<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 1-13388
GUIDANT CORPORATION
(Exact name of Registrant as specified in its charter)
INDIANA 35-1931722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 MONUMENT CIRCLE, 29TH FLOOR
INDIANAPOLIS, INDIANA 46204-5129
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 971-2000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
The number of shares of common stock outstanding as of November 5, 1999:
Class Number of Shares Outstanding
----- ----------------------------
Common 302,133,519
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
GUIDANT CORPORATION and Subsidiaries
Consolidated Statements of Income
(In millions, except per-share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
-------- ------- ----- ------
<S> <C> <C> <C> <C>
Net sales.................................. $ 560.9 $ 445.4 $1,754.5 $1,403.5
Cost of products sold...................... 141.1 95.7 445.0 313.1
------ -------- -------- --------
Gross profit.............................. 419.8 349.7 1,309.5 1,090.4
Research and development................... 74.0 70.0 235.5 197.8
Purchased research and development......... -- 90.0 49.0 118.7
Sales, marketing, and administrative....... 164.6 135.2 505.6 411.4
Foundation contribution.................... 20.2 -- 20.2 --
------ -------- -------- --------
258.8 295.2 810.3 727.9
Other income (expenses):
Interest, net............................. (14.9) (3.2) (42.9) (10.1)
Royalties, net............................ (7.3) (11.4) (33.3) (31.8)
Amortization.............................. (10.9) (4.8) (30.3) (13.1)
Litigation settlement charge.............. -- (200.0) -- (260.0)
Other, net................................ (0.2) 0.4 6.4 (4.8)
------ -------- -------- --------
(33.3) (219.0) (100.1) (319.8)
------ -------- -------- --------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle...................... 127.7 (164.5) 399.1 42.7
Income taxes............................... 29.0 12.5 151.2 85.7
------ -------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle............ 98.7 (177.0) 247.9 (43.0)
Cumulative effect of change in accounting
principle, net............................ -- -- (3.3) --
------ -------- -------- --------
Net income(loss)........................... $ 98.7 ($177.0) $ 244.6 ($43.0)
====== ======== ======== ========
Earnings(loss)per share.................... $ 0.33 ($0.60) $ 0.83 ($0.15)
====== ======== ======== ========
Earnings(loss)per share -
assuming dilution......................... $ 0.32 ($0.60) $ 0.80 ($0.15)
====== ======== ======== ========
Dividends paid per share................... $ -- $0.00625 $ -- $0.01875
====== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
(unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents................... $ 25.5 $ 15.6
Accounts receivable, net of allowances
of $15.9(1999) and $19.5(1998)........... 449.2 435.4
Other receivables........................... 22.1 8.3
Inventories................................. 242.3 193.4
Deferred income taxes....................... 82.0 83.3
Prepaid expenses............................ 52.3 27.5
-------- --------
Total Current Assets..................... 873.4 763.5
Other Assets
Goodwill, net of allowances
of $101.9(1999) and $78.9(1998).......... 567.7 202.6
Other intangible assets, net of allowances
of $24.2(1999) and $16.6(1998)........... 107.5 44.3
Deferred income taxes....................... 78.7 73.8
Investments................................. 46.2 62.5
Sundry...................................... 33.9 33.6
Property and equipment, net of accumulated
depreciation of $306.3 (1999) and
$262.3 (1998)............................ 484.4 389.2
-------- --------
$2,191.8 $1,569.5
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- -------------
(unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable........................ $ 52.9 $ 65.3
Employee compensation................... 100.9 129.5
Other liabilities....................... 196.8 137.9
Current portion of long-term debt....... 430.0 54.5
Payable to Sulzer Medica................ -- 200.0
-------- --------
Total Current Liabilities............ 780.6 587.2
Noncurrent Liabilities
Long-term debt.......................... 569.5 390.0
Other................................... 116.0 38.4
-------- --------
685.5 428.4
Commitments and contingencies........... -- --
Shareholders' Equity
Common stock-no par value:
Authorized shares: 1,000,000,000.....
Issued shares: 302,138,000 (1999)
301,848,000 (1998).... 192.9 192.5
Additional paid-in capital.............. 149.7 197.0
Retained earnings....................... 497.6 253.0
Deferred cost, ESOP..................... (39.2) (41.3)
Treasury stock, at cost:
Shares: 676,710 (1999)..............
671,618 (1998).............. (37.3) (27.0)
Accumulated other comprehensive income.. (38.0) (20.3)
-------- --------
725.7 553.9
-------- --------
$2,191.8 $1,569.5
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Consolidated Statements of Cash Flow
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
------- -------
(unaudited)
<S> <C> <C>
Cash Provided by Operating Activities:
Net income (loss)................................. $ 244.6 $ (43.0)
Adjustments to Reconcile Net Income (Loss) to Cash
Provided by Operating Activities:
Depreciation...................................... 58.2 38.2
Amortization of intangible assets................. 30.3 13.1
Purchased research and development................ 49.0 118.7
Change in deferred income taxes................... 15.7 (42.3)
Other noncash expenses, net....................... 47.9 54.1
------- -------
445.7 138.8
Changes in Operating Assets and Liabilities:
Receivables, (increase) decrease.................. (13.6) 2.4
Inventories, increase............................. (16.4) (57.0)
Prepaid expenses and other assets,
decrease........................................ 0.2 5.3
Accounts payable and accrued expenses,
(decrease) increase............................. (47.6) 18.4
Income taxes payable, increase (decrease)......... 133.1 (27.8)
Other liabilities, (decrease) increase............ (228.3) 215.8
------- -------
Net Cash Provided by Operating Activities........... 273.1 295.9
Investing Activities:
Additions of property and equipment, net.......... (128.0) (76.6)
Purchases of available-for-sale securities........ -- (1.2)
Sale/maturity of available-for-sale securities.... -- 13.1
Additions of other assets, net.................... (35.3) (56.6)
Acquisition and disposition, net of
cash acquired.................................... (539.2) (180.7)
------- -------
Net Cash Used for Investing Activities.............. (702.5) (302.0)
Financing Activities:
Proceeds from long-term borrowings................ 346.4 --
Increase in borrowings, net....................... 207.4 69.6
Dividends......................................... -- (5.5)
Purchases of common stock and other capital
transactions..................................... (113.0) (47.0)
------- -------
Net Cash Provided by Financing Activities........... 440.8 17.1
Effect of Exchange Rate Changes on Cash............. (1.5) --
------- -------
Net Increase in Cash and Cash Equivalents........... 9.9 11.0
Cash and Cash Equivalents at Beginning of Period.... 15.6 17.7
------- -------
Cash and Cash Equivalents at End of Period.......... $ 25.5 $ 28.7
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
(In millions)
(unaudited)
Note 1 - General Information
Guidant Corporation (Guidant or the Company) operates in one segment: the
development, manufacture, and marketing of a broad range of innovative, high-
quality therapeutic medical devices for the treatment of cardiovascular and
vascular diseases. Guidant is a leader in i) minimally invasive procedures used
for opening blocked coronary arteries with coronary stents, coronary balloon
dilatation catheters, and related accessories; ii) automatic implantable
cardioverter defibrillator systems, which are used to detect and treat
abnormally fast heart rhythms (tachycardia); iii) the design, manufacture, and
marketing of a full line of implantable pacemaker systems used to manage slow or
irregular heart rhythms (bradycardia); and iv) products for use in minimally
invasive cardiac and vascular surgeries. Guidant is a global company with
principal operations in the United States, Western Europe, and Japan. The
Company markets its products in over 100 countries through a direct sales force
in the United States and a combination of direct sales representatives and
independent distributors in international markets.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
necessary for a fair presentation of results of operations, financial position,
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, the consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the Company's results for the periods presented. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, expenses, and
related disclosures at the date of the financial statements and during the
reporting period. Actual results could differ from these estimates.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Note 3 - Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Finished products $122.4 $ 89.9
Work in process 62.3 51.9
Raw materials and supplies 57.6 51.6
------ ------
$242.3 $193.4
====== ======
</TABLE>
6
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Acquisitions and Disposal
On February 1, 1999, the Company completed its acquisition of the
electrophysiology business of Sulzer Medica, Ltd. (Sulzer), which includes
Intermedics, Inc. (Intermedics), a leader in the manufacture and distribution of
bradycardia pacemakers, for an aggregate cost of $810 million in cash. The
purchase price was based on the aggregate sales volume produced by independent
U.S. representatives of Sulzer who agreed to become Guidant employees. Guidant
received purchase price adjustments, based upon the closing balance sheet of the
electrophysiology business, of $30 million in the second quarter and $14 million
in the third quarter. The final purchase price was also subject to an adjustment
based on the aggregate sales volume produced by the U.S. representatives of the
electrophysiology business who agreed to become employees of Guidant in the six
month period following the closing. This adjustment was paid by Guidant in the
third quarter and increased the purchase price by $6 million. Therefore, as of
September 30, 1999, the aggregate purchase price is $772 million. The
acquisition was accounted for using the purchase method. The consolidated
financial statements include the Intermedics operating results from the date of
acquisition.
The aggregate amount paid to Intermedics includes $200 million required to
settle the Company's intellectual property litigation with Intermedics, which
was payable regardless of the consummation of the acquisition. This litigation
settlement charge was recorded in the third quarter of 1998. The remaining
purchase price has been allocated on a preliminary basis to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. Final adjustments will be made over the next two quarters and will
adjust the amount of goodwill recorded in connection with this transaction.
The Company recorded $73 million of liabilities relative to the announced
closing of the acquired facilities and termination of various Intermedics'
contractual commitments. Intangible assets related to developed technology will
be amortized over ten years and intangible assets related to the sales network,
assembled work force, and the excess of cost over net assets acquired (goodwill)
will be amortized over twenty years. The preliminary aggregate purchase price
allocation is as follows:
<TABLE>
<S> <C>
Litigation settlement $200
Developed technology 28
Purchased research and development 49
Sales network and assembled workforce 101
Net tangible assets 104
Excess of cost over net assets acquired 290
----
$772
====
</TABLE>
Liabilities recorded are included in net assets as follows:
Workforce reductions $45
Contractual commitments 28
---
$73
===
7
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Acquisitions and Disposal - (Continued)
The majority of these costs will be paid by the end of the first quarter of
2000. Approximately $33 million of the liabilities assumed remain outstanding at
September 30, 1999.
The Company recorded a $49 million charge at the time of the acquisition related
to the ascribed value of Intermedics' in-process technology. The valuation of
this technology was based upon guidelines provided by the Securities and
Exchange Commission and involved an analysis of those projects which had not
reached technological feasibility and had no alternative future use. This charge
reflects the unproven status of these technologies.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Intermedics as if the acquisition had
occurred at the beginning of each period presented, with pro forma adjustments
to give effect to amortization of intangibles, purchased research and
development, and an increase in interest expense related to acquisition
financing. The pro forma amounts do not reflect any benefits from synergies and
are not necessarily indicative of the results that would have occurred had the
acquisition taken place at the beginning of the specified periods, or the
expected results of future operations.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net sales $1,770.6 $1,627.1
Net income 229.0 62.0
Net income per share - assuming dilution $ 0.75 $ 0.21
</TABLE>
On August 30, 1999, the Company announced the signing of a definitive agreement
to acquire CardioThoracic Systems, Inc. (CTS). CTS has developed a broad range
of products to advance the field of less invasive cardiac surgery and has
pioneered the coronary artery bypass grafting (CABG) procedure performed on a
beating heart, with the CTS OPCAB and CTS MIDCAB access platform and stabilizer
systems. The system enables the CABG procedure to be completed without the use
of cardiopulmonary bypass, potentially reducing post-operative hospital stay and
surgical complications while preserving the high quality clinical outcomes
associated with conventional CABG. CTS has also recently introduced products for
less invasive valve surgery and arrested heart CABG procedures.
Each outstanding share of CTS common stock will be exchanged for shares of
Guidant common stock valued at $19.50 per CTS share assuming the applicable
average price of Guidant common stock, as defined in the agreement, is between
$54.00 and $66.00. This price is defined as the average per share closing price
of Guidant common stock during the twenty trading days preceding the date of the
last trading day prior to the special meeting of the CTS shareholders, which is
scheduled for November 15, 1999. If the applicable average selling price of
Guidant common stock is at or above $66.00, each CTS share will be exchanged for
.2955 of a share of Guidant common stock. If it is at or below $54.00, each CTS
share will be exchanged for .3611 of a share of Guidant common stock. If it is
less than $47.00, CTS has the right to terminate the merger agreement. CTS has
approximately 16 million shares outstanding on a fully diluted basis. The
transaction will be a tax-free exchange and will be
8
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Acquisitions and Disposal - (Continued)
accounted for as a pooling of interests. Closure of the transaction is subject
to certain conditions, including approval by CTS shareholders. Upon closure of
the transaction, which is expected in the fourth quarter of 1999, Guidant will
record a one-time acquisition and transition-related charge.
On July 7, 1999, the Company reached a definitive agreement to sell the assets
related to its general surgery product line. The financial impact of the
disposal is not material to the consolidated financial statements and is
included in "other, net" in the income statement in the third quarter of 1999.
The loss on disposal of this product line includes certain costs incurred by
Guidant to exit the general surgery product line including termination of supply
agreements, contractual lease obligations, transition packages to transferring
employees, as well as general transaction costs. The sale does not include any
of the products for cardiac surgery applications, including the VASOVIEW UNIPORT
and the VASOVIEW UNIPORT Plus Systems, which are used for endoscopic saphenous
vein harvesting. Under the terms of the agreement, the Company has retained the
ability to apply certain of the technologies that are being transferred as part
of the transaction to cardiac & vascular surgery products that are either
currently in development or will be developed in the future.
Note 5 - Borrowings
As of September 30, 1999, the Company's outstanding borrowings consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Commercial paper $445.0 $230.5
Bank borrowings 208.0 214.0
Long-term notes 346.5 --
------ ------
$999.5 $444.5
====== ======
</TABLE>
The acquisition of Intermedics was initially financed with commercial paper. On
February 11, 1999, the Company issued seven-year 6.15% notes with a $350 million
principal amount to replace a portion of the commercial paper. In order to
support the additional commercial paper, the Company increased its credit
facilities with certain banks. At September 30, 1999, the Company had a $400
million facility that permits borrowings through August 2003 and a $450 million
facility that permits borrowings through August 2000 that would be due and
payable one year from that date. There are currently no outstanding borrowings
under these arrangements which carry a variable market rate of interest.
Restrictive covenants in the borrowing agreements are unchanged from year-end.
Bank borrowings represent short-term uncommitted credit facilities with various
commercial banks. The Company expects that approximately $223 million in
commercial paper borrowings will remain outstanding throughout the next twelve
months and, accordingly, has classified that portion of commercial paper as
long-term debt at September 30, 1999. The weighted average interest rate on
borrowings outstanding at September 30, 1999 was 5.67% compared to 5.39% at
December 31, 1998.
9
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Earnings Per Share
The following table sets forth the computation of earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect of
accounting change............................ $ 98.7 $(177.0) $ 247.9 $ (43.0)
Cumulative effect of accounting change, net.. -- -- (3.3) --
------- ------- ------- -------
Net income (loss)............................ $ 98.7 $(177.0) $ 244.6 $ (43.0)
======= ======= ======= =======
Weighted-average common shares outstanding... 295.31 294.66 295.24 294.60
Effect of employee stock options............. 10.23 -- 10.39 --
------- ------- ------- -------
Weighted-average common shares outstanding,
assuming dilution............................ 305.54 294.66 305.63 294.60
======= ======= ======= =======
Earnings (loss) per share:
Income (loss) before cumulative effect of
accounting change............................ $ 0.33 $ (0.60) $ 0.84 $ (0.15)
Cumulative effect of accounting change, net.. -- -- (0.01) --
------- ------- ------- -------
Earnings (loss) per share.................... $ 0.33 $ (0.60) $ 0.83 $ (0.15)
======= ======= ======= =======
Earnings (loss) per share - assuming dilution:
Income (loss) before cumulative effect of
accounting change............................ $ 0.32 $ (0.60) $ 0.81 $ (0.15)
Cumulative effect of accounting change, net.. -- -- (0.01) --
------- ------- ------- -------
Earnings (loss) per share -
assuming dilution............................ $ 0.32 $ (0.60) $ 0.80 $ (0.15)
======= ======= ======= =======
</TABLE>
10
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 7 - Comprehensive Income
Comprehensive income comprises net income adjusted for the changes in unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments. For the third quarter of 1999 and 1998, comprehensive
income (loss) was $104.6 million and ($171.0) million, respectively.
Comprehensive income (loss) for the nine months ended September 30, 1999 and
1998 was $226.9 million and ($40.0) million, respectively.
Note 8 - New Accounting Pronouncements
Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-5, Reporting on the
Costs of Start-Up Activities, which requires that all start-up costs, as defined
by the statement, be expensed as incurred. This change in accounting principle
resulted in a pretax cumulative effect adjustment (charge) of $5.3 million ($3.3
million after tax; $0.01 per share). Prior to January 1, 1999, these costs were
capitalized and depreciated over periods of up to five years.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative financial instruments and hedging activities. This
pronouncement has been delayed by the FASB and is now required to be adopted in
fiscal years beginning after June 15, 2000. SFAS No. 133 will require, among
other things, the Company to recognize all derivatives as either assets or
liabilities on the balance sheet at fair value. Derivatives not qualifying as
hedges must be adjusted to fair value through income. If the derivative is a
hedge, changes in its fair value will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through income
or recognized in other comprehensive income. Hedge ineffectiveness, the amount
by which the change in the value of a hedge does not exactly offset the change
in the value of the hedged item, will be immediately recognized in earnings.
Management has not yet determined the effect SFAS No. 133 will have on the
Company or when the statement will be adopted.
11
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 9 - Segment Information
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Geographic Information: 1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Sales(1):
United States $391.0 $320.3 $1,242.3 $1,048.3
International 169.9 125.1 512.2 355.2
------ ------ -------- --------
$560.9 $445.4 $1,754.5 $1,403.5
====== ====== ======== ========
</TABLE>
(1) Revenues are attributed to countries based on location of the customer.
<TABLE>
<CAPTION>
September 30, December 31,
Long-lived Assets: 1999 1998
-------- ------
<S> <C> <C>
United States $1,168.7 $678.4
International 71.0 53.8
-------- ------
$1,239.7 $732.2
======== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Net Sales of Classes September 30, September 30,
of Similar Products: 1999 1998 1999 1998
------- ------ -------- --------
<S> <C> <C> <C> <C>
Vascular intervention $290.1 $216.0 $ 932.0 $ 739.4
Cardiac rhythm management 266.3 213.4 781.7 613.9
Cardiac & vascular surgery 4.5 16.0 40.8 50.2
------ ------ -------- --------
$560.9 $445.4 $1,754.5 $1,403.5
====== ====== ======== ========
</TABLE>
Note 10 - Foundation Contribution
In the third quarter of 1999, Guidant contributed an equity investment worth
$20.2 million to the Guidant Foundation, Inc. A total of $16.6 million of non-
cash gains have been recognized on this equity investment in the nine months
ended September 30, 1999. The gain on the equity investment is included in
"other, net" on the income statement.
Note 11 - Contingencies
The Company is a party to various legal actions which have arisen in the normal
course of business.
In a lawsuit originally filed against Advanced Cardiovascular Systems, Inc.
("ACS"), a wholly owned subsidiary of the Company, on May 31, 1994, in the
Northern District of California, SciMed Life Systems, Inc., ("SciMed") a
subsidiary of Boston Scientific Corporation, ("BSC") alleged that the ACS RX
ELIPSE Coronary Dilatation Catheter infringes certain patents owned by SciMed.
Subsequently, the complaint was amended to further allege infringement by the
ACS RX MULTI-LINK Coronary Stent System. On June 15, 1999, the court entered
12
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Contingencies - (Continued)
an order granting a motion for summary judgment of non-infringement in favor of
ACS. By granting ACS' motion, the court found that neither of the accused
products infringes the patents asserted by SciMed. As a result, the court
entered judgment in favor of ACS and closed the case. SciMed has filed a Notice
of Appeal.
On October 10, 1995, ACS filed suit against Medtronic in the Northern District
of California alleging that the Medtronic FALCON coronary dilatation catheter
infringes Yock U.S. Patent No. 5,451,233 (Civil Action No. C95-03577). On
August 25, 1999, the Court granted ACS' motions for summary judgment of
infringement, validity, and enforceability of the patent. A jury trial was held
from October 25, 1999 to November 3, 1999 on ACS' claim of willful infringement
and damages. On November 3, 1999, the jury returned its verdict finding that
Medtronic had willfully infringed the patent and awarded ACS $5.4 million in
damages. The Court has scheduled a hearing for December 15, 1999 on ACS'
requests for injunctive relief, enhanced damages, pre-judgment interest, costs,
and to declare the case exceptional.
On March 12, 1996, ACS filed suit against SciMed in the Northern District of
California alleging that SciMed's Trio/Bandit line of coronary dilatation
catheters infringes a patent of ACS'. On June 22, 1999, the court granted ACS'
motions for summary judgment of validity and infringement of its patent, and
denied the parties' other summary judgment motions, including SciMed's motions
for summary judgment of invalidity and no willful infringement of the ACS patent
and ACS motion for summary judgment of enforceability. In the lawsuit, ACS is
seeking injunctive relief and monetary damages. Trial of the remaining issues
is currently scheduled to commence on February 7, 2000.
On May 3, 1996, Pacesetter, Inc., filed suit against Cardiac Pacemakers, Inc.
("CPI"), a wholly owned subsidiary of the Company, in the District Court for
Minnesota. The complaint, as subsequently amended, alleged infringement of
certain Pacesetter patents by certain CPI pacemaker models and programmers for
pacemakers and defibrillators. The lawsuit sought injunctive relief,
unspecified monetary damages, and an award of attorneys' fees. On December 16,
1998, following a trial on the merits, the jury of the District Court of
Minnesota returned a verdict finding no liability by CPI on two of the three
patents asserted by Pacesetter, and infringement by software in CPI programmers
adapted for use with certain pacemakers and defibrillators of the third patent.
The jury awarded Pacesetter damages in the amount of $9.7 million, which the
Company has accrued. The court is currently considering (1) Pacesetter's
request for an injunction, (2) Pacesetter's request to overturn the jury's
verdict of no liability on one patent, and (3) the Company's request that the
court overturn the jury's verdict of liability and declare Pacesetter's patent
not infringed and invalid.
