-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcoHDXzBd1W+RVNf83ikPjf4icFjK5tlbyC/6b9xRy3cq0FXJnEwRGUGbz8kB2hQ Olq3C71krNPe14i0Gab1pw== 0000950123-96-000301.txt : 19960131 0000950123-96-000301.hdr.sgml : 19960131 ACCESSION NUMBER: 0000950123-96-000301 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES SURGICAL CORP CENTRAL INDEX KEY: 0000101788 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 132518270 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09776 FILM NUMBER: 96508887 BUSINESS ADDRESS: STREET 1: 150 GLOVER AVE CITY: NORWALK STATE: CT ZIP: 06856 BUSINESS PHONE: 2038451000 MAIL ADDRESS: STREET 1: 150 GLOVER AVENUE CITY: NORWALK STATE: CT ZIP: 06856 FORMER COMPANY: FORMER CONFORMED NAME: AUTO SUTURE SURGICAL CORP DATE OF NAME CHANGE: 19700507 10-K 1 U.S. SURGICAL CORPORATION - FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO ______________ COMMISSION FILE NO. 1-9776 UNITED STATES SURGICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-2518270 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 GLOVER AVENUE, NORWALK, CONNECTICUT 06856 (Address of principal executive offices) (Zip Code) (203) 845-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------- ------------------------ Common Stock, $.10 par value New York Stock Exchange Depositary Shares, representing one-fiftieth interests in Series A Convertible Preferred Stock, $5 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing sales price for Common Stock of $21.375 and for Depositary Shares of $25.25 on December 31, 1995 and, for purposes of this computation only, the assumption that all directors and officers of the registrant are affiliates) was approximately $1.2 billion. The number of outstanding shares of Common Stock, $.10 par value, of the registrant was 57,165,938 shares on December 31, 1995. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the Registrant Incorporated By Reference Into Part III, Items 10, 11, 12 and 13 2 UNITED STATES SURGICAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 INDEX PART I ITEM PAGE - ---- ---- 1. Business ........................................................ 1 2. Properties ...................................................... 13 3. Legal Proceedings ............................................... 14 4. Submission of Matters to a Vote of Security Holders ............. 16 Executive Officers of the Registrant ............................ 17 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters............................................ 19 6. Selected Financial Data.......................................... 20 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 21 8. Financial Statements and Supplementary Data...................... 26 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 27 PART III 10. Directors and Executive Officers of the Registrant............... 28 11. Executive Compensation........................................... 28 12. Security Ownership of Certain Beneficial Owners and Management..................................................... 28 13. Certain Relationships and Related Transactions................... 28 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................... 28 Signatures....................................................... 31 Index to Consolidated Financial Statements and Financial Statement Schedule............................... F-1 3 PART I ITEM 1. BUSINESS. NATURE OF BUSINESS United States Surgical Corporation (the Company) is a Delaware corporation primarily engaged in developing, manufacturing and marketing a proprietary line of technologically advanced surgical wound management products to hospitals throughout the world. The Company currently operates domestically and internationally through subsidiaries, divisions and distributors. Except where the context otherwise requires, the term Company includes the Company's divisions and subsidiaries. The market that the Company services continues to be adversely affected by cost consciousness on the part of health care providers and payors and to experience slower growth rates created by efforts to reduce costs and by uncertainties connected with health care reform. The Company believes, however, that in any scenario that results from evolution of the domestic health care system, its products offer a significant opportunity for reducing costs for the total health care system while providing considerable advantages for the patient. The Company has also been impacted negatively by aggressive pricing by competition. To respond to these business conditions, the Company has expanded its marketing efforts to meet the needs of hospital management through cost effective pricing programs, by assisting hospitals in implementing more efficient surgical practices, and by demonstrating the favorable economics associated with the use of the Company's products. The Company continually expands its product and technology base through investment in internal research and development and through the acquisition of new products and technologies that provide better patient care and an effective means of reducing hospital costs. By offering technologically advanced products which can replace more expensive, more invasive procedures and by assisting hospital management in implementing more efficient surgical practices, the Company seeks to establish and maintain a strong competitive position. The Company is a leading multinational developer, manufacturer and marketer of innovative surgical wound closure products. In this category, principal products consist of a series of surgical stapling instruments (both disposable and reusable), disposable surgical clip appliers and disposable loading units (DLUs) for use with stapling instruments. The instruments are an alternative to manual suturing techniques utilizing needle/suture combinations and enable surgeons to reduce blood loss, tissue trauma and operating time while joining internal tissue, reconstructing or sealing off organs, removing diseased tissue, occluding blood vessels and closing skin, either with titanium, stainless steel, or proprietary absorbable copolymer staples or with titanium, stainless steel, or proprietary absorbable copolymer clips. Surgical stapling also makes possible several surgical procedures which cannot be achieved with surgical needles and suturing materials. The disposable instruments and DLUs are expended after a single use or, in the case of reloadable disposable instruments, after a single surgical procedure. _______________ Trademarks of United States Surgical Corporation are in italicized capital letters. 1 4 The Company is a leading manufacturer and marketer of specialized wound management products designed for use in the field of minimally invasive surgery. This surgical technique (also referred to as laparoscopic or endoscopic surgery) requires incisions of up to one half inch through which various procedures are performed using laparoscopic instruments and optical devices, known as laparoscopes or endoscopes, for viewing inside the body cavity. Laparoscopy generally provides patients with significant reductions in post-operative hospital stay, pain, recuperative time and hospital costs, with improved cosmetic results, and with the ability to return to work and normal life in a shorter time frame. The Company has developed and markets disposable surgical clip appliers and stapling instruments designed for laparoscopic uses in a variety of sizes and configurations. The Company's products in this area also include trocars, which provide entry ports to the body in laparoscopic surgery, and a line of instruments which allows the surgeon to see, cut, clamp, retract, suction, irrigate or otherwise manipulate tissue during a laparoscopic procedure. The Company also designs and markets laparoscopes. Applications for minimally invasive surgery currently include cholecystectomy (gall bladder removal), hysterectomy, hernia repair, bladder suspension for urinary stress incontinence, anti-reflux procedures for correction of heartburn, and various forms of bowel, stomach, gynecologic, urologic, and thoracic (chest) surgery. The Company believes that laparoscopy can also be used effectively in many other surgical procedures. The Company offers certain of its products in both disposable and reusable versions. Disposable instruments reduce the user's capital investment, eliminate the risks and costs associated with maintenance, sterilizing and repair of reusable instruments, and provide the surgeon with a new sterile instrument for each procedure, offering more efficacious and safer practice for both patients and operating room personnel. Reusable instruments provide an alternative for surgeons and hospitals preferring this approach. The Company continues to expand manufacturing and marketing of its line of suture products. The Company believes that sutures, which represent a major portion of the wound closure market, are a natural complement to its other wound management products. This market is currently dominated by other manufacturers. However, the Company expects continuing growth in its share of the suture portion of the market as a result of its sales efforts and by offering technologically advanced suture products. There can be no assurance that growth in suture sales will be realized, given competition and possible reluctance of some surgeons to use sutures which have different handling characteristics, even if they offer clinical advantages. The Company has taken steps to diversify beyond the general surgery market and explore new growth areas in surgery where it can utilize its manufacturing expertise, research and development experience and the skills of its sales force. To this end, the Company is building a line of surgical specialty instrumentation and technology for cardiovascular, oncological, urological and orthopedic procedures. The Company believes that minimally invasive instrumentation and more advanced techniques can be applied to these specialty practices. The Company plans to obtain such technologies through internal research and development and by acquiring, investing in, or creating alliances with, other firms or persons who have developed such technology. Although the Company believes that these areas of surgical practice offer significant opportunities for revenue growth and profitability, considerable risks may be involved and there can be no assurance that favorable results will be achieved. Costs of acquiring or developing instruments for use in specialty applications may be significant, which could adversely affect both near term and longer term results if successful products are not developed and introduced. In addition, considerable competition exists for products used in these surgical specialties, including competitors developing other techniques and from sources of more traditional products. Further, acceptance of newer techniques, even with demonstrated clinical advantages, may be slow given concerns as to expenditures for newer practices by health care payors and requirements for extensive training with newer approaches. The Company believes that, despite the uncertainties inherent in development of new technologies, the patient and the health care market will be served better by the introduction of more efficacious and less traumatic procedures across the operating room environment. 