obligations of Defendants or Claimants.
XI. TAX STATUS OF SETTLEMENT FUND
A. The Settlement Fund shall be formed and operated to meet all
requirements of a Qualified Settlement Fund within the meaning of Section 468B
of the Internal Revenue Code of 1986, and all regulations and rulings
thereunder. Any Defendant shall be permitted, in its discretion, and at its own
cost, to seek a private letter ruling from the Internal Revenue Service
regarding the tax status of the Settlement Fund. The Parties agree to negotiate
in good faith any changes to the Agreement necessary to obtain IRS approval as a
Qualified Settlement Fund.
B. The Parties agree to negotiate in good faith such changes to the
Agreement as may be necessary, for purposes of this Section, to maximize the
amount of the Settlement Fund for the benefit of the Settlement Class,
consistent with and to promote the tax deductible status of Defendants'
payments.
XII. COURT'S SETTLEMENT APPROVAL ORDER
This Agreement is subject to and conditional upon the issuance by the
Court, following the Formal Fairness Hearing, of a Final Order and Judgment
granting final approval of the Agreement in accordance with Rule 23(e), and
providing the below-specified relief, which relief shall be subject to the terms
and conditions of this Agreement and the Parties' performance of their
continuing rights and obligations hereunder. Such Final Order and Judgment
shall:
1. Confirm the certification of the Settlement Class under Fed. R.
Civ. P. 23(b)(3) and (e) for settlement purposes;
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<PAGE>
2. Dismiss the Complaint pursuant to Section VII.B of this
Agreement, and stay or dismiss all other actions upon the Settled Claims of all
of the Settlement Class Members, without cost, now existing or hereafter brought
against Defendants or any Released Party in state, federal and territorial
courts;
3. Bar and enjoin all Settlement Class Members from asserting against
Defendants or any other Released Party any and all Settled Claims which the
Settlement Class Member had, has, or may have in the future during their period
of Class Membership;
4. Release Defendants and all other Released Parties from the Settled
Claims which any Settlement Class Members have, had, or may have in the future,
against Defendant or any other Released Party;
5. Bar and enjoin the commencement and/or prosecution of any claim or
action against any Defendant or any Released Party for reimbursement for
payments made to a Settlement Class Member for Breast Implant Related injuries;
6. Provide that this Agreement is entered into in good faith, is
reasonable, fair, and adequate, in the best interest of the Settlement Class and
is non-collusive; and
7. Reserve the Court's continuing and exclusive jurisdiction over the
Parties to this Agreement, including Defendants and all Settlement Class
Members, to administer, supervise, construe and enforce the Agreement in
accordance with its terms for the mutual benefit of the Parties.
XIII. EFFECT OF DEFAULT OF ANY DEFENDANT
A. In the event that any Defendant fails to make a payment due and owing
under the terms of this Agreement, Settlement Class Counsel shall so notify the
Court. The Court shall then supply the defaulting Defendant with a reasonable
opportunity (up to 30 days) to "cure" the default, and, in addition, may require
the Defendant to pay simple interest, accruing as of the date the payment was
due under the Schedules of Defendants' Payments.
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<PAGE>
B. If the defaulting Defendant does not "cure" the default as provided
above, the Defendant shall be in Final Default, and Settlement Class Counsel
shall apply to the Court for appropriate relief. If the relief results in
payments to the Settlement Fund sufficient to satisfy such Defendant's
obligations under this Agreement, then that Defendant shall no longer be deemed
in Final Default.
C. A Defendant that is in Final Default shall be deemed a Non-Settling
Defendant for purposes of the contribution bar order described in Section IX.
D. Any Settlement Class Member all of whose Breast Implants were
manufactured either by (1) a Defendant in Final Default or (2) a Defendant in
Final Default and Non-Settling Defendants, shall not be eligible for benefits
under the Agreement after the effective date of Final Default. Settlement Class
Members whose Breast Implants were manufactured or supplied by at least one
Defendant, in addition to the Defendant in Final Default, are eligible to make
claims under this Agreement except that the payment for such claims shall be
reduced by the percentage equal to the Funding Percentage (as set forth in the
Funding Agreement) applicable to the Defendant in Final Default after the
effective date of Final Default. Any such Settlement Class Member shall be
permitted to pursue claims against the Defendant in Final Default. Any recovery
obtained by such Settlement Class Member against a Defendant in Final Default
shall be reduced by any amount the Settlement Class Member obtained under this
Agreement prior to the effective date of the Final Default.
E. Failure of any Defendant to fulfill its obligations under this
Agreement or under the Funding Agreement shall not abrogate this Agreement as to
any other Defendant or increase or modify in any way the obligation of any other
Defendant.
F. Nothing in this Section shall constitute nor shall it be deemed to
constitute a waiver or modification of any of the terms of this Agreement
including orders entered hereunder as to any other
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<PAGE>
Defendant or Released Party, and the Final Default of any Defendant shall not be
deemed to permit any Settlement Class Member to bring any action against any
other Defendant or Released Party.
XIV. ASSURANCE OF DEFENDANTS' OBLIGATIONS
Each Defendant shall provide financial assurance, either by way of a
guarantee or similar undertaking, that is satisfactory to the Court. Plaintiffs'
Settlement Class Counsel may stipulate to the adequacy of any financial
assurance, guarantee or similar undertaking by any Defendant. Such financial
assurance may (at the Defendant's option) consist of the agreement of a
Defendant's parents, subsidiaries and/or related entities to guarantee the
performance of a Defendant; except that the Parties agree that any financial
assurance provided by Dow Corning shall not include a parent or shareholder
guarantee. The Court shall determine the adequacy of financial assurances,
guarantees or similar undertakings provided or to be provided by each Defendant
in considering whether the Agreement is fair, adequate, and reasonable in
accordance with Fed. R. Civ. P. 23(e). The furnishing of financial assurances
and guarantees of Defendants' continuing obligations under this Agreement
throughout the Disease Compensation Program that are fully satisfactory to the
Court is a condition precedent of this Agreement as to each Defendant. Each
Defendant shall advise the Court and the Settlement Class Counsel, promptly upon
the request of either, at any stage of the settlement approval process, as to
the nature, magnitude, and documentation of any guarantee, similar undertaking
or assurance to be provided to secure its settlement contribution obligation.
XV. DEFENDANTS' INSURANCE PROCEEDS
A. If any Defendant or Released Party receives indemnity payments from
Insurers based upon liability coverage for damages allegedly caused by Breast
Implants to cover indemnity claims under this Agreement (but not specifically to
pay an individual claim or claims outside of this Agreement) and if the total
amount of such indemnity payments received by that Defendant or Released Party
for such claims exceeds the sum of (1) the amount of payments previously made by
the Defendant or Released Party in satisfaction of its obligations pursuant to
this Agreement and (2) one-
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<PAGE>
half of the amount due for the next succeeding Funding Year under the Funding
Agreement, then the Defendant or Released Party will forthwith report said
receipt to the Plaintiffs' Settlement Committee and to the Court.
B. Upon notification as provided above, Settlement Class Counsel may
apply to the Court to request an acceleration of the payments due from such
Defendant under the Schedule of Payments in the form of an increase, up to the
amount of such excess indemnity payments received, in the amount due from such
Defendant in the next Funding Year with a corresponding decrease in the
remainder of Funding Years 1 through 3, except that if the amount of the
increase has not been fully offset by reductions by Funding Year 3, further
decreases shall be made in Funding Year 4 and succeeding Funding Years, in
sequence.
C. The Court shall determine whether an acceleration of payments as
defined above is reasonable and in the best interest of the Settlement Class
Members. In making such determination, the Court's authority shall be limited as
follows:
1. The Defendant may not be required to pay in any Funding Year the
amount that would exceed the amount that would have been due for such Funding
Year had such Defendant been obligated to pay 27% of its Settlement Amount in
Funding Year 1 and 12% of its Settlement Amount in Funding Years 2 and 3;
2. In determining whether such acceleration is in the best interest of
the Settlement Class Members, the Court shall take into consideration the
financial impact upon the Defendant of such an acceleration and the Court may
not direct any acceleration if such acceleration would have an unreasonable
detrimental financial impact upon the Defendant;
3. In determining whether acceleration is in the best interest of the
Settlement Class Members, the Court must further take into consideration whether
such payment from Insurers was made in respect of the Defendants' future payment
obligations under the Agreement and may therefore not appropriately be paid for
the benefit of Current Claimants; and
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<PAGE>
4. This acceleration (as defined) shall apply only to the payments due
in Funding Years 1, 2 and 3. In the event that an increase is applied to Funding
Year 3, there shall be a corresponding decrease in the Annual Payment Amount (as
defined in the Funding Agreement) in succeeding years as necessary to offset
such increase.
5. Any guarantees or commitments provided by Insurers that are not
cash payments shall not be considered to be indemnity payments for purposes of
this Section XV.
D. This Section shall not apply to Defendants Medical Engineering Corp.,
Bristol-Myers Squibb Co., their predecessors, subsidiaries and affiliates, or
Defendant Baxter International Inc. and its subsidiaries and affiliates.
XVI. REPRESENTATIONS AND WARRANTIES
A. Plaintiffs' Negotiating Counsel represent and warrant that they have
the authority to enter into this Agreement on behalf of the Representative
Plaintiffs, subject to Court approval.
B. Each Defendant has all requisite corporate power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each Defendant
of this Agreement and the consummation by it of the actions contemplated herein
have been duly authorized by all necessary corporate action on the part of such
Defendant. This Agreement has been duly and validly executed and delivered by
each Defendant and constitutes its legal, valid and binding obligation.
XVII. MISCELLANEOUS PROVISIONS
A. Neither this Agreement, approved or not approved, nor any exhibit,
document or instrument delivered hereunder, nor any statement, transaction or
proceeding in connection with the negotiation, execution or implementation of
this Agreement is intended to be or shall be construed as or deemed to be
evidence of an admission or concession by the Defendants or Released Parties of
any liability or wrongdoing or of the truth of any allegations in the Complaint,
and none of them shall be admissible in evidence for any such purpose in this or
any other proceeding. Nothing in this
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<PAGE>
Agreement shall be construed to subject any parent company to the liabilities
of its subsidiary to any greater degree than would have been the case absent
this Agreement.
B. The headings of the sections and paragraphs of this Agreement
are included for convenience only and shall not be deemed to constitute part of
this Agreement or to affect its construction.
C. This Agreement, including all Exhibits attached hereto, constitutes the
entire agreement by and among the Parties with regard to the subject of this
Agreement and shall supersede any previous agreements and understandings
between the Parties with respect to the subject matter of this Agreement. This
Agreement may not be modified or amended except in writing signed by all
Parties hereto.
D. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same instrument.
E. Any notice, request, instruction or other document to be given by any
party to this Agreement to any other party to this Agreement (other than class
notification) shall be in writing and delivered personally or sent by registered
or certified mail, postage prepaid, if to the Defendants to the attention of
their respective general counsel, and to Settlement Class Counsel on behalf of
Settlement Class Members, or to other recipients as the Court may specify.
F. All applications for Court approval or Court orders required under this
Agreement shall be made on notice to all signatories hereto.
XVIII. INSURER NOTIFICATION
The Parties recognize that the obligations of some Defendants under this
Agreement will have to be paid, at least in substantial part, by timely
insurance provided under liability insurance
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<PAGE>
policies covering such Defendants and/or Released Parties. Accordingly, this
Agreement shall not become effective until all of the following conditions
precedent have been satisfied:
1. A copy of this Agreement has been provided by Defendants, or shall
be available on file with the Court, to each Insurer which might reasonably be
called upon to pay a Defendant's obligations under this Agreement;
2. Each Insurer has been provided by Defendants with written notice
of the Formal Fairness Hearing; and
3. Each such Insurer shall be provided access to a written agreement
or final judgment establishing that this Agreement is a reasonable compromise
and settlement of the Defendants' potential liabilities and legal obligations to
the Settlement Class Members; that each Defendant's allocated share, pursuant to
the Funding Agreement, of all sums paid pursuant to the terms of this Agreement
is reasonable; and that each Defendant will be legally obligated and liable to
pay its allocated share of all such sums.