On May 28, 1996, Origin Medsystems, Inc. ("Origin"), a wholly-owned subsidiary
of the Company, filed suit against General Surgical Innovations, Inc. ("GSI")
in the Northern District of California alleging that GSI's Spacemaker balloon
products infringe a patent of Origin. In the lawsuit, Origin is seeking
injunctive relief and monetary damages. On April 20, 1998 GSI's motion for
summary judgment that the Origin patent was obtained by inequitable conduct was
granted. On November 2, 1998 the Court awarded GSI its attorneys' fees. Origin
appealed both decisions. On July 16, 1999 the Court of Appeals for the
13
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Contingencies - (Continued)
Federal Circuit vacated the summary judgment of inequitable conduct and remanded
the case to the district court for further proceedings. On August 31, 1999, the
Federal Circuit vacated the award of attorneys' fees.
On June 4, 1996, GSI filed suit against Origin in the Northern District of
California alleging that Origin's VASOVIEW Balloon Dissection System,
Preperitoneal Distention Balloon (PDB) Systems and Extraview Balloon Systems
infringe a patent owned by GSI. GSI's motion for summary judgement of
infringement was granted on October 29, 1998, and a trial was held on the
validity of the GSI patent, willful infringement and damages. On February 8,
1999, the jury determined the patent to be valid and infringement to be willful,
and awarded GSI approximately $12.9 million in damages, which the Company has
accrued. GSI filed post-trial motions seeking injunctive relief, enhancement of
damages and a declaration that the case was exceptional so as to provide a basis
for an award of attorneys' fees. By an order and judgment entered on April 16,
1999, the court declined GSI's requests to increase damages and to declare the
case exceptional. An injunction was issued enjoining sales of the accused
Origin products for use in the United States, but the implementation was stayed
until November 15, 1999, as to customers who were users of the products as of
February 8, 1999, subject to Origin paying to GSI a 30% royalty. Origin has
appealed issues of infringement and willfulness, and GSI has appealed issues of
infringement, enhanced damages, and attorneys' fees.
On September 24, 1997, GSI filed a second suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon Dissection System
infringes another patent owned by GSI. GSI is seeking injunctive relief and
monetary damages. On July 6, 1999, GSI amended its complaint to add an
additional patent and Origin's PDB and ExtraView Systems to the suit. On July
19, 1999 the district court entered an order staying all proceedings pending the
outcome of the appeal in the first GSI case.
On October 3, 1997, Cordis Corporation ("Cordis"), a subsidiary of Johnson and
Johnson, filed suit against the Company and ACS in the District Court of
Delaware, alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents licensed to Cordis. In addition, on October 8, 1997, Cordis
filed a motion for a preliminary injunction in this lawsuit seeking to prevent
the Company from selling the ACS MULTI-LINK Coronary Stent other than in certain
limited circumstances and subject to certain conditions. On October 22, 1997,
Cordis amended its complaint to include Arterial Vascular Engineering, Inc.
("AVE") and BSC as co-defendants. A hearing on the motion for a preliminary
injunction was held in February 1998 and in July 1998, the court denied Cordis'
motion for a preliminary injunction. On October 27, 1998, one of the patents
asserted against the Company and ACS emerged from reexamination filed by Cordis.
On April 1, 1999, Cordis filed a motion to again amend its complaint to add
allegations of infringement of the reexamined patent and a new patent that was
issued on May 11, 1999, and to add the ACS MULTI-LINK DUET Coronary and MEGALINK
Peripheral Stents as well. The motion was granted by the court on May 13, 1999.
In the lawsuit, Cordis is seeking injunctive relief and monetary damages.
On November 6, 1997, Medtronic, Inc., filed suit against ACS in the District
Court of Minnesota, alleging that the ACS RX MULTI-LINK Coronary Stent infringes
a patent owned by Medtronic. On September 16, 1999, the court issued a Markman
ruling construing some of the claim terms. A trial by jury began on October
14
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Contingencies - (Continued)
18, 1999. A jury verdict is expected in late November or early December 1999,
with a final judgement to follow. In the suit, Medtronic seeks an injunction
against further manufacture and sale of the product in the U.S. and monetary
damages. The damage claim presently asserted by Medtronic is for approximately
$300 million, and it is further alleged that damages should be trebled and
attorneys' fees awarded to Medtronic on the basis of its claim of willful
infringement. Medtronic has recently filed a new complaint in a separate suit to
add allegations of infringement of the same patent by the ACS MULTI-LINK DUET
and SOLO Coronary Stents and MEGALINK Peripheral Stent. Additionally, Medtronic
is seeking to amend the new complaint to include the ACS OTW MULTI-LINK Coronary
Stent. In this new complaint, Medtronic also seeks injunctive relief and
monetary damages.
On December 2, 1997, Cordis filed suit against Guidant and ACS in the District
Court of Delaware, alleging that the ACS RX ROCKET Coronary Dilatation Catheter
infringes patents owned by Cordis. Cordis also filed a motion for a preliminary
injunction, which the court denied on September 10, 1999. On September 17,
1999, the court dismissed Guidant for lack of personal jurisdiction, leaving ACS
as the sole defendant in the case. In the lawsuit, Cordis is seeking injunctive
relief, monetary damages, and attorneys' fees. A separate lawsuit was also
filed against the Company in December 1997 in the Netherlands alleging
infringement of the European equivalents of these patents. In this separate
lawsuit, Cordis is seeking injunctive relief and monetary damages.
On February 18, 1998, AVE filed suit against ACS in the District Court of
Delaware alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents owned by AVE. The lawsuit also alleges misappropriation of
trade secrets and breach of a confidentiality agreement by ACS. In the lawsuit,
AVE is seeking injunctive relief, monetary damages, and to invalidate certain
ACS stent patents.
On August 12, 1998, ACS and Guidant Sales Corporation ("GSC") filed suit against
BSC and SciMed in the Southern District of Indiana alleging that SciMed's NIR
stent infringes certain patents of ACS. In the lawsuit ACS is seeking
injunctive relief and monetary damages. On October 15, 1999, the court entered
an order construing the claims. The trial is scheduled to commence in February,
2000.
On December 29, 1998, SciMed filed suit against the Company in the Hague, the
Netherlands, alleging infringement of a European Patent owned by SciMed by the
ACS RX ELIPSE Coronary Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS MULTI-LINK RX DUET Coronary Stent Systems. SciMed is
seeking injunctive relief and monetary damages. A hearing of the case was held
on November 5, 1999. The Court is expected to render its decision on December
22, 1999. ACS's opposition to the SciMed patent filed in the European Patent
Office has not yet been ruled on.
On January 13, 1999, SciMed filed suit against the Company, ACS, and GSC in the
Northern District of California alleging that ACS' RX MULTI-LINK, RX MULTI-LINK
HP, and MULTI-LINK RX DUET Coronary Stent Systems infringe certain SciMed
patents. In the lawsuit, SciMed is seeking injunctive relief and monetary
damages.
15
<PAGE>
GUIDANT CORPORATION and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Contingencies - (Continued)
On February 1, 1999, Deborah Charms filed suit against the Company and CPI in
the United States District Court for the Western District of Texas alleging that
unspecified defibrillation products of CPI infringe a patent owned by Charms.
In the lawsuit, Charms is seeking injunctive relief and unspecified monetary
damages.
On March 31, 1999, Pacesetter, Inc. filed suit against GSC and CPI in the
Central District of California, alleging that rate responsive pacemakers or
defibrillators having rate responsive pacing (including, by name the VIGOR SR
and VIGOR DR pacemakers) infringe two patents owned by Pacesetter. In the
lawsuit, Pacesetter is seeking injunctive relief and monetary damages.
The Company believes that it has substantial and meritorious defenses against
the above infringement claims and intends to vigorously contest them. The
Company has filed suit and has lawsuits and other legal actions currently
outstanding against most of the companies discussed above. While it is not
possible to predict or determine the outcomes of the legal actions brought
against it, or to provide an estimate of any additional losses, if any, that may
arise, the Company believes the costs associated with all of these actions will
not have a material adverse effect on its consolidated financial position or
liquidity, but could possibly be material to the consolidated results of
operations of any one period.
Further, product liability claims may be asserted in the future relative to
events currently unknown to management. Management believes that the Company's
risk-management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Guidant Corporation (Guidant or the Company), is a global company that designs,
develops, manufactures, and markets a broad range of innovative, high-quality
therapeutic devices for use in: (i) vascular intervention (VI), (ii) cardiac
rhythm management (CRM), and (iii) cardiac and vascular surgery (C&VS).
Cardiovascular disease continues to be the leading cause of death in the United
States. Guidant's business strategy is to design, develop, manufacture, and
market innovative, high-quality therapeutic products principally for use in
treating cardiovascular and vascular diseases which result in improved quality
of patient care and reduced treatment costs. In implementing this strategy, the
Company focuses on the following three areas, which it believes are critical to
its future success: (i) global product innovation, (ii) economic partnerships
with customers worldwide, and (iii) organizational excellence.
17
<PAGE>
The following tables are summaries of the Company's net sales and major costs
and expenses excluding the impact of special items. For purposes of analysis and
discussion herein, the Company employs a concept of operating income, which is
defined as income before special items, and excludes the items under the
category, "other income (expenses)", as set forth on the consolidated statements
of income on page 2, and accounting changes.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
(Dollars in millions)
(unaudited)
Vascular intervention $ 290.1 $ 216.0 $ 932.0 $ 739.4
Cardiac rhythm management 266.3 213.4 781.7 613.9
Cardiac & vascular surgery 4.5 16.0 40.8 50.2
-------- -------- -------- --------
Total net sales $ 560.9 $ 445.4 $1,754.5 $1,403.5
Cost of products sold 132.8 95.7 418.8 313.1
-------- -------- -------- --------
Gross profit 428.1 349.7 1,335.7 1,090.4
Research and development 73.3 70.0 233.8 197.8
Sales, marketing, and administrative 163.8 135.2 502.4 411.4
-------- -------- -------- --------
237.1 205.2 736.2 609.2
Operating income $191.0(1) $144.5(2) $599.5(1) $481.2(3)
======== ======== ======== ========
As a Percent of Net Sales
-----------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<C> <C> <C> <C>
Vascular intervention 51.7% 48.5% 53.1% 52.7%
Cardiac rhythm management 47.5 47.9 44.6 43.7
Cardiac & vascular surgery 0.8 3.6 2.3 3.6
-------- -------- -------- --------
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 23.7 21.5 23.9 22.3
-------- -------- -------- --------
Gross profit 76.3 78.5 76.1 77.7
Research and development 13.1 15.7 13.3 14.1
Sales, marketing, and administrative 29.1 30.4 28.6 29.3
-------- -------- -------- --------
42.2 46.1 41.9 43.4
Operating income 34.1%(1) 32.4%(2) 34.2%(1) 34.3%(3)
======== ======== ======== ========
</TABLE>
/(1)/Excludes a contribution to the Guidant Foundation of $20.2 million in the
third quarter of 1999 and a purchased research and development charge of $49.0
million in the first quarter of 1999. Also excludes the impact of stay-pay and
the purchase accounting write-up of acquired Intermedics inventory sold for a
total of $9.8 million in the third quarter of 1999 and $31.1 million for the
nine months ended September 30, 1999. Therefore, the cost of products sold,
gross profit, research and development, and sales, marketing, and administrative
lines displayed above do not agree to the reported consolidated statement of
income presentation.
/(2)/Excludes purchased research and development charges of $90 million in 1998
related to the acquisition of InControl, Inc.
/(3)/Excludes purchased research and development charges of $118.7 million in
1998 which represents the appraised value of in-process research and development
recognized in conjunction with the asset acquisitions of InControl, Inc. and
NeoCardia, LLC.
18
<PAGE>
Operating Results - Three and Nine Months Ended September 30, 1999
The Company had net sales of $560.9 million for the three months ended September
30, 1999, reflecting an increase of $115.5 million or 26% over the same period
in 1998. Significant growth in unit volume of 30% was partially offset by net
sales price declines of 4%, which includes the effect of changes in product mix.
The Company had worldwide net sales of $1,754.5 million for the nine months
ended September 30, 1999, reflecting an increase of $351.0 million or 25% over
the nine months ended September 30, 1998. Growth in unit volume of 30% was
partially offset by net sales price declines of 5%, including changes in
worldwide product mix. The impact of foreign currency exchange rate fluctuations
was not significant for the three and nine month periods ended September 30,
1999, as compared to the same periods ended September 30, 1998.
Net sales of VI products for the three months ended September 30, 1999, were
$290.1 million, an increase of $74.1 million or 34.3% from the same period in
1998. Net sales of VI products for the nine months ended September 30, 1999 were
$932.0 million, an increase of $192.6 million or 26.0% over the comparable
period in 1998. This sales growth was due to the continued enthusiastic customer
acceptance of the ACS MULTI-LINK DUET Coronary Stent System in the U.S., the ACS
MULTI-LINK in Japan, and, to a lesser extent, a selective release of the ACS
MULTI-LINK TRISTAR in various European countries during the third quarter of
1999. The MULTI-LINK TRISTAR Coronary Stent System was fully launched in Europe
during September 1999. It is Guidant's next generation stent featuring
improvements designed to increase ease of stent placement and reduce vessel
injury, which is believed to contribute to vessel reclosure.
Coronary stent sales experienced growth in all major markets. Worldwide coronary
stent sales during the third quarter of 1999 were $205.1 million, compared to
$138.6 million in the third quarter of 1998. Sales of these products during the
nine months ended September 30, 1999 were $679.1 million compared to $498.7
million during the same period in 1998. Sales of coronary stents in the United
States of $146.9 million increased 48.5% in the third quarter of 1999 compared
to the third quarter of last year. Sales of these products in the United States
during the nine months ended September 30, 1999, were $508.0 million compared to
$403.4 million during the same period in 1998. Sales of coronary stents in
international markets increased 46.9% in the third quarter to $58.3 million,
while sales of these products during the nine months
19
<PAGE>
ended September 30, 1999 were $171.1 million compared to $95.4 million during
the same period in 1998. Although management believes stent sales in the fourth
quarter of 1999 will be consistent with sales in the fourth quarter of 1998,
they could decline relative to the third quarter of 1999 due to increased market
competition, particularly in the U.S. Fourth quarter stent revenues will be
impacted by the timing of receipt of FDA approval to market the MULTI-LINK
TRISTAR Coronary Stent in the U.S. Guidant filed for approval with the FDA in
June 1999. There can be no assurance that the FDA will approve the ACS MULTI-
LINK TRISTAR Coronary Stent in the fourth quarter.
Total angioplasty sales, which include coronary balloon dilatation catheters,
increased 5.9% during the third quarter of 1999 to $79.2 million compared to the
third quarter of 1998. Sales of such products during the nine months ended
September 30, 1999 of $238.3 million increased 2.3% compared to the same period
in 1998. Management believes utilization of balloons in coronary stent
procedures is decreasing due to the current prevalence of delivery systems that
utilize high pressure for device placement. As a result, post-stent dilatation
balloon units have declined.
Comparing the three and nine months ended September 30, 1999 to the three and
nine months ended September 30, 1998, the Company experienced pricing pressure
on VI products, including coronary balloon dilatation catheters and, to a lesser
extent, coronary stents. The average sales price decline on a Guidant stent
from the second quarter of 1999 to the third quarter was 1% in the United
States. The decline from the third quarter of 1998 was 5%. The Company
believes that pricing pressures on VI products may continue. Some of the price
decline on stents is influenced by usage mix shifts toward lower priced, shorter
length stents.
Sales of CRM products of $266.3 million during the third quarter of 1999
increased $52.9 million or 24.8% from the same period in 1998. Net sales of CRM
products for the nine months ended September 30, 1999 were $781.7 million, an
increase of $167.8 million or 27.3% from the same period in 1998. Pacemaker
products experienced substantial sales growth during 1999. United States and
international sales of these products increased 74.1% and 126.5%, respectively,
for the third quarter of 1999 compared to the third quarter of 1998. For the
nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998, sales of these products increased 87.4% and 112.8% in the
United States and internationally, respectively. This sales growth was driven
20
<PAGE>
by the acquisition of Intermedics, the continuing popularity of the DISCOVERY
and MERIDIAN pacing devices launched in the U.S. and Europe in the first half of
1998, and the PULSAR and PULSAR MAX Dual-Sensor Pacemaker Systems launched in
the U.S. in June 1999. The PULSAR MAX system provides a sophisticated blended
dual sensor adaptive-rate therapy designed to match the pacing rate provided by
the pacemaker to individual patient needs.
AICD systems sales declined 7.3% and 3.2% for the three and nine month periods
ended September 30, 1999, as compared to the same periods in 1998 due to the
introduction of competitive devices, which reflect continued competition in the
U.S. market for dual chamber devices. In addition, the third quarter of 1998
benefited from the March 1998 U.S. market release of the VENTAK AV II DR. The
VENTAK AV II DR was the world's first implantable defibrillator system to
incorporate dual-chamber adaptive-rate pacing capability. AICD systems sales
were $135.1 million in the third quarter and $414.2 million for the nine months
ended September 30, 1999. Management anticipates that fourth quarter 1999 AICD
sales will be consistent with the fourth quarter of 1998. The VENTAK VR was
released in the United States in May 1999. This device offers single-chamber,
adaptive-rate pacing capability combined with cardioversion and defibrillation
therapies. Also in May 1999, the results of the Multicenter Unsustained
Tachycardia Trial (MUSTT) were presented. This trial showed a 74% reduction in
sudden cardiac death for certain patients with coronary heart disease who
received an implantable cardioverter defibrillator compared to patients treated
with conventional antiarrhythmic drugs.
Net sales of C&VS products in the third quarter of 1999 were $4.5 million, which
decreased from $16.0 million in the same period in 1998 due to the sale of the
product line referred to below. Net sales of C&VS products for the nine months
ended September 30, 1999 were $40.8 million, a decrease of $9.4 million or 18.7%
over the comparable period in 1998. On July 7, 1999, the Company reached a
definitive agreement to sell its general surgery product line. The financial
impact of the disposal of this product line was recorded in the third quarter of
1999 and was not material to Guidant's consolidated financial results. The sale
of the general surgery product line decreased Guidant's third quarter sales
growth by four percentage points.
Guidant received FDA approval to market the ANCURE System for minimally invasive
treatment of abdominal aortic aneurysm (AAA) in the U.S. in late September 1999.
AAA is an enlargement of the aorta resulting from a weakening
21
<PAGE>
of the vessel wall. The ANCURE, which offers an alternative to open surgery for
repair of certain AAA's, has precisely positioned hooks and a one-piece
polyester body that allows the implant to adapt to changes that occur over time
within the aorta, while maintaining the implant's original position. Commercial
shipments and implants began in early October 1999. The Company has filled 100%
of its training capacity for hospitals and physician teams for the rest of the
year and will have over 100 hospitals trained by the end of 1999. The Company
expects to have an additional 500 hospitals trained during 2000.
The Company experienced sales growth both in the United States and international
markets during the third quarter of 1999 over the third quarter of 1998. During
the third quarter of 1999, net sales in the United States of $391.0 million
increased 22.1%, while international net sales of $169.9 million increased 35.8%
compared to the third quarter of 1998. For the nine months ended September 30,
1999, U.S. net sales increased 18.5% to $1,242.3 million and international net
sales increased 44.2% to $512.2 million, as compared to the same period in 1998.
U.S. net sales growth was primarily due to sales of the ACS MULTI-LINK DUET
Coronary Stent System, incremental sales due to the Intermedics acquisition, and
sales of pacemaker systems such as DISCOVERY and MERIDIAN and the PULSAR MAX.
International net sales growth was primarily driven by the ACS MULTI-LINK
TRISTAR in Europe for the third quarter of 1999 and the MULTI-LINK RX DUET for
the nine months ended September 30, 1999 in Europe, ACS RX MULTI-LINK in Japan,
ACS RX GEMINI coronary dilatation catheter primarily in European markets, and
the incremental sales due to the Intermedics acquisition in all international
markets.
For the three and nine month periods ended September 30, 1999, cost of products
sold includes the impact of purchase accounting adjustments related to the
write-up of acquired Intermedics inventory sold and the impact of stay-pay for
Intermedics manufacturing personnel. The impact of these two items was $8.3
million and $26.2 million for the three and nine month periods ended September
30, 1999, respectively. Excluding these charges, costs of products sold
represented 23.7% and 23.9%, respectively, of net sales for the three and nine
months ended September 30, 1999, compared to 21.5% and 22.3% for the same
periods in 1998. The increase in adjusted cost of products sold as a percent of
sales over 1998 primarily reflects the impact of the sale of Intermedics
products, which have lower gross margins, start up costs for new products, and
costs associated with Guidant's new Ireland manufacturing facility. Adjusted
gross profit as a percent of sales for the third quarter of 1999 of 76.3%
22
<PAGE>
represents an improvement of 60 basis points over the second quarter of 1999.
This improvement primarily relates to less unfavorable CRM absorption and CRM
product mix.
The Company continued its commitment to achieving long-term growth by investing
significant resources in research and development. Excluding stay-pay in 1999,
research and development spending as a percent of net sales was 13.1% and 15.7%
in the third quarters of 1999 and 1998, respectively, and 13.3% and 14.1% for
the nine months ended September 30, 1999 and 1998, respectively. Adjusted
research and development expenses of $73.3 million increased $3.3 million or
4.7% during the third quarter of 1999 compared to the same period in 1998. For
the nine months ended September 30, 1999, adjusted research and development
expenses increased $36.0 million or 18.2% over the comparable period in 1998.
These spending increases resulted primarily from: (i) new product development
costs related to future generations of AICDs, pacemakers, coronary stents, and
dilatation catheters; (ii) the acquisition of Intermedics and its related
incremental spending; (iii) development of radiation therapy devices for
coronary restenosis; (iv) development of stent technology for other parts of the
vascular anatomy, such as peripheral and carotid arteries; (v) development of
treatments for atrial arrhythmias; and (vi) clinical evaluation of implantable
device systems for treatment of heart failure. The Company intends to maintain
its commitment to bring new technologies to the market and provide cost-
effective therapies to people who suffer from cardiovascular diseases. As a
result, the Company believes adjusted research and development spending will be
approximately 14% of net sales in 1999.
On February 1, 1999, the Company completed the acquisition of Intermedics, a
leading designer, manufacturer, and marketer of cardiac rhythm management
products. Intermedics' products include bradycardia pacemakers, leads, and
programmers. The aggregate purchase price of the Intermedics acquisition of
$772 million has been allocated on a preliminary basis to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition and a settlement of litigation. Intangible assets acquired will be
amortized over their estimated useful lives. Developed technology will be
amortized over ten years, while the sales network, assembled work force, and the
excess of cost over net assets acquired will be amortized over twenty years.