2 5 PRODUCT CONTRIBUTION The Company's current products constitute a single business segment. Surgical wound management products accounted for substantially all of the Company's net sales and profits in each of the years ended December 31, 1995, 1994 and 1993. AUTO SUTURE Stapling Products and Clip Appliers AUTO SUTURE stapling products consist of disposable single-use, and disposable instruments and reusable stainless steel instruments that utilize and can be reloaded with disposable loading units (DLUs) containing surgical staples. The staples are made of titanium, stainless steel, or a proprietary absorbable copolymer. The Company markets both disposable instruments and reusable stainless steel instruments in a variety of sizes and configurations for use in various surgical applications. Although the Company predominately markets disposable staplers, the availability of both reusable and disposable staplers gives surgeons the opportunity of using either in accordance with their preference. The Company's stapling instruments have application in abdominal, thoracic, gynecologic, obstetric, urologic and other fields of surgery. Common uses of AUTO SUTURE staplers include closure and resection (the removal of tissue or organs), stapling and transection of tissue, anastomosis (the surgical joining of hollow structures, as in organ reanastomosis), vessel occlusion, biopsies, skin and fascia closure and Cesarean section deliveries. The Company's PREMIUM PLUS CEEA, an improved version of its instrument designed for circular anastomoses, reached the market in early 1995. The instrument provides ease of insertion and removal from the lumen in bowel resections, while retaining the advantage of superior anastomotic security. AUTO SUTURE clip applier instruments individually apply a sequence of titanium, stainless steel, or absorbable clips for ligation of blood vessels and other tubular body structures. They are offered in a variety of clip sizes for use in a broad range of surgical procedures. Clip appliers marketed by the Company are disposable instruments which provide the surgeon with a new, sterilized instrument for each procedure. The Company's LDS disposable staplers simultaneously ligate and divide tubular body structures. The materials used in the Company's absorbable staples and clips are proprietary copolymers developed and manufactured by the Company. The copolymers are radio transparent, facilitate postoperative diagnosis without X-ray or CAT scan interference, maintain significant strength during the critical postoperative period, and are totally absorbed during subsequent months. The Company believes that, where applicable, AUTO SUTURE staplers and clip appliers provide benefits to surgeons, patients and hospitals that are superior to manual suturing methods. Depending on the type of operation and instruments used, these benefits may include: shorter operating time resulting in less time under anesthesia; reduction in blood loss; reduction in tissue handling, which can result in reduced tissue trauma and edema; lowering of the incidence of postoperative infection; enhanced cosmetic results; and faster healing. These benefits reduce the overall medical cost of the operation by significantly reducing operating room time, postoperative care and anesthesiology services. The Company believes these benefits are advantageous to the total health care system. AUTO SUTURE Products for Minimally Invasive Surgery The Company provides a full line of products to serve the needs of the surgical community in performing minimally invasive surgery, including a number of proprietary products not offered by any other company. 3 6 The Company markets a line of disposable trocars. The initial application of a trocar results in a sharp obturator tip or a cutting instrument within the trocar making a small opening in the abdominal wall or chest cavity. The obturator or cutting instrument is then removed, leaving the trocar sleeve in place to serve as an access tube through which a laparoscope and other surgical instruments may be inserted. Each disposable trocar is used in a single surgical procedure, assuring a sharp obturator point or cutting instrument for each application and eliminating the expense and risks of resharpening and resterilizing associated with reusable trocars. The Company's trocars are available in a wide range of sizes, some of which are offered with radiolucent sleeves to permit unobstructed X-rays. In late 1994, the Company introduced the VERSAPORT trocar. This trocar features the unique VERSASEAL system, the first self-adjusting trocar seal which accommodates 5mm to 12mm instrument sizes without the need for a converter. The VERSAPORT trocar reduces the costs, additional inventory, and operating room time associated with the use of converters, and provides surgeons with a better seal and reduced friction on instruments in laparoscopic procedures. During 1995, the Company introduced the VERSAPORT RPF trocar system, incorporating modifications which significantly lower penetration force. The Company also offers the VISIPORT trocar, which incorporates a viewing lens on the trocar tip for direct visualization during penetration of the body cavity, and a blunt tip trocar for use in open laparoscopy. The Company markets endoscopic clip appliers under the ENDO CLIP name, which have application in a variety of surgical procedures and have gained widespread acceptance for use in laparoscopic cholecystectomy, a procedure which has become the standard technique for removal of the gallbladder, and in other procedures. These products are designed to be applied through the Company's proprietary trocars to ligate a variety of tissue structures and to perform dissection. The Company markets a variety of instruments under the MULTIFIRE name designed for endoscopic application, including staplers for endoscopic procedures, which may be reloaded with new DLUs several times during a single surgery. The Company's staplers are used in a variety of procedures, including appendectomies, laparoscopically assisted vaginal hysterectomies, and general, gynecologic and thoracic procedures, and in bowel procedures such as colectomies and interior resections. The Company offers various instruments for use in conjunction with its line of trocars, including a variety of hand instruments designed especially for use in minimally invasive surgery which fit through its trocars, as well as advanced suction and irrigation devices. The Company introduced a number of new laparoscopic products during 1995, with an emphasis on products which enhance clinical outcomes and offer the opportunity for hospitals to realize cost savings. The MULTIFIRE ENDO GIA II stapler offers the same range of size adjustment options which a hospital previously could obtain only by stocking three different instruments, as well as improved clinical efficacy. The Company also introduced a 5mm ENDO CLIP applier which offers the surgeon the same ligating capability as the 10mm instrument while reducing the size of the incision required for the procedure. The Company introduced the SURGIVIEW Multi-Use Laparoscope during 1995, a repair free limited use reusable laparoscope providing excellent visual acuity. The Company believes this product offers hospitals the potential for significant cost savings. However, acceptance could be affected, particularly in the near term, by hospitals' existing investment in reusable laparoscopes. 4 7 In late 1994 the Company introduced the revolutionary ENDO STITCH instrument and associated DLUs. This device allows the surgeon to suture and tie knots laparoscopically by passing a proprietary needle, with different types of the Company's proprietary suture material attached, between two jaws (located at the end of an endoscopic shaft) quickly, accurately and easily in comparison with manual endoscopic suturing techniques. Manual techniques are time consuming and difficult to learn, and have inhibited conversion of certain procedures, which require endoscopic suturing, to the laparoscopic method. During 1994, the Company entered a three year agreement with General Surgical Innovation, Inc. ("GSI") to sell the GSI Spacemaker (tm) balloon dissector for laparoscopic hernia procedures, combining the advantages of laparoscopy with the accepted technique of extraperitoneal procedures. This device may also be used in performing Burch bladder suspensions for relieving urinary incontinence. Although the Company intends to continue improving and expanding its product lines applicable to general surgery, it believes that laparoscopic and other more advanced techniques may be applied to additional surgical applications, including surgical specialties. During 1995, the Company announced several new products and techniques for such purposes and continues research and development toward these ends. The Company has developed specialized wound closure instrumentation for use in vascular procedures, including its new VCS vascular clip applier, a device which permits arteriotemies, venotemies, and vascular anastomoses without penetration of the inner wall of the vessel. The Company is developing a new minimally invasive technique for harvesting the saphenous vein from a patient's leg in connection with cardiovascular surgery, requiring only a few small incisions rather than an incision running the length of the patient's leg, minimizing patient discomfort and scarring. The Company believes its products may also be used for a variety of minimally invasive cardiovascular and peripheral vascular surgeries, and is developing additional instruments for use in such procedures. While the Company believes its products may be useful in coronary surgery, surgeons practicing in this field have not traditionally performed minimally invasive surgery or used disposable instruments extensively and no assurance can be given as to the acceptance of such products or techniques in this area. The Company is taking steps to offer miniaturized instruments for minimally invasive surgery. During 1995, the Company acquired the licenses to the MINISITE 2mm endoscope, trocar, and accessory products (including miniaturized hand instruments), and is introducing miniaturized versions of its current line of products. The Company believes that its miniaturized line of instruments may have application in a wide variety of procedures, including areas in which minimally invasive procedures are not presently applied, such as trauma, diagnostic, and rehabilitative procedures, and may enable some procedures to be performed under conscious sedation outside the traditional operating room environment. In addition, the smaller instruments may allow laparoscopic post-operative review after surgery without hospitalization or general anesthesia, which the Company believes may also help reduce health care costs and improve clinical outcomes. During 1995, the Company entered a strategic alliance with Lorad, a unit of ThermoTrex Corporation, in which it obtained marketing and distribution rights to the ABBI system, consisting of the ABBI system stereotactic table which, together with the Company's ABBI system biopsy device (the device is currently before the FDA for review) are planned to be used to perform core needle and needle localization for advanced breast biopsy. The ABBI system allows a one-step, minimally invasive process for breast biopsy, offering the surgeon increased accuracy and control and the patient reduced scarring and disfigurement, and may significantly reduce procedural and operating room costs. 5 8 In the orthopedic field, the Company introduced the AUTO SUTURE endoscopic spinal system in late 1995, consisting of a variety of instruments manufactured by the Company for application in laparoscopic lumbar discectomy and fusion, and in video assisted thoracic spine procedures. Although the Company believes that spinal surgery offers the potential for new markets for its endoscopic products, sales of these products may depend on acceptance of laparoscopy by orthopedic surgeons and neurosurgeons. In addition, specialized training in laparoscopic back surgery is required. Endoscopic products are offered individually, in pre-assembled kits and in custom kits designed for specific surgical procedures such as cholecystectomy, hernia repair, laparoscopically assisted vaginal hysterectomy, bowel and other procedures. Kits are intended to offer the surgeon and operating room staff convenience and ease of accessibility to instruments, and provide a cost efficient means of purchasing the Company's products for hospital materials management departments. SUTURE PRODUCTS Sutures comprise a major portion of the wound closure market. Since most surgical procedures which use staples also require manual suturing, the Company considers sutures to be a natural complement to its stapling instrumentation. The Company is continuing its planned expansion into this mature but very large market. The Company's product line includes both non-absorbable products and absorbable suture products, SURGIPRO mesh fabrics designed for applications in both open and endoscopic surgery such as hernia repair, and SURGALLOY needles. The Company believes that its sutures have significant technological advantages over competitors' products. The Company's BIOSYN suture, introduced in 1995, is the first synthetic, absorbable suture which combines the benefits of a monofilament suture with many of the advantages of braided sutures, such as tensile strength, ease of handling, and first throw hold capability. The Company believes that its BIOSYN sutures will compete effectively with its competitors' gut, absorbable braided and absorbable monofilament sutures, providing uses across a wide variety of surgical applications. The Company believes that the versatility of the BIOSYN suture will provide hospitals with a cost effective method of standardization and increased efficacy. However, the success of the BIOSYN suture will depend on a number of factors, including the surgical community's acceptance of products which are different from products to which they have become accustomed. The suture program also allows the Company to compete more effectively for contracts with customers that prefer to purchase all of the hospital's wound closure needs from a single vendor, particularly as individual hospitals, buying groups and hospital alliances continue to consolidate their purchasing. OTHER PRODUCTS During the year, the Company acquired a license with respect to the CHEMOSITE Infusion Ports business from Device Labs, Inc., a privately held manufacturer. An infusion port is a device implanted into a patient to provide repeated access to the vascular system, such as for delivery of medications, blood products and nutrition fluids, or the withdrawal of blood samples. The principal use today is for delivery of chemotherapeutic agents to cancer patients. Infusion ports have replaced external catheters to a large extent, and are commonly used by surgeons. Several companies offer competing products, with Bard Corporation holding an approximately 55% share of domestic sales of these products. The Company believes that its CHEMOSITE Infusion Ports will be competitive. 