XIX. TERMINATION OF THE AGREEMENT
This Agreement shall, without notice, be automatically terminated if
the Court declines to enter its Final Order and Judgment or if the Court's
orders as described in Section XII do not become Final. Should this Agreement
terminate pursuant to this Section, the Agreement shall have no further force or
effect, and all monies paid by any and all Defendants shall be returned to each
respective Defendant, including any interest earned on such monies and less such
sums as may have been expended on notices, settlement approval, claims
administration, and other purposes pursuant to this Agreement in proportion to
Defendants' payments made in respect to this Agreement pursuant to
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order of the Court. In the event of termination, all Parties shall be restored
to their respective positions immediately prior to execution of this Agreement.
Dated this _____ date of March, 1994.
Plaintiffs' Negotiating Counsel
And Lindsey Plaintiffs' Counsel Signatory Defendants
- - - - - ------------------------------- --------------------
Baxter Healthcare Corporation
and Baxter International, Inc.
/s/ Margaret Moses Branch by:
- - - - - ------------------------------- -------------------------------
Margaret Moses Branch Arthur F. Staubitz
THE BRANCH LAW FIRM Vice President, Secretary
and General Counsel
- - - - - ------------------------------- Bristol-Myers Squibb Company
Elizabeth J. Cabraser
LIEFF, CABRASER & HEIMANN
by:
-------------------------------
Rodolphe Hamel
Senior Vice President
and General Counsel
- - - - - -------------------------------
Stanley M. Chesley
WAITE, SCHNEIDER, BAYLESS &
CHESLEY CO., L.P.A. Medical Engineering Corporation
by:
-------------------------------
Joseph G. Solari, Jr.
- - - - - -------------------------------
Michael T. Gallagher
FISCHER, GALLAGHER & LEWIS, LTD.
--CONTINUED--
- - - - - -------------------------------
Ralph I. Knowles, Jr.
DOFFERMYRE, SHIELDS, CANFIELD
& KNOWLES
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order of the Court. In the event of termination, all Parties shall be restored
to their respective positions immediately prior to execution of this Agreement.
Dated this _____ date of March, 1994.
Plaintiffs' Negotiating Counsel
And Lindsey Plaintiffs' Counsel Signatory Defendants
- - - - - ------------------------------- --------------------
Baxter Healthcare Corporation
and Baxter International, Inc.
by:
- - - - - ------------------------------- -------------------------------
Margaret Moses Branch Arthur F. Staubitz
THE BRANCH LAW FIRM Vice President, Secretary
and General Counsel
/s/ Elizabeth J. Cabraser
- - - - - ------------------------------- Bristol-Myers Squibb Company
Elizabeth J. Cabraser
LIEFF, CABRASER & HEIMANN
by:
-------------------------------
Rodolphe Hamel
Senior Vice President
and General Counsel
/s/ Stanley M. Chesley
- - - - - -------------------------------
Stanley M. Chesley
WAITE, SCHNEIDER, BAYLESS &
CHESLEY CO., L.P.A. Medical Engineering Corporation
by:
-------------------------------
Joseph G. Solari, Jr.
- - - - - -------------------------------
Michael T. Gallagher
FISCHER, GALLAGHER & LEWIS, LTD.
--CONTINUED--
- - - - - -------------------------------
Ralph I. Knowles, Jr.
DOFFERMYRE, SHIELDS, CANFIELD
& KNOWLES
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order of the Court. In the event of termination, all Parties shall be restored
to their respective positions immediately prior to execution of this Agreement.
Dated this 24 date of March, 1994.
Plaintiffs' Negotiating Counsel
And Lindsey Plaintiffs' Counsel Signatory Defendants
- - - - - ------------------------------- --------------------
Baxter Healthcare Corporation
and Baxter International, Inc.
by:
- - - - - ------------------------------- -------------------------------
Margaret Moses Branch Arthur F. Staubitz
THE BRANCH LAW FIRM Vice President, Secretary
and General Counsel
- - - - - ------------------------------- Bristol-Myers Squibb Company
Elizabeth J. Cabraser
LIEFF, CABRASER & HEIMANN
by:
-------------------------------
Rodolphe Hamel
Senior Vice President
and General Counsel
- - - - - -------------------------------
Stanley M. Chesley
WAITE, SCHNEIDER, BAYLESS &
CHESLEY CO., L.P.A. Medical Engineering Corporation
by:
-------------------------------
Joseph G. Solari, Jr.
- - - - - -------------------------------
Michael T. Gallagher
FISCHER, GALLAGHER & LEWIS, LTD.
/s/ Ralph I. Knowles, Jr. --CONTINUED--
- - - - - -------------------------------
Ralph I. Knowles, Jr.
DOFFERMYRE, SHIELDS, CANFIELD
& KNOWLES
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<PAGE>
order of the Court. In the event of termination, all Parties shall be restored
to their respective positions immediately prior to execution of this Agreement.
Dated this _____ date of March, 1994.
Plaintiffs' Negotiating Counsel
And Lindsey Plaintiffs' Counsel Signatory Defendants
- - - - - ------------------------------- --------------------
Baxter Healthcare Corporation
and Baxter International, Inc.
by: /s/ Arthur F. Staubitz
- - - - - ------------------------------- -------------------------------
Margaret Moses Branch Arthur F. Staubitz
THE BRANCH LAW FIRM Senior Vice President,
Secretary and General Counsel
- - - - - ------------------------------- Bristol-Myers Squibb Company
Elizabeth J. Cabraser
LIEFF, CABRASER & HEIMANN
by:
-------------------------------
Rodolphe Hamel
Senior Vice President
and General Counsel
- - - - - -------------------------------
Stanley M. Chesley
WAITE, SCHNEIDER, BAYLESS &
CHESLEY CO., L.P.A. Medical Engineering Corporation
by:
-------------------------------
Joseph G. Solari, Jr.
- - - - - -------------------------------
Michael T. Gallagher
FISCHER, GALLAGHER & LEWIS, LTD.
--CONTINUED--
- - - - - -------------------------------
Ralph I. Knowles, Jr.
DOFFERMYRE, SHIELDS, CANFIELD
& KNOWLES
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<PAGE>
[LETTERHEAD OF DOW CORNING]
The undersigned officials of Dow Corning Corporation, on behalf of Dow
Corning Corporation, hereby agree to the terms and conditions set forth in the
Breast Implant Litigation Settlement Agreement, subject to review and approval
by the Board of Directors of Dow Corning Corporation.
This 24th day of March, 1994
/s/ Gary E. Anderson
-------------------------
Gary E. Anderson
Executive Vice President
/s/ James R. Jenkins
-------------------------
James R. Jenkins
Vice President, Secretary and General
Counsel
<PAGE>
SIGNATURE PAGE FOR
BREAST IMPLANT LITIGATION SETTLEMENT AGREEMENT
(MDL - 926)
FOR MEDICAL ENGINEERING CORPORATION
SIGNATORY DEFENDANT
Medical Engineering Corporation
By: /s/ Joseph G. Solari, Jr.
------------------------------
Joseph G. Solari, Jr.
<PAGE>
SIGNATURE PAGE FOR
BREAST IMPLANT LITIGATION SETTLEMENT AGREEMENT
(MDL - 926)
FOR BRISTOL-MYERS SQUIBB COMPANY
SIGNATORY DEFENDANT
Bristol-Myers Squibb Company
By: /s/ Rodolphe Hamel
------------------------------
Rodolphe Hamel
Senior Vice President and General Counsel
<PAGE>
Dow Corning Corporation
by: /s/ Richard A. Hazleton
----------------------------------
Richard A. Hazleton
President and Chief Executive Officer
and
by: /s/ Gary E. Anderson
----------------------------------
Gary E. Anderson
Executive Vice President
Attest:
--------------------------------
James R. Jenkins
Vice-President, Secretary and
General Counsel
--------------------------------
--------------------------------
--------------------------------
-54-
<PAGE>
EXHIBIT A
---------
DEFENDANTS
----------
Aesthetech Corporation; American Corporation f/k/a Heyer-Schulte
Corporation; American Hospital Supply Corporation; Baxter Healthcare
Corporation; Baxter International Inc.; Bristol-Myers Squibb Company; Bristol
Myers Squibb Canada, Inc.; Cabot Medical Corporation; CBI Medical, Inc. n/k/a
and/or a/k/a CBI Medical Electronics, Inc.; CooperSurgical, Inc.; CooperVision,
Inc.; CUI Corporation; CVI Merger Corp.; CV Sub 1987, Inc.; Dow Corning
Corporation; Dow Corning Wright Corporation; Dow Corning STI; Dow Corning
Wright/Medical Materials; Wright Manufacturing, Inc.; Foamex, L.P.; Foamex
Products, Inc.; General Felt Industries, Inc.; Hazleton Corporation; Hazleton
Biotechnologies, Inc.; Hazleton Washington, Inc.; HRP, Inc.; Knoll International
Holding, Inc.; Linvatec Corporation; Markham Medical Association; Markham
Medical International, Inc.; Markham Surgical Specialties; Mark/M Surgical;
Mark/M Resources, Inc.; MEC Subsidiary Corporation f/k/a Surgitek, Inc.; Medical
Engineering Corporation; Natural-"Y" Surgical Specialties, Incorporated; Poly
Plastic Silicone Products, Inc.; Recticel Foam Corporation; Scotfoam
Corporation; Sirod Corporation; Summit Medical Corporation; Surgitek, Inc.; "21"
International Holdings, Inc.; Edward Weck, Incorporated; Edward Weck & Company,
Inc.; Wilshire Technologies, Inc. f/k/a Wilshire Foam Products, Inc.; Zimmer,
Inc.; and Zimmer International, Ltd.
-1-
<PAGE>
EXHIBIT B
---------
RELEASED PARTIES
----------------
ACME Engineering; Aesthetech Corporation; American Heyer-Schulte
Corporation f/k/a Heyer-Schulte, Corporation; American Hospital Supply
Corporation; Baxter Acquisition Sub., Inc.; Baxter Corporation; Baxter
Healthcare Corporation; Baxter International Inc.; Baxter Travenol Laboratories,
Inc.; Baxter World Trade Corporation; Bio-Manufacturing, Inc.; Bioplasty; Robert
Bishop; Bristol-Myers Squibb Company; Cabot Medical Corporation; CBI Medical,
Inc. n/k/a and/or a/k/a CBI Medical Electronics, Inc.; CooperSurgical, Inc.;
CooperVision, Inc.; CUI Corporation; CVI Merger Corp.; CV Sub 1987, Inc.; The
Dow Chemical Company; Corning Incorporated; Dow Corning Corporation; Dow Corning
Wright Corporation; Dow Corning STI; Edwards Laboratories, Inc.; Foamex, L.P.;
Foamex Products, Inc.; Vicki Galati; General Felt Industries, Inc.; Hazleton
Corporation; Hazleton Biotechnologies, Inc.; Hazleton Washington, Inc.; Hazleton
Wisconsin, Inc.; Hazleton Research Corporation; Robert J. Helbling; HRP, Inc.;
Knoll International Holding, Inc.; Harold Markham; Jacqueline Markham; Lottie
Markham; Markham Medical International, Inc.; Markham Medical Association;
Mark/M Surgical; Mark/M Resources, Inc.; Markham Surgical Specialties; Anita
Kost McAteer; MEC Subsidiary Corporation f/k/a Surgitek, Inc.; Medical
Engineering Corporation; Natural-"Y" Surgical Specialties, Incorporated; Poly
Plastic Silicone Products, Inc.; Real Lappierre; Recticel Foam Corporation;
Schulte Medical Products; Scotfoam Corporation; Sirod Corporation; Summit
Medical Corporation; Surgitek, Inc.; The Cooper Companies, Inc. f/k/a
CooperVision, Inc.; Travenol Laboratories, Inc.; "21" Foam Company; "21"
International Holdings, Inc.; Uroplasty, Inc.; Edward Weck & Company, Inc.;
Edward Weck, Incorporated; Wright Medical Technologies; Wright Manufacturing,
Inc.; and Wilshire Technologies, Inc. f/k/a Wilshire Foam Products, Inc., along
with each such person's or entity's (1) present and former foreign and domestic
parents, subsidiaries and affiliates, (2) foreign and domestic predecessors,
successors, sales representatives, independent sales representatives,
distributors, transferees, insurers and assigns and
-1-
Exhibit B
<PAGE>
(3) present, former and subsequent officers, directors, agents, servants,
proprietors, owners, shareholders and employees, including, but not limited to,
individuals specifically named as defendants in the lawsuits and claims covered
by this Agreement.