23
<PAGE>
The valuation of purchased research and development represents the estimated
fair value related to incomplete projects. The in-process technology acquired
in the Intermedics acquisition consists of bradycardia research and development
projects which will be integrated into existing Guidant products. This
technology relates to increased longevity, expanded diagnostics, connector
technology, and pacing technology. Management anticipates that these
technologies will be on the market in late 2000 and will cost approximately $20
- - $30 million to complete. In addition, Guidant acquired the THINLINE pacing
lead family from Intermedics. This product, which will be available in silicone
or polyurethane, is presently in clinical trials and will have lower profile and
improved radiopacity. Management anticipates that this product will also be on
the market in late 2000 and will cost approximately $8 - $10 million to
complete. At the acquisition date, the technological feasibility of the new
THINLINE products and the new bradycardia technologies had not been established,
and the in-process technology had no alternative uses. A 20% discount rate was
used in calculating the net present value of cash flows. As a result of this
analysis, the Company recognized a pre-tax charge of $49 million in the first
quarter of 1999 related to the appraised value of in-process research and
developed technology.
Adjusted sales, marketing, and administrative expenses in the third quarter of
1999 increased $28.6 million or 21.2%, compared to the third quarter of 1998,
and $91.0 million or 22.1% for the nine months ended September 30, 1999, versus
the comparable period in 1998. For both periods, these expenses increased at a
rate less than sales growth. This increase in spending was due to: (i) costs
related to the implementation of direct operations in certain international
markets; (ii) incremental expenses associated with the inclusion of Intermedics
results; and (iii) increased investment in the United States field-sales force.
Total adjusted operating expenses for the third quarter were 42.2% of sales
compared to 46.1% of sales for the third quarter of 1998.
Operating income, as previously defined, was $191.0 million in the third quarter
of 1999, or 34.1% of net sales, compared to $144.5 million or 32.4% of net sales
for the three months ended September 30, 1998. Growth of 32.2% in operating
income was driven by net sales growth of 25.9%. Operating income for the nine
months ended September 30, 1999 and 1998, was $599.5 million and $481.2 million,
respectively, representing growth of 24.6%, which is less than the growth rate
in sales due to the aforementioned increase of cost of products sold, offset
somewhat by controlled growth in adjusted operating expenses.
24
<PAGE>
For the three months ended September 30, 1999, the Company had adjusted net
other expenses of $32.5 million compared to $19.0 million, excluding a $200.0
million charge relating to settlement of the Company's litigation with
Intermedics, Inc., for the third quarter in the prior year. Adjusted expenses
for the third quarter of 1999 exclude the loss on the disposal of the general
surgery product line and a non-cash gain on an equity investment. This increase
in adjusted expense is primarily due to increased interest and amortization
expense related to the Intermedics acquisition. Net other adjusted expenses for
the nine months ended September 30, 1999, were $113.7 million, excluding non-
cash gains on an equity investment and the loss on the sale of the general
surgery product line. Adjusted net other expenses for the nine months ended
September 30, 1998 were $59.8 million. These expenses exclude a $60 million
charge related to an agreement with C.R. Bard, Inc., that settled two patent
infringement lawsuits and granted the Company paid-up licenses to certain
patents, and a $200.0 million charge related to settlement of the Company's
litigation with Intermedics, Inc. The increase in adjusted other expenses of
$53.9 million in the first nine months of 1999 is due to the same factors
mentioned above for third quarter of 1999.
Excluding the impact of special items, the effective income tax rate for the
three and nine months ended September 30, 1999, was 36.9%. The Company's
effective income tax rate for the three and nine month periods ended September
30, 1998, excluding special charges, was 35.3%. This increase in the adjusted
effective tax rate relates to the non-deductible goodwill amortization expense
related to the acquisition of Intermedics. Reported income taxes in the third
quarter of 1999 include an adjustment related to a recently published Internal
Revenue Code regulation which will accelerate the utilization of pre-acquisition
net operating loss carryovers from Guidant's acquisition of EndoVascular
Technologies, Inc. in 1997. In addition, reported income taxes in the third
quarter of 1999 reflect an adjustment for the tax treatment of equity securities
donated to the Guidant Foundation and a refinement to the tax provision for
Intermedics' acquisition accounting adjustments. These three items reduced
reported income tax expense by $17.3 million in the third quarter of 1999.
Earnings before interest, taxes, depreciation, and amortization (EBITDA),
exclusive of special items in both years, was $203.8 million for the three
months ended September 30, 1999, and $617.2 million for the nine months ended
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September 30, 1999. EBITDA was $147.1 million for the three months ended
September 30, 1998, and $482.8 million for the nine months ended September 30,
1998. These improvements in EBITDA are primarily driven by sales growth.
Excluding the special items in the third quarters of 1999 and 1998, net income
would have been $100.0 million and $81.2 million, respectively. This 23.2%
growth in adjusted net income is less than operating income growth due to the
increase in other expenses and the effective income tax rate in 1999. Earnings
per share-assuming dilution, exclusive of the above special items, was $0.33 for
the three months ended September 30, 1999, and $0.27 for the three months ended
September 30, 1998.
For the nine months ended September 30, 1999, net income would have been $306.5
million and earnings per share-assuming dilution would have been $1.00 without
the special charges. Reported net income for the nine months ended September
30, 1999 also includes the net impact of $3.3 million for the cumulative effect
of a change in accounting principle, net of income taxes, in the first quarter
of 1999. Net income for the nine months ended September 30, 1998, excluding the
impact of the special charges, would have been $272.6 million and $0.90 per
share-assuming dilution. Reported net income for the three and nine month
periods ended September 30, 1999, was $98.7 million and $244.6 million,
respectively.
Liquidity and Financial Condition
The Company continued to generate cash flows which were more than sufficient to
fund operations during the nine months ended September 30, 1999. Cash and cash
equivalents increased to $25.5 million at September 30, 1999, from $15.6 million
at December 31, 1998.
Working capital of $92.8 million at September 30, 1999 decreased by $83.5
million from the prior year-end level. Acquired Intermedics' assets increased
working capital approximately $38 million. This increase is more than offset by
the increased current portion of long-term debt. The current ratio at September
30, 1999 was 1.1:1 compared to 1.3:1 at December 31, 1998. The Company believes
its cash from operations is sufficient to fund essentially all future working
capital needs and discretionary operating spending requirements.
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Net cash used for investing activities totaled $702.5 million for the nine
months ended September 30, 1999, compared to $302.0 million for the same period
in 1998. The acquisition of Intermedics, net of cash acquired and the net cash
impact of the disposal of the general surgery product line, was a $539.2 million
use of cash in 1999. The payment of the Intermedics settlement of $200 million
is included in operating activities. Net additions of property and equipment of
$128.0 million for the nine months ended September 30, 1999, compared to $76.6
million for the same period in 1998, were also a significant use of cash for
investing activities during both periods. This increase is due in part to the
Company's announced investment in a manufacturing facility in Ireland and
expansion of certain facilities, including equipment purchases, in both
California and Minnesota.
Net cash provided by financing activities totaled $440.8 million for the nine
months ended September 30, 1999. Net proceeds of $346.4 million were received
from the issuance of seven year, 6.15% long-term notes. In addition, commercial
paper was issued to finance the acquisition of Intermedics on February 1, 1999.
In the first nine months of 1998, financing activities increased cash by $17.1
million.
At September 30, 1999, the Company had outstanding borrowings of $999.5 million
through the issuance of commercial paper, bank borrowings, and long-term notes
due in 2006. Bank borrowings represent short-term uncommitted credit facilities
with various commercial banks. The commercial paper borrowings are supported by
two credit facilities aggregating $850 million. There are currently no
outstanding borrowings under these facilities. The Company expects that
approximately $223 million of commercial paper borrowings will remain
outstanding for the next twelve months and, as a result, has classified this
amount as long-term at September 30, 1999.
The Company expects its cash from operations to be adequate to meet its
obligations to make interest payments on its debt and other anticipated
operating cash needs, including planned capital expenditures. Capital
expenditures are expected to be approximately $200 million in 1999, primarily
due to continued investment in the Company's new manufacturing facility in
Ireland and expansion of U.S. development, manufacturing and support facilities.
The Company believes that amounts available through existing commercial paper
programs should be adequate to fund maturities of short-term borrowings.
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The Company has recognized net deferred tax assets aggregating $160.7 million at
September 30, 1999, compared to $157.1 million at December 31, 1998. In view of
the consistent profitability of its past operations, the Company believes that
all these assets will be substantially recovered and that no significant
additional valuation allowances are necessary.
Year 2000
Guidant has taken and will continue to take reasonable steps necessary to
confirm that its business systems, software, and equipment that consider and
process date-related information will continue to function properly after
December 31, 1999. In doing so, Guidant is paying particular attention to
assuring compliance with all regulatory guidelines regarding Year 2000 issues.
Guidant's implantable devices do not contain real-time clocks. As a result,
these devices present no Year 2000 issues. The Company's other products have
been assessed and found to be Year 2000 ready with the exception of a few minor
adjustments to the external, stand-alone implantable device control units
(Programmers). These adjustments relate to minor date limitations that present
no adverse health impact to the patient.
Guidant, as a corporation formed in 1994, has many relatively new systems,
including an enterprise-wide operational support system, which has been
certified Year 2000 ready by its developer and extensively tested by Guidant. As
such, management's focus has been on assessing and readying manufacturing
equipment, facilities infrastructure, other computer systems, and business
partners. Guidant believes it has completed any necessary remediation of
business critical equipment, other computer systems, and infrastructure. This
has allowed for development of contingency arrangements, internal auditing and
testing, as well as any further remediation, when necessary, of these systems to
take place during the second half of 1999. Efforts to continuously monitor and
confirm the readiness of various business partners will continue up to and
through, January 1, 2000.
The Company has also performed an assessment of two recent acquisitions,
Intermedics, Inc., and InControl, Inc. Like Guidant, the implantable devices
produced by these companies do not contain real-time clocks, and therefore are
not susceptible to Year 2000 issues. Assessments of other business operations
from these acquisitions did not reveal any major deficiencies. Guidant
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believes, therefore, that the integration of these enterprises will not
adversely impact Guidant's Year 2000 project schedule.
The Company has devoted and will continue to devote, to the extent necessary,
the necessary resources to resolve all significant issues in a timely manner.
The costs associated with the Year 2000 assessment and remediation of problems
noted are expensed as incurred or capitalized if the expenditures relate to
hardware or software that will benefit future periods. Based upon current
assessments, management believes that the cost of such actions will not have a
material effect on Guidant's operating results or financial condition. The
Company currently expects that its total out-of-pocket costs related to
addressing its Year 2000 issues will be less than $15 million, $12.5 million of
which has been incurred to date. Approximately $4 million of the total will be
capital expenditures, which will be depreciated over the assets' estimated
useful lives.
Recognizing that there are external forces beyond its control, Guidant has
developed contingency plans to address any situations that might occur. The
Guidant Year 2000 Contingency Plan Process is an extension of Guidant's business
continuation planning process. These plans lay out what each reporting unit will
do if, despite best efforts, elements crucial to business are not available or
cease to function properly due to Year 2000 processing problems. Considerations
include: adjusting inventory levels, identifying alternative sources of supply
and services, understanding and anticipating supply and demand chain readiness,
establishing crisis response processes to address unexpected problems, and
defining alternative ways to stabilize business operations quickly and get the
business critical jobs done if a Year 2000 problem arises.
The Year 2000 issue is expected to affect the systems of other external entities
with which the Company interacts. However, the Company cannot reasonably
estimate the potential impact on its financial condition and operations if
critical third parties do not become Year 2000-ready on a timely basis. The
Company has worked through various trade associations as well as communicated
directly with its significant suppliers and customers and will continue to do
so, as necessary, to determine their Year 2000 readiness. In addition, the
Company has developed contingency plans to handle disruptions with utility
providers including electrical and telecommunications suppliers.
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While Guidant has developed contingency plans, there can be no guarantee that
these efforts will prevent an event that will have a materially adverse effect
on the Company's financial condition or operations due to the failure of third
parties to become Year 2000-ready.
Private Securities Litigation Reform Act of 1995
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company, including those made in this document, are
subject to risks and uncertainties which may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological, and other factors which may affect the Company's operations are
discussed in Exhibit 99.1 filed herewith.
30
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On November 6, 1997, Medtronic, Inc., filed suit against Guidant's subsidiary
Advanced Cardiovascular Systems, Inc.("ACS") in the District Court of Minnesota,
alleging that the ACS RX MULTI-LINK Coronary Stent infringes a patent owned by
Medtronic. On September 16, 1999, the court issued a Markman ruling construing
some of the claim terms. A trial by jury began on October 18, 1999. A jury
verdict is expected in late November or early December 1999, with a final
judgement to follow. In the suit, Medtronic seeks an injunction against further
manufacture and sale of the product in the U.S. and monetary damages. The damage
claim presently asserted by Medtronic is for approximately $300 million and it
is further alleged that damages should be trebled and attorneys' fees awarded to
Medtronic on the basis of its claim of willful infringement. Medtronic has
recently filed a new complaint in a separate suit to add allegations of
infringement of the same patent by the ACS MULTI-LINK DUET and SOLO Coronary
Stents and MEGALINK Peripheral Stent. Additionally, Medtronic is seeking to
amend the new complaint to include the ACS OTW MULTI-LINK Coronary Stent. In
this new complaint, Medtronic also seeks injunctive relief and monetary damages.
On October 10, 1995, ACS filed suit against Medtronic in the Northern District
of California alleging that the Medtronic FALCON coronary dilatation catheter
infringes Yock U.S. Patent No. 5,451,233 (Civil Action No. C95-03577). On August
25, 1999, the Court granted ACS's motions for summary judgment of infringement,
validity, and enforceability of the patent. A jury trial was held from October
25, 1999 to November 3, 1999 on ACS's claim of willful infringement and damages.
On November 3, 1999, the jury returned its verdict finding that Medtronic had
willfully infringed the patent and awarded ACS $5.4 million in damages. The
Court has scheduled a hearing for December 15, 1999 on ACS' requests for
injunctive relief, enhanced damages, pre-judgment interest, costs, and to
declare the case exceptional.
On August 12, 1998, ACS and Guidant Sales Corporation ("GSC") filed suit against
BSC and SciMed in the Southern District of Indiana alleging that SciMed's NIR
stent infringes certain patents of ACS. In the lawsuit ACS is seeking injunctive
relief and monetary damages. On October 15, 1999, the court
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entered an order construing the claims. The trial is scheduled to commence in
February, 2000.
On March 12, 1996, ACS filed suit against SciMed in the Northern District of
California alleging that SciMed's Trio/Bandit line of coronary dilatation
catheters infringes a patent of ACS. On June 22, 1999 the court granted ACS'
motions for summary judgment of validity and infringement of its patent, and
denied the parties' other summary judgment motions, including SciMed's motions
for summary judgment of invalidity and no willful infringement of the ACS patent
and ACS motion for summary judgment of enforceability. In the lawsuit, ACS is
seeking injunctive relief and monetary damages. Trial of the remaining issues is
currently scheduled to commence on February 7, 2000.
On May 28, 1996, Origin Medsystems, Inc. ("Origin"), a wholly-owned subsidiary
of the Company, filed suit against General Surgical Innovations, Inc. ("GSI") in
the Northern District of California alleging that GSI's Spacemaker balloon
products infringe a patent of Origin. In the lawsuit, Origin is seeking
injunctive relief and monetary damages. On April 20, 1998 the court granted
GSI's motion for summary judgment that the Origin patent was obtained by
inequitable conduct. On November 2, 1998 the Court awarded GSI its attorney
fees. Origin appealed both decisions. On July 16, 1999 the Court of Appeals for
the Federal Circuit vacated the summary judgment of inequitable conduct and
remanded the case to the district court for further proceedings. On August 31,
1999 the Federal Circuit vacated the award of attorney fees.
On September 24, 1997, GSI filed a second suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon Dissection System
infringes another patent owned by GSI. GSI is seeking injunctive relief and
monetary damages. On July 6, 1999, GSI amended its complaint to add an
additional patent and Origin's PDB and ExtraView Systems to the suit. On July
19, 1999 the district court entered an order staying all proceedings pending the
outcome of the appeal in the first GSI case.
On December 2, 1997, Cordis filed suit against Guidant and ACS in the District
Court of Delaware, alleging that the ACS RX ROCKET Coronary Dilatation Catheter
infringes patents owned by Cordis. Cordis filed a motion for a preliminary
injunction, which the court denied on September 10, 1999. On September 17, 1999,
the court dismissed Guidant for lack of personal jurisdiction, leaving ACS as
the sole defendant in the case. In the lawsuit, Cordis is seeking injunctive
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relief, monetary damages, and attorney fees. Cordis also filed a separate
lawsuit against the Company in December 1997 in the Netherlands alleging
infringement of the European equivalents of these patents. In this separate
lawsuit, Cordis is seeking injunctive relief and monetary damages.
On December 29, 1998, SciMed filed suit against the Company in the Hague, the
Netherlands, alleging infringement of a European Patent owned by SciMed by the
ACS RX ELIPSE Coronary Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS MULTI-LINK RX DUET Coronary Stent Systems. SciMed is
seeking injunctive relief and monetary damages. A hearing of the case was held
on November 5, 1999. The Court is expected to render its decision on December
22, 1999. ACS's opposition to the SciMed patent filed in the European Patent
Office has not yet been ruled on.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following documents are filed as exhibits to this report:
3.1 Amended Articles of Incorporation
10.1 364 - Day Credit Agreement dated as of August 25, 1999
among the Company, certain banks, and Morgan Guaranty
Trust Company of New York as administrative agent
27.1 Financial Data Schedule
99.1 Factors Possibly Affecting
Future Operating Results.
(b) Reports on Form 8-K. During the quarter for which this Report on Form 10-Q
is filed, the registrant filed the following current report on Form 8-K:
Item 2 September 23, 1999 Supplement 8-K filed
February 4, 1999, to
include the Sulzer
Electrophysiology
Combined Financial
Statements as of
December 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUIDANT CORPORATION
-------------------
(Registrant)
Date November 16, 1999 /s/ Keith E. Brauer
-------------------
Keith E. Brauer
Vice President, Finance and
Chief Financial Officer
Date November 16, 1999 /s/ Cynthia L. Lucchese
-----------------------
Cynthia L. Lucchese
Corporate Controller and
Chief Accounting Officer
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Exhibit List
3.1 Amended Articles of Incorporation
10.1 364 - Day Credit Agreement dated as of August 25, 1999,
among the Company, certain banks, and Morgan Guaranty Trust
Company of New York as administrative agent
27.1 Financial Data Schedule
99.1 Factors Possibly Affecting
Future Operating Results.
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EXHIBIT 3.1
ARTICLES OF INCORPORATION
(As Amended May 27, 1999)
GUIDANT CORPORATION
(an Indiana corporation)
1. The name of the Corporation is Guidant Corporation.
2. The street address of the principal office of the Corporation is 307
East McCarty Street, Indianapolis, Indiana, 46285, and the name and post-office
address of its Resident Agent in charge of such office is Mr. J. B. King, 307
East McCarty Street, Indianapolis, Indiana, 46225.
3. The total number of authorized shares is 1,050,000,000.
4. The designation of the different classes of shares of the Corporation,
and the number of shares of each class, are as follows:
(a) Common Stock consisting of 1,000,000,000 shares. Except as
otherwise required by law and subject to the rights of holders of Preferred
Stock, the Common Stock shall have unlimited voting rights and each
outstanding share of Common Stock shall, when validly issued by the
Corporation, entitle the record holder thereof to one vote at all
shareholders' meetings on all matters submitted to a vote of the
shareholders of the Corporation. In the event of any liquidation,
dissolution or winding-up of the Corporation, either voluntary or
involuntary, after payment shall have been made to the holders of the
Preferred Stock of the full amount to which they shall be entitled, the
holders of the Common Stock shall be entitled, to share ratably according
to the number of shares of Common Stock held by them, in all remaining
assets of the Corporation available for distribution to its shareholders.
(b) Preferred Stock, consisting of 50,000,000 shares, which may be
issued in such series and which shall possess such relative rights,
preferences, qualifications, limitations or restrictions as established by
amendment to these Articles of Incorporation adopted by the Board of
Directors without need for shareholder approval, which is vested to the
fullest extent permitted by law with authority to fix the relative rights,
preferences,
<PAGE>
qualifications, limitations or restrictions for each series of such class
of shares established by it, including, without limitation of the
generality of the foregoing, the following:
(1) The series, if any, of preferred to be issued and manner of
its differentiation from other series of Preferred Stock;
(2) The number of shares which shall initially constitute each
series;
(3) The rate or rates and the time or times at which dividends
and other distributions on the shares of each series shall be paid,
the relationship or priority of such dividends to those payable on
Common Stock or to other series of Preferred Stock, and whether or not
any such dividends shall be cumulative;
(4) The amount payable on the shares of each series in the event
of the voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, and the relative priorities, if
any, to be accorded such payments in liquidation;
(5) The terms and conditions upon which either the Corporation
may exercise a right to redeem shares of each series or upon which the
holder of such shares may exercise a right to require redemption of
such shareholder's Preferred Stock, including any premiums or
penalties applicable to exercise of such rights;
(6) Whether or not a sinking fund shall be created for the
redemption of the shares of a series, and the terms and conditions of
any such fund;
(7) Whether any shares shall have no voting rights or full or
limited voting rights;
(8) Rights, if any, to convert any shares of Preferred Stock
either into shares of Common Stock or into other series of Preferred
Stock and the prices, premiums or penalties, ratios and other terms
applicable to any such conversion;
(9) Restrictions on acquisition, rights of first refusal or
other limitations on transfer as may be
2
<PAGE>
applicable to any series, including any series intended to be offered
to a special class or group, such as corporate employees; and
(10) Any other relative rights, preferences, limitations,
qualifications or restrictions on the Preferred Stock or any series of
such shares.
(c) A total of 1,500,000 shares of the 50,000,000 shares of
authorized Preferred Stock are designated as "Series A Participating Preferred
Stock" (the "Series A Preferred Stock"), which shall possess the rights,
preferences, qualifications, limitations, and restrictions set forth below:
(1) The holders of shares of Series A Preferred Stock shall have
the following rights to dividends and distributions:
(i) The holders of shares of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in cash
on the first day of April, July, October and January in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (i) $.05 or (ii)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend or distribution payable in shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, without
par value of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of share of Series A Preferred Stock. If on any Quarterly Dividend
Payment Date the Corporation's Articles of Incorporation shall limit the amount
of dividends which may be paid on the Series A Preferred Stock to an amount less
than that provided above, such dividends will accrue and be paid in the maximum
permissible amount and the short-fall from the amount provided above shall be a
cumulative dividend requirement and be carried forward to subsequent Quarterly
Dividend Payment Dates.