6 9 The Company acquired Surgical Dynamics Inc. (SDI) of Concord, California, a subsidiary of E-Z- EM, Inc. SDI is a leading developer and manufacturer of spinal cages and other instrumentation for spine surgery. Spinal cages represent a new technological advance in implantable spine devices. They provide a supporting lattice for bone in-growth for patients with back injury or degenerative disease with many advantages over present practices for repairing the spine. SDI has completed a four-year clinical trial under FDA control and submitted its PMA (pre-market approval) to the FDA. The Company believes that the PMA is receiving expedited review by the FDA. SDI has received regulatory approval for use of the device in Europe and Japan. The Company entered an alliance with Alexion Pharmaceuticals, Inc. with respect to worldwide marketing rights to market Alexion's transgenetically engineered pig organs. The Company has certain options to fund Alexion's future research and development and pay royalties on any resulting product sales. Although the Company believes that Alexion's technology is highly promising, substantial additional research and development and clinical trials, including premarket approval by the U.S. Food and Drug Administration, will be required before any products could be introduced to the market, and no assurance can be given that the products will be successful in human transplantation. Moreover, a number of other companies are engaged in similar research, and such competition could adversely impact the Company's opportunities in this area. MARKETING AND SALES Domestically, the Company markets its products to surgeons and materials managers of hospitals primarily through the sales employees of its Auto Suture Company division. Outside the United States, the Company markets its products in 23 countries and in the Commonwealth of Puerto Rico by direct sales employees of 16 sales and marketing subsidiaries, and through its authorized distributors in 60 other countries. In 5 additional countries the Company sells its products directly to the user through the distributor sales department at its headquarters. The Company maintains its own direct sales force employed by subsidiaries operating in Algeria, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Morocco, the Netherlands, New Zealand, Norway, Poland, Puerto Rico, Russia, Spain, Sweden, Switzerland, Tunisia and the United Kingdom. The Company acquired certain assets of its Japanese distributor during 1995 in order to begin marketing its products directly in Japan. All sales employees of the Auto Suture Company, of the Company's subsidiaries, and of the Company's authorized international distributors receive identical training with respect to the Company's products, consisting of an extensive training course that prepares them to provide surgeons and hospital personnel with technical assistance, including scrubbing in surgery as technical advisors in connection with the use of the Company's products. The training courses are developed and conducted by the Company at its expense. The training course includes an introduction to anatomy and physiology, the study of surgical terminology, aseptic surgical techniques such as scrubbing, gowning, gloving and operating room protocol and the use of the Company's instruments on artificial foam organs for sales demonstrations and on anesthetized animals in the laboratory for teaching purposes. The Company's training curriculum also prepares sales personnel to assist hospital administrators in implementing efficient surgical practices and in realizing the economic benefits afforded by the Company's products. The Company demonstrates its products on artificial foam organs and through the use of films, video cassettes, technical manuals and surgical atlases. 7 10 The Company also sells to domestic distributors under a program known as Just-in-Time (JIT) distribution. Under the JIT program, the Company sells its products to a distributor selected by a participating hospital and the distributor sells the products to the hospital on an as needed basis. The Company compensates the distributor for handling and other services. Distributor sales are common in the medical products industry. The Company's JIT program responds to customer needs, many of whom desire distributorship arrangements in order to avoid costs associated with inventory management. The Company believes that distribution arrangements also negate distributor incentives to promote competing brands, allow the Company's technical sales force more time to support user surgeons and hospital management, and provide the Company with opportunities to enhance or protect its competitive position through an additional channel of sales. Sales through the JIT program currently comprise approximately 45% of the Company's domestic business. The Company is committed to the continuing education of the surgical community by assisting a substantial number of medical schools, hospitals and educational organizations in training residents, nurses, surgeons and administrators in the techniques of wound management using AUTO SUTURE instrumentation. With the increasing number of advanced surgical procedures being performed using the minimally invasive approach, the Company also supports proctorships and preceptorships where an experienced surgeon clinically assists and teaches a surgeon in the operating room. Initially, the primary focus of the training programs was on laparoscopic cholycestectomy. Widespread training has been accomplished for that procedure, and the emphasis in future training will be on more advanced applications of laparoscopy, including hernia, bowel, and thoracic procedures, laparoscopically assisted vaginal hysterectomies, laparoscopic bladder suspension, and procedures for the correction of esophageal reflux. The Company believes that acceptance of laparoscopic techniques as the preferred method in a broad range of procedures will be an important element of the Company's future growth. Numerous studies have shown that, in addition to reduced patient recovery time, laparoscopy is a safe and efficacious technique. However, and particularly in more complex procedures, surgeons must receive adequate training before achieving competency to perform laparoscopy. The Company supports certification of surgeons in this technique to ensure that the Company's products are used properly. The costs of training for newer, more complicated procedures and concerns as to reimbursement for newer procedures in view of changes in the health care system have affected the rate at which the surgical community is learning the more advanced laparoscopic procedures. More advanced applications of laparoscopy may become specialized rather than practiced broadly by the general surgical community. In addition, specialty surgeons may not be experienced in minimally invasive surgery and may require familiarization with this approach prior to acceptance in their practices. The Company markets to hospital administrators and purchasing groups as well as to surgeons, by demonstrating the economic efficiencies of the Company's products and by assisting hospital management in realizing the benefits of minimally invasive surgery. In 1995, the Company implemented its PARTNERING WITH USSC program, which is designed to help hospital administrators reduce costs, enhance quality and increase revenue. The program encompasses the Company's BEST PRACTICES program, which assists hospitals in a continuous effort to perform surgery more efficiently, enabling hospitals to analyze and reduce systemwide costs, provides surgeon and staff training programs and development of clinical guidelines for high-quality and efficient patient care through minimally invasive surgery, and assistance with managed care contracting and customized marketing materials. The Company also provides training programs for primary care physicians in the use and advantages of minimally invasive surgery, as they become the gatekeepers to managed care. These approaches are designed to assist hospitals in remaining competitive in the current health care environment. 8 11 International sales represented approximately 49% of the Company's net sales in 1995, 46% of the Company's net sales in 1994, and 40% of the Company's net sales in 1993. International sales included sales through international subsidiaries, which were approximately 44% in 1995, 37% in 1994, and 33% in 1993, and sales to international distributors and to end users in countries not otherwise serviced by the Company, which were approximately 5% in 1995, 9% in 1994, and 7% in 1993, of the Company's net sales. (See Note J of Notes to Consolidated Financial Statements for additional information by geographical area.) Orders for the Company's products are generally filled on a current basis, and order backlog is not material to the Company's business. MANUFACTURING AND QUALITY ASSURANCE Manufacturing is conducted principally at two facilities: North Haven, Connecticut, and Ponce, Puerto Rico. Manufacturing includes major assembly and packaging of products. The Company produces all material for its synthetic absorbable staples, clips and sutures internally. Needles contained in certain of the Company's suture products are produced at its facilities in North Haven, Connecticut. Other needles and suture materials are supplied by several manufacturers. The Company's reusable steel surgical staplers, components for the products the Company manufactures, and a minor portion of the Company's DLUs are supplied by several independent non-affiliated vendors using the Company's proprietary designs. Raw materials necessary for the manufacture of parts and components and packaging supplies for all of the Company's products that are manufactured by it are readily available from numerous third-party suppliers. The Company considers quality assurance to be a significant aspect of its business. It has a staff of professionals and technical employees who develop and implement standards and procedures for quality control and quality assurance. These standards and procedures cover detailed quality specifications for parts, components, materials, products, packaging and labeling, testing of all raw materials, in-process subassemblies and finished products, and inspection of vendors' facilities and performance to assure compliance with the Company's standards. The Company has obtained International Standards Organization ("ISO") certification for its plants in Connecticut and Puerto Rico. RESEARCH AND DEVELOPMENT The Company believes that research and development is an important factor in its future growth. The Company engages in a continuing product research, development and improvement program at its Norwalk and North Haven, Connecticut facilities and through funding of research and development activities at major universities and other third parties. It employs a staff of engineers, designers, toolmakers and machinists that performs research and development as well as manufacturing support functions. During 1995, 1994, and 1993, the Company's research and development expenses, including suture-related research and development expenses, were approximately $43,100,000, $37,500,000, and $50,800,000, respectively. Within the past three years the Company has introduced 31 new products that are the result of research and development conducted by the Company. Approximately 60 % of 1995 sales revenues were received from the sale of products introduced within the preceding five years. The Company focuses its research and development resources on products and redesign of existing products which are best suited to customer needs in the current cost conscious health care environment, including an aggressive program of exploring new opportunities for advancement in the surgical field. 