Ralph Blocksma; Eugene Courtiss; Robert Reeder; Marie Pletsch; John
Beernick; Boyd Burkhardt; Frank Gerow; Thomas Cronin; Charles Vinnick; Garry S.
Brody; Ben Gregory; W. Ian Rogers; Kathy Montgomery; Louis Argenta; Franklin L.
Ashley; Laurena Birnbaum; Angelo Cappozzi; John Hartley; Richard P. Jobe; W.
John Pangman II; Vincent R. Pennisi; Iram M. Seropian; H. E. Sterling; Kuros
Tabari; Kurt Wagner; and John L. Williams.
- 2 -
Exhibit B
<PAGE>
Defendants and Released Parties Associated with
Signatory Defendants Medical Engineering Corporation
and Bristol-Myers Squibb Company
for Purposes of Section V.B. of the Agreement
Aesthetech Corporation
Robert Bishop
Bristol Myers Squibb Canada, Inc.
Cabot Medical Corporation
CBI Medical, Inc. n/k/a and/or
CBI Medical Electronics, Inc.
CooperSurgical, Inc.
CooperVision, Inc.
CVI Merger Corp.
CV Sub 1987, Inc.
Derwood Faries
Edward Weck Incorporated
Edward Weck & Company, Inc.
Vicki Galati
Robert J. Helbling
Real Lappiere
Linvatec Corporation
Anita Kost McAteer
Harold Markham
Jacqueline Markham
Lottie Markham
Markham Medical Association
Markham Medical International, Inc.
Markham Surgical Specialties
Mark/M Surgical
Mark/M Resources, Inc.
MEC Subsidiary Corporation f/k/a
Surgitek, Inc.
Natural "&" Surgical Specialties, Incorporated
Poly Plastic Silicone Products, Inc.
Sirod Corporation
Summit Medical Corporation
Surgitek, Inc.
Zimmer, Inc.
Zimmer International, Ltd.
along with each such person's or entity's present and former foreign and
domestic parents, subsidiaries and affiliates, foreign and domestic
predecessors, successors, sales representatives, independent sales
representatives, distributors, transferees, insurers and assigns and present,
former and subsequent officers, directors, agents, servants, proprietors,
owners, shareholders and employees, including, but not limited to, individuals
specifically named as defendants in the lawsuits and claims covered by this
Agreement. This list is not intended by Defendants to indicate any legal
association or affiliation between the above entities, and shall not be used for
such purpose in connection with any lawsuit or claim involving any of the
entities listed herein.
-3-
Exhibit B
<PAGE>
Defendants and Released Parties Associated with
Signatory Defendants Baxter International Inc.
and Baxter Healthcare Corporation
for Purposes of Section V.B. of the Agreement
American Heyer-Schulte Corporation f/k/a
Heyer-Schulte Corporation
American Hospital Supply Corporation
Franklin L. Ashley
Baxter Acquisition Sub., Inc.
Baxter Corporation
Baxter Healthcare Corporation
Baxter International Inc.
Baxter Travenol Laboratories, Inc.
Baxter World Trade Corporation
Laurence Birnbaum
Angelo Capozzi
Edwards Laboratories, Inc.
John Hartley
Richard P. Jobe
W. John Pangman II
Vincent R. Pennisi
Poly Plastic Silicone Products, Inc.
Schulte Medical Products
Diran M. Seropian
H. E. Sterling
Kuros Tabari
Travenol Laboratories, Inc.
Kurt Wagner
John L. Williams
along with each such person's or entity's present and former foreign and
domestic parents, subsidiaries and affiliates, foreign and domestic
predecessors, successors, sales representatives, independent sales
representatives, distributors, transferees, insurers and assigns and present,
former and subsequent officers, directors, agents, servants, proprietors,
owners, shareholders and employees, including, but not limited to, individuals
specifically named as defendants in the lawsuits and claims covered by this
Agreement. This list is not intended by Defendants to indicate any legal
association or affiliation between the above entities, and shall not be used for
such purpose in connection with any lawsuit or claim involving any of the
entities listed herein.
-4-
Exhibit B
<PAGE>
Defendants and Released Parties Associated
with Dow Corning Corporation
for Purposes of Section V.B. of the Agreement
Signatory Defendant
Dow Corning Corporation
Associated Defendants
Dow Corning STI
Dow Corning Wright Corporation
Dow Corning Wright/Medical Materials
Wright Manufacturing, Inc.
Hazleton Biotechnologies, Inc.
Hazleton Corporation
Hazleton Washington, Inc.
HRP, Inc.
Released Parties
Dow Corning Corporation
Dow Corning STI
Dow Corning Wright Corporation
Dow Corning Wright/Medical Materials
Corning Incorporated
Hazleton Biotechnologies, Inc.
Hazleton Corporation
Hazleton Research Corporation
Hazleton Washington, Inc.
Hazleton Wisconsin, Inc.
HRP, Inc.
The Dow Chemical Company
Wright Manufacturing, Inc.
Wright Medical Technologies
along with each such person's or entity's present and former foreign and
domestic parents, subsidiaries and affiliates, foreign and domestic
predecessors, successors, sales representatives, independent sales
representatives, distributors, transferees, insurers and assigns and present,
former and subsequent officers, directors, agents, servants, proprietors,
owners, shareholders and employees, including, but not limited to, individuals
specifically named as defendants in the lawsuits and claims covered by this
Agreement. This list is not intended by Defendants to indicate any legal
association or affiliation between the above entities, and shall not be used for
such purpose in connection with any lawsuit or claim involving any of the
entities listed herein.
- 5 -
Exhibit B
<PAGE>
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
In re:
SILICONE GEL BREAST IMPLANTS ) Master File No. CV-92-P-10000-S
PRODUCTS LIABILITY LITIGATION )
MDL 926 )
)
- - - - - ---------------------------------------------)
)
This Agreement relates to: )
)
ALL ACTIONS. )
)
- - - - - ---------------------------------------------)
)
)
HEIDI LINDSEY, et al., on behalf of ) Case No. CV-94-P-11558-S
themselves and all others similarly situated,)
) Honorable Sam C. Pointer, Jr.
Plaintiffs, )
)
v. )
)
DOW CORNING CORPORATION, et al. )
)
Defendants. )
)
- - - - - ---------------------------------------------)
EXHIBIT C TO
BREAST IMPLANT LITIGATION
SETTLEMENT AGREEMENT
<PAGE>
FUNDING AGREEMENT
This Agreement (hereinafter the "Funding Agreement") sets forth the
specific Payment obligations of each Defendant with respect to the Breast
Implant Litigation Settlement Agreement (hereinafter "Settlement Agreement")
regarding the resolution of claims arising out of and relating to Breast
Implants and Breast Implant Materials entered into between Plaintiffs and
Defendants as of the same date as this Funding Agreement. This Funding Agreement
is entered into between and among the Settlement Class (through Plaintiffs'
Negotiating Counsel) and each Defendant that is a signatory hereto (the
"Signatory Defendants") (collectively, the "Parties").
I. DEFINITIONS
All terms used herein shall have the same meaning ascribed to them
under the Settlement Agreement. Additional terms are defined below.
"ANNUAL FUNDING OBLIGATION" shall mean the maximum payment obligation
of each Signatory Defendant in each Funding Year as specified on the Schedule of
Payments applicable to such Defendant.
"ANNUAL PAYMENT AMOUNT" shall mean the amount that each Signatory
Defendant shall be obligated to pay after any adjustments to the Annual Funding
Obligation as described in Section II.D.2 below.
"FUNDING YEAR" shall mean the date specified for the payment of
amounts due under this Funding Agreement.
-1-
<PAGE>
"INITIAL PAYMENT SURPLUS" shall have the meaning set forth in Section
II.D.1 of this Funding Agreement.
"MAXIMUM CUMULATIVE FUNDING OBLIGATION" shall have the meaning set
forth in Section II.A of this Funding Agreement.
"MAXIMUM SETTLEMENT AMOUNT" shall have the meaning set forth in
Section II.A of this Funding Agreement.
"ONGOING ADJUSTMENT" shall have the meaning set forth in Section
II.D.2 of this Funding Agreement.
"PRELIMINARY PAYMENT" shall mean the payment due from each Signatory
Defendant five business days after Preliminary Approval.
"REVERSIONARY PERIOD" shall have the meaning set forth in Section
II.B.5 of this Funding Agreement.
"SCHEDULE OF PAYMENTS" shall mean the schedules contained as Exhibit D
to the Settlement Agreement and attached hereto, which schedules set forth the
Maximum Settlement Amount of each Signatory Defendant, the amount of each
Signatory Defendant's Annual Funding Obligation for each Funding Year and each
Signatory Defendant's Maximum Cumulative Funding Obligation as of each Funding
Year.
"TOTAL INITIAL ADJUSTMENT" shall have the meaning set forth in Section
II.D.1 of this Funding Agreement.
-2-
<PAGE>
II. AGREEMENT
A. Funding Obligations of Defendants/Maximum Payments.
---------------------------------------------------
Each Signatory Defendant agrees to make payments into the Settlement
Fund to be established under the Settlement Agreement in accordance with the
terms and conditions of this Funding Agreement. Each Signatory Defendant's
funding obligations are set forth in the Schedule of Payments applicable to such
Defendant. The aggregate amount of the payments specified for each Signatory
Defendant constitutes the maximum total funding obligation of such Defendant
(the "Maximum Settlement Amount"). The Annual Funding Obligation specified for
each Funding Year in each Signatory Defendant's Schedule of Payments represents
the maximum amount, at each specified time, that each such Defendant may be
required to pay in respect of the Settlement Agreement. The time when each
Annual Funding Obligation accrues is specified on the Schedule of Payments by
reference to a particular Funding Year. Each Signatory Defendant shall be
obligated to make payments into the Settlement Fund only as set forth in the
specific Schedule of Payments applicable to it and subject to the terms and
conditions set forth therein. Notwithstanding any other provision of the
Settlement Agreement (except as expressly provided in Section XV of the
Settlement Agreement) or this Funding Agreement, the maximum amount of each
Signatory Defendant's cumulative financial obligation as of the end of any
Funding Year is the "Maximum Cumulative Funding Obligation" specified on that
Defendant's Schedule of Payments as of such date.
-3-
<PAGE>
B. Timing of Payments by Defendants into Settlement Fund.
------------------------------------------------------
1. Preliminary Payment/Distribution of Preliminary Payment.
--------------------------------------------------------
a. Five business days after Preliminary Approval of the Settlement
Agreement by the Court each Signatory Defendant shall pay the amount designated
as the Preliminary Payment on the Schedule of Payments applicable to such
Defendant into the Settlement Fund (or into an escrow account administered under
the supervision of the Court). (Hereinafter, all references to the Settlement
Fund shall mean the Settlement Fund or any such escrow account.)
b. The Preliminary Payment shall be administered jointly by the
Settlement Class Counsel and the Signatory Defendants under the supervision of
the Court. Such amounts paid by each Signatory Defendant shall be maintained and
invested under the supervision of the Court in such a manner as to assure
maximum safety.
2. Annual Payments.
----------------
The obligation of the Signatory Defendants to make payments into the
Settlement Fund under the Schedules of Payments shall depend in part on the
amounts that are to be paid for Eligible Current Claims and Eligible Ongoing
Claims. The Annual Funding Obligation of each Signatory Defendant is the maximum
amount such Defendant may be required to pay at the specified Funding Year. As
set forth on the Schedules of Payments, each Signatory Defendant's Annual
Payment Amount (after the Preliminary Payment) becomes due at specified times
which are denoted as Funding Years. The following paragraphs specify the timing
of each Funding Year.