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(ii) In the event the Corporation shall at any time declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the second preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(iii) When, as and if the Corporation shall declare a dividend or
distribution on the Common Stock (other than a dividend payable in shares of
Common Stock), the Corporation shall at the same time declare a dividend or
distribution on the Series A Preferred Stock as provided in this Subsection
4(c)(1) and no such dividend or distribution on the Common Stock shall be paid
or set aside for payment on the Common Stock unless such dividend or
distribution on the Series A Preferred Stock shall be simultaneously paid or set
aside for payment; provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend, of $.05 per share on the Series A Preferred Stock shall nevertheless
be payable, when, as and if declared by the Board of Directors, on such
subsequent Quarterly Dividend Payment Date.
(iv) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the date of issue of such shares of
Series A Preferred Stock, unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in which event such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
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<PAGE>
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of dividend or distribution declared thereon, which record date
shall be no more than 60 days prior to the relevant Quarterly Dividend Payment
Date.
(2) The holders of shares of Series A Preferred Stock shall have
the following voting rights:
(i) The holders of outstanding Series A Preferred Stock shall
be entitled to vote as a class for the election of two (2) directors if the
Corporation shall fail for six quarters to pay the dividend payable with respect
to such shares pursuant to paragraph (a) hereof. Such limited voting rights may
be exercised at the next annual meeting of shareholders following the failure to
pay a dividend for the sixth quarter and at each succeeding annual meeting of
shareholders until payment of all such preferred dividends which are in arrears
has been made or provided for (the "Dividend Date"), at which time the right to
vote for election of two directors conferred upon the holders of the outstanding
Series A Preferred Stock shall cease. Each of such two directors shall be
elected to one of the three classes of directors so that the three classes shall
be as equal in number as may be feasible and shall be elected to hold office for
a term expiring at the earlier of (i) the expiration of the term of the class to
which he or she is elected or (ii) the Dividend Date. In addition to the
conditional right to vote for election of two directors, any proposal to amend
the relative rights and privileges of shares of Series A Preferred Stock
(including those conferred by this Paragraph 4(c)(2)(i) upon which the holders
of such Series A Preferred Stock are entitled by the provisions of the Indiana
Business Corporation Law to vote upon as a class shall require, instead of a
vote of the holders of a majority of such shares, the affirmative vote of the
holders of two-thirds (2/3) of such shares.
(ii) except as specified in Paragraph 4(c)(2)(i) above, the
holders of Series A Preferred Stock shall not be entitled to any vote on any
matter, including questions of merger, consolidation, and the sale of all or
substantially all of the assets of the Corporation.
(3) The Corporation shall be subject to the following
restrictions:
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section
4(c)(1) are in arrears, thereafter
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<PAGE>
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been paid
in full, the Corporation shall not
a. declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
b. declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
c. except as permitted by Subparagraph 4(c)(3)(i)(d), redeem or
purchase or otherwise acquire for consideration shares of any stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of
any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
d. purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes, provided that the Corporation may at any
time purchase or otherwise acquire share of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior
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<PAGE>
(either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Preferred Stock.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph
4(c)(3)(i), purchase or otherwise acquire shares at such time and in such
manner.
(iii) The Corporation shall not issue any shares of Series A
Preferred Stock except upon exercise of Rights issued pursuant to that certain
Rights Agreement dated as of October 17, 1994 between the Corporation and Bank
One, Indianapolis, NA, a copy of which is on file with the Secretary of the
Corporation at its principal executive office and shall be made available to
shareholders of record without charge upon written request therefor addressed to
said Secretary. Notwithstanding the foregoing sentence, nothing contained herein
shall prohibit or restrict the Corporation from issuing for any purpose any
series of preferred stock with rights and privileges similar to or different
from those of the Series A Preferred Stock.
(4) Any shares of Series A Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation without designation as to series, become authorized but
unissued shares of preferred stock and may be reissued as part of a new series
of preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(5) Upon any voluntary liquidation, dissolution or winding upon of the
Corporation, no distribution shall be made (i) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received, subject to adjustment
as hereinafter provided, an aggregate amount equal to (a) $100 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment or (b) if greater, an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be distributed per share
to holders of Common Stock plus an amount equal to accrued and unpaid
7
<PAGE>
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up, disregarding for this purpose the amounts referred to
in clause (i)(b) of this Subsection 4(c)(5). In the event the Corporation shall
at any time declare or pay any dividend or make any distribution on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the provision in clause (i) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(6) In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case proper provision shall be made so that the
shares of Series A Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
The Corporation shall not consummate any such consolidation, merger, combination
or other transaction unless prior thereto the Corporation and the other party or
parties to such transaction shall have so provided in any agreement relating
thereto. In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set
8
<PAGE>
forth in the preceding sentence with respect to the exchange or change of shares
of Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(7) The shares of Series A Preferred Stock shall not be redeemable.
Notwithstanding the foregoing sentence, the Corporation may acquire shares of
Series A Preferred Stock in any other manner permitted by law, hereby and the
Articles of Incorporation of the Corporation, as from time to time amended.
(8) The Articles of Incorporation of the Corporation shall not be
amended in any manner which would increase or decrease the aggregate number of
authorized shares of Series A Preferred Stock or alter or change the powers,
preferences or special rights of the shares of Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of two-thirds
or more of the outstanding shares of Series A Preferred Stock, voting together
as a single class.
5. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and it is
expressly provided that the same are intended to be in furtherance, and not in
limitation or exclusion of, the powers conferred by statute:
(a) The initial number of directors of the Corporation shall be
eight. The number of directors may be specified by or fixed in accordance
with the By-laws of the Corporation at any number; provided, however, such
number shall not be less than 7 nor more than 19. In the absence of a By-
law provision specifying or fixing the number of directors, the number
shall be eight.
(b) The Board of Directors shall be divided into three classes,
with the term of office of one class expiring each year. Three directors of
the first class shall be elected to hold office for a term expiring at the
1995 annual meeting, three directors of the second class shall be elected
to hold office for a term expiring at the 1996 annual meeting, and two
directors of the third class shall be elected to hold office for a term
expiring at the 1997 annual meeting. Commencing with the annual meeting of
shareholders in 1995, each class of directors whose term
9
<PAGE>
shall then expire shall be elected to hold office for a three-year term. In
the case of any vacancy on the Board of Directors, including a vacancy
created by an increase in the number of directors, the vacancy shall be
filled by election of the Board of Directors with the director so elected
to serve for the remainder of the term of the director being replaced or,
in the case of an additional director, for the remainder of the term of the
class to which the director has been assigned. All directors shall continue
in office until the election and qualification of their respective
successors in office. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be so assigned
among the classes by a majority of the directors then in office, though
less than a quorum, as to make all classes as nearly equal in number as
possible. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Election of directors need
not be by written ballot unless the By-Laws so provide.
(c) Any director or directors may be removed from office at any time,
with or without cause, by the affirmative vote of at least 80% of the votes
entitled to be cast by holders of all the outstanding shares of Voting
Stock (as defined in Article 6 hereof), voting together as a single class.
(d) Notwithstanding any other provision of these Articles of
Incorporation or of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any
particular class of Voting Stock required by law or these Articles of
Incorporation, the affirmative vote of at least 80% of the votes entitled
to be cast by holders of all the outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal
this Article.
(e) The Board of Directors, by a majority vote of the actual number of
directors elected and qualified from time to time shall have the exclusive
power to make, alter, amend or repeal the By-laws of the Corporation. The
shareholders of the Corporation shall have no power to make, alter, or
repeal the By-laws of the Corporation.
(f)(1) A conflict of interest transaction is a transaction with the
Corporation in which a director of the Corporation has a direct or indirect
interest. A conflict
10
<PAGE>
of interest transaction is not voidable by the Corporation solely because
of the Director's interest in the transaction if any one (1) of the
following is true:
(i) The material facts of the transaction and the
Director's interest were disclosed or known to the Board of
Directors or a committee of the Board of Directors and the Board
of Directors or committee authorized, approved, or ratified the
transaction.
(ii) The material facts of the transaction and the
Director's interest were disclosed or known to the shareholders
entitled to vote and they authorized, approved, or ratified the
transaction.
(iii) The transaction was fair to the Corporation.
(2) For purposes of Subsection 5(f)(1), a Director of the
Corporation has an indirect interest in a transaction if:
(i) Another entity in which the Director has a material
financial interest or in which the Director is a general partner
is a party to the transaction; or
(ii) Another entity, of which the Director is a director,
officer, or trustee, is a party to the transaction and the
transaction is, or is required to be, considered by the Board of
Directors of the Corporation.
(3) For purposes of Paragraph 5(f)(1)(i), a conflict of interest
transaction is authorized, approved, or ratified if it receives the
affirmative vote of a majority of the Directors on the Board of
Directors (or on the committee) who have no direct or indirect
interest in the transaction, but a transaction may not be authorized,
approved, or ratified under this Section by a single Director. If a
majority of the Directors who have no direct or indirect interest in
the transaction vote to authorize, approve, or ratify the transaction,
a quorum shall be deemed present for the purpose of taking action
under this
11
<PAGE>
Section. The presence of, or a vote cast by, a Director with a direct
or indirect interest in the transaction does not affect the validity
of any action taken under Paragraph 5(f)(1), if the transaction is
otherwise authorized, approved, or ratified as provided in such
Subsection.
(4) For purposes of Paragraph 5(f)(1)(ii), a conflict of
interest transaction is authorized, approved, or ratified if it
receives the affirmative vote of the holders of shares representing a
majority of the votes entitled to be cast. Shares owned by or voted
under the control of a Director who has a direct or indirect interest
in the transaction, and shares owned by or voted under the control of
an entity described in Subsection 5(f)(2), may be counted in such a
vote of shareholders.
(g) Any contract, transaction or act of the Corporation or of the
Board of Directors which shall be authorized, approved or ratified by a
majority of a quorum of the shareholders entitled to vote at any annual
meeting or at any special meeting called for that purpose, or by such vote
as may be required by any provision of these Articles of Incorporation, or
by any applicable statute, shall be as valid and binding as if such
contract, transaction or act had been authorized, approved or ratified by
every shareholder of the Corporation.
(h)(1) Every Eligible Person shall be indemnified by the Corporation
to the fullest extent permitted by the Indiana Business Corporation
Law, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than the law
permitted prior to such amendment) ("IBCL"), against all Liability and
reasonable Expense that may be incurred by him or her in connection
with or resulting from any Claim.
(2) Expenses incurred by any Eligible Person with respect to any
Claim shall be advanced by the Corporation prior to final disposition;
provided, however, that, if the IBCL requires, the payment of such
expenses in advance of the final disposition of the proceeding shall
be made only upon delivery to the Corporation of an undertaking to
repay all amounts so
12
<PAGE>
advanced if it shall ultimately be determined that he or she is not
entitled to be indemnified under Subsection 5(h)(1), or otherwise.
(3) The term "Claim" as used in this Section 5(h) shall include
every pending, threatened, or completed claim, action, suit, or
proceeding and all appeals thereof (whether brought by or in the right
of this Corporation or any other corporation or otherwise), civil,
criminal, administrative, or investigative, formal or informal, in
which an Eligible Person may become involved, as a party or otherwise:
(i) by reason of his or her being or having been an
Eligible Person, or
(ii) by reason of any action taken or not taken by him or
her in his or her capacity as an Eligible Person, whether or not
he or she continued in such capacity at the time such Liability
or Expense shall have been incurred.
(4) The term "Eligible Person" as used in this Section 5(h)
shall mean every person (and the estate, heirs, and personal
representatives of such 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, agent, or
fiduciary of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other organization or
entity, whether for profit or not. An Eligible Person shall also be
considered to have been serving an employee benefit plan at the
request of the Corporation if his or her duties to the Corporation
also imposed duties on, or otherwise involved services by, him or her
to the plan or to participants in or beneficiaries of the plan.
(5) The terms "Liability" and "Expense" as used in this Section
5(h) shall include, but shall not be limited to, counsel fees and
disbursements and amounts of judgments, fines, or penalties against
(including excise taxes assessed with respect to an employee benefit
plan), and amounts paid in settlement by or on behalf of an Eligible
Person.
13
<PAGE>
(6) The rights of indemnification provided in this Section 5(h)
shall be in addition to any rights to which any Eligible Person may
otherwise be entitled. Irrespective of the provisions of this Section
5(h), the Board of Directors may, at any time from time to time, (1)
approve indemnification of any Eligible Person to the full extent
permitted by the provisions of applicable law at the time in effect,
whether on account of past or future transactions, and (2) authorize
the Corporation to purchase and maintain insurance on behalf of any
Eligible Person against any Liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability.
(7) The provisions of this Section 5(h) shall be deemed to be a
contract between the Corporation and each Eligible Person, and an
Eligible Person's rights hereunder shall not be diminished or
otherwise adversely affected by any repeal, amendment, or modification
of this Section 5(h) that occurs subsequent to such person becoming an
Eligible Person.
(8) The provisions of this Section 5(h) shall be applicable to
Claims made or commenced after the adoption hereof, whether arising
from acts or omissions to act occurring before or after the adoption
hereof.
6. In addition to all other requirements imposed by law and these
Articles of Incorporation, and except as otherwise expressly provided in Section
6(c), none of the actions or transactions listed below shall be effected by the
Corporation, or approved by the Corporation as a shareholder of any majority-
owned subsidiary of the Corporation if, as of the record date for the
determination of the shareholders entitled to vote thereon, any Related Person
(as hereinafter defined) exists, unless the applicable requirements of Sections
(b), (c), (d), (e), and (f) of this Article 6 are satisfied.
(a) The actions or transactions within the scope of this Article 6
are as follows:
14
<PAGE>
(1) any merger or consolidation of the Corporation or any of its
subsidiaries into or with such Related Person;
(2) any sale, lease, exchange, or other disposition of all or
any substantial part of the assets of the Corporation or any of its
majority-owned subsidiaries to or with such Related Person;
(3) the issuance or delivery of any Voting Stock (as hereinafter
defined) or of voting securities of any of the Corporation's majority-
owned subsidiaries to such Related Person in exchange for cash, other
assets or securities, or a combination thereof;
(4) any voluntary dissolution or liquidation of the Corporation;
(5) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries, or any
other transaction (whether or not with or otherwise involving a
Related Person) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of capital
stock of the Corporation, or any securities convertible into capital
stock of the Corporation or into equity securities of any subsidiary,
that is beneficially owned by any Related Person; or
(6) any agreement, contract, or other arrangement providing for
any one or more of the actions specified in the foregoing Subsections
(1) through (5) of this Section 6(a).
(b) The actions and transactions described in Section 6(a) shall have
been authorized by the affirmative vote of at least 80% of all of the votes
entitled to be cast by holders of the outstanding shares of Voting Stock,
voting together as a single class.
(c) Notwithstanding Section 6(b), the 80% voting requirement shall
not be applicable if any action or transaction specified in Section 6(a) is
approved by the Corporation's Board of Directors and by a majority of the
Continuing Directors.
15
<PAGE>
(d) Unless approved by a majority of the Continuing Directors, after
becoming a Related Person and prior to consummation of such action or
transaction:
(1) the Related Person shall not have acquired from the
Corporation or any of its subsidiaries any newly issued or treasury
shares of capital stock or any newly issued securities convertible
into capital stock of the Corporation or any of its majority-owned
subsidiaries, directly or indirectly (except upon conversion of
convertible securities acquired by it prior to becoming a Related
Person or as a result of a pro rata stock dividend or stock split or
other distribution of stock to all shareholders pro rata);
(2) the Related Person shall not have received the benefit
directly or indirectly (except proportionately as a shareholder) of
any loans, advances, guarantees, pledges, or other financial
assistance or tax credits provided by the Corporation or any of its
majority owned subsidiaries, or made any major changes in the
Corporation's or any of its majority owned subsidiaries' businesses or
capital structures or reduced the current rate of dividends payable on
the Corporation's capital stock below the rate in effect immediately
prior to the time such Related Person became a Related Person; and
(3) the Related Person shall have taken all required actions
within its power to ensure that the Corporation's Board of Directors
included representation by Continuing Directors at least proportionate
to the voting power of the shareholdings of Voting Stock of the
Corporation's Remaining Public Shareholders (as hereinafter defined),
with a Continuing Director to occupy an additional Board position if a
fractional right to a director results and, in any event, with at
least one Continuing Director to serve on the Board so long as there
are any Remaining Public Shareholders.
(e) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, as amended, whether or not the Corporation
is then subject to such requirements, shall be mailed to the shareholders
of the Corporation for the purpose of soliciting shareholder
16
<PAGE>
approval of such action or transaction and shall contain at the front
thereof, in a prominent place, any recommendations as to the advisability
or inadvisability of the action or transaction which the Continuing
Directors may choose to state and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by
a majority of the Continuing Directors as to the fairness (or not) of the
terms of the action or transaction from a financial point of view to the
Remaining Public Shareholders, such investment banking firm to be paid a
reasonable fee for its services by the Corporation. The requirements of
this Section 6(e) shall not apply to any such action or transaction which
is approved by a majority of the Continuing Directors.
(f) For the purpose of this Article 6:
(1) the term "Related Person" shall mean any other corporation,
person, or entity which beneficially owns or controls, directly or
indirectly, 5% or more of the outstanding shares of Voting Stock, and
any Affiliate or Associate (as those terms are defined in the General
Rules and Regulations under the Securities Exchange Act of 1934) of a
Related Person; provided, however, that the term Related Person shall
--------- -------
not include (a) the Corporation or any of its subsidiaries, (b) any
profit-sharing, employee stock ownership or other employee benefit
plan of the Corporation or of any subsidiary of the Corporation or any
trustee of or fiduciary with respect to any such plan when acting in
such capacity, (c) Eli Lilly and Company or (d) Lilly Endowment, Inc.;
and further provided, that no corporation, person, or entity shall be
------- --------
deemed to be a Related Person solely by reason of being an Affiliate
or Associate of Eli Lilly and Company or Lilly Endowment, Inc.;
(2) a Related Person shall be deemed to own or control, directly
or indirectly, any outstanding shares of Voting Stock owned by it or
any Affiliate or Associate of record or beneficially, including
without limitation shares:
(i) which it has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants, or
options, or otherwise; or
17
<PAGE>
(ii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of Paragraph
6(f)(2)(i)), by any other corporation, person, or other entity
with which it or its Affiliate or Associate has any agreement,
arrangement, or understanding for the purpose of acquiring,
holding, voting, or disposing of Voting Stock, or which is its
Affiliate (other than the Corporation) or Associate (other than
the Corporation);
(3) the term "Voting Stock" shall mean all shares of any
class of capital stock of the Corporation which are entitled to vote
generally in the election of directors;
(4) the term "Continuing Director" shall mean a director who
is not an Affiliate or Associate or representative of a Related Person
and who was a member of the Board of Directors of the Corporation
immediately prior to the time that any Related Person involved in the
proposed action or transaction became a Related Person or a director
who is not an Affiliate or Associate or representative of a Related
Person and who was nominated by a majority of the remaining Continuing
Directors; and
(5) the term "Remaining Public Shareholders" shall mean the
holders of the Corporation's capital stock other than the Related
Person.
(g) A majority of the Continuing Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article 6, on
the basis of information then known to the Continuing Directors, whether
(i) any Related Person exists or is an Affiliate or an Associate of another
and (ii) any proposed sale, lease, exchange, or other disposition of part
of the assets of the Corporation or any majority-owned subsidiary involves
a substantial part of the assets of the Corporation or any of its
subsidiaries. Any such determination by the Continuing Directors shall be
conclusive and binding for all purposes.
(h) Nothing contained in this Article 6 shall be construed to relieve
any Related Person or any Affiliate or Associate of any Related Person from
any fiduciary obligation imposed by law.
18
<PAGE>
(i) The fact that any action or transaction complies with the
provisions of this Article 6 shall not be construed to waive or satisfy any
other requirement of law or these Articles of Incorporation or to impose
any fiduciary duty, obligation, or responsibility on the Board of Directors
or any member thereof, to approve such action or transaction or recommend
its adoption or approval to the shareholders of the Corporation, nor shall
such compliance limit, prohibit, or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to evaluations of
or actions and responses taken with respect to such action or transaction.
The Board of Directors of the Corporation, when evaluating any actions or
transactions described in Section 6(a), shall, in connection with the
exercise of its judgment in determining what is in the best interests of
the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation the effects on shareholders,
employees, suppliers, and customers of the Corporation, and communities in
which offices or other facilities of the Corporation are located, and any
other factors a Director considers pertinent.
(j) Notwithstanding any other provision of these Articles of
Incorporation or of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any
particular class of Voting Stock required by law or these Articles of
Incorporation, the affirmative vote of the holders of at least 80% of the
votes entitled to be cast by holders of all the outstanding shares of
Voting Stock, voting together as a single class, shall be required to
alter, amend, or repeal this Article 6.
19
<PAGE>
Exhibit 10.1
$450,000,000
364-DAY
CREDIT AGREEMENT
dated as of
August 25, 1999
among
Guidant Corporation,
The Banks Party Hereto,
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
---------------------------------------------------
J.P. Morgan Securities Inc.
Arranger
Bank of America, N.A.