9 12 PATENTS AND TRADEMARKS Patents are significant to the conduct of the Company's business. The Company owns 166 new U.S. patents issued in 1995 (including patents purchased through acquisitions of companies or technology), 117 such patents issued in 1994, and 58 such patents issued in 1993. Overall, the Company currently owns over 400 unexpired U.S. utility and design patents covering products it has developed or acquired and having expiration dates ranging from less than one year to 17 years. No patents will expire in the near future which are material to the Company's results of operations or financial position. Moreover, the Company has many additional U.S. patent applications pending. The Company's practice and experience is to develop or acquire rights or licenses to innovative patented products and continuously update its existing technology. The Company also has a significant number of foreign patents and pending applications. The Company has registered various trademarks in the U.S. Patent and Trademark Office and has other trademarks which have acquired both national and international recognition. The Company also has trademark registrations or pending applications in a number of foreign countries. See Item 3, "Legal Proceedings", for details of certain patent infringement actions to which the Company is a party. COMPETITION There is intense competition in the markets in which the Company engages in business. Products competitive with the Company's staplers and clip appliers include various absorbable and non-absorbable sutures, clips and tape, as well as disposable and steel stapling instruments, DLUs and some hand loaded staplers. Many major companies that compete with the Company, such as Johnson & Johnson, Minnesota Mining and Manufacturing Company ("3M") and Davis & Geck, a division of American Home Products Corporation, have a wider range of other medical products and dominate much of the markets for these other products. Ethicon, Inc. ("Ethicon"), a Johnson & Johnson subsidiary, markets, in addition to sutures and other wound closure products, disposable skin staplers, clip appliers, and internal staplers. 3M markets a variety of surgical devices. Davis & Geck markets disposable skin staplers, clip appliers and suture materials. The Company believes that these major companies will continue their efforts to develop and market competitive devices. The market for products for minimally invasive surgery is highly competitive. The Company believes it is the leader in this field as the result of its successful innovative efforts and superior products. Ethicon, through a division known as Ethicon Endo-Surgery, markets a line of endoscopic instruments directly competitive with the Company's products and is its principal competitor in minimally invasive surgery. The Company believes that Ethicon devotes considerable resources to research and development and sales efforts in this field. Numerous other companies manufacture and distribute disposable endoscopic instruments. In addition, manufacturers of reusable trocars and other reusable endoscopic instruments, including Richard Wolf Medical Instruments Corp. (a subsidiary of Richard Wolf, GmbH) and Karl Storz Endoscopy-America Inc. (a subsidiary of Karl Storz, GmbH), compete directly with the Company. Industry studies show Ethicon currently has approximately 78% of the suture market, while Davis & Geck has about 13% of this market. The Company expects that, because the size of the total sutures market is relatively stable, any increase in the Company's market share in this area will have to be earned at the expense of the other current market participants. The Company believes that the technological advantages of its sutures will enable it to compete effectively with these companies and that its market share in sutures will continue to grow. 10 13 The Company also expects intense competition in sales of products for specialty surgical application. A broad range of companies, including Ethicon, presently offer products for use in cardiovascular, urologic, orthopedic, and oncological procedures. Many of such companies have significantly greater capital than the Company and are expected to devote substantial resources to development of newer technologies which would be competitive with products which the Company may offer. There are also a number of smaller companies engaged in the development of surgical specialty devices and products developed by such firms could present additional competition. The Company's principal methods of competing are the development of innovative products, the performance and breadth of its products, its technically trained sales force, educational services, including sponsorship of training programs in advanced laparoscopic techniques, and more recently, assisting hospital management with cost containment and marketing programs. The Company's major competitors have greater financial resources than the Company. Some of its competitors, particularly Ethicon, have engaged in substantial price discounting and other significant efforts to gain market share, including bundled contracts for a wide variety of healthcare products with group purchasing organizations. In the current health care environment, cost containment has become a significant factor in purchasing decisions by hospitals. As a result, the Company's traditional advantage of product superiority has been impacted. The Company has responded to this aspect of competition by competitive pricing and by offering products which meet hospital cost containment needs, while maintaining the technical superiority of its products and the support of its sales organization. The Company believes that the advantages of its various products and its customer assistance programs will continue to provide the best value to its customers. However, there is considerable competition in the industry and no assurance can be given as to the Company's competitive position. The impact of competition will likely have a continuing effect on sales volumes and on prices charged by the Company. In addition, increased cost consciousness has revived competition from reusable instruments to some extent. The Company believes that disposable instruments are safer and more cost efficient for hospitals and the healthcare system than are reusable instruments, but it cannot predict the extent to which reusable instruments will competitively impact the Company. The Company also offers reusable instruments to respond to the preferences of its customers. GOVERNMENT REGULATION The Company's business is subject to varying degrees of governmental regulation in the countries in which it operates. In the United States, the Company's products are subject to regulation as medical devices by the United States Food and Drug Administration (the "FDA"), as well as by other federal and state agencies. These regulations pertain to the manufacturing, labeling, development and testing of the Company's devices as well as to the maintenance of required records. An FDA regulation requires prompt reporting by all medical device manufacturers of an event or malfunction involving a medical device where such device caused or contributed to death or serious injury or is likely to do so. 11 14 Federal law provides for several routes by which the FDA reviews medical devices prior to their entry into the marketplace. To date, all of the Company's new products have been cleared by the FDA under the most expedited form of pre-market review since the initiation of the program or have not required FDA approval. The Company, along with the rest of the industry, has experienced lengthy delays in the FDA approval process, although the Company believes that Congressional pressure has resulted in some improvements in the timeliness of the FDA's review process. Timely product approval is important to the Company's maintaining its technological competitive advantages. Other than lengthy FDA product approval delays, the Company has not encountered any other unusual regulatory impediments to the introduction of new products. To the extent the Company develops products for use in more advanced surgical procedures, the regulatory process may be more complex and time consuming. Many of these future products may require lengthy human clinical trials and the Pre-Market Approval of the FDA relating to class III medical devices. The Company knows of no reason to believe that it will not be able to obtain regulatory approval for its products, to the extent efficacy, safety and other standards can be demonstrated, but the lengthy approval process will require additional capital, risk of entry by competitors, and risk of changes in the marketplace prior to market approvals being obtained. Overseas, the degree of government regulation affecting the Company varies considerably among countries, ranging from stringent testing and approval procedures in certain locations to simple registration procedures in others, while in some countries there is virtually no regulation of the sale of the Company's products. In general, the Company has not encountered material delays or unusual regulatory impediments in marketing its products internationally. Establishment of uniform regulations for European Economic Area nations took place on January 1, 1995. The new regulations subject the Company to a single regulatory scheme for all of the participating countries. The Company has taken the necessary steps to assure ongoing compliance with these new, more rigorous regulations, including obtaining ISO 9000 certifications of its operations. The Company expects that it will be able to market its products in Europe with a single registration applicable to all participating countries. The Company is also able to respond to various local regulatory requirements existing in all other international markets. HEALTH CARE MARKET The health care industry continues to undergo change, led primarily by market forces which are demanding greater efficiencies and reduced costs. Government proposed health care mandates in the United States have not occurred, and it is unclear whether, and to what extent, any future government mandate will affect the domestic health care market. Industry led changes are expected to continue irrespective of any governmental efforts toward health care reform. The scope and timing of any further government sponsored proposals for health care reform are presently unclear. The primary trend in the industry is toward cost containment. Payors and managed care organizations have been able to exercise greater influence through managed treatment and hospitalization patterns, including a shift from reimbursement on a retrospective basis to prospective limits for patient treatment. Hospitals have been severely impacted by the resulting cost restraints and are competing for business and becoming more sophisticated in management and marketing. The increasing use of managed care, centralized purchasing decisions, consolidations among hospitals and hospital groups, and integration of health care providers, are continuing to affect purchasing patterns in the health care system. Purchasing decisions are often shared by a coalition of surgeons, nursing staff, and hospital administrators, with purchasing decisions taking into account whether a product reduces the cost of treatment and/or attracts additional patients to a hospital. All of these factors, along with competition, have contributed to continuing reductions in prices for the Company's products and, in the near term, to slower acceptance of more advanced surgical procedures in which the Company's products are used, given hospital and surgeon concerns as to the costs of training and reimbursement by payors. In addition, the primary care physician is expected to exercise significant influence on referrals of patients for surgical procedures under managed care. 12 15 The Company could potentially benefit from this focus on cost containment