-4-
<PAGE>
a. Funding Year 1 shall be the date the "First Payment" (i.e., the
next scheduled payment after the Preliminary Payment) is due and owing. The
First Payment shall be due and owing on the earlier of the following two dates:
(1) five business days after the Court's Final Order and Judgment becomes Final
or (2) five business days after the latest of the following three dates: (a) the
date the Claims Administrator confirms, in the report specified under Section
IV.C.4 of the Settlement Agreement, that there will be no reduction in amounts
payable to Eligible Current Claimants and therefore no Second Opt Out Period or
(b) the expiration of the period during which the Signatory Defendants may
withdraw from the Settlement Agreement under Section V of that Agreement or (c)
if one or more of the Signatory Defendants have withdrawn from the Settlement
Agreement, the expiration of the period granted to Settlement Class Counsel to
withdraw from the Settlement Agreement under Section V; except that Signatory
Defendants Medical Engineering Corp. and Bristol-Myers Squibb Co. shall have the
option to pay their First Payment either in accordance with (1) above or on
January 10, 1995, but if these Defendants elect to make their First Payment on
January 10, 1995, they shall add to their First Payment simple interest at the
Prime Rate from the period under (1) above until January 10, 1995, if (1) occurs
before January 10, 1995.
b. Funding Year 2 shall be the date one year after the later of the
following two dates: (1) the date on which the Court's Final Order and Judgment
becomes Final or (2) five business days after the latest of the following three
dates: (a) the date the Claims Administrator confirms, in the report specified
under Section IV.C.4 of the Settlement Agreement, that there will be no
reduction in amounts payable to Eligible Current Claimants
-5-
<PAGE>
and therefore no Second Opt Out Period or (b) the expiration of the period
during which the Signatory Defendants may withdraw from the Settlement Agreement
under Section V of the Settlement Agreement or (c) if one or more of the
Signatory Defendants has withdrawn from the Settlement Agreement, the expiration
of the period granted to Settlement Class Counsel to withdraw from the
Settlement Agreement under Section V.
c. Funding Year 3 shall be the first anniversary of the date of
Funding Year 2.
d. Thereafter, each of Funding Year 4 through Funding Year 31 shall be
the next anniversary of the date of the previous Funding Year.
3. No Acceleration or Modification of Timing of Payments.
-------------------------------------------------------
In no event shall any Signatory Defendant be required to pay any
amount due in any Funding Year at any time earlier than the specified Funding
Year, except as specifically provided in Section XV of the Settlement Agreement
(relating to Defendants' Insurance Proceeds).
4. Limitations on Expenditure of Monies Deposited Into Settlement
--------------------------------------------------------------
Fund.
-----
The Preliminary Payment may be used only for payment of administrative
costs associated with issuing notice to the Settlement Class, for Claims
Administration, and for emergencies with respect to individual Settlement Class
Members as the Court may direct prior to the expiration of the Reversionary
Period (as described in Section II.B.5 below). In no event may the Preliminary
Payment (or any other monies deposited into the Settlement Fund by the Signatory
Defendants) be used for any other purpose before the expiration of the
Reversionary Period.
-6-
<PAGE>
5. Signatory Defendants' Reversionary Interest.
--------------------------------------------
The Signatory Defendants shall retain a reversionary interest in all
payments made by such Defendants under this Funding Agreement and the Settlement
Agreement until the latest of the following: (1) the date on which the Court's
Final Order and Judgment becomes final; or (2) the date the Claims Administrator
confirms, in the report specified under Section IV.C.4 of the Settlement
Agreement, that there will be no reduction in the amounts payable to Eligible
Current Claimants and therefore no Second Opt Out Period; or (3) the expiration
of the period during which the Signatory Defendants may withdraw from the
Settlement Agreement under Section V of that Agreement; or (4) if one or more
Signatory Defendants have withdrawn under Section V of the Settlement Agreement,
the expiration of the period granted to Settlement Class Counsel to withdraw
from the Settlement Agreement under Section V (the "Reversionary Period"). Other
than as specifically set forth in Section II.B.4 of this Funding Agreement, no
monies deposited by the Signatory Defendants into the Settlement Fund may be
expended until the Reversionary Period expires.
C. Effect of Termination/Effect of Withdrawal by a Defendant/
----------------------------------------------------------
Notification of Withdrawal.
---------------------------
1. In the event that the Settlement Agreement is terminated (as defined
in Section XIX of the Settlement Agreement), any amounts paid into the
Settlement Fund by each Signatory Defendant shall be returned to such Defendant
(with interest and earnings accrued on the amounts paid by each Signatory
Defendant and from the dates each such Defendant made payments into the
Settlement Fund) less any such Defendant's pro rata share of the amounts paid
out for the benefit of the Settlement Class under Section II.B.4 of this Funding
Agreement. Each Signatory Defendant's pro rata share of the amounts paid out for
the benefit
-7-
<PAGE>
of the Settlement Class shall be determined in accordance with each Signatory
Defendant's proportional share of the total amount of monies paid into the
Settlement Fund by all Signatory Defendants as of the date of termination.
2. If any Signatory Defendant withdraws from the Settlement Agreement (as
provided in Section V of the Settlement Agreement), this Funding Agreement shall
have no further force and effect as to such Defendant. Any monies previously
paid into the Settlement Fund by any such withdrawing Signatory Defendant shall
be returned to that Defendant, less its pro rata share of any amounts already
distributed for the benefit of the Settlement Class under Section II.B.4 of this
Funding Agreement. The deduction for amounts distributed for the benefit of the
Settlement Class shall be allocated in the manner set forth in Section II.C.1
above.
3. Any Signatory Defendant that decides to withdraw from the Settlement
Agreement shall notify all other Signatory Defendants no less than 72 hours
before the termination of the period allotted to the Signatory Defendants to
exercise their right of withdrawal under the Settlement Agreement. In the event
that one or more Signatory Defendants have provided such notice, any other
Signatory Defendant may thereafter withdraw up until the expiration of the
withdrawal period without providing such notice.
D. Determination of Payment Amount Due/Adjustment of Payment Obligation.
---------------------------------------------------------------------
1. Initial Payment; Credit Against Future Payment Obligations.
-----------------------------------------------------------
a. Payment and Use of Initial Payment.
--------------------------------------
The Settlement Agreement provides that there shall be an Initial
Payment (payable in annual installments) in an amount equal to 31.6% of the
aggregate Maximum
-8-
<PAGE>
Settlement Amounts for all Signatory Defendants, which amount (less amounts
allocated to Fund VI) is expressly designated for the payment of Eligible
Current Claims. The Initial Payment is to be funded out of the Annual Payment
Amounts determined in accordance with this Funding Agreement. The designation of
the Initial Payment in the Settlement Agreement is intended to establish a
maximum dollar limitation on the amount of monies available for the payment of
Eligible Current Claims and shall not create any obligations with respect to the
Signatory Defendants' payments into the Settlement Fund in addition or contrary
to the obligations set forth in this Funding Agreement. If the total dollar
amount of the Initial Payment is greater than the amount determined to be
payable under the Claims Administration process to Eligible Current Claimants
who do not exercise any right of Second Opt Out ("Eligible Current Claims
Payable"), the difference ("Initial Payment Surplus") shall remain in the
Settlement Fund and shall be used to pay Eligible Ongoing Claims and to reduce
each Signatory Defendant's Annual Funding Obligations as set forth below.
b. Use of Initial Payment Surplus for Eligible Ongoing Claims.
-----------------------------------------------------------
Any Initial Payment Surplus shall be used as necessary to pay Eligible
Ongoing Claims in accordance with Section III.C.2.b of the Settlement Agreement.
The Initial Payment Surplus shall be applied first to increase the Available
Payment Amount (as defined in Section III.C.2.b.(4) of the Settlement Agreement)
in any Program Year during the Ongoing Disease Compensation Program if and as
necessary to pay such Eligible Ongoing Claims at the rates prescribed under the
Settlement Agreement.
-9-
<PAGE>
c. Calculation of Funding Adjustment Based on Initial Payment
----------------------------------------------------------
Surplus.
--------
If the total dollar amount of Eligible Ongoing Claims submitted and
determined to be payable to Eligible Ongoing Claimants who do not exercise any
right to opt out of the Ongoing Disease Compensation Program ("Eligible Ongoing
Claims Payable") in any Program Year is less than the amount of the Annual
Payment Ceiling for that Program Year, then the Initial Payment Surplus shall be
applied, as described below, to adjust the Annual Funding Obligations of the
Signatory Defendants.
(i) If the total dollar amount of Eligible Ongoing Claims Payable
that are submitted in Program Year 1 (as defined in Section III.C.2.b.(2) of the
Settlement Agreement) is less than the sum of (1) the Initial Payment Surplus
and (2) the Annual Payment Ceiling (as defined in Section III.C.2.b.(2) and
Exhibit G of the Settlement Agreement) for Program Year 1, then the Annual
Payment Amounts for subsequent Funding Years shall be determined as follows: The
Signatory Defendants' Annual Payment Amounts in subsequent Funding Years shall
be determined by reducing their Annual Funding Obligations by the amount by
which the sum of (1) and (2) above exceeds the total dollar amount of Eligible
Ongoing Claims Payable in Program Year 1 ("Total Initial Adjustment"). Each
subsequent Annual Funding Obligation shall be reduced until the aggregate
reduction for all years in which reductions are made equals the Total Initial
Adjustment, except as otherwise provided below.
(ii) If there has been a Total Initial Adjustment in accordance with
subparagraph (i) above, and the total dollar amount of Eligible Ongoing Claims
Payable in any subsequent Program Year (i.e., after Program Year 1) exceeds the
Annual Payment
-10-
<PAGE>
Ceiling for such Program Year, then the Signatory Defendants' Annual Payment
Amounts shall be determined by increasing their Annual Funding Obligations as
necessary to satisfy such Eligible Ongoing Claims Payable; provided, however,
that (1) the aggregate amount of such increase for all Funding Years shall not
exceed the amount of the Total Initial Adjustment, and (2) amounts paid for such
Eligible Ongoing Claims shall not exceed the amounts payable for such Claims as
provided in Section III.C.2.b.(3) of the Settlement Agreement, and (3) no
Signatory Defendant shall be required to increase any Annual Funding Obligation
unless and until that portion of the Total Initial Adjustment attributable to
the Initial Payment Surplus has been used to pay Eligible Ongoing Claims. In the
event that a portion of the Total Initial Adjustment is applied to pay such
Eligible Ongoing Claims, then the remaining amount of the Total Initial
Adjustment shall be applied in subsequent Program Years, as necessary in
accordance with Section III.C.2.b.(2) of the Settlement Agreement, in the manner
set forth in this paragraph to pay Eligible Ongoing Claims until the entire
amount of the Total Initial Adjustment is disbursed. Nothing in this paragraph
is intended to specify the time period when any Eligible Current or Ongoing
Claimant will be paid under the Disease Compensation Program. The Total Initial
Adjustment as defined in this Section shall be an amount that does not accrue
interest.
(iii) The timing and amount of each Signatory Defendant's share of
the Total Initial Adjustment shall be calculated in accordance with Section
II.E. below.
(iv) If, at the conclusion of the Ongoing Disease Compensation
Program, the amount of the Total Initial Adjustment has not been used to pay
Eligible
-11-
<PAGE>
Ongoing Claims, then, with the Court's approval, the Signatory Defendants shall
be entitled to a refund of such unused amount of the Total Initial Adjustment.
2. Annual Funding Obligations in Program Years 1-31; Other
-------------------------------------------------------
Adjustments.
------------
a. If the total dollar amount of Eligible Ongoing Claims Payable
submitted in any Program Year is less than the Annual Payment Ceiling for that
Program Year, then the Signatory Defendants' Annual Payment Amounts in
subsequent Funding Years shall be determined by reducing their Annual Funding
Obligations by the amount equal to the difference between the Annual Payment
Ceiling and the dollar amount of Eligible Ongoing Claims Payable submitted in
such Program Year ("Ongoing Adjustment"). Each subsequent Annual Funding
Obligation shall be reduced until the total aggregate reduction equals the
Ongoing Adjustment, except as provided below. If Ongoing Adjustments occur in
more than one Funding Year, they shall be aggregated to reduce further the
Signatory Defendants' Annual Funding Obligations. The Ongoing Adjustment(s) as
defined in this Section shall be an amount that does not accrue interest.
b. Ongoing Adjustments shall remain a contingent obligation of the
Signatory Defendants and shall be paid into the Settlement Fund if the Court so
directs in any succeeding Funding Year but only (1) in the event that the dollar
amount of Eligible Ongoing Claims Payable submitted in such succeeding Program
Year exceeds the Annual Payment Ceiling applicable to that Program Year or (2)
to compensate Eligible Ongoing Claimants who have not received the full amount
of their approved payments or who have received a payment lower than the Disease
Rates Paid to Current Claimants for their disease or condition due to a
reduction in payment amounts as prescribed in Section III.C.2.a.(3) of the
Settlement
-12-
<PAGE>
Agreement, as may be directed by the Court. In no event shall the amount of this
contingent obligation exceed the aggregate Ongoing Adjustment.
c. Any Ongoing Adjustment shall remain a contingent obligation of the
Signatory Defendants until the end of the final Funding Year. At the end of
Funding Year 31, the obligation of the Signatory Defendants to pay such Ongoing
Adjustments shall be extinguished. If, at the conclusion of the Ongoing Disease
Compensation Program, any monies paid into the Settlement Fund for the remaining
unpaid Eligible Ongoing Claims exceed the total dollar amount of such Claims,
then, with the Court's approval, the Signatory Defendants shall be entitled to a
refund of that excess amount.
d. The timing and amount of each Signatory Defendant's Ongoing
Adjustment shall be calculated in accordance with Section II.E. below.