The Chase Manhattan Bank,
Co-Documentation Agents
Bank One, Indiana, NA
Citibank, N.A.,
Senior Managing Agents
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1 Definitions
<S> <C>
Section 1.01. Definitions................................................ 1
Section 1.02. Accounting Terms and Determinations........................ 14
Section 1.03. Types of Borrowings........................................ 14
ARTICLE 2 The Credits
Section 2.01. Commitments to Lend........................................ 15
Section 2.02. Increased Commitments; Additional Banks.................... 15
Section 2.03. Notice of Committed Borrowing.............................. 16
Section 2.04. Money Market Borrowings.................................... 17
Section 2.05. Notice to Banks; Funding of Loans.......................... 21
Section 2.06. Notes...................................................... 22
Section 2.07. Maturity of Loans.......................................... 22
Section 2.08. Interest Rates............................................. 23
Section 2.09. Method of Electing Interest Rates.......................... 24
Section 2.10. Facility Fees.............................................. 26
Section 2.11. Termination or Reduction of Commitments.................... 26
Section 2.12. Optional Prepayments....................................... 27
Section 2.13. General Provisions as to Payments.......................... 27
Section 2.14. Funding Losses............................................. 28
Section 2.15. Computation of Interest and Fees........................... 28
Section 2.16. Regulation D Compensation.................................. 28
Section 2.17. Maximum Interest Rate...................................... 29
ARTICLE 3 Conditions
Section 3.01. Effectiveness.............................................. 30
Section 3.02. Borrowings................................................. 31
ARTICLE 4 Representations and Warranties
Section 4.01. Corporate Existence and Power............................... 31
Section 4.02. Corporate and Governmental Authorization; No Contravention.. 32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.03. Binding Effect.............................................. 32
Section 4.04. Financial Information....................................... 32
Section 4.05. Litigation.................................................. 33
Section 4.06. Compliance with ERISA....................................... 33
Section 4.07. Environmental Matters....................................... 33
Section 4.08. Taxes....................................................... 34
Section 4.09. Subsidiaries................................................ 34
Section 4.10. No Regulatory Restrictions on Borrowing..................... 34
Section 4.11. Full Disclosure............................................. 34
Section 4.12. Year 2000................................................... 34
ARTICLE 5 Covenants
Section 5.01. Information................................................. 35
Section 5.02. Payment of Obligations...................................... 37
Section 5.03. Maintenance of Property; Insurance.......................... 37
Section 5.04. Conduct of Business and Maintenance of Existence............ 38
Section 5.05. Compliance with Laws........................................ 38
Section 5.06. Inspection of Property, Books and Records................... 38
Section 5.07. Consolidated Leverage Ratio................................. 38
Section 5.08. Subsidiary Debt............................................. 38
Section 5.09. Minimum Consolidated Net Worth.............................. 39
Section 5.10. Negative Pledge............................................. 39
Section 5.11. Consolidations, Mergers and Sales of Assets................. 40
Section 5.12. Use of Proceeds............................................. 40
Section 5.13. Limitations on Restrictions Affecting Subsidiaries.......... 40
ARTICLE 6 Default
Section 6.01. Events of Default........................................... 41
Section 6.02. Notice of Default........................................... 43
ARTICLE 7 The Agents
Section 7.01. Appointment and Authorization............................... 44
Section 7.02. Administrative Agent and Affiliates......................... 44
Section 7.03. Action by Administrative Agent.............................. 44
Section 7.04. Consultation with Experts................................... 44
Section 7.05. Liability of Administrative Agent........................... 44
Section 7.06. Indemnification............................................. 45
Section 7.07. Credit Decision............................................. 45
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 7.08. Successor Administrative Agent.............................. 45
Section 7.09. Agents' Fees................................................ 46
Section 7.10. Other Agents................................................ 46
ARTICLE 8 Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair... 46
Section 8.02. Illegality................................................. 47
Section 8.03. Increased Cost and Reduced Return.......................... 47
Section 8.04. Taxes...................................................... 49
Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans.. 51
Section 8.06. Substitution Of Bank....................................... 51
ARTICLE 9 Miscellaneous
Section 9.01. Notices.................................................... 52
Section 9.02. No Waivers................................................. 52
Section 9.03. Expenses; Indemnification.................................. 52
Section 9.04. Set-offs................................................... 53
Section 9.05. Amendments and Waivers..................................... 54
Section 9.06. Successors; Participations and Assignments................. 55
Section 9.07. Designated Lenders......................................... 56
Section 9.08. No Reliance on Margin Stock................................ 57
Section 9.09. Governing Law; Submission to Jurisdiction.................. 57
Section 9.10. Counterparts; Integration.................................. 58
Section 9.11. WAIVER OF JURY TRIAL....................................... 58
</TABLE>
<PAGE>
COMMITMENT SCHEDULE
PRICING SCHEDULE
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E-1 - Opinion of Special Counsel for the Borrower
Exhibit E-2 - Opinion of General Counsel of the Borrower
Exhibit F - Opinion of Davis Polk & Wardwell, Special
Counsel for the Agents
Exhibit G - Assignment and Assumption Agreement
Exhibit H - Designation Agreement
iv
<PAGE>
364-DAY AGREEMENT dated as of August 25, 1999 among GUIDANT CORPORATION,
the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"ACS" means Advanced Cardiovascular Systems, Inc., a California
corporation.
"Absolute Rate Auction" means a solicitation of Money Market Quotes setting
forth Money Market Absolute Rates pursuant to Section 2.04.
"Acquisition" means the acquisition by the Borrower of the
Electrophysiology business of Sulzer Medica Ltd. on substantially the terms
publicly announced by the Borrower in September 1998.
"Additional Bank" has the meaning set forth in Section 2.02(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New York in
its capacity as agent for the Banks hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent,
completed by such Bank and returned to the Administrative Agent (with a copy to
the Borrower).
"Agents" means the Administrative Agent, the Syndication Agents, the
Documentation Agents and the Senior Managing Agents.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
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"Assessment Rate" has the meaning set forth in Section ?.
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means (i) each bank or other financial institution listed on the
Commitment Schedule, (ii) each Additional Bank which becomes a Bank pursuant to
Section 2.02, (iii) each Assignee which becomes a Bank pursuant to Section
9.06(c) and (iv) their respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means a Committed Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Section 2.09(a) or Article 8.
"Benefit Arrangement" means, at any time, an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means Guidant Corporation, an Indiana corporation, and its
successors.
"Borrower's 1998 Form 10-K" means the Borrower's annual report on Form 10-K
for 1998, as filed with the SEC pursuant to the Exchange Act.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form
10-Q for the quarter ended June 30, 1999, as filed with the SEC pursuant to the
Exchange Act.
"Borrowing" has the meaning set forth in Section 1.03.
"CPI" means Cardiac Pacemakers, Inc., a Minnesota corporation.
"Commitment" means, (i) with respect to each Bank listed on the Commitment
Schedule, the amount set forth opposite such Bank's name on the Commitment
Schedule and (ii) with respect to each Additional Bank or Assignee which becomes
a Bank pursuant to Section 2.02 or 9.06(c), the amount of the Commitment thereby
assumed by it, in each case, as such amount may be changed from time to time
pursuant to Sections 2.02, 2.11 and 9.06(c); provided that, if the context so
requires, the term "Commitment" means the obligation of a Bank to extend credit
up to such amount to the Borrower hereunder.
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"Commitment Schedule" means the Commitment Schedule attached hereto.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Consolidated Debt" means, at any date, the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period plus, to the extent deducted in determining Consolidated Net Income
for such period, the aggregate amount of (i) Consolidated Interest Expense, (ii)
income tax expense and (iii) depreciation, amortization and other similar non-
cash charges. Consolidated EBITDA shall be adjusted to eliminate the effect of
non-recurring charges incurred in connection with the Acquisition (i) in an
aggregate amount not exceeding $200,000,000 in the Fiscal Quarter ended
September 30, 1998 and (ii) in an aggregate amount not exceeding $150,000,000 in
the Fiscal Quarter in which the Acquisition is consummated.
"Consolidated Leverage Ratio" means, at any date, the ratio of (i)
Consolidated Debt at such date to (ii) Consolidated EBITDA for the period of
four consecutive Fiscal Quarters most recently ended on or prior to such date.
"Consolidated Net Income" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis
for such period, adjusted to exclude the effect of any extraordinary gain or
loss.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Borrower and its Consolidated Subsidiaries, determined as of such
date.
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"Credit Exposure" means, with respect to any Bank at any time, (i) the
amount of its Commitment (whether used or unused) at such time or (ii) if the
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Commitments have terminated in their entirety, the aggregate outstanding
principal amount of its Loans at such time.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with GAAP, (v) all non-contingent obligations (and, for purposes of
Section 5.10 and the definitions of Material Debt and Material Financial
Obligations, all contingent obligations) of such Person to reimburse any bank or
other Person in respect of amounts paid under a letter of credit or similar
instrument, (vi) all redeemable preferred stock of such Person, if such stock is
mandatorily redeemable on or prior to the Termination Date, (vii) all Debt
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (viii) all Debt of others Guaranteed
by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Designated Lender" means, with respect to any Designating Bank, an
Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated
Lender for purposes of this Agreement.
"Designating Bank" means, with respect to each Designated Lender, the Bank
that designated such Designated Lender pursuant to Section 9.07(a).
"Documentation Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as documentation agents in respect of this Agreement.
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"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"Domestic Loans" means the Base Rate Loans.
"Domestic Reserve Percentage" has the meaning set forth in Section ?.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Eligible Designee" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or
the equivalent thereof by Moody's.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, written or published plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental restrictions
relating to the environment or the effect of the environment on human health or
to emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment, including (without limitation)
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
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"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan which bears interest at a Euro-
Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice
of Interest Rate Election.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.08(b) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of Morgan
Guaranty Trust Company of New York, Bank of America NT&SA and The Chase
Manhattan Bank.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
6
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Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day, provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Administrative Agent.
"Fiscal Quarter" means a fiscal quarter of the Borrower.
"Fiscal Year" means a fiscal year of the Borrower.
"Fixed Rate Loans" means Euro-Dollar Loans or Money Market Loans (excluding
Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section
8.01) or any combination of the foregoing.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks.
"Group of Loans" means, at any time, a group of Loans consisting of (i) all
Committed Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar
Loans having the same Interest Period at such time, provided that, if a
Committed Loan of any particular Bank is converted to or made as a Base Rate
Loan pursuant to Article 8, such Loan shall be included in the same Group or
Groups of Loans from time to time as it would have been in if it had not been so
converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by virtue of an agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term "Guarantee" shall not include
endorsements for
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<PAGE>
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Increased Commitments" has the meaning set forth in Section 2.02(a).
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six months, or if deposits of a
corresponding maturity are available to all Banks in the London interbank
market, nine or twelve months thereafter, as the Borrower may elect in such
notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the Maturity
Date shall end on the Maturity Date;
(2) with respect to each Money Market LIBOR Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of days thereafter (but not less than 7 days) as the Borrower
may elect in accordance with Section 2.04; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business
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<PAGE>
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date; and
(3) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 7 days)
as the Borrower may elect in accordance with Section 2.04; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market Quotes setting forth
Money Market Margins based on the London Interbank Offered Rate pursuant to
Section 2.04.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a Committed Loan or a Money Market Loan and "Loans" means
Committed Loans or Money Market Loans or any combination of the foregoing.
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"London Interbank Offered Rate" has the meaning set forth in Section
2.08(b).
"material" means, with respect to any matter so characterized herein, that
such matter could reasonably be expected to be significant to a Bank in
determining whether to enter into this Agreement, make any Loans or take or not
take any other action hereunder.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, results of operations, properties,
liabilities or prospects of the Borrower and its Subsidiaries, considered as a
whole.
"Material Debt" means Debt of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $25,000,000.
"Material Financial Obligations" means a principal or face amount of Debt
and/or payment obligations then due and payable in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$25,000,000.
"Material Plan" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
"Maturity Date" means the first anniversary of the Termination Date or, if
such day is not a Euro-Dollar Business Day, then the next preceding Euro-Dollar
Business Day.
"Money Market Absolute Rate" has the meaning set forth in Section 2.04(d).
"Money Market Absolute Rate Loan" means a loan made or to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; provided that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
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"Money Market LIBOR Loan" means a loan made or to be made by a Bank
pursuant to a LIBOR Auction (including any such loan bearing interest at the
Base Rate pursuant to Section 8.01).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.04(d)(ii)(C).
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.04.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"1998 Credit Agreement" means the Credit Agreement dated as of August 26,
1998 and amended and restated as of November 17, 1998 among the Borrower, the
banks party thereto and Morgan Guaranty Trust Company of New York, as agent for
such banks.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans,
and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined in
Section 2.03) or a Notice of Money Market Borrowing (as defined in Section
2.04(f)).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.09.
"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participant" has the meaning set forth in Section 9.06(b).
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a limited liability
corporation, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means, at any time, an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Payment Dates" means each March 31, June 30, September 30 and
December 31.
"Reference Banks" means the Euro-Dollar Reference Banks, and "Reference
Bank" means any one of such Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Required Banks" means, at any time, Banks having more than 50% in
aggregate amount of the Credit Exposures at such time.
"Revolving Credit Period" means the period from and including the Effective
Date to and including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc.
"SEC" means the Securities and Exchange Commission.
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"Senior Managing Agents" means Citibank, N.A. and Bank One, Indiana, NA in
their capacity as senior managing agents in respect of this Agreement.
"Significant Subsidiary" means a Subsidiary which is a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X promulgated by the
SEC.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Syndication Agents" means Bank of America NT&SA and The Chase Manhattan
Bank in their capacity as syndication agents in respect of this Agreement.
"Termination Date" means August 23, 2000, or, if such day is not a Euro-
Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
"Wholly-Owned Consolidated Subsidiary" means, with respect to any Person,
any Consolidated Subsidiary all of the shares of capital stock or other
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by such Person.
Section 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
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concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower
notifies the Administrative Agent that the Borrower wishes to amend a provision
hereof to eliminate the effect of any change in GAAP on the operation of such
covenant (or if the Administrative Agent notifies the Borrower that the Required
Banks wish to amend any provision hereof for such purpose), then such provision
shall be applied on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or such
provision is amended in a manner satisfactory to the Borrower and the Required
Banks.
Section 1.3. Types of Borrowings. The term "Borrowing" denotes (i) the
aggregation of Loans made or to be made to the Borrower by one or more Banks
pursuant to Article 2 on the same day, all of which Loans are of the same type
(subject to Article 8) and, except in the case of Base Rate Loans, have the same
initial Interest Period or (ii) if the context so requires, the borrowing of
such Loans. Borrowings are classified for purposes hereof either (i) by
reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-
Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or (ii) by
reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "Money
Market Borrowing" is a Borrowing under Section 2.04 in which one or more Banks
participate on the basis of their bids).
ARTICLE 2
The Credits
Section 2.1. Commitments to Lend. Each Bank severally agrees, on the terms
and conditions set forth in this Agreement, to make loans to the Borrower
pursuant to this Section from time to time during the Revolving Credit Period;
provided that, immediately after each such loan is made, (i) the aggregate
outstanding principal amount of such Bank's Committed Loans shall not exceed its
Commitment and (ii) the aggregate outstanding principal amount of all the Loans
shall not exceed the aggregate amount of the Commitments. Each Borrowing under
this Section 2.01 shall be in an aggregate principal amount of $25,000,000 or
any larger multiple of $5,000,000 (except that any such Borrowing may be in the
aggregate amount available within the limitations in the foregoing proviso) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow
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under this Section, prepay Loans to the extent permitted by Section 2.12 and
reborrow at any time during the Revolving Credit Period under this Section.
Section 2.2. Increased Commitments; Additional Banks. (a Subsequent to the
Effective Date (but not more than twice in any calendar year), the Borrower may,
upon at least 30 days' notice to the Administrative Agent (which shall promptly
provide a copy of such notice to the Banks), propose to increase the aggregate
amount of the Commitments by an amount which (i) is a multiple of $10,000,000
and (ii) when combined with the aggregate amount by which the Commitments have
theretofore been increased pursuant to this Section 2.02, does not exceed
$500,000,000 (the amount of any such increase, the "Increased Commitments");
provided that no Default shall have occurred and be continuing. Each Bank party
to this Agreement at such time shall have the right (but no obligation), for a
period of 15 days following receipt of such notice, to elect by notice to the
Borrower and the Administrative Agent to increase its Commitment by a principal
amount which bears the same ratio to the Increased Commitments as its then
Commitment bears to the aggregate Commitments then existing. If a Bank does not
respond to such notice within such period, such Bank shall be deemed to have
elected not to increase its Commitment pursuant to this Section at such time.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may,
within 10 days of the Banks' response, designate one or more of the existing
Banks or other financial institutions acceptable to the Administrative Agent and
the Borrower (which consent of the Administrative Agent shall not be
unreasonably withheld) which at the time agree to (i) in the case of any such
Person that is an existing Bank, increase its Commitment and (ii) in the case of
any other such Person (an "Additional Bank"), become a party to this Agreement,
provided that the Commitment of such Additional Bank is not less than
$25,000,000. The sum of the increases in the Commitments of the existing Banks
pursuant to this subsection (b) plus the Commitments of the Additional Banks
shall not in the aggregate exceed the unsubscribed amount of the Increased
Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant
to this Section 2.02 shall become effective upon the receipt by the
Administrative Agent of an agreement in form and substance satisfactory to the
Administrative Agent signed by the Borrower, by each Additional Bank and by each
other Bank whose Commitment is to be increased, setting forth the new
Commitments of such Banks and setting forth the agreement of each Additional
Bank to become a party to this Agreement and to be bound by all the terms and
provisions hereof, together with such evidence of appropriate corporate
authorization on the part of the Borrower with respect to the Increased
Commitments and such opinions of
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counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.02 that is not pro rata amount all Banks, within five
Domestic Business Days, in the case of any Group of Base Rate Loans then
outstanding, and at the end of the then current Interest Period with respect
thereto, in the case of any Group of Euro-Dollar Loans then outstanding, the
Borrower shall prepay such Group in its entirety and, to the extent the Borrower
elects to do so and subject to the conditions specified in Article 3, the
Borrower shall reborrow Committed Loans from the Banks in proportion to their
respective Commitments after giving effect to such increase, until such time as
all outstanding Committed Loans are held by the Banks in such proportion.
Section 2.3. Notice of Committed Borrowing. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing") not later than
10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing or
(y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the
case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate or a Euro-Dollar Rate; and
(d) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
Notwithstanding the foregoing, no more than 10 Fixed Rate Committed Borrowings
shall be outstanding at any one time, and any Borrowing which would exceed such
limitation shall be made as a Base Rate Borrowing.
Section 2.4. Money Market Borrowings. (a The Money Market Option. In
addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as
set forth in this Section, request the Banks to make offers to make Money Market
Loans to the Borrower from time to time during the Revolving Credit Period. The
Banks may, but shall have no obligation to, make such offers and the
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Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received not later
than 10:30 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day
before the date of Borrowing proposed therein, in the case of a LIBOR Auction or
(y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Administrative Agent shall have mutually
agreed and shall have notified to the Banks not later than the date of the Money
Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for
which such change is to be effective) specifying:
(ii) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$15,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly after receiving a Money
Market Quote Request, the Administrative Agent shall send to the Banks by telex
or facsimile an Invitation for Money Market Quotes substantially in the form of
Exhibit C hereto, which shall constitute an invitation by the Borrower to each
Bank to submit Money Market Quotes offering to make the Money Market Loans to
which such Money Market Quote Request relates in accordance with this Section.
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(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this Section 2.04(d) and must be
submitted to the Administrative Agent by telex or facsimile at its offices
specified in or pursuant to Section 9.01 not later than (x) 4:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
Money Market Quotes submitted by the Administrative Agent (or any affiliate of
the Administrative Agent) in the capacity of a Bank may be submitted, and may
only be submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not later than
(x) one hour before the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes before the deadline for the other Banks, in the case
of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market
Quote so made shall not be revocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be substantially in the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing;
(B) the principal amount of the Money Market Loan for which
each such offer is being made, which principal amount (w) may be greater than or
less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger
multiple of $1,000,000, (y) may not exceed the principal amount of Money Market
Loans for which offers were requested and (z) may be subject to an aggregate
limitation as to the principal amount of Money Market Loans for which offers
being made by such quoting Bank may be accepted;
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin") offered for
each such Money Market Loan,
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expressed as a percentage (specified to the nearest 1/10,000 of 1%) to be added
to or subtracted from such base rate;
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000 of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan; and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or
does not specify all of the information required by subsection 2.04(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth
in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection 2.04(d)(i).
(e) Notice to Borrower. The Administrative Agent shall promptly notify
the Borrower of the terms of (i) any Money Market Quote submitted by a Bank that
is in accordance with Section 2.04(d) and (ii) any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote. The Administrative Agent's
notice to the Borrower shall specify (A) the aggregate principal amount of Money
Market Loans for which offers have been received for each Interest Period
specified in the related Money Market Quote Request, (B) the respective
principal amounts and Money Market Margins or Money Market Absolute Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in any single Money
Market Quote may be accepted.
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(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York
City time) on (x) the third Euro-Dollar Business Day before the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Administrative Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Administrative
Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to Section 2.04(e). In the case of acceptance, such notice (a "Notice
of Money Market Borrowing") shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. The Borrower may accept any
Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market Quote
Request;
(ii) the principal amount of each Money Market Borrowing must be
$15,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be;
(iv) the Borrower may not accept any offer that is described in
subsection 2.04(d)(iii) or that otherwise fails to comply with the requirements
of this Agreement; and
(v) immediately after such Money Market Borrowing is made, the
aggregate outstanding principal amount of the Loans shall not exceed the
aggregate amount of the Commitments.
(g) Allocation by Administrative Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money Market Absolute Rates, as
the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in multiples of $1,000,000, as the Administrative Agent may
deem appropriate) in proportion to the aggregate principal amounts of such
offers.
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Determinations by the Administrative Agent of the amounts of Money Market Loans
shall be conclusive in the absence of manifest error.
Section 2.5. Notice to Banks; Funding of Loans. (a) Promptly after
receiving a Notice of Borrowing, the Administrative Agent shall notify each Bank
of the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than (x) 12:00 Noon (New York City time) on the date of
each Base Rate Borrowing and each Money Market Absolute Rate Borrowing and (y)
10:00 A.M. (New York City time) on the date of any other Borrowing, each Bank
participating therein shall make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank before the date of any Borrowing that such Bank will not make available to
the Administrative Agent such Bank's share of such Borrowing, the Administrative
Agent may assume that such Bank has made such share available to the
Administrative Agent on the date of such Borrowing in accordance with Section
2.05(b) and the Administrative Agent may, in reliance on such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such share available to the
Administrative Agent, such Bank and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent,
at (i) if such amount is repaid by the Borrower, a rate per annum equal to the
higher of the Federal Funds Rate and the interest rate applicable to such
Borrowing pursuant to Section 2.08 and (ii) if such amount is repaid by such
Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative
Agent such corresponding amount, the Borrower shall not be required to repay
such amount and the amount so repaid by such Bank shall constitute such Bank's
Loan included in such Borrowing for purposes of this Agreement.
Section 2.6. Notes. (a) The Borrower's obligation to repay the Loans of
each Bank shall be evidenced by a single Note payable to the order of such Bank
for the account of its Applicable Lending Office.