and on managed care. Stapling and minimally invasive surgery decrease operating room time including anesthesia, patient recovery time and in many cases are highly cost effective. Doctors, patients, employers and payors all value decreased patient recovery time. This could lead to potential increases in volume as surgical stapling and minimally invasive procedures are selected over alternative techniques. However, an undue focus on discrete costs or similar limits which fail to consider the overall value of minimally invasive surgery could adversely impact the Company. Some hospitals may also lose per night revenues through reduced post-operative care requirements as to procedures performed by laparoscopy, which could influence their analysis of acceptance of newer procedures. The Company is adapting itself to this new environment by promoting the cost effectiveness of its products, by striving to efficiently produce the highest quality products at the lowest cost, and by assisting hospitals and payors in achieving meaningful cost reductions for the health care system while retaining the quality of care permitted by the Company's products. Internationally, several factors have slowed the pace of conversion from traditional to minimally invasive procedures in overseas markets. Many foreign countries do not generally accept disposable instruments for use in medical procedures. In addition, the socialization of health care in many developed, international countries results in patients having less influence on the type of care they receive. Finally, foreign government cost containment efforts may slow down the process of obtaining reimbursement approvals for procedures using the company's products. The Company expects these factors to continue to impact growth in those foreign countries where they are present. EMPLOYEES At December 31, 1995, the Company employed 6,000 persons, 5,070 domestically and 930 in foreign countries. None of the Company's domestic employees is represented by a labor union for purposes of collective bargaining. The Company considers its relations with its employees to be excellent. ITEM 2. PROPERTIES. The Company owns its corporate headquarters, which is located at 150 Glover Avenue, Norwalk, Connecticut, and owns or leases other facilities in Norwalk, North Haven and Wilton, Connecticut, in Ponce, Puerto Rico, and in eighteen foreign countries. The Norwalk corporate headquarters includes executive and administrative facilities and research laboratories. The other facilities in the United States and the facilities in Puerto Rico and in foreign countries consist variously of administrative offices, manufacturing, research, warehouse, distribution, sterilizer operation and assembly space. The North Haven, Connecticut and Puerto Rico facilities are the primary manufacturing facilities of the Company. The facilities at each of these locations are leased by the Company under long term operating leases. During 1992 and 1993, the Company expanded its facilities in North Haven, Connecticut, Ponce, Puerto Rico, and various locations in Europe to accommodate current and anticipated increased demand for its products, and constructed a European headquarters and training facility in Elancourt, a suburb of Paris, France. The Elancourt properties are leased under a 15 year financing lease and a portion of the facility is being used by the Company as a surgeon training facility and for administrative offices. The Company is presently attempting to sublease the unutilized portions of the Elancourt, North Haven and Puerto Rico facilities. The Company's facilities and equipment are in good operating condition, are suitable for their respective uses and are adequate for current needs. 13 16 ITEM 3. LEGAL PROCEEDINGS. A. In July 1989, Ethicon, Inc. filed a complaint against the Company in the United States District Court for the District of Connecticut alleging infringement of a single United States patent relating to trocars. In counterclaims, the Company has alleged, among other grounds, that Ethicon's actions tortiously interfered with the Company's business dealings and that Ethicon is infringing three of the Company's patents. The parties' cross-motions for preliminary injunctions were denied by the District Court in April 1991. The Court has held hearings, concluded in September, 1995 as to the Company's motion to dismiss Ethicon's claim of infringement. The Company's motion is under consideration by the Court. No trial date has been set. In the opinion of management, based upon the advice of counsel, the Company has valid claims against Ethicon and meritorious defenses against the claims by Ethicon. The Company believes that the ultimate outcome of this action should not have a materially adverse effect on the Company's consolidated financial statements. B. In March, 1992, the Company filed a complaint in the United States District Court for the District of Connecticut against Johnson & Johnson subsidiaries Johnson & Johnson Hospital Supplies, Inc. and Ethicon, Inc., alleging infringement of United States patents issued to the Company covering the Company's endoscopic multiple clip applier. In February, 1994, a jury returned a verdict in favor of the defendants, holding that the Company's patent claims were invalid. The Company's appeal of the verdict to the United States Court of Appeals for the Federal Circuit was denied, and the Company filed a petition for a writ of certiorari with the United States Supreme Court seeking to overturn the lower court decisions. On October 2, 1995, the United States Supreme Court, in selecting the docket for its current session, left pending the Company's writ of certiorari. The Company believes the Court has tied the outcome of the Company's action to a case, raising similar issues, which was heard by the Supreme Court on January 8, 1996. The Company participated in that case by filing a supportive brief with the Supreme Court. If the Company's position is sustained by the Supreme Court, the Court of Appeals would be expected to either enter a decision on the Company's behalf or order the District Court to hold a new trial at which the Company could reassert its claims for barring Ethicon's endoscopic clip applier from the market and for monetary damages. C. In May, 1992, the Company filed a complaint in the United States District Court for the Northern District of California against Origin Medsystems, Inc. ("Origin"), a subsidiary of Eli Lilly & Co., and Frederic Moll, an officer of Origin and a former employee and director of EndoTherapeutics. The Company acquired EndoTherapeutics in July 1992. On January 12, 1993, the District Court granted the Company's motion for a preliminary injunction. The infringing trocars were ordered removed from the market. The United States Court of Appeals for the Federal Circuit in December 1993 denied Origin's appeal and affirmed the lower court's order for a preliminary injunction. A date for trial has not been set. The United States Patent Office, which, on the defendant Origin's request, reexamined one of the Company's patents on its PREMIUM SURGIPORT retracting tip trocar, has confirmed the patentability of the Company's trocar. In the opinion of management, based upon the advice of counsel, the Company has valid claims against the defendants. 14 17 D. In August and September 1992, four complaints brought by shareholders as class actions were filed in the United States District Court for the District of Connecticut, naming the Company and two executives as defendants. The complaints allege wrongful conduct in violation of federal securities law and related state law which resulted in damages in connection with the plaintiff shareholders' purchases of the Company's common stock. During the second quarter 1993, the Company and certain executive officers were named as defendants in additional complaints styled as shareholder class actions, making comparable allegations to those in the earlier filed complaints. In June, 1993, the Court entered orders consolidating these cases. In February and March 1994, three additional complaints brought by shareholders as class actions were filed in the United States District Court for the District of Connecticut, naming the Company and certain executives as defendants. The complaints allege wrongful conduct in violation of federal securities laws in connection with the plaintiff shareholders' purchases of the Company's common stock. On April 12, 1995, the Court dismissed a majority of the claims which had been brought under the federal securities laws by purchasers of the Company's common stock. The Company intends to defend vigorously against the remaining claims, which relate only to timeliness of the Company's disclosure of its implementation of a Just-in-Time distribution program. In the opinion of management, based upon the advice of counsel, the defendants have meritorious defenses against the claims asserted in the actions. The Company believes that the ultimate outcome of these actions should not have a materially adverse effect on the Company's consolidated financial statements. E. In September, 1993, Ethicon, Inc. filed a Complaint against the Company in the United States District Court for the District of Delaware alleging that the Company's manufacture, use and sale of surgical staples used in a variety of the Company's staplers infringes certain patents. Ethicon, Inc. subsequently amended its complaint to add Ethicon Endo-Surgery and Design Standards Corporation, a Connecticut corporation and a supplier to the Company, as co-plaintiffs. The Company successfully moved to transfer the case to the United States District Court for the District of Connecticut. In December, 1993, the Company asserted counterclaims against Ethicon, Inc. and Ethicon Endo-Surgery for, among other things, infringing the Company's patents relating to surgical staples. In addition, the Company has asserted counterclaims against Design Standards Corporation for breach of its contractual obligations to the Company and for statutory unfair trade practices by purporting to assign rights to Ethicon which belong to the Company. In December, 1995, the Company filed motions for summary judgment as to the validity of and the lack of any infringement with respect to the Ethicon patents, and the plaintiffs filed a motion for summary judgment against the Company's counterclaims. In the opinion of management, based upon the advice of counsel, the Company has meritorious defenses against the claims asserted in this action and valid claims against the plaintiffs. The Company believes that the ultimate outcome of this action should not have a materially adverse effect on the Company's consolidated financial statements. F. In February, 1994, Ethicon Endo-Surgery filed suit against the Company in the United States District Court for the Southern District of Ohio, alleging infringement by the Company's instruments of a single patent for a safety lockout mechanism on a linear cutter/stapler. In June, 1994, the Court denied the plaintiffs' motion for a preliminary injunction against the Company. In August, 1995, after a hearing as to the construction of Ethicon's patent claims, the Court ruled in favor of the Company and dismissed Ethicon's claims. Ethicon has appealed the decision. The Company previously had asserted counterclaims against Ethicon which have also been dismissed, without prejudice. No hearing date before the Court of Appeals for the Federal Circuit has been set. In the opinion of management, based upon the advice of counsel, the Company has meritorious defenses against the claims asserted in the complaint. The Company believes that the ultimate outcome of this action should not have a materially adverse effect on the Company's consolidated financial statements. 15 18 G. In November, 1995, the Company acquired Surgical Dynamics, Inc. ("Surgical Dynamics"), a privately held company which develops, manufactures and markets surgical devices for use in spinal procedures. In January, 1995, Surgical Dynamics sought declaratory judgment in the United States District Court for the Central District of California that its spinal fusion cage product, the Ray FTC device, did not infringe a patent owned by Karlin, Inc. and licensed to Sofomar Danek Group, Inc. and that such patent is invalid. The defendants filed counterclaims for patent infringement and unfair trade practices. In the opinion of management, based upon the advice of counsel, Surgical Dynamics is not infringing any rights of the defendants and has valid defenses against the defendants' counterclaims. The Company believes that the ultimate outcome of this action should not have a materially adverse effect on the Company's consolidated financial statements. H. The Company is engaged in other litigation, primarily as a defendant in cases involving product liability claims. The Company is also involved in various other cases. The Company believes it is adequately insured in material respects against the product liability claims and, based upon advice of counsel, that the Company has meritorious defenses and/or valid cross claims in these actions. * * * * * * * In the opinion of management, based upon the advice of counsel, the ultimate outcome of the above actions, individually or in the aggregate, should not have a materially adverse effect on the Company's consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 16 19 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information pertaining to the executive officers of the Company as of January 30, 1996:
Acting as Name Age Position Such Since - ---- --- -------- ---------- Leon C. Hirsch 68 Chairman of the Board, President 1987 and Chief Executive Officer Turi Josefsen 59 Executive Vice President, and 1994 President, International Operations (President and Chief Executive Officer of Auto Suture Companies 1992 - 1994) Thomas R. Bremer 42 Senior Vice President and 1994 General Counsel (Officer since 1989) Thomas D. Guy 53 Senior Vice President, Operations 1994 (Officer since 1981) Robert A. Knarr 47 Senior Vice President and 1994 General Manager, U.S. and Canada (Officer since 1983) Howard M. Rosenkrantz 52 Senior Vice President, Finance and 1992 Chief Financial Officer (Officer since 1982) Peter Burtscher 55 Group Vice President 1993 (Officer since 1982) Richard A. Douville 40 Vice President and 1993 Treasurer Richard N. Granger 39 Vice President, Research 1993 and Development (Officer since 1992) Charles E. Johnson 47 Vice President, Education 1994 (Officer since 1993) Louis J. Mazzarese 50 Vice President, Quality 1992 and Regulatory Affairs (Officer since 1991) Eitan Nahum 46 Vice President, Strategic Planning & 1995 Business Development (Officer since 1995) Joseph C. Scherpf 52 Vice President and 1984 Controller Jeffrey B. Sciallo 46 Vice President, Information Services 1995 (Officer since 1995) Marianne Scipione 49 Vice President, Corporate 1981 Communications Wilson F. Smith, Jr. 50 Vice President, Corporate Accounts & 1995 Distribution (Officer since 1993) Charles Tribie 43 Vice President, Manufacturing 1995 (Officer since 1995) Pamela Komenda 42 Corporate Secretary 1989
17 20 Various of the above-named persons are also officers of one or more of the Company's subsidiaries. Leon C. Hirsch and Turi Josefsen are husband and wife. No other family relationship exists between any of the above-named persons. Officers are elected for annual terms to hold office until their successors are elected, or until their earlier resignation or removal by the Board of Directors. All of the executive officers have for at least the past five years held high level management or executive positions with the Company or its subsidiaries, except for Mr. Douville, who joined the Company in 1993, Mr. Mazzarese, who joined the Company in 1991, and Mr. Nahum, who joined the Company in 1995. Mr. Douville was previously employed from 1977 to 1992 by the accounting firm of Deloitte & Touche, where he was a partner, and was Vice President and Controller with PepsiCo. Foods International from 1992 until joining the Company. Mr. Mazzarese was previously Vice President, Regulatory Affairs/Clinical Affairs, Product Assurance, at the Shiley division of Pfizer Corporation's Hospital Products Group from 1987 until October, 1991. Mr. Nahum was President and Chief Executive Officer of Bogen Communications, Inc. from 1994-1995. From 1989-94 he was with Sharplan Lasers, Inc., a subsidiary of Laser Industries serving as its President from 1991-94. 18 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange under the symbol USS. The following table sets forth for the periods indicated the high and low of the daily sales prices, which represent actual transactions, as reported by the New York Stock Exchange. In addition, the table sets forth the amounts of quarterly cash dividends per share that were declared and paid by the Company.
CASH DAILY SALES PRICES DIVIDENDS ------------------ PAID HIGH LOW ---- ---- --- 1995 1st Quarter $.02 $24.25 $18.75 2nd Quarter .02 24.00 19.13 3rd Quarter .02 27.75 20.38 4th Quarter .02 27.25 21.38 1994 1st Quarter $.02 $32.50 $15.88 2nd Quarter .02 24.63 16.00 3rd Quarter .02 28.38 21.25 4th Quarter .02 27.50 18.25
At December 31, 1995, the number of record holders of the Company's Common Stock was 10,381. See discussion below in Management's Discussion and Analysis of Financial Condition and Results of Operations as to restrictions imposed by a credit agreement on registrant's level of dividend payments. 19 22 ITEM 6. SELECTED FINANCIAL DATA.
Years Ended December 31, - --------------------------------------------------------------------------------------------------------- In thousands, except per share data 1995(1) 1994(2) 1993(3) 1992 1991 - --------------------------------------------------------------------------------------------------------- Net sales ........................ $ 1,022,300 $ 918,700 $ 1,037,200 $ 1,197,200 $ 843,600 Income (loss) before income taxes ..,..................... $ 89,800 $ 32,700 $ (137,400) $ 192,900 $ 130,300 Net income (loss) ................ $ 79,200 $ 19,200 $ (138,700) $ 138,900 $ 91,200 Net income (loss) per common share and common share equivalent (primary and fully diluted) ... $1.05 $.08 $(2.48) $2.32 $1.58 Average number of common shares and common share equivalents outstanding ................... 57,000 56,600 56,000 59,900 57,800 Dividends declared per common share .............. $.08 $.08 $.245 $.30 $.2875 At December 31, Total assets ..................... $ 1,265,500 $ 1,103,500 $ 1,170,500 $ 1,168,100 $ 741,600 Long-term debt ................... $ 256,500 $ 248,500 $ 505,300 $ 394,500 $ 251,600 Stockholders' equity (4) ......... $ 741,100 $ 662,000 $ 443,900 $ 590,000 $ 329,900
(1) In the third quarter of 1995, the Company reached an agreement with respect to the settlement of all issues raised by the Internal Revenue Service in the examination of the Company's income tax returns for the years 1984 through 1990. As a result of the agreement, the Company recognized a net credit to the tax provision of $10 million ($ .18 per common share) in the third quarter of 1995. (2) In the fourth quarter of 1994 the Company signed a letter of intent to purchase certain assets of its independent distributor in Japan, which included inventory of the Company's products purchased by the independent distributor but not yet sold to third parties at December 31, 1994. Sales and Net income were reduced by $17 million and $8 million ($.14 per common share), respectively, in anticipation of the pending reacquisition of these products and valuing these products at the Company's cost. (3) Income (loss) before income taxes and net income (loss) for 1993 include restructuring charges of $137.6 million and $129.6 million ($2.31 per share), respectively. (4) Included in Stockholders' equity in 1995 and 1994 is $191.5 million of convertible preferred stock which has a liquidation value of $200.0 million. 20 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS In 1995 the Company attained sales of $1.02 billion compared with sales of $919 million in 1994 and $1.04 billion in 1993. Sales increased $ 104 million or 11 % in 1995, decreased $119 million or 11 % in 1994 , and decreased $160 million or 13 % in 1993. In 1995 the Company reported net income of $79 million or $1.05 per common share (after preferred stock dividends of $20 million), compared with net income of $ 19 million or $.08 per common share (after preferred stock dividends of $15 million) in 1994, and a net loss of $139 million or $2.48 per common share in 1993. Net income and net income per common share increased $60 million and $.97, respectively, in 1995 compared to 1994, increased $158 million and $2.56, respectively, in 1994 compared to 1993, and decreased $278 million and $4.80, respectively, in 1993 compared to 1992. The effect of changes in foreign currency exchange rates on results of operations was to increase net income by $14 million in 1995 in comparison to 1994. The effects of foreign currency exchange rate changes on net income in 1994 and 1993 were immaterial. The Company recorded restructuring charges of approximately $7 million during the second half of 1995 that relate primarily to lease terminations and employee severance costs associated with the relocation of one of the Company's largest international subsidiaries and the plan to centralize the distribution of the Company's products to its European customers. In addition, severance payments were incurred in relation to the restructuring of the Company's manufacturing plants. The majority of the cash outlays relative to these restructuring charges were made during the third and fourth quarters of 1995, with the remainder to be made by the end of the first half of 1996. The 1995 restructuring charges were basically offset by the reversal of restructuring cost estimates in excess of ultimate costs which were originally recognized in the Company's fourth quarter 1993 consolidated financial statements. In the second half of 1993 the Company adopted a restructuring plan designed to reduce its cost structure and improve its competitive position through property divestitures and consolidations and a reduction in its management, administrative, and direct labor workforce. These plans were adopted when it became apparent that projected worldwide sales growth did not meet Company expectations. The Company initially announced plans to layoff approximately 700 administrative staff personnel, close its manufacturing plants for thirteen days in the fourth quarter of 1993, and adopt a four day work week for certain manufacturing employees during the early part of 1994. The Company expanded upon its restructuring plans in 1993 to include real estate divestitures and consolidations and additional employee voluntary and involuntary severance programs. Substantially all payments under these severance programs have been completed by December 31, 1995. Restructuring charges recorded in 1993 were $138 million ($130 million or $2.31 per share net of taxes). These charges consisted primarily of writedowns of certain real estate to estimated net realizable value ($ 79 million), provisions for lease buyout expenses ($24 million), accruals for severance costs ($30 million) and write down of other assets ($5 million). The Company has either terminated or bought out the leases of the leased properties and paid substantially all employee severence costs which were part of the 1993 restructuring charges. 21 24 The increase in sales in 1995 to $1.02 billion compared to $919 million in 1994 was primarily due to volume increases and the Company's initiation of direct distribution of its products to Japanese customers through the acquisition of certain assets from the Company's former Japanese distributor. The reduction of inventories at JIT distributors during 1995 had a negative impact on sales as hospital purchases from JIT distributors exceeded distributor purchases from the Company by $13.1 million (1994 - $28.2 million). Changes in the health care industry continue to significantly affect the Company's marketplace. Industry consolidations, intense competition, and pricing pressures due to ongoing reform of the health care system have continued in 1995. The rate of acceptance of newer procedures utilizing the Company's products also continues to be affected by uncertainty surrounding health care reform and by the increased educational requirements for more complex procedures. The reduction in sales to $919 million in 1994 from $1.04 billion in 1993 was significantly affected by the initial distributor stocking program in early 1993 which was not repeated in 1994. Distributor inventory purchases were made in connection with the implementation of the Company's JIT domestic hospital distribution program during the first quarter of 1993. The initial stocking of the JIT distributors precipitated an inventory reduction period during which hospitals formerly supplied directly by the Company worked their inventories down and distributors adjusted their own inventories. The following table analyzes the change in sales in 1995, 1994 and 1993 compared with the prior years.