E. Allocation of Total Initial Adjustment and Ongoing Adjustments Among
--------------------------------------------------------------------
Defendants.
-----------
1. Allocation of Total Initial Adjustment and Ongoing Adjustments.
---------------------------------------------------------------
The Total Initial Adjustment and the Ongoing Adjustments shall be
allocated among the Signatory Defendants in proportion to the aggregate dollar
amounts actually paid by each Signatory Defendant into the Settlement Fund
through the Funding Year in which the adjustment is made.
2. Time Period for Application of Adjustments as Among Defendants.
---------------------------------------------------------------
a. Each Signatory Defendant's allocated share of the Total Initial
Adjustment shall first be applied to reduce such Signatory Defendant's Annual
Funding Obligation for the Funding Year succeeding Program Year 1. Any remaining
amount of each Signatory Defendant's allocated share of the Total Initial
Adjustment shall be applied to reduce such
-13-
<PAGE>
Signatory Defendant's Annual Funding Obligation for subsequent Funding Years in
accordance with Section II.D.1.c. above.
b. Each Signatory Defendant's allocated share of any Ongoing
Adjustments shall be applied to reduce such Signatory Defendant's Annual Funding
Obligation for the Funding Year after each such Adjustment is determined. Any
amount of each Signatory Defendant's allocated share of the Ongoing Adjustment
that is not applied to reduce the Annual Funding Obligation for that Funding
Year shall be applied to such Signatory Defendant's Annual Funding Obligation
for subsequent years in accordance with Section II.D.2. above.
F. Calculation of Funding Percentages of Withdrawing and of Final Defaulting
-------------------------------------------------------------------------
Defendants.
-----------
1. Withdrawing Defendant's Funding Percentage.
-------------------------------------------
For the purpose of calculating the percentage by which certain
Settlement Class Members' claims shall be reduced in the event of a Signatory
Defendant's withdrawal pursuant to Section V.C. of the Settlement Agreement, and
for this purpose only, such Withdrawing Defendant's Funding Percentage shall be
determined by dividing (i) such Withdrawing Defendant's Maximum Settlement
Amount by (ii) the sum of all Signatory Defendants' Maximum Settlement Amounts.
2. Final Defaulting Defendant's Funding Percentage.
------------------------------------------------
For the purpose of calculating the percentage by which certain Settlement
Class Members' claims shall be reduced in the event of a Signatory Defendant's
Final Default pursuant to Section XIII.D. of the Settlement Agreement, and for
this purpose only, a Final Defaulting Defendant's Funding Percentage shall be
determined by dividing (i) the total
-14-
<PAGE>
amount of such Final Defaulting Defendant's remaining Annual Funding Obligations
by (ii) the sum of all Signatory Defendants' remaining Annual Funding
Obligations.
G. Termination of Funding Agreement.
---------------------------------
If the Settlement Agreement is terminated under Section XIX of that
Agreement, or if the Settlement Class Counsel exercises the right to withdraw
specified in Section V.E. of the Settlement Agreement, this Funding Agreement
shall terminate automatically, without notice; except that this Funding
Agreement shall survive beyond the date of termination of the Settlement
Agreement only for the limited and specific purpose of concluding, and only to
the extent necessary to conclude, the refund of monies due to the Signatory
Defendants under Section II.D of this Funding Agreement.
H. Miscellaneous Provisions.
-------------------------
1. Each Signatory Defendant shall be responsible for and liable for
only its individual obligations under this Funding Agreement and under the
Settlement Agreement. The Signatory Defendants' obligations under the Settlement
Agreement and under this Funding Agreement are not intended to and shall not be
deemed to create any joint or joint and several obligations on the part of the
Signatory Defendants or Released Parties.
2. The headings of the sections and paragraphs of this Funding
Agreement are included for convenience only and shall not be deemed to
constitute part of this Funding Agreement or to affect its construction.
3. This Funding Agreement may not be modified or amended except in
writing signed by all Parties hereto.
-15-
<PAGE>
4. This Funding Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
SIGNATORY DEFENDANTS PLAINTIFFS' NEGOTIATING COUNSEL
AND LINDSEY PLAINTIFFS' COUNSEL
Baxter International Inc.
Baxter Healthcare Corporation
by: ________________________________ ________________________________
Arthur F. Staubitz Margaret Moses Branch
Vice President, Secretary, and The Branch Law Firm
General Counsel
Bristol-Myers Squibb Company
by: ________________________________ ________________________________
Rodolphe Hamel Elizabeth J. Cabraser
Senior Vice President and General Lieff, Cabraser & Heimann
Counsel
Medical Engineering Corporation
by: ________________________________ ________________________________
Joseph G. Solari, Jr. Stanley M. Chesley
Waite, Schneider, Bayless &
Chesley Co., L.P.A.
Dow Corning Corporation
by: ________________________________ ________________________________
Richard A. Hazleton Michael T. Gallagher
President and Chief Executive Fischer, Gallagher & Lewis, LTD.
Officer
-16-
<PAGE>
and
by: ________________________________ ________________________________
Gary E. Anderson Ralph I. Knowles, Jr.
Executive Vice-President Doffermyre, Shields, Canfield &
Knowles
ATTEST: ________________________________
James R. Jenkins
Vice President, Secretary and
General Counsel
________________________________
________________________________
________________________________
Dated: March __,1994
-17-
<PAGE>
EXHIBIT "D"
DOW CORNING CORPORATION FUNDING SCHEDULE
(IN MILLIONS OF DOLLARS)
================================================================================
FUNDING YEAR ANNUAL FUNDING MAXIMUM CUMULATIVE
OBLIGATION FUNDING OBLIGATION
================================================================================
PRELIMINARY PAYMENT $42.50 $42.50
- - - - - --------------------------------------------------------------------------------
YEAR 1 $275.00 $317.50
- - - - - --------------------------------------------------------------------------------
YEAR 2 $275.00 $592.50
- - - - - --------------------------------------------------------------------------------
YEAR 3 $275.00 $867.50
- - - - - --------------------------------------------------------------------------------
YEAR 4 $51.17 $918.67
- - - - - --------------------------------------------------------------------------------
YEAR 5 $51.17 $969.84
- - - - - --------------------------------------------------------------------------------
YEAR 6 $51.17 $1,021.01
- - - - - --------------------------------------------------------------------------------
YEAR 7 $51.17 $1,072.18
- - - - - --------------------------------------------------------------------------------
YEAR 8 $51.17 $1,123.35
- - - - - --------------------------------------------------------------------------------
YEAR 9 $51.17 $1,174.52
- - - - - --------------------------------------------------------------------------------
YEAR 10 $51.17 $1,225.69
- - - - - --------------------------------------------------------------------------------
YEAR 11 $51.17 $1,276.86
- - - - - --------------------------------------------------------------------------------
YEAR 12 $51.17 $1,328.03
- - - - - --------------------------------------------------------------------------------
YEAR 13 $51.17 $1,379.20
- - - - - --------------------------------------------------------------------------------
YEAR 14 $51.17 $1,430.37
- - - - - --------------------------------------------------------------------------------
YEAR 15 $51.17 $1,481.54
- - - - - --------------------------------------------------------------------------------
YEAR 16 $51.17 $1,532.71
- - - - - --------------------------------------------------------------------------------
YEAR 17 $38.38 $1,571.09
- - - - - --------------------------------------------------------------------------------
YEAR 18 $38.38 $1,609.47
- - - - - --------------------------------------------------------------------------------
YEAR 19 $38.38 $1,647.85
- - - - - --------------------------------------------------------------------------------
YEAR 20 $38.38 $1,686.23
- - - - - --------------------------------------------------------------------------------
YEAR 21 $38.38 $1,724.61
- - - - - --------------------------------------------------------------------------------
YEAR 22 $38.38 $1,762.99
- - - - - --------------------------------------------------------------------------------
YEAR 23 $38.38 $1,801.37
- - - - - --------------------------------------------------------------------------------
YEAR 24 $38.38 $1,839.75
- - - - - --------------------------------------------------------------------------------
YEAR 25 $25.57 $1,865.32
- - - - - --------------------------------------------------------------------------------
YEAR 26 $25.57 $1,890.89
- - - - - --------------------------------------------------------------------------------
YEAR 27 $25.57 $1,916.46
- - - - - --------------------------------------------------------------------------------
YEAR 28 $25.57 $1,942.03
- - - - - --------------------------------------------------------------------------------
YEAR 29 $25.57 $1,967.60
- - - - - --------------------------------------------------------------------------------
YEAR 30 $25.57 $1,993.17
- - - - - --------------------------------------------------------------------------------
YEAR 31 $25.57 $2,018.74
- - - - - --------------------------------------------------------------------------------
TOTALS $2,018.74 $2,018.74
- - - - - --------------------------------------------------------------------------------
MAXIMUM SETTLEMENT AMOUNT $2,018.74
================================================================================
-1-
Exhibit "D"
<PAGE>
EXHIBIT "D"
BAXTER HEALTHCARE CORPORATION FUNDING SCHEDULE
(IN MILLIONS OF DOLLARS)
================================================================================
FUNDING YEAR ANNUAL FUNDING MAXIMUM CUMULATIVE
OBLIGATION FUNDING OBLIGATION
================================================================================
PRELIMINARY PAYMENT $11.70 $11.70
- - - - - --------------------------------------------------------------------------------
YEAR 1 $152.10 $163.80
- - - - - --------------------------------------------------------------------------------
YEAR 2 $64.35 $228.15
- - - - - --------------------------------------------------------------------------------
YEAR 3 $64.35 $292.50
- - - - - --------------------------------------------------------------------------------
YEAR 4 $11.70 $304.20
- - - - - --------------------------------------------------------------------------------
YEAR 5 $11.70 $315.90
- - - - - --------------------------------------------------------------------------------
YEAR 6 $11.70 $327.60
- - - - - --------------------------------------------------------------------------------
YEAR 7 $11.70 $339.30
- - - - - --------------------------------------------------------------------------------
YEAR 8 $11.70 $351.00
- - - - - --------------------------------------------------------------------------------
YEAR 9 $11.70 $362.70
- - - - - --------------------------------------------------------------------------------
YEAR 10 $11.70 $374.40
- - - - - --------------------------------------------------------------------------------
YEAR 11 $11.70 $386.10
- - - - - --------------------------------------------------------------------------------
YEAR 12 $11.70 $397.80
- - - - - --------------------------------------------------------------------------------
YEAR 13 $11.70 $409.50
- - - - - --------------------------------------------------------------------------------
YEAR 14 $11.70 $421.20
- - - - - --------------------------------------------------------------------------------
YEAR 15 $11.70 $432.90
- - - - - --------------------------------------------------------------------------------
YEAR 16 $11.70 $444.60
- - - - - --------------------------------------------------------------------------------
YEAR 17 $8.78 $453.38
- - - - - --------------------------------------------------------------------------------
YEAR 18 $8.78 $462.16
- - - - - --------------------------------------------------------------------------------
YEAR 19 $8.78 $470.94
- - - - - --------------------------------------------------------------------------------
YEAR 20 $8.78 $479.72
- - - - - --------------------------------------------------------------------------------
YEAR 21 $8.78 $488.50
- - - - - --------------------------------------------------------------------------------
YEAR 22 $8.78 $497.28
- - - - - --------------------------------------------------------------------------------
YEAR 23 $8.78 $506.06
- - - - - --------------------------------------------------------------------------------
YEAR 24 $8.78 $514.84
- - - - - --------------------------------------------------------------------------------
YEAR 25 $5.85 $520.69
- - - - - --------------------------------------------------------------------------------
YEAR 26 $5.85 $526.54
- - - - - --------------------------------------------------------------------------------
YEAR 27 $5.85 $532.39
- - - - - --------------------------------------------------------------------------------
YEAR 28 $5.85 $538.24
- - - - - --------------------------------------------------------------------------------
YEAR 29 $5.85 $544.09
- - - - - --------------------------------------------------------------------------------
YEAR 30 $5.85 $549.94