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(b) Each Bank may, by notice to the Borrower and the Administrative
Agent, request that the Borrower's obligation to repay such Bank's Loans of a
particular type be evidenced by a separate Note. Each such Note shall be
substantially in the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it relates solely to Loans of the relevant type. Each
reference in this Agreement to the "Note" of such Bank shall be deemed to refer
to and include any or all of such Notes, as the context may require.
(c) Promptly after it receives each Bank's Note pursuant to Section
3.01(b), the Administrative Agent shall forward such Note to such Bank. Each
Bank shall record the date, amount and type of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that a Bank's failure to make (or any error
in making) any such recordation or endorsement shall not affect the obligations
of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
Section 2.7. Maturity of Loans. (a) Each Committed Loan shall mature, and
the principal amount thereof shall be due and payable (together with interest
accrued thereon), on the Maturity Date.
(b) Each Money Market Loan included in any Money Market Borrowing shall
mature, and the principal amount thereof shall be due and payable (together with
interest accrued thereon), on the last day of the Interest Period applicable to
such Borrowing.
Section 2.8. Interest Rates. (a) Each Base Rate Loan shall bear interest on
the outstanding principal amount thereof, for each day from the date such Loan
is made until it becomes due, at a rate per annum equal to the Base Rate for
such day. Such interest shall be payable quarterly in arrears on each Quarterly
Payment Date. Any overdue principal of or interest on any Base Rate Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 2% plus the Base Rate for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Interest Period. Such
interest shall be payable for each Interest Period on the last day thereof and,
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if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of
the respective rates per annum at which deposits in dollars are offered to each
of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus
the London Interbank Offered Rate applicable to such Loan on the day before such
payment was due and (ii) the sum of 2% plus the Euro-Dollar Margin for such day
plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/100 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than three months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks are
offered to such Euro-Dollar Reference Bank in the London interbank market for
the applicable period determined as provided above by (y) 1.00 minus the Euro-
Dollar Reserve Percentage (or, if the circumstances described in clause 8.01(a)
or 8.01(b) shall exist, at a rate per annum equal to the sum of 2% plus the Base
Rate for such day).
(d) Subject to Section 8.01, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.08(b) as if the related Money Market LIBOR Borrowing were a Committed Euro-
Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank
making such Loan. Each Money Market Absolute Rate Loan shall bear interest on
the outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by
the Bank making such Loan. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
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principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.
(e) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder. The Administrative Agent shall promptly notify the
Borrower and the participating Banks of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
Section 2.9. Method of Electing Interest Rates. (a The Loans included in
each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject to Section 2.09(d)
and the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may
elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar
Business Day;
(ii) if such Loans are Euro-Dollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans as of any Domestic
Business Day or elect to continue such Loans as Euro-Dollar Loans for
an additional Interest Period, subject to Section 2.14 if any such
conversion is effective on any day other than the last day of an
Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a) "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies,
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and the remaining portion to which it does not apply, are each at least
$25,000,000 (unless such portion is comprised of Base Rate Loans). If no such
notice is timely received before the end of an Interest Period for any of Euro-
Dollar Loans, the Borrower shall be deemed to have elected that such Group of
Loans be converted to Base Rate Loans at the end of such Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which
such notice applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of Section 2.09(a) above;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if the Loans resulting from such conversion are to be
Euro-Dollar Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Promptly after receiving a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.09(a) above, the Administrative Agent shall
notify each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any Committed
Loans to, or continue any Committed Loans for an additional Interest Period as
Euro-Dollar Loans if (i) the aggregate principal amount of any Group of
Euro-Dollar Loans created or continued as a result of such election would be
less than $25,000,000 or (ii) a Default shall have occurred and be continuing
when the Borrower delivers notice of such election to the Administrative Agent.
(e) If any Committed Loan is converted to a different type of Loan, the
Borrower shall pay, on the date of such conversion, the interest accrued to such
date on the principal amount being converted.
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Section 2.10. Facility Fees. The Borrower shall pay to the Administrative
Agent for the account of the Banks ratably in proportion to their Credit
Exposures, a facility fee calculated for each day at the Facility Fee Rate for
such day (determined in accordance with the Pricing Schedule) on the aggregate
amount of the Credit Exposures on such day. Such facility fee shall accrue for
each day from and including the Effective Date to but excluding the day on which
the Credit Exposures are reduced to zero. Fees accrued for the account of the
Banks under this Section shall be payable quarterly in arrears on each Quarterly
Payment Date and on the day on which the Commitments terminate in their entirety
(and, if later, on the day on which the Credit Exposures are reduced to zero).
Section 2.11. Termination or Reduction of Commitments. (a) The Borrower
may, upon at least three Domestic Business Days' notice to the Administrative
Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at
such time, or (ii) ratably reduce from time to time by an aggregate amount of
$25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans. Promptly after receiving a notice pursuant to this subsection, the
Administrative Agent shall notify each Bank of the contents thereof.
(b) Unless previously terminated, the Commitments shall terminate in their
entirety on the Termination Date.
Section 2.12. Optional Prepayments. (a) Subject in the case of any Fixed
Rate Loans to Section 2.14, the Borrower may, (i) upon at least one Domestic
Business Day's notice to the Administrative Agent, prepay the Group of Base Rate
Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant
to Section 8.01), or (ii) upon at least three Euro-Dollar Business Days' notice
to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case
in whole at any time, or from time to time in part in amounts aggregating
$25,000,000 or any larger multiple of $5,000,000 by paying the principal amount
to be prepaid together with interest accrued thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Loans of
the several Banks included in such Group of Loans (or such Money Market
Borrowing).
(b) Except as provided in Section 2.12(a) above, the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan
before the maturity thereof.
(c) Promptly after receiving a notice of prepayment pursuant to this
Section, the Administrative Agent shall notify each Bank of the contents thereof
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and of such Bank's ratable share (if any) of such prepayment, and such notice
shall not thereafter be revocable by the Borrower.
Section 2.13. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
The Administrative Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans
or any payment of fees shall be due on a day which is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding Euro-
Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. Whenever any payment of principal of, or
interest on, the Money Market Loans shall be due on a day which is not a Euro-
Dollar Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
(b) Unless the Borrower notifies the Administrative Agent before the date
on which any payment is due to the Banks hereunder that the Borrower will not
make such payment in full, the Administrative Agent may assume that the Borrower
has made such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance on such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent that the Borrower shall not have so made such
payment, each Bank shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Bank together with interest thereon, for each
day from the date such amount is distributed to such Bank until the date such
Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.
Section 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted to a different type of Loan (whether such payment or conversion is
pursuant to Article 2, 6 or 8 or otherwise, except pursuant to Section 8.02) on
any day other than the last day of an Interest Period applicable thereto, or the
last day of an applicable period fixed pursuant to Section 2.08(c), or if the
Borrower fails to
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borrow, prepay, convert or continue any Fixed Rate Loans after notice has been
given to any Bank in accordance with Section 2.05(a), 2.09(c) or 2.12(c), the
Borrower shall reimburse each Bank within 15 days after demand for any resulting
loss or expense incurred by it (or by an existing or prospective Participant in
the related Loan), including (without limitation) any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow, prepay, convert or continue; provided that such Bank shall have
delivered to the Borrower a certificate setting forth in reasonable detail the
calculation of the amount of such loss or expense, which certificate shall be
conclusive in the absence of clearly demonstrable error.
Section 2.15. Computation of Interest and Fees. Interest based on the Prime
Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days
in a leap year) and paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest and fees shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed (including the first day but excluding the last day).
Section 2.16. Regulation D Compensation. For so long as any Bank
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Bank to United
States residents), and as a result the cost to such Bank (or its Euro-Dollar
Lending Office) of making or maintaining its Euro-Dollar Loans is increased,
then such Bank may require the Borrower to pay, contemporaneously with each
payment of interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to
but not exceeding the excess of (i) (A) the applicable London Interbank Offered
Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Bank wishing to require payment
of such additional interest (x) shall so notify the Borrower and the
Administrative Agent, in which case such additional interest on the Euro-Dollar
Loans of such Bank shall be payable to such Bank at the place indicated in such
notice with respect to each Interest Period commencing at least three
Euro-Dollar Business Days after the giving of such notice and (y) shall furnish
to the Borrower at least five Euro-Dollar Business Days prior to each date on
which interest is payable on the Euro-Dollar Loans an officer's certificate
setting forth the amount to which such Bank is then entitled under this Section
(which shall be consistent with such Bank's good faith estimate of the level at
which the related reserves are maintained by it). Each such certificate shall be
accompanied by such information as the Borrower may reasonably request as to the
computation set forth therein.
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Section 2.17. Maximum Interest Rate. (a) Nothing contained in this
Agreement or the Notes shall require the Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law.
(b) If the amount of interest payable for the account of any Bank on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to Section 2.08, would exceed the maximum
amount permitted by applicable law to be charged by such Bank, the amount of
interest payable for its account on such interest payment date shall be
automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of any Bank in
respect of any interest computation period is reduced pursuant to clause 2.17(b)
and the amount of interest payable for its account in respect of any subsequent
interest computation period, computed pursuant to Section 2.08, would be less
than the maximum amount permitted by applicable law to be charged by such Bank,
then the amount of interest payable for its account in respect of such
subsequent interest computation period shall be automatically increased to such
maximum permissible amount; provided that at no time shall the aggregate amount
by which interest paid for the account of any Bank has been increased pursuant
to this clause 2.17(c) exceed the aggregate amount by which interest paid for
its account has theretofore been reduced pursuant to clause 2.17(b).
ARTICLE 3
Conditions
Section 3.1. Effectiveness. This Agreement shall become effective on the
date hereof, provided that each of the following conditions shall have been
satisfied (or waived in accordance with Section 9.05) on such date:
(a) the Administrative Agent shall have received counterparts hereof
signed by each of the parties hereto (or, in the case of any party as to which
an executed counterpart shall not have been received, the Administrative Agent
shall have received, in form satisfactory to it, telegraphic, telecopy, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party);
(b) the Administrative Agent shall have received a duly executed Note
for the account of each Bank dated on or before the Effective Date complying
with the provisions of Section 2.06;
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(c) the Administrative Agent shall have received an opinion of Dewey
Ballantine, special New York counsel for the Borrower, and an opinion of Dodd
Gray, Senior Counsel of the Borrower, substantially in the forms of Exhibits E-1
and E-2, respectively, and each covering such additional matters as the Required
Banks may reasonably request;
(d) the Administrative Agent shall have received an opinion of Davis
Polk & Wardwell, special counsel for the Agents, dated the date of such
Borrowing, substantially in the form of Exhibit F hereto and covering such
additional matters as the Required Banks may reasonably request;
(e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) the Administrative Agent shall have received evidence satisfactory to
it of the payment of all principal of and interest on any loans outstanding
under, and all accrued fees under, the 1998 Credit Agreement.
Promptly after the Effective Date occurs, the Administrative Agent shall notify
the Borrower and the Banks thereof, and such notice shall be conclusive and
binding on all parties hereto.
Section 3.2. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.03 or 2.04, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate amount
of the Commitments;
(c) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (other than the representation and warranty set
forth
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in Section 4.04(c)) shall be true in all material respects on and as of
the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
3.02(b), 3.02(c) and 3.02(d).
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants that:
Section 4.1. Corporate Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
Indiana, and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
Section 4.2. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement and
the Notes are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of the Borrower or any of its
Subsidiaries or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries.
Section 4.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
Section 4.4. Financial Information. (a) The consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of December 31, 1998 and
the related consolidated statements of income and cash flows for the Fiscal
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Year then ended, reported on by Ernst & Young, and set forth in the Borrower's
1998 Form 10-K, a copy of which has been delivered to each of the Banks, fairly
present, in conformity with GAAP, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such Fiscal Year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1999 and the related consolidated
statements of income and cash flows for the six months then ended, set forth in
the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of
the Banks, fairly present, on a basis consistent with the financial statements
referred to in Section 4.04(a), the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such six month period
(subject to normal year-end adjustments).
(c) Since June 30, 1999 there have been no material adverse changes in
the business, financial position or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole.
Section 4.5. Litigation. Except as set forth in the Borrower's 1998 Form
10-K and any subsequent Forms 10-K, 10-Q and 8-K of the Borrower, there is no
action, suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable likelihood of an adverse decision which could materially
adversely affect the consolidated financial position of the Borrower and its
Consolidated Subsidiaries, considered as a whole or the ability of the Borrower
to satisfy its obligations under this Agreement and the Notes, or which in any
manner draws into question the validity of this Agreement and the Notes.
Section 4.6. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or
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(iii) incurred any material liability under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
Section 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower reviews the effect of Environmental Laws on the business,
operations and properties of the Borrower and its Subsidiaries, in the course of
which it identifies and evaluates associated liabilities and costs (including,
without limitation, any capital or operating expenditures required for clean-up
or closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including the
costs of material compliance with Environmental Laws, are unlikely to have a
Material Adverse Effect.
Section 4.8. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except where payment thereof is being contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate.
Section 4.9. Subsidiaries. Each of the Borrower's Significant
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
Section 4.10. No Regulatory Restrictions on Borrowing. The Borrower is
not (i) an "investment company" within the meaning of the Investment Company Act
of 1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) otherwise subject to any regulatory scheme which
restricts its ability to incur debt.
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Section 4.11. Full Disclosure. No written information heretofore or
hereafter furnished by the Borrower to the Administrative Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby, when taken together with all such information so furnished, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading in any material respect.
Section 4.12. Year 2000. The cost to the Borrower of (i) any reprogramming
required to permit the proper functioning, in and following year 2000, of (a)
the Borrower's computer systems and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Borrower's
systems interface), (ii) the testing of all such systems and equipment, as so
reprogrammed and (iii) the reasonably foreseeable consequences of year 2000 to
the Borrower (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement, to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
ARTICLE 5
Covenants
The Borrower agrees that, so long as any Bank has any Credit Exposure
hereunder or any interest or fees accrued hereunder remain unpaid:
Section 5.1. Information. The Borrower will deliver to each of the Banks:
(a) as soon as available and in any event within 120 days after the end of
each Fiscal Year of the Borrower, a copy of the Form 10-K for such Fiscal Year
filed or to be filed with the SEC, containing the audited consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of the end of such
Fiscal Year and the related audited consolidated statements of income and cash
flows for such Fiscal Year, setting forth in each case in comparative form the
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figures for the previous Fiscal Year, all reported on by Ernst & Young or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end of
each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, a
copy of the Form 10-Q for such Fiscal Quarter filed or to be filed with the SEC,
containing the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for such Fiscal Quarter and for the portion
of the Borrower's Fiscal Year ended at the end of such Fiscal Quarter, setting
forth in the case of such statements of income and cash flows in comparative
form the figures for the corresponding Fiscal Quarter and the corresponding
portion of the Borrower's previous Fiscal Year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and consistency by
the chief financial officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial statements
referred to in clauses 5.01(a) and 5.01(b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 5.07 to 5.09,
inclusive, and Section 5.10(i) on the date of such financial statements, and
(ii) stating whether any Default exists on the date of such certificate and, if
any Default then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial statements
referred to in clause 5.01(a) above, a statement of the firm of independent
public accountants which reported on such statements (i) whether anything has
come to their attention to cause them to believe that any Default existed on the
date of such statements and (ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith pursuant to clause
5.01(c) above;
(e) within five Domestic Business Days after any officer of the Borrower
obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(f) promptly upon the filing thereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or its equivalent)
which the Borrower shall have filed with the SEC;
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(g) if and when any member of the ERISA Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any payment or contribution to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security, a certificate of the chief financial
officer or the chief accounting officer of the Borrower setting forth details as
to such occurrence and action, if any, which the Borrower or applicable member
of the ERISA Group is required or proposes to take; and
(h) from time to time such additional information regarding the financial
position or business of the Borrower and its Subsidiaries as the Administrative
Agent, at the request of any Bank, may reasonably request.
Information required to be delivered pursuant to Sections 5.01(a), 5.01(b) or
5.01(f) above shall be deemed to have been delivered on the date on which the
Borrower provides notice to the Banks that such information has been posted on
the Borrower's website on the Internet at the website address listed on the
signature pages hereof, at sec.gov/edaux/searches.htm or at another website
identified in such notice and accessible by the Banks without charge; provided
that (i) such notice may be included in a certificate delivered pursuant to
Section 5.01(c) and (ii) the Borrower shall deliver paper copies of the
information referred to in Sections 5.01(a), 5.01(b) or 5.01(f) to any Bank
which requests such delivery.
Section 5.2. Payment of Obligations. The Borrower will pay and discharge,
and will cause each Significant Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
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without limitation, tax liabilities, except where any of the foregoing may be
contested in good faith by appropriate proceedings, and will maintain, and will
cause each Significant Subsidiary to maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
Section 5.3. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Significant Subsidiary to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted; provided that the Borrower or any Significant Subsidiary may
sell, lease or exchange surplus or worn-out equipment in the ordinary course of
business and any assets employed in a discontinued line of business.
(b) The Borrower will, and will cause each of its Significant Subsidiaries
to, maintain (either in the name of the Borrower or in such Significant
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such amounts
and against at least such risks (and with such risk retention) as are
customarily insured against in the same general area by companies of established
repute engaged in the same or a similar business; provided that the Borrower
may, and may cause any of its Significant Subsidiaries to, self insure in such
amounts and against such risks as are customarily self-insured against by such
companies. The Borrower will furnish to the Banks, upon reasonable request from
the Administrative Agent, information presented in reasonable detail as to the
insurance so carried (including, without limitation, any self insurance).
Section 5.4. Conduct of Business and Maintenance of Existence. The Borrower
will continue, and will cause each Significant Subsidiary to continue, to engage
in the medical device business and will preserve, renew and keep in full force
and effect, and will cause each Significant Subsidiary to preserve, renew and
keep in full force and effect their respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business; provided that nothing in this Section 5.04 shall
prohibit any consolidation, merger or sale of assets permitted under Section
5.11.
Section 5.5. Compliance with Laws. The Borrower will comply, and cause each
Significant Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings or where the
failure so to comply is unlikely to have a Material Adverse Effect.
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Section 5.6. Inspection of Property, Books and Records. The Borrower will
keep, and will cause each Significant Subsidiary to keep, proper books of record
and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Significant Subsidiary to permit, representatives of
any Bank at such Bank's expense to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired; provided that,
so long as no Default has occurred and is continuing, any of the foregoing shall
take place during normal business hours and a representative of the Borrower
shall be given prior notice of, and may attend any meeting between,
representatives of any Bank and such independent public accountants.
Section 5.7. Consolidated Leverage Ratio. The Consolidated Leverage Ratio
will at no time be more than 3.5 to 1.0.
Section 5.8. Subsidiary Debt. Total Debt outstanding at any time of all
Subsidiaries (excluding Debt of a Subsidiary to the Borrower or to a wholly
owned Subsidiary) will at no time exceed $100,000,000; provided that in no event
shall any Subsidiary Guarantee any Debt of the Borrower.
Section 5.9. Minimum Consolidated Net Worth. Consolidated Net Worth will at
no date be less than Minimum Consolidated Net Worth at such date. For purposes
of this Section 5.09, "Minimum Consolidated Net Worth" means, at any date,
$471,700,000 plus (i) an amount equal to 75% of Consolidated Net Income for each
Fiscal Quarter ending after March 31, 1999 but prior to the date of
determination, in each case, for which Consolidated Net Income is positive (but
with no deduction on account of negative Consolidated Net Income for any Fiscal
Quarter) plus (ii) 75% of the aggregate net proceeds, including the fair market
value of property other than cash (as determined in good faith by the board of
directors of the Borrower), received by the Borrower from the issuance and sale
after March 31, 1999 of any capital stock of the Borrower (other than the
proceeds of any issuance and sale of any capital stock (x) to a Subsidiary of
the Borrower or (y) which is required to be redeemed, or is redeemable at the
option of the holder, if certain events or conditions occur or exist or
otherwise or (z) solely to the extent the proceeds of such issuance are used to
redeem any capital stock of the Borrower).
Section 5.10. Negative Pledge. Neither the Borrower nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
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(a) Liens existing as of the Effective Date and securing Debt outstanding
on the Effective Date in an aggregate principal or face amount not exceeding
$50,000,000;
(b) any Lien existing on any asset of any corporation at the time such
corporation becomes a Subsidiary and not created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed for the purpose
of financing all or any part of the cost of acquiring such asset, provided that
such Lien attaches to such asset concurrently with or within 180 days after the
acquisition thereof;
(d) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower or a Subsidiary
and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof by the
Borrower or a Subsidiary and not created in contemplation of such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(g) Liens arising in the ordinary course of its business which (i) do not
secure Debt or Derivatives Obligations, (ii) do not secure any one obligation in
an amount exceeding $10,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
(h) Liens on cash and cash equivalents securing Derivatives Obligations,
provided that the aggregate amount of cash and cash equivalents subject to such
Liens may at no time exceed $10,000,000; and
(i) Liens not otherwise permitted by the foregoing clauses of this Section
securing Debt in an aggregate principal or face amount at any date not to exceed
$75,000,000.
Section 5.11. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, (x) all or any material
part of the assets of the Borrower and its Subsidiaries, taken as a whole, to
any other Person or (y) in any event, all or any material part of the assets of
ACS or CPI; provided that the Borrower may merge with another Person if (a) the
Borrower is
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the corporation surviving such merger and (b) immediately after giving effect to
such merger, no Default shall have occurred and be continuing.
Section 5.12. Use of Proceeds. The proceeds of the Loans made under this
Agreement will be used by the Borrower for general corporate purposes, including
acquisitions. None of such proceeds will be used, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
any "margin stock" within the meaning of Regulation U.
Section 5.13. Limitations on Restrictions Affecting Subsidiaries. Neither
the Borrower nor any of its Subsidiaries will enter into, or suffer to exist,
any agreement with any Person, other than this Agreement, which prohibits or
limits the ability of any Subsidiary to (a) pay dividends or make other
distributions or pay any Debt owed to Borrower or any Subsidiary, (b) make loans
or advances to Borrower or any Subsidiary, (c) transfer any of its properties or
assets to Borrower or any Subsidiary or (d) create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired (other than with respect to assets subject to consensual
liens permitted under Section 5.10); provided that the foregoing shall not apply
to customary net worth, financial leverage and coverage tests in agreements
governing Debt incurred by Subsidiaries in compliance with this Agreement.