1995 1994 1993 ----- ----- ----- (IN MILLIONS) COMPOSITION OF SALES INCREASE (DECREASE): Sales volume increase (decrease) $ 64 $ (96) $(114) Net price changes* 12 (21) (6) Effects of changes in foreign currency exchange rates 28 (2) (40) ----- ----- ----- Sales increase (decrease) $ 104 $(119) $(160) ===== ===== =====
* Approximately $36 million of the sales increase for the year ended December 31, 1995, accounted for in net price changes above, is the result of the 1995 acquisition of certain assets from the Company's former distributor in Japan. Sales volume increases and the effects of foreign currency exchange rate fluctuations accounted for 62% and 27%, respectively, of the total 1995 sales increase compared with 1994 and 81% and 2%, respectively, of the total 1994 sales decrease compared with 1993. 22 25 Gross margin from operations (sales less cost of products sold divided by sales) was 56% in 1995 and 50% in 1994 and 1993. Although the Company implemented the majority of its restructuring plans during the last quarter of 1993 and the first quarter of 1994, the major benefits of the cost reduction measures adopted by the Company did not start being realized in reduced cost of product until 1994, which resulted in improved quarterly gross margins as the applicable product was sold in the second half of 1994. Gross margins continued to improve in 1995 as a result of the implementation of the 1993/1994 restructuring plans. Gross margins in 1993 compared to 1992 were negatively impacted by higher costs associated with the increase in production capacity, the introduction of new products and increases in related inventory and fixed asset reserves from the consequent obsolescence of production tooling and inventories and additional selling price discounts granted to JIT distributors with the implementation of the JIT distribution program. The reserves for obsolescence of production tooling and inventories, which are an ongoing cost of business, amounted to $45 million, $61 million and $62 million, respectively, in the years ended December 31, 1995, 1994 and 1993. The effects of foreign currency exchange rate changes on cost of products sold in 1995 and 1994 were immaterial. Changes in foreign currency exchange rates from those existing in 1992 had the effect of reducing cost of products sold by $18 million in 1993. The Company's investment in research and development during the past three years (1995 - $43 million; 1994 - $38 million; 1993 - $51 million) has yielded numerous product improvements as well as the development of numerous new products. The increase in research and development expense in 1995 compared to 1994 resulted primarily from $4.6 million of charges during the third quarter of 1995 related to certain technologies which the Company decided not to pursue. The decrease in research and development expense in 1994 compared to 1993 reflects the impact of a program initiated in the second half of 1993 to increase efficiency and reduce the cost connected with the pilot development of new products which are classified as research and development. The Company is continuing its commitment to develop and acquire unique new products for use in new surgical procedures and specialty areas. Selling, general and administrative expenses expressed as a percentage of sales were 41% in 1995, 40% in 1994, and 43% in 1993. The increase in selling, general and administrative expenses as a percentage of sales in 1995 is primarily due to the effects of the initiation by the Company of the marketing of the Company's products to its Japanese customers as a result of the acquisition of certain assets from the Company's former Japanese distributor. The decrease in selling, general and administrative expenses as a percentage of sales for 1994 results from the major cost saving benefits from the Company's restructuring program in the form of reduced selling, general, and administrative expenses as a percentage of sales throughout 1994. The percentage increase in 1993 resulted primarily from higher depreciation and amortization charges related to the Company's facilities expansion. Changes in foreign currency exchange rates from those existing in the prior year had the effect of increasing selling, general, and administrative expenses by $13 million in 1995, and decreasing selling, general, and administrative expenses by $6 million in 1994 and $21 million in 1993. 23 26 The tax provisions for 1995, 1994 and 1993 related primarily to foreign taxes including taxes in Puerto Rico. The Company's tax provisions in 1995 and 1994 reflect the lower effective tax rates on a subsidiary's operations in Puerto Rico and the availability of a tax credit under Section 936 of the Internal Revenue Code and the tax benefit of certain net operating loss and tax credit carryforwards which were not previously considered recognizable. The 1993 tax provision is a result of the Company incurring net operating losses in certain tax jurisdictions for which the Company was not able to recognize the corresponding tax benefits. In August 1995, the Company reached agreement with respect to settlement of all issues raised by the Internal Revenue Service (IRS) in its examination of the Company's income tax returns for the years 1984 through 1990. Prior to this resolution, a significant portion of deferred tax assets related to available net operating loss and tax credit carryforwards had been fully reserved by the Company because of uncertainty over the future utilization of the tax benefits. Based upon current circumstances relative to the IRS audit and the Company's estimate of future domestic taxable income, it now appears more likely than not that a significant portion of such fully reserved assets will be realized in the future. As a result, in the third quarter of 1995 the Company reduced the valuation allowances related to a significant portion of these deferred tax assets by $54.3 million (change in valuation allowances in 1995 was a reduction of $75.6 million), increased its current tax liabilities by $28.6 million for the remaining estimated tax liabilities relating to years subsequent to 1990, decreased tax assets by $7.4 million, recognized a net credit to the tax provision of $10.0 million ($.18 per common share) and recorded a credit to Additional Paid-in Capital (for windfall tax benefits related to net operating losses generated from stock compensation deductions in prior years) of $8.3 million. The Company will adopt the provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) in the first quarter of 1996. The Company, as provided for by FAS 123, will continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for employee stock compensation measurement. The anticipated effect of adopting this new standard is not expected to have a material effect on the Company's consolidated financial position or results of operations. FINANCIAL CONDITION The increase in accounts receivable results from the $37 million increase in sales in the fourth quarter 1995 when compared to the fourth quarter 1994. The increase in other current assets and income taxes payable results from the Company's settlement with the Internal Revenue Service referred to above. The increase in other assets results primarily from an increase in goodwill ($64 million) and patents ($18 million) resulting from the Company's acquisition of Japanese distribution rights from the Company's former Japanese distributor and the business combination with Surgical Dynamics, Inc. (see Note C of Notes to Consolidated Financial Statements). The Company's current cash and cash equivalent balances, existing borrowing capacity and projected operating cash flows are currently in excess of its foreseeable operating cash flow requirements. Following the issuance of $200 million of convertible preferred stock in March 1994, the proceeds from which were used to reduce bank debt, the Company entered into a new $400 million syndicated credit agreement in June 1994, later reduced to $350 million in the first quarter of 1995 as a result of the strong cash flows currently being generated by the Company. 24 27 The Company terminated its existing syndicated credit facility which was scheduled to mature in January 1997 and entered into a new $325 million credit agreement in December 1995. This new credit agreement matures January 2001 and provides for certain covenants similar to the credit agreement it replaced, such as restrictions on asset sales, common stock dividends in excess of 20% of net income and subsidiary debt as well as required maintenance of certain minimum levels of tangible net worth and fixed charge coverage ratios and a stipulated level of debt to total capitalization. The new credit facility provides for borrowings up to $25 million worth of Japanese Yen within the facility. During 1995, the Company entered into uncommitted Japanese Yen credit agreements with two Japanese banks for a total of 3 billion Yen (approximately $30 million) in order to enhance liquidity for its Japanese subsidiary. Additonally, the company had $50 million of uncommitted credit agreements with three other domestic banks. The Company is in full compliance with all of its covenants associated with its various bank and leasing agreements. The Company's building programs have been essentially completed, which enabled the Company to reduce its capital spending by more than 28% in 1995 compared to 1994 levels and 78% in 1994 compared to 1993 levels. Additions to property, plant, and equipment on the accrual method totaled $48 million ($34 million on a cash basis) in 1995, compared with $49 million in 1994, and $187 million in 1993, and consist of additions to machinery and equipment ($25 million), molds and dies ($11 million) and land and buildings ($12 million). During 1995 the Company removed from its balance sheet, property, plant, and equipment which had an original cost of $27 million and is now fully depreciated and out of service. The change in long-term debt at December 31, 1995 in comparison to the prior year-end reflects the notes payable related to the acquisition of Japanese direct distribution rights and the cash flow generated from operations which enabled the Company to reduce bank debt by $37 million after recognizing the effect of over $80 million of business acquisitions during 1995. The Company routinely enters into foreign currency exchange contracts to reduce its exposure to foreign currency exchange rate changes on the results of operations of its international subsidiaries. As of December 31, 1995 the Company had approximately $25 million of such contracts outstanding that will mature at various dates through February 1996. Realized and unrealized foreign currency gains and losses are recognized when incurred. The weakening of the dollar relative to most foreign