- - - - - --------------------------------------------------------------------------------
YEAR 31 $5.85 $555.79
- - - - - --------------------------------------------------------------------------------
TOTALS $555.79 $555.79
- - - - - --------------------------------------------------------------------------------
MAXIMUM SETTLEMENT AMOUNT $555.79
================================================================================
-2-
Exhibit "D"
<PAGE>
EXHIBIT "D"
MEDICAL ENGINEERING CORPORATION AND BRISTOL-MYERS SQUIBB
COMPANY FUNDING SCHEDULE (IN MILLIONS OF DOLLARS)
================================================================================
FUNDING YEAR ANNUAL FUNDING MAXIMUM CUMULATIVE
OBLIGATION FUNDING OBLIGATION
================================================================================
PRELIMINARY PAYMENT $24.30 $24.30
- - - - - --------------------------------------------------------------------------------
YEAR 1 $315.90 $340.20
- - - - - --------------------------------------------------------------------------------
YEAR 2 $133.65 $473.85
- - - - - --------------------------------------------------------------------------------
YEAR 3 $133.65 $607.50
- - - - - --------------------------------------------------------------------------------
YEAR 4 $24.30 $631.80
- - - - - --------------------------------------------------------------------------------
YEAR 5 $24.30 $656.10
- - - - - --------------------------------------------------------------------------------
YEAR 6 $24.30 $680.40
- - - - - --------------------------------------------------------------------------------
YEAR 7 $24.30 $704.70
- - - - - --------------------------------------------------------------------------------
YEAR 8 $24.30 $729.00
- - - - - --------------------------------------------------------------------------------
YEAR 9 $24.30 $753.30
- - - - - --------------------------------------------------------------------------------
YEAR 10 $24.30 $777.60
- - - - - --------------------------------------------------------------------------------
YEAR 11 $24.30 $801.90
- - - - - --------------------------------------------------------------------------------
YEAR 12 $24.30 $826.20
- - - - - --------------------------------------------------------------------------------
YEAR 13 $24.30 $850.50
- - - - - --------------------------------------------------------------------------------
YEAR 14 $24.30 $874.80
- - - - - --------------------------------------------------------------------------------
YEAR 15 $24.30 $899.10
- - - - - --------------------------------------------------------------------------------
YEAR 16 $24.30 $923.40
- - - - - --------------------------------------------------------------------------------
YEAR 17 $18.23 $941.63
- - - - - --------------------------------------------------------------------------------
YEAR 18 $18.23 $959.86
- - - - - --------------------------------------------------------------------------------
YEAR 19 $18.23 $978.09
- - - - - --------------------------------------------------------------------------------
YEAR 20 $18.23 $996.32
- - - - - --------------------------------------------------------------------------------
YEAR 21 $18.23 $1,014.55
- - - - - --------------------------------------------------------------------------------
YEAR 22 $18.23 $1,032.78
- - - - - --------------------------------------------------------------------------------
YEAR 23 $18.23 $1,051.01
- - - - - --------------------------------------------------------------------------------
YEAR 24 $18.23 $1,069.24
- - - - - --------------------------------------------------------------------------------
YEAR 25 $12.15 $1,081.39
- - - - - --------------------------------------------------------------------------------
YEAR 26 $12.15 $1,093.54
- - - - - --------------------------------------------------------------------------------
YEAR 27 $12.15 $1,105.69
- - - - - --------------------------------------------------------------------------------
YEAR 28 $12.15 $1,117.84
- - - - - --------------------------------------------------------------------------------
YEAR 29 $12.15 $1,129.99
- - - - - --------------------------------------------------------------------------------
YEAR 30 $12.15 $1,142.14
- - - - - --------------------------------------------------------------------------------
YEAR 31 $12.15 $1,154.29
- - - - - --------------------------------------------------------------------------------
TOTALS $1,154.29 $1,154.29
- - - - - --------------------------------------------------------------------------------
MAXIMUM SETTLEMENT AMOUNT $1,154.29
================================================================================
-3-
Exhibit "D"
<PAGE>
EXHIBIT "D"
SCOTFOAM CORPORATION/SCOTT PAPER CORPORATION/WILSHIRE
FOAM PRODUCTS, INC. FUNDING SCHEDULE (IN MILLIONS OF DOLLARS)
================================================================================
FUNDING YEAR ANNUAL FUNDING MAXIMUM CUMULATIVE
OBLIGATION FUNDING OBLIGATION
================================================================================
PRELIMINARY PAYMENT $2.910 $2.910
- - - - - --------------------------------------------------------------------------------
YEAR 1 $27.545 $30.455
- - - - - --------------------------------------------------------------------------------
YEAR 2 $17.535 $47.990
- - - - - --------------------------------------------------------------------------------
YEAR 3 $17.535 $65.525
- - - - - --------------------------------------------------------------------------------
YEAR 4 $3.230 $68.755
- - - - - --------------------------------------------------------------------------------
YEAR 5 $3.230 $71.985
- - - - - --------------------------------------------------------------------------------
YEAR 6 $3.230 $75.215
- - - - - --------------------------------------------------------------------------------
YEAR 7 $3.230 $78.445
- - - - - --------------------------------------------------------------------------------
YEAR 8 $3.230 $81.675
- - - - - --------------------------------------------------------------------------------
YEAR 9 $3.230 $84.905
- - - - - --------------------------------------------------------------------------------
YEAR 10 $3.230 $88.135
- - - - - --------------------------------------------------------------------------------
YEAR 11 $3.230 $91.365
- - - - - --------------------------------------------------------------------------------
YEAR 12 $3.230 $94.595
- - - - - --------------------------------------------------------------------------------
YEAR 13 $3.230 $97.825
- - - - - --------------------------------------------------------------------------------
YEAR 14 $3.230 $101.055
- - - - - --------------------------------------------------------------------------------
YEAR 15 $3.230 $104.285
- - - - - --------------------------------------------------------------------------------
YEAR 16 $3.230 $107.515
- - - - - --------------------------------------------------------------------------------
YEAR 17 $2.425 $109.940
- - - - - --------------------------------------------------------------------------------
YEAR 18 $2.425 $112.365
- - - - - --------------------------------------------------------------------------------
YEAR 19 $2.425 $114.790
- - - - - --------------------------------------------------------------------------------
YEAR 20 $2.425 $117.215
- - - - - --------------------------------------------------------------------------------
YEAR 21 $2.425 $119.640
- - - - - --------------------------------------------------------------------------------
YEAR 22 $2.425 $122.965
- - - - - --------------------------------------------------------------------------------
YEAR 23 $2.425 $124.490
- - - - - --------------------------------------------------------------------------------
YEAR 24 $2.425 $126.915
- - - - - --------------------------------------------------------------------------------
YEAR 25 $1.615 $128.530
- - - - - --------------------------------------------------------------------------------
YEAR 26 $1.615 $130.145
- - - - - --------------------------------------------------------------------------------
YEAR 27 $1.615 $131.760
- - - - - --------------------------------------------------------------------------------
YEAR 28 $1.615 $133.375
- - - - - --------------------------------------------------------------------------------
YEAR 29 $1.615 $134.990
- - - - - --------------------------------------------------------------------------------
YEAR 30 $1.615 $136.605
- - - - - --------------------------------------------------------------------------------
YEAR 31 $1.615 $138.220
- - - - - --------------------------------------------------------------------------------
TOTALS $138.220 $138.220
- - - - - --------------------------------------------------------------------------------
MAXIMUM SETTLEMENT AMOUNT $138.220
================================================================================
-4-
Exhibit "D"
<PAGE>
EXHIBIT E
---------
MEDICAL CONDITIONS AND CHARACTERISTICS
OUTLINE OF DEFINITIONS AND CLASSIFICATION CRITERIA
The Disease Compensation Program will compensate claimants who have met
the diagnostic criteria for the diseases and symptom complexes listed herein.
Claimants who have met the diagnostic criteria will be classified in accordance
with the various Compensation Categories.
If the claimant's Qualified Medical Doctor determines that her death or
total disability is clearly and specifically caused by a disease or occurrence
other than the compensable disease, she will not be eligible for compensation in
compensation category A.
SYSTEMIC SCLEROSIS/SCLERODERMA:
(1) A diagnosis of systemic sclerosis in accordance with criteria
established in Kelley, et al., Textbook of Rheumatology (4th ed.) at 1113, et
seq.
(2) The application of these diagnostic criteria is not intended to
exclude from the compensation program individuals who present clinical symptoms
or laboratory findings atypical of classical systemic sclerosis but who
nonetheless have a systemic sclerosis-like (scleroderma-like) disease, except
that the Parties do not intend that a claimant whose symptomology more closely
resembles MCTD, ACTD, or any other below-defined disease or condition will be
compensated in this category. A "systemic sclerosis-like" or "scleroderma-like"
disease is defined as an autoimmune/rheumatic disease that fulfills most of the
accepted standards for the diagnosis of systemic sclerosis but is in some manner
atypical of systemic sclerosis or scleroderma.
Compensation categories
-----------------------
(A) Total disability/death. An individual will be deemed totally disabled
based on either the functional capacity test set forth in subcategory A of
Atypical Connective Tissue Disease (ACTD)/Atypical Rheumatic Syndrome (ARS)
or if the individual suffers from systemic sclerosis with associated severe
renal involvement manifested by a decrease in glomerular filtration rates.
(B) Cardio-pulmonary involvement or diffuse (Type III) scleroderma as
defined by Barnett, A Survival Study of Patients with Scleroderma Diagnosed
Over 30 Years (1953 - 1983): The Value of a Simple Cutaneous Classification
in the Early Stages of the Disease, 15 The Journal of Rheumatology 276
(1988), and Masi, Classification of Systemic Sclerosis (Scleroderma):
Relationship of Cutaneous Subgroups in Early Disease to Outcome and
Serologic Reactivity, 15 The Journal of Rheumatology 894 (1988).
(C) Other including CREST, limited, or intermediate scleroderma, except that
any claimant who manifests either severe renal involvement, as defined
above, or cardio-pulmonary involvement, will be compensated at either
category A or B as appropriate.
(D) Other including localized scleroderma
-1-
Exhibit E
<PAGE>
SYSTEMIC LUPUS ERYTHEMATOSUS
(1) A diagnosis of systemic lupus erythematosus (SLE) in accordance
with 1982 Revised Criteria for the Classification of Systemic Lupus
Erythematosus, 25 Arthritis and Rheumatism No. 11 (November 1982) adopted by the
American College of Rheumatology (ACR). See Kelley, et al., at 1037.
(2) The application of the ACR diagnostic criteria is not intended to
exclude from the compensation program individuals who present clinical symptoms
or laboratory findings atypical of SLE but who nonetheless have a systemic lupus
erythematosus-like disease, except that the Parties do not intend that a
claimant whose symptomology more closely resembles mixed connective tissue
disease (MCTD), ACTD, or any other defined disease or condition will be
compensated in this category.
Compensation categories:
-----------------------
(A) Total Disability or death resulting from SLE or an SLE-like
condition. An individual will be deemed totally disabled based on either the
functional capacity test set forth in subcategory A of Atypical Connective
Tissue Disease/Atypical Rheumatic Syndrome or severe renal involvement.
(B) SLE with major organ involvement defined as SLE with one or more of
the following: glomerulonephritis, central nervous system involvement (i.e.,
seizures or Lupus Psychosis), myocarditis, pneumonitis, thrombocytopenic
purpura, hemolytic anemia (marked), severe granulocytopenia, mesenteric
vasculitis. See Immunological Diseases, Max Samter, Ed., Table 56-6, at 1352.
(C) Non-major organ SLE requiring regular medical attention including
doctor visits and regular prescription medications. A woman is not excluded from
this category for whom prescription medications are recommended but who, because
of the side effects of those medications, chooses not to take them.
(D) Non-major organ SLE requiring little or no treatment. By little or
no treatment, a woman will fall into this category if she is able to control her
symptoms through the following kinds of conservative measures: over-the-counter
medications, avoiding sun exposure, use of lotions for skin rashes, and
increased rest periods.