ARTICLE 6
Default
Section 6.1. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due;
(b) any interest on any Loan, any fees or any other amount payable
hereunder shall not be paid within five days of the date when due;
(c) the Borrower shall fail to observe or perform any covenant contained in
Sections 5.07 to 5.13, inclusive (it being understood that to the extent any
such covenant requires the Borrower to cause any of its Subsidiaries to comply
with the agreements set forth therein, a failure by the Borrower to cause any of
its Subsidiaries to so comply shall constitute a failure by the Borrower to
observe or perform such covenant);
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(d) the Borrower shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by clause 6.01(a), 6.01(b)
or 6.01(c) above) for 30 days after written notice thereof has been given to the
Borrower by the Administrative Agent at the request of any Bank or, if such
failure to observe or perform is susceptible of cure and at the time such notice
is given the Borrower shall be diligently taking all actions necessary or
desirable in order to cure such failure, for 90 days after notice thereof has
been given (it being understood that to the extent any such covenant requires
the Borrower to cause any of its Subsidiaries to comply with the agreements set
forth therein, a failure by the Borrower to cause any of its Subsidiaries to so
comply shall constitute a failure by the Borrower to observe or perform such
covenant);
(e) any representation, warranty, certification or statement made by the
Borrower in this Agreement or in any certificate, financial statement or other
document delivered pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);
(f) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period;
(g) any event or condition shall occur which results in the acceleration of
the maturity of any Material Debt or enables the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof;
(h) the Borrower or any of its Significant Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be commenced against the
Borrower or any of its Significant Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an
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order for relief shall be entered against the Borrower or any of its Significant
Subsidiaries under the federal bankruptcy laws as now or hereafter in effect;
(j) any member of the ERISA Group shall fail to pay when due an amount or
amounts aggregating in excess of $5,000,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $5,000,000;
(k) a judgment or order for the payment of money in excess of $25,000,000
shall be rendered against the Borrower or any Significant Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 10
days;
(l) any person or group of persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC
under said Act) of 30% or more of the outstanding shares of common stock of the
Borrower, or during any period of 12 consecutive calendar months, individuals
who were either (i) directors of the Borrower on the first day of such period or
(ii) elected to fill vacancies caused by the ordinary course resignation or
retirement of any other director and whose nomination or election was approved
by a vote of a majority of the directors then still in office who were directors
of the Borrower on the first day of such period, shall cease to constitute a
majority of the board of directors of the Borrower; or
(m) ACS or CPI shall cease to be a Wholly-Owned Consolidated Subsidiary of
the Borrower (except that (i) either ACS or CPI may merge with and into the
Borrower, as permitted pursuant to Section 5.11 or (ii) ACS and CPI may merge
with and into each other);
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
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and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes (together
with accrued interest thereon) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind and
without valuation and appraisement, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause 6.01(h) or 6.01(i) above with respect to the Borrower, without any notice
to the Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind and without valuation and
appraisement, all of which are hereby waived by the Borrower.
Section 6.2. Notice of Default. The Administrative Agent shall give notice
to the Borrower under Section 6.01(d) promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
The Agents
Section 7.1. Appointment and Authorization. Each Bank irrevocably appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
Section 7.2. Administrative Agent and Affiliates. Morgan Guaranty Trust
Company of New York shall have the same rights and powers under this Agreement
as any other Bank and may exercise or refrain from exercising the same as though
it were not the Administrative Agent. Morgan Guaranty Trust Company of New York
and its affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower or any Subsidiary or affiliate of the
Borrower as if it were not the Administrative Agent.
Section 7.3. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
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Section 7.4. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
Section 7.5. Liability of Administrative Agent. None of the Administrative
Agent, its affiliates and their respective directors, officers, agents and
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks (or such
different number of Banks as any provision hereof expressly requires for such
consent or request) or (ii) in the absence of its own gross negligence or
willful misconduct. None of the Administrative Agent, its affiliates and their
respective directors, officers, agents and employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance on any notice, consent, certificate, statement or other writing (which
may be a bank wire, telex, facsimile or similar writing) believed by it to be
genuine or to be signed by the proper party or parties. Without limiting the
generality of the foregoing, the use of the term "agent" in this Agreement with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable law. Instead, such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship between
independent contracting parties.
Section 7.6. Indemnification. Each Bank shall, ratably in proportion to
their Credit Exposures, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct) that such indemnitees may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnitees thereunder.
Section 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance on any Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own
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credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance on any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
Section 7.8. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving notice thereof to the Banks and the Borrower. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $50,000,000. Upon
the acceptance of its appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent resigns as Administrative Agent hereunder, the provisions
of this Article shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent.
Section 7.9. Agents' Fees. The Borrower shall pay to each Agent for its own
account fees in the amounts and at the times previously agreed upon by the
Borrower and such Agent.
Section 7.10. Other Agents. Nothing in this Agreement shall impose any duty
or liability whatsoever on any Documentation Agent, Senior Managing Agent or
Syndication Agent in such capacity.
ARTICLE 8
Change in Circumstances
Section 8.1. Basis for Determining Interest Rate Inadequate or Unfair . If
on or before the first day of any Interest Period for any Euro-Dollar Loans or
Money Market LIBOR Loan:
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(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars in the applicable amounts are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
(b) in the case of Euro-Dollar Loans, Banks having more than 50% in the
aggregate amount of the Commitments advise the Administrative Agent that the
London Interbank Offered Rate as determined by the Administrative Agent will not
adequately and fairly reflect the cost to such Banks of funding their Euro-
Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans, or to continue or convert
outstanding Loans as or into Euro-Dollar Loans, shall be suspended and (ii) each
outstanding Euro-Dollar Loan, shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Unless the
Borrower notifies the Administrative Agent at least two Domestic Business Days
before the date of any affected Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, (i) if such
affected Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be
made as a Base Rate Borrowing and (ii) if such affected Borrowing is a Money
Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing
shall bear interest for each day from and including the first day to but
excluding the last day of the Interest Period applicable thereto at the Base
Rate for such day.
Section 8.2. Illegality. If, on or after the date hereof, the adoption of
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Euro-Dollar Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-
Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section, such Bank shall designate a different Euro-Dollar Lending Office if
such designation will avoid
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the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, each Euro-
Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan
either (i) on the last day of the then current Interest Period applicable to
such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund
such Loan as a Euro-Dollar Loan to such day or (ii) immediately if such Bank
shall determine that it may not lawfully continue to maintain and fund such Loan
as a Euro-Dollar Loan to such day. Interest and principal on any such Base Rate
Loan shall be payable on the same dates as, and on a pro rata basis with, the
interest and principal payable on the related Euro-Dollar Loans of the other
Banks.
Section 8.3. Increased Cost and Reduced Return. (a) If on or after (x) the
date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency, shall impose, modify
or deem applicable any reserve (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding with respect to any Euro-Dollar Loan any such requirement with respect
to which such Bank is entitled to compensation during the relevant Interest
Period under Section 2.16), special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Bank (or its Applicable Lending Office) or shall impose on any
Bank (or its Applicable Lending Office) or on the London interbank market any
other condition affecting its Fixed Rate Loans, its Note or its obligation to
make Fixed Rate Loans and the result of any of the foregoing is to increase the
cost to such Bank (or its Applicable Lending Office) of making or maintaining
any Fixed Rate Loan, or to reduce the amount of any sum received or receivable
by such Bank (or its Applicable Lending Office) under this Agreement or under
its Note with respect thereto, by an amount deemed by such Bank to be material,
then, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or
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comparable agency charged with the interpretation or administration thereof, or
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency
(including any determination by any such authority, central bank or comparable
agency that, for purposes of capital adequacy requirements, the Commitments
hereunder do not constitute commitments with an original maturity of one year or
less), has or would have the effect of reducing the rate of return on capital of
such Bank (or its Parent) as a consequence of such Bank's obligations hereunder
to a level below that which such Bank (or its Parent) could have achieved but
for such adoption, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within 15 days after demand by such Bank
(with a copy to the Administrative Agent), the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank (or its Parent)
for such reduction.
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to it. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder and the calculation thereof in
reasonable detail shall be conclusive in the absence of clearly demonstrable
error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.
Section 8.4. Taxes. (a) For purposes of this Section 8.04, the following
terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Borrower
pursuant to this Agreement or under any Note, and all liabilities with respect
thereto, excluding (i) in the case of each Bank and the Administrative Agent,
taxes imposed on its income (other than withholding taxes) and franchise or
similar taxes imposed on it, by a jurisdiction (A) under the laws of which it is
organized, (B) in which it conducts business (provided that it would be subject
to such income (other than withholding taxes), franchise or similar taxes by
such jurisdiction without regard to any Loan under law as in effect on the date
hereof because it conducts business in such jurisdiction) (C) in which such
Bank's principal executive office is located or (D) in the case of each Bank, in
which its Applicable Lending Office is located and (ii) in the case of each
Bank, any United
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States withholding tax imposed on such payments but only to the extent that such
Bank is subject to United States withholding tax at the time such Bank first
becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from the
execution or delivery of, or otherwise with respect to, this Agreement or any
Note.
(b) Any and all payments by the Borrower to or for the account of any Bank
or the Administrative Agent hereunder or under any Note shall be made without
deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be
required by law to deduct any Taxes or Other Taxes from any such payments, (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 8.04) such Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Administrative Agent, at its address specified in or pursuant to
Section 9.01, the original or a certified copy of a receipt evidencing payment
thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable
under this Section 8.04) paid by such Bank or the Administrative Agent (as the
case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be paid
within 15 days after such Bank or the Administrative Agent (as the case may be)
makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the United
States, on or before the date of its execution and delivery of this Agreement in
the case of each Bank listed on the signature pages hereof and on or before the
date on which it becomes a Bank in the case of each other Bank, and from time to
time thereafter if requested in writing by the Borrower (but only so long as
such Bank remains lawfully able to do so), shall provide the Borrower with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts the Bank from United States withholding tax or reduces
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the rate of withholding tax on payments of interest for the account of such Bank
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide the
Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.04(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which is
otherwise exempt from or subject to a reduced rate of withholding tax, becomes
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.04, then such Bank will change
the jurisdiction of its Applicable Lending Office if, in the judgment of such
Bank, such change (i) will eliminate or reduce any such additional payment which
may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund (including a
refund in the form of a credit against taxes that are otherwise payable by the
Bank or the Administrative Agent) of any Taxes or Other Taxes for which the
Borrower has made a payment under Section 8.04(b) or (c) and such refund was
received from the taxing authority which originally imposed such Taxes or Other
Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to
the extent of such refund.
(h) Each Bank and the Administrative Agent acknowledge, that on and as of
the Effective Date it is not aware of any Tax or Other Tax that would be imposed
upon any payment to it hereunder or under any Note.
Section 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. If
(i) the obligation of any Bank to make, or to continue or convert outstanding
Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect
to its Euro-Dollar Loans and in any such case the Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer exist, all Loans which would otherwise be made by such Bank as (or
continued as or
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converted to) Euro-Dollar Loans, as the case may be, shall instead be Base Rate
Loans on which interest and principal shall be payable contemporaneously with
the related or Euro-Dollar Loans of the other Banks. If such Bank notifies the
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist, the principal amount of each such Base Rate Loan
shall be converted into a Euro-Dollar Loan, as the case may be, on the first day
of the next succeeding Interest Period applicable to the related Euro-Dollar
Loans of the other Banks.
Section 8.6. Substitution Of Bank. If (i) the obligation of any Bank to
make, or to convert or continue outstanding Loans as or into, Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03 or 8.04, the Borrower shall have the right, with
the assistance of the Administrative Agent, to designate a substitute bank or
banks (which may be one or more of the Banks) mutually satisfactory to the
Borrower and the Administrative Agent (whose consent shall not be unreasonably
withheld or delayed) to purchase (and, if such right is exercised, such Bank
shall sell and assign) for cash, pursuant to an Assignment and Assumption
Agreement substantially in the form of Exhibit G hereto, the outstanding Loans
for such Bank and assume the Commitment of such Bank, without recourse to or
warranty by, or expense to, such Bank, for a purchase price equal to the
principal amount of all of such Bank's outstanding Loans plus any accrued but
unpaid interest thereon and the accrued but unpaid fees in respect of such
Bank's Commitment hereunder plus such amount, if any, as would be payable
pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in
their entirety on the date of consummation of such assignment.
ARTICLE 9
Miscellaneous
Section 9.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, facsimile or
similar writing) and shall be given to such party: (a) in the case of the
Borrower or the Administrative Agent, at its address, facsimile number or telex
number set forth on the signature pages hereof, (b) in the case of any Bank, at
its address, facsimile number or telex number set forth in its Administrative
Questionnaire or (c) in the case of any party, at such other address, facsimile
number or telex number as such party may hereafter specify for the purpose by
notice to the Administrative Agent and the Borrower. Each such notice, request
or other communication shall be effective (i) if given by telex, when such telex
is
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transmitted to the telex number referred to in this Section and the appropriate
answerback is received, (ii) if given by facsimile, when transmitted to the
facsimile number referred to in this Section and confirmation of receipt is
received, (iii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (iv) if
given by any other means, when delivered at the address referred to in this
Section; provided that notices to the Administrative Agent under Article 2 or
Article 8 shall not be effective until received.
Section 9.2. No Waivers. No failure or delay by any Agent or Bank in
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
Section 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i) all
reasonable out-of-pocket expenses of the Agents, including fees and
disbursements of special counsel for the Agents, in connection with the
preparation and administration of this Agreement, any waiver or consent
thereunder or any amendment thereof or any Default or alleged Default and (ii)
if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by
the Administrative Agent and each Bank, including (without duplication) the fees
and disbursements of outside counsel and the allocated cost of inside counsel,
in connection with such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement or any actual or proposed use of proceeds of
Loans thereunder; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
Section 9.4. Set-offs. (a) If (i) an Event of Default has occurred and is
continuing and (ii) Banks holding more than 50% in aggregate unpaid principal
amount of the Loans have requested the Administrative Agent to declare the
52
<PAGE>
Loans to be immediately due and payable pursuant to Section 6.01, or the Loans
have become immediately due and payable without notice as provided in Section
6.01, then each Bank is hereby authorized by the Borrower at any time and from
time to time, to the extent permitted by applicable law, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to set off
and apply all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Bank to
or for the account of the Borrower against any obligations of the Borrower to
such Bank now or hereafter existing under this Agreement, regardless of whether
any such deposit or other obligation is then due and payable or is in the same
currency or is booked or otherwise payable at the same office as the obligation
against which it is set off and regardless of whether such Bank shall have made
any demand for payment under this Agreement. Each Bank agrees promptly to notify
the Borrower after any such set-off and application made by such Bank; provided
that any failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Banks under this subsection are in
addition to any other rights and remedies which the Banks may have.
(b) Each Bank agrees that if it shall, by exercising any right of set-off
or counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest then due with respect to the Loans held by it
which is greater than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest then due with respect to the
Loans held by such other Bank, the Bank receiving such proportionately greater
payment shall purchase such participations in the Loans held by the other Banks,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Loans held by the Banks
shall be shared by the Banks pro rata; provided that nothing in this Section
shall impair the right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of the Borrower other than its indebtedness in respect
of the Loans. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Loan, whether
or not acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation.
Section 9.5. Amendments and Waivers. Any provision of this Agreement or the
Notes to which the Borrower is a party may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the Borrower and the
Required Banks (and, if the rights or duties of any Agent are affected thereby,
by such Agent); provided that no such amendment or waiver shall:
53
<PAGE>
(a) unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except (x) as contemplated by Section 2.02 or (y) for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, (iii) postpone the date fixed for any payment of principal of or
interest on any Loan or any fees hereunder or for termination of any Commitment
or (iv) amend this Section 9.05 or the definition of Required Banks or change
the percentage of the Commitments or of the aggregate unpaid principal amount of
the Notes, or the number of Banks, which shall be required for the Banks or any
of them to take any action under this Section or any other provision of this
Agreement; or
(b) unless signed by a Designated Lender or its Designating Bank, subject
such Designated Lender to any additional obligation or affect its rights
hereunder (unless the rights of all the Banks hereunder are similarly affected).
Section 9.6. Successors; Participations and Assignments. (a) The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Borrower may
not assign or otherwise transfer any of its rights under this Agreement without
the prior written consent of all the Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. If a Bank grants any such participating interest to a
Participant, whether or not upon notice to the Borrower and the Administrative
Agent, such Bank shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), or (iii) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article 8 with respect
to its participating interest. An assignment or other transfer which is not
permitted by subsection 9.06(c) or 9.06(d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection.
54
<PAGE>
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial Commitment at least equal to the lesser of (A) $10,000,000 and (B) such
Bank's entire Commitment at such time) of all of its rights and obligations
under this Agreement and its Note, and such Assignee shall assume such rights
and obligations, pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrower
and Administrative Agent, which consents shall not be unreasonably withheld;
provided that (i) if an Assignee is an affiliate of such transferor Bank or was
a Bank immediately before such assignment, no such consent shall be required and
(ii) such assignment may, but need not, include rights of the transferor Bank in
respect of outstanding Money Market Loans. When such instrument has been signed
and delivered by the parties thereto and such Assignee has paid to such
transferor Bank the purchase price agreed by them, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection,
the transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall pay
to the Administrative Agent an administrative fee for processing such assignment
in the amount of $2,500. If the Assignee is not incorporated under the laws of
the United States or a State thereof, it shall deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or withholding
of United States federal income taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights shall
be entitled to receive any greater payment under Section 8.03 or 8.04 than such
Bank would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written consent or by
reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to
designate a different Applicable Lending Office under certain circumstances or
at a time when the circumstances giving rise to such greater payment did not
exist.
55
<PAGE>
Section 9.7. Designated Lenders. (a) Subject to the provisions of this
Section 9.07(a), any Bank may from time to time elect to designate an Eligible
Designee to provide all or a portion of the Loans to be made by such Bank
pursuant to this Agreement; provided that such designation shall not be
effective unless the Borrower and the Administrative Agent consent thereto,
which consents shall not be unreasonably withheld. When a Bank and its Eligible
Designee shall have signed an agreement substantially in the form of Exhibit H
hereto (a "Designation Agreement") and the Borrower and the Administrative Agent
shall have signed their respective consents thereto, such Eligible Designee
shall become a Designated Lender for purposes of this Agreement. The Designating
Bank shall thereafter have the right to permit such Designated Lender to provide
all or a portion of the Loans to be made by such Designating Bank pursuant to
Section 2.01 or 2.04, and the making of such Loans or portions thereof shall
satisfy the obligation of the Designating Bank to the same extent, and as if,
such Loans or portion thereof were made by the Designating Bank. As to any Loans
or portion thereof made by it, each Designated Lender shall have all the rights
that a Bank making such Loans or portion thereof would have had under this
Agreement and otherwise; provided that (x) its voting rights under this
Agreement shall be exercised solely by Designating Bank and (y) its Designating
Bank shall remain solely responsible to the other parties hereto for the
performance of its obligations under this Agreement, including its obligations
in respect of the Loans or portion thereof made by it. No additional Note shall
be required to evidence Loans or portions thereof made by a Designated Lender;
and the Designating Bank shall be deemed to hold its Note as agent for its
Designated Lender to the extent of the Loans or portion thereof funded by such
Designated Lender. Each Designating Bank shall act as administrative agent for
its Designated Lender and give and receive notices and other communications on
its behalf. Any payments for the account of any Designated Lender shall be paid
to its Designating Bank as administrative agent for such Designated Lender and
neither the Borrower nor the Administrative Agent shall be responsible for any
Designating Bank's application of such payments. In addition, any Designated
Lender may (i) with notice to, but without the prior written consent of the
Borrower or the Administrative Agent, assign all or portions of its interest in
any Loans to its Designating Bank or to any financial institutions consented to
by the Borrower and the Administrative Agent providing liquidity and/or credit
facilities to or for the account of such Designated Lender to support the
funding of Loans or portions thereof made by such Designated Lender and (ii)
disclose on a confidential basis any non-public information relating to its
Loans or portions thereof to any rating agency, commercial paper dealer or
provider of any guarantee, surety, credit or liquidity enhancement to such
Designated Lender.
(b) Each party to this Agreement agrees that it will not institute against,
or join any other person in instituting against, any Designated Lender any
56
<PAGE>
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or
other proceeding under any federal or state bankruptcy or similar law, for one
year and a day after all outstanding senior indebtedness of such Designated
Lender is paid in full. The Designating Bank for each Designated Lender agrees
to indemnify, save, and hold harmless each other party hereto for any loss,
cost, damage and expense arising out of its inability to institute any such
proceeding against such Designated Lender. This Section 9.07(b) shall survive
the termination of this Agreement.
Section 9.8. No Reliance on Margin Stock. Each of the Banks represents to
the Administrative Agent and each of the other Banks that it in good faith is
not relying upon any "margin stock" (as defined in Regulation U) as collateral
in the extension or maintenance of the credit provided for in this Agreement.
Section 9.9. Governing Law; Submission to Jurisdiction. This Agreement and
each Note shall be governed by and construed in accordance with the laws of the
State of New York. The Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York State court sitting in New York City for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated thereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
Section 9.10. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
Section 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
--------
GUIDANT CORPORATION
By:____________________________________
Title:
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: Senior Counsel
Facsimile Number: (317) 971-2141
Web site: http://www.guidant.com
<PAGE>
BANKS:
-----
BANCA MONTE DEI PASCHI DI SIENA S.P.A.
By:__________________________________
Name:
Title:
By:___________________________________
Name:
Title:
BBL INTERNATIONAL (U.K.) LIMITED
By:__________________________________
Name:
Title:
By:___________________________________
Name:
Title:
BANK OF AMERICA, N.A.
By:__________________________________
Name:
Title:
BANK ONE, INDIANA, NA
By:__________________________________
Name:
Title:
<PAGE>
THE GOVERNOR AND COMPANY OF THE
BANK OF IRELAND
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:__________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
By:__________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:____________________________________
Name:
Title:
CITICORP USA, INC.
By:____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH
AND OR CAYMAN ISLANDS BRANCH
By:____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:__________________________________
Name:
Title:
NATIONAL CITY BANK OF INDIANA
By:__________________________________
Name:
Title:
SOCIETE GENERALE
By:__________________________________
Name:
Title:
THE NORTHERN TRUST COMPANY
By:__________________________________
Name:
Title:
<PAGE>
WACHOVIA BANK N.A.