ATYPICAL NEUROLOGICAL DISEASE SYNDROME
The diagnosis of Atypical Neurological Disease Syndrome (ANDS) shall be
based upon the clinical findings and laboratory tests set forth below. The
clinical and laboratory presentation of these neurological syndromes will have
an atypical presentation from the natural disease and will also have additional
neuromuscular, rheumatic or nonspecific autoimmune signs and symptoms.
Eligibility for Atypical Neurological Disease Syndrome requires satisfying the
requirements for one of the four disease types set forth in section A, below,
and three of the additional neuromuscular, rheumatic or nonspecific symptoms set
forth in section B, below.
A claimant will fit into this category if her primary symptoms are
characteristic of a neurological disease as diagnosed by a board certified
neurologist or by a physician board certified in internal medicine.
-2-
Exhibit E
<PAGE>
If the claimant's Qualified Medical Doctor determines that a symptom is
clearly and specifically caused by a source other than breast implants, that
symptom will not be utilized in the diagnosis of Atypical Neurological Disease
Syndrome unless the Claims Office determines that other submissions indicate
that the symptom should be utilized. A symptom that may be caused only in part
by a source other than breast implants is not excluded from such utilization.
A. Neurological disease types
1. Polyneuropathies
Eligibility for this disease category requires a diagnosis of a
polyneuropathy confirmed by one or more of the following:
a. Objectively demonstrated loss of sensation to pinprick,
vibration, touch or position;
b. Proximal or distal muscle weakness,
c. Tingling and/or burning pain in the extremities;
d. Signs of dysesthesia; or
e. Loss of tendon reflex.
Plus one or more of the following laboratory findings:
a. Abnormal levels of anti-mag or anti-sulfatide or anti-GM1
antibodies;
b. Abnormal sural nerve biopsy; or
c. Abnormal electrodiagnostic testing (EMG or nerve conduction
studies, etc.).
2. Multiple Sclerosis-like Syndrome
Eligibility for this disease category requires definite evidence of
central nervous system disease, with history and physical findings compatible
with Multiple Sclerosis or Multiple Sclerosis-like syndrome, involving one or
more of the following signs and symptoms:
a. Weakness in the pyramidal distribution;
b. Evidence of optic neuritis documented by ophthalmologist;
c. Increased Deep Tendon reflexes;
d. Absent superficial abdominal reflexes;
e. Ataxia or dysdiadochokinesia as the sign of cerebellar
involvement;
f. Neurologically induced tremors; or
-3-
Exhibit E
<PAGE>
g. Internuclear ophthalmoplegia and/or bladder or speech
involvement secondary to central nervous system disease.
Plus one or more of the following:
a. Abnormal Brain MRI with foci of increased signal abnormality
suggestive of demyelinating lesions;
b. Delayed visual evoked responses or abnormal evoked potentials;
or
c. Abnormal CSF with olioclonal bands.
3. ALS-like Syndrome
Eligibility for this disease category requires documented evidence of
progressive upper and widespread lower motor neuron disease and/or bulbar
involvement.
Plus one or more of the following:
a. Neurological autoantibodies such as anti-mag, anti-sulfatide,
anti GM1;
b. Abnormal sural nerve biopsy;
c. Chronic inflammation on muscle or nerve biopsies;
d. Abnormal EMG; or
e. Documentation on neurological exam of both upper and lower
motor neuron disease and/or bulbar involvement.
4. Disease of Neuromuscular Junction
Eligibility for this disease category requires a diagnosis of
Myasthenia Gravis or Myasthenia Gravis-like syndrome or disorders of the NMJ,
made by a board certified neurologist and confirmed by abnormal EMG showing
typical findings of decrement on repetitive stimulation testing and/or elevated
acetylcholine receptor antibodies.
B. Additional Neuromuscular, Rheumatic or Nonspecific symptoms
Any three nonduplicative symptoms or findings set forth in the definition
for ACTD.
Compensation Categories
-----------------------
The compensation level for ANDS will be based on the degree to which the
claimant is "disabled" by the condition, as the claimant's treating physician
determines in accordance with the following guidelines. The determination of
disability under these guidelines will be based on the
-4-
Exhibit E
<PAGE>
cumulative effect of the symptoms on the claimant's ability to perform her
vocational,/l/ avocational,/2/ or usual self-care/3/ activities. In evaluating
the effect of the claimant's symptoms, the treating physicians will take into
account the level of pain and fatigue resulting from the symptoms. The
disability percentages appearing below are not intended to be applied with
numerical precision, but are, instead, intended to serve as a guideline for the
physician in the exercise of his or her professional judgment.
(A) A claimant will be eligible for category A compensation if she
is totally disabled (100% disabled) due to the compensable condition or has died
as a result of the compensable condition. A woman shall be deemed 100% disabled
if she demonstrates a functional capacity adequate to consistently perform only
few or none of the usual duties or activities of vocation or selfcare.
(B) A claimant will be eligible for category B compensation if she
is 35% disabled due to the compensable condition. A woman shall be deemed 35%
disabled if she demonstrates a loss of functional capacity which renders her
unable to perform some of her usual activities of vocation, avocation, and self-
care, or if she can only perform them with regular or recurring severe pain.
(C) A claimant will be eligible for category C compensation if she
is 20% disabled due to the compensable condition. A woman shall be deemed 20%
disabled if she demonstrates a loss of functional capacity which renders her
unable to perform some of her usual activities of vocation, avocation, and self-
care, or if she can only perform them with regular or recurring moderate pain.
MIXED CONNECTIVE TISSUE DISEASE/OVERLAP SYNDROME
(1) A diagnosis of mixed connective tissue disease (MCTD) in
accordance with the following: the presence of clinical symptoms characteristic
of two or more rheumatic diseases (systemic sclerosis, SLE, myositis, and
Rheumatoid Arthritis) accompanied by positive RNP Antibodies. See. e.g., Kelley,
et al., Table 63-1, at 1061.
(2) A diagnosis of Overlap Syndrome: defined as any one of the
following three: (a) diffuse cutaneous scleroderma, (b) limited cutaneous
scleroderma, or (c) Sine scleroderma, occurring concomitantly with diagnosis of
systemic lupus erythematosus, inflammatory muscle disease, or rheumatoid
arthritis. See Kelley, et al., Table 66-2, at 1114.
(3) The application of the above diagnostic criteria is not
intended to exclude from the compensation program individuals who present
clinical symptoms or laboratory findings atypical of MCTD but who nonetheless
have an Overlap Syndrome, except that the Parties do not intend that a claimant
whose symptomology more closely resembles an atypical connective tissue disease
condition/atypical rheumatic syndrome/nonspecific autoimmune condition will be
compensated in this category.
- - - - - -----------------------------
/l/ Vocational means activities associated with work, school, and homemaking.
/2/ Avocational means activities associated with recreation and leisure.
/3/ Usual self-cale means activities associated with dressing, feeding, bathing,
grooming, and toileting.
-5-
Exhibit E
<PAGE>
Compensation Categories
-----------------------
(A) Total disability or death resulting from MCTD or Overlap
Syndrome. An individual will be deemed totally disabled based on the functional
capacity test set forth in subcategory A of Atypical Connective Tissue
Disease/Atypical Rheumatic Syndrome.
(B) MCTD or Overlap Syndrome, plus major organ involvement or
major disease activity including central nervous system, cardio-pulmonary,
vasculitic, or renal involvement or hemolytic anemia (marked) or
thrombocytopenic purpura or severe granulocytopenia.
(C) Other.
POLYMYOSITIS/DERMATOMYOSITIS
(1) A diagnosis of polymyositis or dermatomyositis in accordance
with diagnostic criteria proposed by Bohan and Peter, i.e., 1) symmetrical
proximal muscle weakness; 2) EMG changes characteristic of myositis including
(a) short duration, small, low amplitude polyphasic potential, (b) fibrillation
potentials, (c) bizarre high-frequency repetitive discharges; 3) elevated serum
muscle enzymes (CPK, aldolase, SGOT, SGPT, and LDH); 4) muscle biopsy showing
evidence of necrosis of type I and 11 muscle fibers, areas of degeneration and
regeneration of fibers, phagocytosis, and an interstitial or perivascular
inflammatory response; 5) dermatologic features including a lilac (heliotrope),
erythematous, scaly involvement of the face, neck, shawl area and extensor
surfaces of the knees, elbows and medial malleoli, and Gottron's papules. A
diagnosis of dermatomyositis requires presence of three of the criteria plus the
rash (fifth criterion). A diagnosis of polymyositis requires the presence of
four criteria without the rash. See Kelley, et al., at 1163.
(2) The application of the above diagnostic criteria is not
intended to exclude from the compensation program individuals who present
clinical symptoms or laboratory findings atypical of polymyositis or
dermatomyositis but who nonetheless have a polymyositis or dermatomyositis-like
disease, except that the Parties do not intend that a claimant whose
symptomology more closely resembles an Atypical Connective Tissue Disease will
be compensated in this category.
Compensation Categories
-----------------------
(A) Total disability or death resulting from polymyositis or
dermatomyositis. An individual will be deemed totally disabled based on the
functional capacity test set forth in subcategory A of Atypical Connective
Tissue Disease/Atypical Rheumatic Syndrome.
(B) Polymyositis or dermatomyositis with associated malignancy
and/or respiratory muscle involvement.
(C) Other, including polymyositis or dermatomyositis with muscle
strength of Grade III or less.
PRIMARY SJOGREN'S SYNDROME
(1) A clinical diagnosis of Primary Sjogren's Syndrome in
accordance with diagnostic criteria proposed by Fox, et al. See Kelley, et al.,
Table 55-1, at 932, or Fox, RI et al. "Primary Sjogren's Syndrome: Clinical and
Immunopathologic Features," Seminars Arthritis Rheum., 1984; 4: 77-105.
-6-
Exhibit E
<PAGE>
(2) The application of the above diagnostic criteria is not
intended to exclude from the compensation program individuals who present
clinical symptoms or laboratory findings atypical of Primary Sjogren's Syndrome
but who nonetheless have a Primary Sjogren's-like disease.
Compensation Categories
-----------------------
A. Total disability or death. An individual will be deemed totally
disabled based on the functional capacity test set forth in subcategory A of
Atypical Connective Tissue Disease/Atypical Rheumatic Syndrome.
B. Primary Sjogren's with associated central nervous system or
severe cardio-pulmonary involvement or primary Sjogren's with pseudolymphoma or
associated lymphoma.
C. Other.
ATYPICAL CONNECTIVE TISSUE DISEASE/ATYPICAL RHEUMATIC
SYNDROME/NONSPECIFIC AUTOIMMUNE CONDITION
This category will provide compensation for claimants experiencing
symptoms that are commonly found in autoimmune or rheumatic diseases but which
are not otherwise classified in any of the other compensable disease categories.
This category does not include persons who have been diagnosed with classical
rheumatoid arthritis in accordance with ACR criteria, but will include patients
diagnosed with undifferentiated connective tissue disease (UCTD). However, such
inclusion is not intended to exclude from this category persons who do not meet
the definitions of UCTD. It is the intention that such persons not meeting the
classic definitions of UCTD will be compensated pursuant to the provisions
contained herein relative to ACTD, ARS, and nonspecific autoimmune.
As with other women who fit within this disease compensation program,
the fact that a recipient has been in the past misdiagnosed with classic
rheumatoid arthritis or the fact that the symptoms of classic rheumatoid
arthritis may coexist with other symptoms will not exclude the claimant from
compensation herein. Persons who meet the criteria below and may have a
diagnosis of atypical rheumatoid arthritis will not be excluded from
compensation under this category.
Eligibility criteria and compensation levels for eligible claimants
are set forth below in the Compensation Categories, which classify claimants in
accordance with the following groups of symptoms.
If the claimant's Qualified Medical Doctor determines that a symptom
is clearly and specifically caused by a source other than breast implants, that
symptom will not be utilized in the diagnosis of Atypical Connective Tissue
Disease/Atypical Rheumatic Syndrome unless the Claims Office determines that
other submissions indicate that the symptom should be utilized. A symptom that
may be caused only in part by a source other than breast implants is not
excluded from such utilization.
Symptom Groupings
- - - - - -----------------
Paragraph A:
1. Raynaud's phenomenon evidenced by the patient giving a history of
two color changes, or visual evidence of vasospasm, or evidence
of digital ulceration.
-7-
Exhibit E
<PAGE>
2. Polyarthritis defined as synovial swelling and tenderness in
three or more joints lasting greater than six weeks and observed
by a physician.
3. Keratoconjunctivitis Sicca: subjective complaints of dry eyes
and/or dry mouth accompanied by one of the following:
a. lacrimal or salivary enlargement;
b. parotid enlargement;
c. abnormal Schirmer test;
d. abnormal Rose-Bengal staining;
e. filamentous keratitis;
f. abnormal parotid scan or ultrasound;
g. abnormal CT or MRI of parotid; or
h. abnormal labial salivary biopsy.
Paragraph B:
1. Myalgias determined by tenderness on examination.
2. Immune mediated skin changes or rash as follows:
a. changes in texture or rashes that may or may not be
characteristic of SLE, Systemic Sclerosis (scleroderma), or
dermatomyositis;
b. diffuse petechiae, telangiectasias, or livedo reticularis.
3. Pulmonary symptoms or abnormalities, which may or may not be
characteristic of SLE, Systemic Sclerosis (scleroderma), or
Sjogren's Syndrome, as follows:
a. pleural and/or interstitial lung disease;
b. restrictive lung disease;
c. obstructive lung disease as evidenced by characteristic
clinical findings and either:
i. characteristic chest X-ray changes or
ii. characteristic pulmonary function test abnormalities
in a non-smoker (e.g. decrease DLCO or abnormal
arterial blood gases).
4. Pericarditis defined by consistent clinical findings and either
EKG or echocardiogram.
5. Neuropsychiatric symptoms: cognitive dysfunction (memory loss
and/or difficulty concentrating) which may be characteristic of
SLE or MCTD as determined by a SPECT scan or PET scan or MRI or
EEG or neuropsychological testing.
6. Peripheral neuropathy diagnosed by physical examination showing
one or more of the following:
a. loss of sensation to pinprick or vibration or touch or
position;
b. tingling, paresthesia or burning pain in the extremities;
c. loss of tendon reflex;
-8-
Exhibit E
<PAGE>
d. proximal or distal muscle weakness (loss of muscle strength
in extremities or weakness of ankles, hands, or foot drop);
e. signs of dysesthesia; or
f. entrapment neuropathies.
7. Myositis or myopathy:
a. diagnosed by weakness on physical examination or by muscle
strength testing;
b. abnormal CPK or aldolase;
c. abnormal cybex testing;
d. abnormal EMG;
e. abnormal muscle biopsy.
8. Serologic abnormalities:
a. ANA > or equal to 1:40 (using Hep2);
b. positive ANA profile such as Anti-DNA, SSA, SSB, RNP, SM,
Scl 70, centromere, Jo-1, PM-Scl or dsDNA (preferable to use
ELISA with standard cutoffs);
c. other autoantibodies, including thyroid antibodies, anti-
microsomal, or anti-cardiolipin, or RF (by nephelometry with
40 IU cutoff);
d. elevation of immunoglobulin (IgG, IgA, IgM); or
e. serologic evidence of inflammation such as elevated ESR,
CRP.
9. Lymphadenopathy (as defined by at least 1 lymph node greater than
or equal to 1x1 cm) documented by a physician.
10. Dysphagia with positive cine-esophagram, manometry or equivalent
imaging.
Paragraph C:
1. Documented arthralgia
2. Documented Myalgias
3. Chronic fatigue (>6 months)
4. Documented Lymphadenopathy
5. Documented Neurological symptoms including cognitive dysfunction
or paresthesia
6. Photosensitivity
7. Documented Sicca symptoms
8. Documented dysphagia
9. Documented Alopecia
-9-
Exhibit E
<PAGE>
10. Documented sustained balance disturbances
11. Documented sleep disturbances
12. Documented easy bruisability or bleeding disorder
13. Documented chronic cystitis or bladder irritability
14. Documented colitis or bowel irritability
15. Persistent low grade fever or night sweats
16. Mucosal ulcers confirmed by physician
17. Burning pain in the chest, breast, arms or axilla or substantial
loss of function in breast due to disfigurement or other
complications from implants or explantation
18. Pathological findings: granulomas or siliconomas or chronic
inflammatory response, or breast infections
DIAGNOSTIC CRITERIA:
A diagnosis of this category will be made in accordance with the
following criteria:
1. One of the signs or symptoms listed in Paragraph A above and one
from Paragraph B; or
2. Three signs or symptoms from Paragraph B; or
3. Two signs or symptoms from Paragraph A; or
4. Two signs or symptoms from Paragraph B plus one non-duplicative
sign or symptom from Paragraph C; or
5. A total of five non-duplicative signs or symptoms from any of the
Paragraphs A through C.
Compensation Categories
-----------------------
The compensation level for ACTD/ARS will be based on the degree to
which the claimant is "disabled" by the condition, as the claimant's treating
physician determines in accordance with the following guidelines. The
determination of disability under these guidelines will be based on the
cumulative effect of the symptoms on the claimant's ability to perform her
vocational/4/, avocational/5/,
- - - - - ------------------------------
/4/ Vocational means activities associated with work, school, and homemaking.
/5/ Avocational means activities associated with recreation and leisure.
-10-
Exhibit E
<PAGE>
or usual self care/6/ activities. In evaluating the effect of the claimant's
symptoms, the treating physicians will take into account the level of pain and
fatigue resulting from the symptoms. The disability percentages appearing below
are not intended to be applied with numerical precision, but are, instead,
intended to serve as a guideline for the physician in the exercise of his or her
professional judgment.
(A) A claimant will be eligible for category A compensation if she
is totally disabled (100% disabled) due to the compensable condition or has died
as a result of the compensable condition. A woman shall be deemed 100% disabled
if she demonstrates a functional capacity adequate to consistently perform only
few or none of the usual duties or activities of vocation or selfcare.
(B) A claimant will be eligible for category B compensation if she
is 35% disabled due to the compensable condition. A woman shall be deemed 35%
disabled if she demonstrates a loss of functional capacity which renders her
unable to perform some of her usual activities of vocation, avocation. and self-
care, or she can only perform them with regular or recurring severe pain.
(C) A claimant will be eligible for category C compensation if she
is 20% disabled due to the compensable condition. A woman shall be deemed 20%
disabled if she demonstrates a loss of functional capacity which renders her
unable to perform some of her usual activities of vocation, avocation, and self-
care, or if she can only perform them with regular or recurring moderate pain.
- - - - - ----------------------------
/6/ Usual self-care means activities associated with dressing, feeding, bathing,
grooming, and toileting.
-11-
Exhibit E
<PAGE>
EXHIBIT F
---------
DISEASE COMPENSATION SCHEDULE/1/
<TABLE>
<CAPTION>
================================================================================
====================================
CATEGORIES SUB-CATEGORY AGE GROUPS
- - - - - ---------- ------------ ----------
35 and Under 36-40
41-45 46-50 51-55 56 Plus
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Scleroderma/Lupus A 2.0 m 1.9 m
1.8 m 1.7 m 1.6 m 1.5 m
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
B 1.5 m 1.4 m
1.3 m 1.2 m 1.1 m 1.0 m
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
C 1.0 m 900 k
800 k 700 k 600 k 500 k
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
Localized Scleroderma/Mild Lupus D 200 k 200 k
175 k 175 k 150 k 150 k
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
Atypical Neurological Disease A 1.5 m 1.4 m
1.3 m 1.2 m 1.1 m 1.0 m
Syndrome; Mixed Connective Tissue
Disease (MCTD) Overlap;
Polymyositis & Dermatomyositis
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
B 1.0 m 900 k
800 k 700 k 600 k 500 k
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
C 500 k 450 k
400 k 350 k 300 k 250 k
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
Atypical Connective Tissue Disease A 1.0 m 950 k
900 k 850 k 800 k 750 k
(ACTD); Atypical Rheumatic
Syndrome (ARS); Nonspecific
autoimmune condition; Sjogren's
Syndrome
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
B 650 k 600 k
550 k 500 k 450 k 400 k
- - - - - --------------------------------------------------------------------------------
- - - - - ------------------------------------
C 300 k 280 k
260 k 240 k 220 k 200 k
================================================================================
====================================
</TABLE>
-----------------------
/1/ m = millions of dollars
k = thousands of dollars
age = age at onset of symptoms
-1-
Exhibit F
<PAGE>
EXHIBIT G
---------
ANNUAL PAYMENT CEILING FOR
ONGOING DISEASE COMPENSATION PROGRAM
The following shall constitute the formula for the maximum Annual Payment
Ceiling for each specified year of the Ongoing Disease Compensation Program:
Cumulative
%
----------
Program Years 1-15 -- 4.1% of Ongoing Disease Compensation
Program per year (4.1% x 15) = 61.5% of
Ongoing Disease Compensation Program 61.50
Program Years 16-23 -- 3.1% of Ongoing Disease Compensation
Program per year (3.1% x 8) = 24.8% of
Ongoing Disease Compensation Program 24.80
Program Years 24-29 -- 1.96% of Ongoing Disease Compensation
Program per year (1.96% x 6) = 11.76%
of Ongoing Disease Compensation Program 11.76
Program Year 30 -- 1.94% of Ongoing Disease Compensation
Program per year (1.94% x 1) = 1.94% of
Ongoing Disease Compensation Program 1.94
----------
100.00
NOTE: 100% of Ongoing Disease Compensation Program = 51.6% of Aggregate
Maximum Settlement Amounts
Exhibit G
<TABLE>
EXHIBIT 12
----------
DOW CORNING CORPORATION
-----------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(in millions of dollars)
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing operations
before income taxes, minority interest
and cumulative effects of changes in
accounting principles $ 14.6 $(422.0) $ 50.0 $209.0 $261.0
Less:
Equity in earnings (losses) of
less than 50%-owned companies
in excess of distributed income (0.8) (0.3) (1.9) (1.8) (4.1)
Add:
Fixed charges 100.5 61.3 51.2 49.2 48.5
Amortization of capitalized interest 8.8 9.0 8.4 7.2 5.7
Deduct:
Interest capitalized during the period 14.3 12.0 11.8 11.8 15.7
------ ------- ------ ------ ------
Earnings (losses) for computation purposes $110.4 $(363.4) $ 99.7 $255.4 $303.6
====== ======= ====== ====== ======
Fixed charges:
Interest, expensed or capitalized $ 84.6<F1> $ 45.3 $ 34.2 $ 33.3 $ 34.4
Amortization of debt expense 0.7 0.6 0.9 0.3 0.3
Portion of rents representative of
the interest factor 15.2 15.4 16.1 15.6 13.8
------ ------- ------ ------ ------
Fixed charges for computation purposes $100.5 $ 61.3 $ 51.2 $ 49.2 $ 48.5
====== ======= ====== ====== ======
Ratio of earnings to fixed charges 1.1 <F2> 1.9 5.2 6.3
====== ======= ====== ====== ======
<FN>
<F1> Interest on indebtedness, expensed or capitalized includes $28.3 in imputed interest recognized on the
net discounted implant liability (as further discussed in Note 2 of Notes to Consolidated Financial
Statements).
<F2> Earnings were inadequate to cover fixed charges. The amount of the coverage deficiency for the year
ended December 31, 1993 was $424.7.
</TABLE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-13496) of
Dow Corning Corporation of our report dated January 20, 1995 appearing on page
20 of this Form 10-K.
Price Waterhouse LLP
Detroit, Michigan
February 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 201,100
<SECURITIES> 700
<RECEIVABLES> 583,900
<ALLOWANCES> 10,200
<INVENTORY> 308,400
<CURRENT-ASSETS> 1,635,800
<PP&E> 2,934,900
<DEPRECIATION> 1,743,000
<TOTAL-ASSETS> 4,093,200
<CURRENT-LIABILITIES> 1,325,000
<BONDS> 335,100
<COMMON> 12,500
0
0
<OTHER-SE> 663,700
<TOTAL-LIABILITY-AND-EQUITY> 4,093,200
<SALES> 2,204,600
<TOTAL-REVENUES> 2,204,600
<CGS> 1,470,300
<TOTAL-COSTS> 2,126,700
<OTHER-EXPENSES> 7,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,300
<INCOME-PRETAX> 14,600
<INCOME-TAX> 7,900
<INCOME-CONTINUING> (6,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,800)
<EPS-PRIMARY> 2.72
<EPS-DILUTED> 2.72<F1>
<FN>
<F1>When computing ratios, please use the consolidated financial statements of
Dow Corning Corporation.
</FN>
</TABLE>