By:___________________________________
Name:
Title:
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By:________________________________________
Name:
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention:
Facsimile number: (212) 648-5018
<PAGE>
COMMITMENT SCHEDULE
364-DAY CREDIT FACILITY
_____________________________________________ _______________
Bank Commitment
Morgan Guaranty Trust Company of New York $ 40,000,000
Bank of America, N.A. 40,000,000
The Chase Manhattan Bank 40,000,000
Bank One, Indiana, NA 35,000,000
Citicorp USA, Inc. 35,000,000
Banque Nationale De Paris 30,000,000
Credit Suisse First Boston 30,000,000
Deutsche Bank AG, New York Branch and or Cayman 30,000,000
Islands Branch
Societe Generale 30,000,000
Wachovia Bank N.A. 30,000,000
The Bank of Tokyo-Mitsubishi, Ltd. 25,000,000
The Northern Trust Company 25,000,000
Banca Monte dei Paschi di Siena S.p.A 15,000,000
BBL International (U.K.) Limited 15,000,000
The Governor and Company of the Bank of Ireland 15,000,000
National City Bank of Indiana 15,000,000
---------------
Total $450,000,000.00
<PAGE>
PRICING SCHEDULE
364-DAY CREDIT FACILITY
Each of "Euro-Dollar Margin" and "Facility Fee Rate" means, for any date, the
rate set forth below in the row opposite such term and in the column
corresponding to the "Status" that exists on such date:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Status Level I Level II Level III Level IV Level V Level VI
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization less than 33% .2900% .3300% .4500% .6250% .7250% 1.0000%
Utilization greater than or equal to 33% .3900% .4300% .5500% .7500% .8500% 1.2500%
- ------------------------------------------------------------------------------------------------------------
Facility Fee Rate .0600% .0700% .1000% .1250% .1500% .2500%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the concluding paragraph of this Schedule:
"Level I Status" exists at any date if, at such date, the Borrower's long-
term debt is rated A or higher by S&P or A2 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the Borrower's
long-term debt is rated A- or higher by S&P or A3 or higher by Moody's and (ii)
Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the Borrower's
long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by Moody's and
(ii) neither Level I Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the Borrower's
long-term debt is rated BBB or higher by S&P or Baa2 or higher by Moody's and
(ii) none of Level I Status, Level II Status and Level III Status exists.
"Level V Status" exists at any date if, at such date, (i) the Borrower's
long-term debt is rated BBB- or higher by S&P or Baa3 or higher by Moody's and
(ii) none of Level I Status, Level II Status, Level III Status and Level IV
exists.
"Level VI Status" exists at any date if, at such date, no other Status
exists.
<PAGE>
"Status" refers to the determination of which of Level I Status, Level II
Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists on any date.
"Utilization" means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason any
Loans remain outstanding after termination of the Commitments, the Utilization
for each date on or after the date of such termination shall be deemed to be
greater than 33%.
The credit ratings to be utilized for purposes of this Schedule are those
assigned to the senior unsecured long-term debt securities of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt security of the Borrower shall be disregarded. The rating in effect at any
date is that in effect at the close of business on such date. In the case of
split ratings from S&P's and Moody's, the rating to be used to determine which
Status applies is the higher of the two; provided that if the split is more than
one full category, the average (or the higher of two intermediate ratings) shall
be used (e.g. BBB+/Baa3 results in Level IV Pricing).
2
<PAGE>
EXHIBIT A
NOTE
New York, New York
August 25, 1999
For value received, GUIDANT CORPORATION, an Indiana corporation (the
"Borrower"), promises to pay to the order of _______________ (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the maturity date provided for in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of each such
Loan on the dates and at the rate or rates provided for in the Credit Agreement.
All such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof and
all repayments of the principal thereof shall be recorded by the Bank and, if
the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit Agreement
dated as of August 25, 1999 among the Borrower, the Banks party thereto and
Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same
may be amended from time to time, the "Credit Agreement"). Terms defined in the
Credit Agreement are used herein with the same meanings. Reference is made to
the Credit Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof.
GUIDANT CORPORATION
By: ________________________________
Name:
Title:
A-1
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
________________________________________________________________________________
Amount of
Amount of Principal Notation
Date Loan Type of Loan Repaid Maturity Date Made By
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
A-2
<PAGE>
EXHIBIT B
Form of Money Market Quote Request
----------------------------------
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Administrative Agent")
From: Guidant Corporation (the "Borrower")
Re: 364-Day Credit Agreement (as amended, the "Credit Agreement") dated as
of August 25, 1999 among the Borrower, the Banks from time to time
party thereto and the Administrative Agent
We hereby give notice pursuant to Section 2.04 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: _______________________
Principal Amount/1/ Interest Period/2/
- ---------------- ---------------
$
_____________________
/1/ Amount must be $25,000,000 or a larger multiple of $5,000,000.
/2/ Not less than 7 days, subject to the provisions of the definition of
Interest Period.
B-1
<PAGE>
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
GUIDANT CORPORATION
By: ___________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
Form of Invitation for Money Market Quotes
------------------------------------------
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Guidant Corporation (the
"Borrower")
Pursuant to Section 2.04 of the 364-Day Credit Agreement dated as of
August 25, 1999 among the Borrower, the Banks from time to time party thereto
and the undersigned, as Administrative Agent, we are pleased on behalf of the
Borrower to invite you to submit Money Market Quotes to the Borrower for the
following proposed Money Market Borrowing(s):
Date of Borrowing: _________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by not later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By ________________________________________
Name:
Authorized Officer
C-1
<PAGE>
EXHIBIT D
Form of Money Market Quote
--------------------------
To: Morgan Guaranty Trust Company of New York,
as Administrative Agent
Re: Money Market Quote to Guidant
Corporation (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, ____, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- -------- --------- ------------ --------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for
which the above offers may be accepted shall not exceed $____________.]**
____________________
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the individual
offers exceeds the amount the Bank is willing to lend. Bids must be made
for $5,000,000 or a larger multiple of $1,000,000.
D-1
<PAGE>
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the 364-Day Credit
Agreement dated as of August 25, 1999 among the Borrower, the Banks from time to
time party thereto and yourselves, as Administrative Agent, irrevocably
obligates us to make the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By: _________________________________
Name:
Authorized Officer
____________________
*** Not less than 7 days. No more than five bids are permitted for each
Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest 1/10,000
of 1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000 of 1%).
D-2
<PAGE>
EXHIBIT E-1
OPINION OF
SPECIAL COUNSEL FOR THE BORROWER
--------------------------------
August 25, 1999
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as special counsel to Guidant Corporation (the "Borrower"),
in connection with the 364-Day Credit Agreement (the "Credit Agreement") dated
as of August 25, 1999 among the Borrower, the banks listed on the signature
pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as
Administrative Agent. Except as provided in this letter, terms defined in the
Credit Agreement are used herein as therein defined. This opinion is being
rendered to you at the request of our client pursuant to Section 3.01(c) of the
Credit Agreement.
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
of the Borrower and of public officials, and other instruments, and have
conducted such investigations of fact and of law, as we have deemed necessary or
appropriate for the purpose of this opinion, including the following:
(a) The Credit Agreement, including all Exhibits and Schedules thereto;
and
(b) The Notes dated August 25, 1999.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons executing documents, the authenticity of
all documents submitted to us as originals, and the conformity to originals of
all
E-1-1
<PAGE>
documents submitted to us as copies. We have also assumed with your permission:
(a) That the Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
that the execution, delivery and performance by the Borrower of the Credit
Agreement and the Notes are within its corporate powers, have been duly
authorized by all necessary corporate action and do not contravene, or
constitute a default under, any provision of the certificate of incorporation or
by-laws of the Borrower or any of its Subsidiaries or of any agreement,
judgment, injunction, order, decree or other instrument binding upon Borrower or
any of its Subsidiaries or result in the creation or imposition of any Lien on
any asset of the Borrower of any of its Subsidiaries;
(b) That the Borrower has duly executed and delivered each of the Credit
Agreement and the Notes; and
(c) That all action required under the applicable corporate law of the
Borrower for the Credit Agreement to constitute a valid and binding obligation
of the Borrower has been taken.
Based upon and subject to the foregoing and subject also to the
qualifications and limitations set forth herein, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes require no action by or in respect of, or
filing with, any governmental body, agency or official of the State of New
York or the United States of America and do not contravene, or constitute a
default under, any provision of law or regulation of the State of New York
or the United States of America.
2. The Credit Agreement and the Notes constitute valid and binding
obligations of the Borrower, each such obligation being enforceable in
accordance with its terms against the Borrower except (a) as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and (b) as the
enforceability, in each case, is subject to the application of general
principles of equity (regardless of whether considered in a proceeding in
equity or at law), including, without limitation, (i) the possible
unavailability of specific performance, injunctive relief or any other
equitable remedy and (ii) concepts of materiality, reasonableness, good
faith and fair dealing.
E-1-2
<PAGE>
Our opinion expressed in Paragraph 1 above as to absence of violation of
laws is based upon a consideration of any those laws which, in our experience,
are normally applicable to transactions of the type contemplated by the Credit
Agreement.
We are not expressing any opinions as to any anti-fraud provisions under
federal or state securities laws or as to any federal or state antitrust laws.
The opinions herein are limited to the federal laws of the United States
and the laws of the State of New York, and we express no opinion as to the laws
of any other jurisdiction. The opinions expressed herein are based upon the laws
in effect and upon such facts as exist as of the date hereof. No responsibility
or undertaking is hereby assumed to advise you of any changes in such laws or
facts after the date hereof or of the applicability or effect of the laws of any
other jurisdiction.
At the request of our clients, this opinion letter is, pursuant to Section
3.01(c) of the Credit Agreement, provided to you by us in our capacity as
special counsel to the Borrower, and may not be relied upon by any Person for
any purpose other than in connection with the transactions contemplated by the
Credit Agreement without, in each instance, our written consent. Notwithstanding
the foregoing, this opinion letter may be relied upon by any bank or other
institution which is an Assignee or a Participant under the Credit Agreement.
Very truly yours,
E-1-3
<PAGE>
EXHIBIT E-2
OPINION OF
SENIOR COUNSEL OF THE BORROWER
August 25, 1999
The Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust
Company of New York, as Administrative Agent
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
I am Senior Counsel of Guidant Corporation, an Indiana corporation (the
"Borrower"). This opinion is being delivered to you pursuant to the 364-Day
Credit Agreement (the "Credit Agreement") dated as of August 25, 1999, among the
Borrower, the banks listed on the signature page thereof (the "Banks") and
Morgan Guaranty Trust Company of New York, as Administrative Agent. Terms
defined in the Credit Agreement are used herein as therein defined.
In preparing this opinion, I or members of my staff have examined and
relied upon, among other things, originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we deemed necessary or advisable for
purposes of this opinion.
In making such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as certified,
conformed or photostatic copies. As to matters of fact material to my opinion
which were not independently verified, we have relied upon the statements and
representations of officers and other representatives of the Borrower and
representatives of governmental entities.
Based on and subject to the foregoing, it is my opinion that:
1. The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation.
The Borrower has all corporate powers and all
E-2-1
<PAGE>
material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the Credit
Agreement and the Notes are within its corporate powers, have been
duly authorized by all necessary corporate action and do not
contravene, or constitute a default under, any provision of the
certificate of incorporation or by-laws of the Borrower or any of its
Subsidiaries or of any agreement, judgement, injunction, order, decree
or other instrument binding upon Borrower or any if its Subsidiaries
or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
3. The Borrower has duly executed and delivered the Credit Agreement and
each of the Notes.
4. All action required under the applicable corporate law of the Borrower
for the Credit Agreement and the Notes to constitute a valid and
binding obligation of the Borrower has been taken.
5. Except as disclosed in the Borrower's 1998 Form 10-K and the
Borrower's Form 10-Q issued as of March 31, 1999 and June 30, 1999,
there is no action, suit or proceeding pending against, or to the best
of my knowledge, threatened against the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable likelihood of an
adverse decision which could materially adversely affect the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries, considered as a whole, or the ability of the Borrower to
satisfy its obligations under the Financial Documents, or which in any
manner draws into question the validity of the Credit Agreement or the
Notes.
6. Each of the Borrower's Significant Subsidiaries is a corporation
validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
I am a member of the Bar of the State of Indiana and express no opinion as
to the matters governed by the laws of any other jurisdiction (other than the
federal laws of the United States of America). This opinion is furnished in
connection with the transaction described herein, is solely for your benefit and
E-2-2
<PAGE>
may not be relied upon by any other person, firm or corporation, nor in any
other context, without my prior written consent, except that any Assignee or
Participant may rely upon this opinion as if it were addressed to it.
Sincerely,
E-2-3
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENTS
--------------
August 25, 1999
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the 364-Day Credit Agreement
(the "Credit Agreement") dated as of August 25, 1999 among Guidant Corporation,
an Indiana corporation (the "Borrower"), the banks listed on the signature pages
thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as
Administrative Agent, and have acted as special counsel for the Agents for the
purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit
Agreement. Terms defined in the Credit Agreement are used herein as therein
defined.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons executing documents, the authenticity of
all documents submitted to us as originals, and the conformity to originals of
all documents submitted to us as copies. We have also assumed with your
permission:
(a) That the Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
that the execution, delivery and performance by the Borrower of the Credit
Agreement
F-1
<PAGE>
and the Notes are within its corporate powers, have been duly authorized by all
necessary corporate action and do not contravene, or constitute a default under,
any provision of the certificate of incorporation or by-laws of the Borrower or
any of its Subsidiaries or of any agreement, judgment, injunction, order, decree
or other instrument binding upon Borrower or any of its Subsidiaries or result
in the creation or imposition of any Lien on any asset of the Borrower of any of
its Subsidiaries;
(b) That the Borrower has duly executed and delivered the Credit Agreement
and each of the Notes; and
(c) That all action required under the applicable corporate law of the
Borrower for the Credit Agreement to constitute a valid and binding obligation
of the Borrower has been taken.
Upon the basis of the foregoing, we are of the opinion that the Credit
Agreement constitutes a valid and binding agreement of the Borrower and each
Note constitutes a valid and binding obligation of the Borrower, except as the
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion, we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by any other Person without our prior written consent. Notwithstanding the
foregoing, this opinion may be relied upon by any bank or other institution
which is an Assignee or a Participant under the Credit Agreement.
Very truly yours,
F-2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
AGREEMENT dated as of _______ __, ____ among [ASSIGNOR] (the "Assignor"),
[ASSIGNEE] (the "Assignee"), GUIDANT CORPORATION, an Indiana corporation (the
"Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative
Agent (the "Administrative Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates
to the 364-Day Credit Agreement dated as of August 25, 1999 among the Borrower,
the Banks party thereto and the Administrative Agent (as amended from time to
time, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Committed Loans to the Borrower in an aggregate principal
amount at any time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights
of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Credit Agreement.
Section 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit
G-1
<PAGE>
Agreement to the extent of the Assigned Amount, including the purchase from the
Assignor of the corresponding portion of the principal amount of the Committed
Loans made by the Assignor outstanding at the date hereof. Upon the execution
and delivery hereof by the Assignor, the Assignee, the Borrower and the
Administrative Agent and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
Section 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them./3/ It is
understood that commitment and/or participation fees accrued to the date hereof
are for the account of the Assignor and such fees accruing from and including
the date hereof are for the account of the Assignee. Each of the Assignor and
the Assignee hereby agrees that if it receives any amount under the Credit
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other party's
interest therein and shall promptly pay the same to such other party.
_______________________
/3/Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
G-2
<PAGE>
[Section 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this
Agreement by the Borrower and the Administrative Agent is evidence of this
consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver
a Note payable to the order of the Assignee to evidence the assignment and
assumption provided for herein.]
Section 5. Non-Reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of the Borrower or any of
its Subsidiaries or the validity and enforceability of the obligations of the
Borrower in respect of the Credit Agreement or any Note. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrower.
Section 6. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
Section 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
G-3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
[ASSIGNOR]
By ________________________________________
Name:
Title:
[ASSIGNEE]
By ________________________________________
Name:
Title:
[GUIDANT CORPORATION]
By ________________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent
By ________________________________________
Name:
Title:
G-4
<PAGE>
EXHIBIT H
DESIGNATION AGREEMENT
dated as of ________________, _____
Reference is made to the 364-Day Credit Agreement dated as of August 25,
1999 (as amended from time to time, the "Credit Agreement") among Guidant
Corporation, a Indiana corporation (the "Borrower"), the banks party thereto
(the "Banks") and Morgan Guaranty Trust Company of New York, as Administrative
Agent (the "Administrative Agent"). Terms defined in the Credit Agreement are
used herein with the same meaning.
_________________ (the "Designator") and ________________ (the "Designee")
agree as follows:
1. The Designator designates the Designee as its Designated Lender under
the Credit Agreement and the Designee accepts such designation.
2. The Designator makes no representations or warranties and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto.
3. The Designee confirms that it is an Eligible Designee; appoints and
authorizes the Designator as its administrative agent and attorney-in-fact and
grants the Designator an irrevocable power of attorney to receive payments made
for the benefit of the Designee under the Credit Agreement and to deliver and
receive all communications and notices under the Credit Agreement, if any, that
the Designee is obligated to deliver or has the right to receive thereunder; and
acknowledges that the Designator retains the sole right and responsibility to
vote under the Credit Agreement, including, without limitation, the right to
approve any amendment or waiver of any provision of the Credit Agreement, and
agrees that the Designee shall be bound by all such votes, approvals, amendments
and waivers and all other agreements of the Designator pursuant to or in
connection with the Credit Agreement, all subject to Section 9.05(b) of the
Credit Agreement.
4. The Designee confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements referred
to in Article 4 or delivered pursuant to Article 5 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and
<PAGE>
decision to enter into this Designation Agreement; agrees that it will,
independently and without reliance upon any Agent, the Designator or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking any
action it may be permitted to take under the Credit Agreement. The Designee
acknowledges that it is subject to and bound by the confidentiality provisions
of the Credit Agreement (except as provided in Section 9.07(a) thereof).
5. Following the execution of this Designation Agreement by the
Designator and the Designee and the consent hereto by the Borrower, it will be
delivered to the Administrative Agent for its consent. This Designation
Agreement shall become effective when the Administrative Agent consents hereto
or on any later date specified on the signature page hereof.
6. Upon the effectiveness hereof, (a) the Designee shall have the right
to make Loans or portions thereof as a Bank pursuant to Section 2.01 or 2.04 of
the Credit Agreement and the rights of a Bank related thereto and (b) the making
of any such Loans or portions thereof by the Designee shall satisfy the
obligations of the Designator under the Credit Agreement to the same extent, and
as if, such Loans or portions thereof were made by the Designator.
7. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Designation Agreement to
be executed by their respective officers hereunto duly authorized, as of the
date first above written.
Effective Date/5/:______ , ____
[NAME OF DESIGNATOR]
By: _____________________________
Name:
Title:
__________________________
/5/ This date should be no earlier than the date of the Agent's consent
hereto.
H-2
<PAGE>
[NAME OF DESIGNEE]
By: ____________________________
Name:
Title:
The undersigned consent to the foregoing designation.
GUIDANT CORPORATION
By: ____________________________
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By: ____________________________
Name:
Title:
H-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 465
<ALLOWANCES> 16
<INVENTORY> 242
<CURRENT-ASSETS> 873
<PP&E> 791
<DEPRECIATION> 306
<TOTAL-ASSETS> 2,192
<CURRENT-LIABILITIES> 781
<BONDS> 570
0
0
<COMMON> 193
<OTHER-SE> 533
<TOTAL-LIABILITY-AND-EQUITY> 2,192
<SALES> 1,755
<TOTAL-REVENUES> 1,755
<CGS> 445
<TOTAL-COSTS> 445
<OTHER-EXPENSES> 285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 399
<INCOME-TAX> 151
<INCOME-CONTINUING> 248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3
<NET-INCOME> 245
<EPS-BASIC> 0.83
<EPS-DILUTED> 0.80
</TABLE>
<PAGE>
GUIDANT CORPORATION
Exhibit 99.1
Factors Possibly Affecting Future Operating Results
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
1. Economic factors over which the Company has no control, including changes in
inflation, interest rates and foreign currency exchange rates.
2. Delays and uncertainties in the regulatory approval process in the United
States and other countries, resulting in lost market opportunities.
3. Unexpected safety, performance or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified, leading to product
recalls, withdrawals or declining sales.
4. Unexpected interruptions of manufacturing operations as a result of
regulatory enforcement actions by the FDA or other regulatory authorities.
5. The difficulties and uncertainties inherent in new product development,
including new products that appear promising during development but fail to
reach the market as a result of safety, performance or efficacy concerns,
inability to obtain necessary regulatory approvals, unanticipated restrictions
imposed on approved indications, excessive costs to manufacture, infringement of
patents or other intellectual property rights of others, or technological
advances by a competitor of the Company.
6. Litigation and other legal factors which could preclude commercialization of
products or negatively affect the level of sales or profitability of existing
products, including litigation of product liability claims, antitrust
litigation, environmental matters and patent disputes.
7. Future difficulties obtaining necessary components or materials used in
manufacturing the Company's products.
8. Future difficulties obtaining or the inability to obtain appropriate levels
of product liability insurance.
9. Competitive factors including the ability of the Company to obtain patent
rights or other intellectual property rights sufficient to keep competitors from
marketing competing products, the introduction of new products or therapies by
competitors or scientific or medical developments that render the Company's
products obsolete, uneconomical or otherwise non-competitive or the acquisition
of patents by competitors that prevent the Company from selling a product or
including key features in the Company's products.
<PAGE>
10. Governmental factors including laws and regulations, policies and judicial
decisions that affect the regulation and reimbursement of medical devices,
product liability, health care reform or tax laws.
11. Health care industry factors, including increased customer demands for price
concessions, reductions in third-party (Medicare, Medicaid and other
governmental programs, private health care insurance and managed care plans)
reimbursement levels for procedures using the Company's products and limits
imposed by customers on the number of manufacturers or vendors which the
customer will purchase products from.
12. Accounting requirements to write off obsolete inventory or goodwill which
reduces reported earnings or changes in accounting standards applicable to the
Company.
13. Internal factors such as retention of key employees, change in business
strategies and the impact of restructuring and business combinations.
14. The ability of the Company to implement its strategy that includes the
potential acquisition of one or more businesses and difficulties in achieving
the integration of the operations of acquired businesses in a cost-effective
manner and in implementing strategies necessary for the realization of
anticipated synergies.
15. The inability of certain of the Company's, or its Suppliers' or Customers',
computer systems to handle dates beyond the year 1999.
16. The Euro Conversions impact on the competitive environment in which the
Company operates or its impact on the Company's fundamental risk management
philosophy.
17. Factors beyond the control of the Company, including earthquakes
(particularly in light of the fact that the Company has significant facilities
located near major earthquake fault lines), floods, fires or explosions.