currencies caused the $10 million movement in the Company's Accumulated Translation Adjustments component of Stockholders' Equity at December 31, 1995 compared to the prior year. The Company's North Haven facilities are leased from a trust, of which the original developer (the "Owner Participant") holds the beneficial interest. The Owner Participant has the right to require the Company or the Company's designee to purchase the Owner Participant's beneficial interest. This right cannot be exercised by the Owner Participant until January 1998 and continues for a period of four years thereafter. The Company's obligation, if the right is exercised, would be to take title to the beneficial interest in the trust, or find another investor, suitable to the noteholders who financed these facilities, to take such title. In either case the Company's obligations as lessee under the lease would not change. The Company would be obligated, whether or not the right is exercised, to make payments called for under the existing lease of approximately $57 million annually through the year 2002, a payment of $28 million in January 2003 and nominal annual payments of $100,000 through 2022. In addition, the Company may be obligated to make an additional payment of approximately $19 million if the right is exercised which could be payable as early as January 1998, or ratably throughout the remaining term of the lease. The foregoing amounts in the preceding two sentences represent cash flow impacts whereas the rent expense would aggregate less than $20 million per year. 25 28 If, as described above, the Company takes title to the beneficial interest in the facilities in 1998, it is estimated that the Company's balance sheet would be affected through an increase in property, plant and equipment of $339 million, a decrease in other assets of $109 million and an increase in Long-Term Debt of $230 million. * * * * * * The Company may, from time to time, provide estimates as to future performance, including comments on financial estimates made by the analyst community. These forward looking statements will be estimates, and may or may not be realized by the Company. The Company undertakes no duty to update such forward looking statements. Many factors could cause actual results to differ from these forward looking statements, including loss of market share through competition, introduction of competing products by other firms, pressure on prices from competition or purchasers of the Company's products, regulatory obstacles to development of new products which are important to the Company's growth, lack of acceptance of new products by the health care market, slow rates of conversion by surgeons to procedures which utilize the Company's markets, and interest rate and foreign exchange fluctuations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. A. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED). The following is a summary of the quarterly results of operations for the years ended December 31, 1995 and 1994.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER(1) QUARTER(2,3) YEAR ------- ------- ---------- ------------ ---- 1995 Net sales............................... $240,600 $263,600 $254,800 $263,300 $1,022,300 Cost of products sold................... 112,900 117,800 106,500 114,500 451,700 Income before income taxes.............. 18,700 24,800 20,600 25,700 89,800 Net income ............................. 14,400 19,100 25,900 19,800 79,200 Net income per common share (primary and fully diluted) $.17 $.25 $.37 $.26 $1.05 1994 Net sales............................... $226,000 $232,000 $234,200 $226,500 $ 918,700 Cost of products sold................... 117,600 117,200 115,200 113,600 463,600 Income (loss) before income taxes....... (5,400) 11,800 17,400 8,900 32,700 Net income (loss)....................... (7,900) 8,000 13,200 5,900 19,200 Net income (loss) per common share (primary and fully diluted) $(.14) $.05 $.15 $.02 $.08
(1) In the third quarter of 1995, the Company reached an agreement with respect to the settlement of all issues raised by the Internal Revenue Service in the examination of the Company's income tax returns for the years 1984 through 1990. As a result of the agreement, the Company recognized a net credit to the tax provision of $10 million ($ .18 per common share) in the third quarter of 1995. (2) In the fourth quarter of 1994, the Company reached an agreement to purchase certain assets of its former Japanese distributor and accrued for the reacquisition of inventory from this distributor and reduced Net sales by $17 million and Net income by $8 million ($.14 per common share). 26 29 (3) Cost of products sold in the fourth quarter of 1995 includes $13 million of inventory and fixed asset reserves ($16 million in the corresponding period in 1994) resulting from the continued introduction of new products and the consequent obsolescence of production tooling and inventories. B. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE. See Index to Consolidated Financial Statements and Financial Statement Schedule on page F-1 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. 27 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. A. DIRECTORS The section entitled "Election of Directors" in the Definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the registrant (the 1996 Proxy Statement) is hereby incorporated by reference. B. OFFICERS See Part I. C. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934. The section entitled "Executive Compensation and Transactions - Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the 1996 Proxy Statement is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The section entitled "Executive Compensation and Transactions" in the 1996 Proxy Statement is hereby incorporated by reference, except for those portions entitled "Performance Graph" and "Report of Compensation Committee". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The sections entitled "Outstanding Shares, Voting Rights and Principal Stockholders" and "Share Ownership of Management" in the 1996 Proxy Statement are hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The section entitled "Executive Compensation and Transactions - Certain Transactions" in the 1996 Proxy Statement is hereby incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. a. AND d. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE. See Index to Consolidated Financial Statements and Financial Statement Schedule on Page F-1 herein. b. REPORTS ON FORM 8-K. Reports on Form 8-K relative to the acquisition of certain assets of the Company's former Japanese distributor were filed on July 10, 1995 and on October 13, 1995, as amended on November 30, 1995. c. EXHIBITS. (The Company will furnish a copy of any exhibit upon payment of 15 cents per page plus postage.) 28 31 (3) ARTICLES OF INCORPORATION AND BY-LAWS. (a) Certificate of Incorporation filed March 14, 1990 - Exhibit 3(a) to registrant's Form 8-B declared effective August 3, 1990.* (b) Certificate of Merger filed May 1, 1990 - Exhibit 3(b) to registrant's Form 8- B declared effective August 3, 1990.* (c) Certificate of Amendment filed May 15, 1991 - Exhibit 3(c) to registrant's Form 10-K for 1991.* (d) By-laws, as amended January 30, 1996. Filed herewith. (e) Certificate of Designations relating to the issuance of the Company's Series A Convertible Preferred Stock, filed March 28, 1994. Exhibit 3(e) to registrant's Form 10-K for 1993.* (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. (a) Credit Agreement dated as of December 20, 1995 among registrant, signatory banks, Morgan Guaranty Trust Company of New York as Documentation Agent, NationsBank, N.A., as Administrative Agent, and The Bank of New York, as Yen Administrative Agent. Filed Herewith. (10) MATERIAL CONTRACTS. (a) 1981 Employee Stock Option Plan. Exhibit 10(a)(1) to registrant's Form 10-K for 1987. * + (b) 1990 Employee Stock Option Plan, as amended through February 7, 1995. Filed herewith. + (c) 1993 Employee Stock Option Plan, as amended through February 7, 1995. Filed herewith. + (d) Restricted Stock Incentive Plan, as amended through February 7, 1995. Filed herewith. + (e) Installment Option Purchase Agreement with Leon C. Hirsch dated September 10, 1984, as amended through May 18, 1994. Exhibit 10 (j) to registrant's Form 10-K for 1994. + (f) Outside Directors Stock Plan - Exhibit 10(a)(4) to registrant's Form 10-K for 1988. * + (g) Amendment to Outside Directors Stock Plan adopted May 1, 1990 - Exhibit 10(j) to registrant's Form 10-K for 1990. * + (h) Long-Term Incentive Plan - Exhibit 10(a)(5) to registrant's Form 10-K for 1988. * + 29 32 (i) Lease Agreement dated as of January 14, 1993 between State Street Bank and Trust Company of Connecticut, National Association, as Lessor and the registrant, as Lessee - Exhibit 10(o) to registrant's Form 10-K for 1992.* (j) Participation Agreement dated as of January 14, 1993 among registrant, Lessee, Baker Properties Limited Partnership, Owner Participant, The Note Purchasers listed in Schedule 1 thereto, State Street Bank and Trust Company of Connecticut, National Association, Owner Trustee, and Shawmut Bank Connecticut, N.A., Indenture Trustee - Exhibit 10(p) to registrant's Form 10-K for 1992.* (k) Lease and financing agreements dated January 4, 1994 between registrant's French subsidiary, A.S.E. Partners, and (i) the Corporation for the Financing of Commercial Buildings ("FINABAIL") and (ii) the Association for the Financing of Commercial Buildings ("U.I.S.") - Exhibit 10(r) to registrant's Form 10-K for 1993.* (l) Lease and financing agreement dated December 26, 1991 between registrant's subsidiary, U.S.S.C. Puerto Rico, Inc., and The Puerto Rico Industrial Development Company ("PRIDCO") - Exhibit 10(s) to registrant's Form 10-K for 1993.* (m) Agreement between Howard M. Rosenkrantz and the registrant dated January 30, 1996. Filed herewith.+ (12) Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Filed herewith. (21) Subsidiaries of the registrant. Filed herewith. (27) Financial Data Schedule. Filed herewith. * Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-9776. + Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. 30 33 SIGNATURES Pursuant to the requirements of Section 13 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 on the 30th day of January, 1996. UNITED STATES SURGICAL CORPORATION (REGISTRANT) By: ------------------------------------ (HOWARD M. ROSENKRANTZ SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman of the January 30, 1996 - --------------------------------- Board, President (Leon C. Hirsch) and Chief Executive Officer (Principal Executive Officer) and Director - --------------------------------- Director January 30, 1996 (Julie K. Blake) - --------------------------------- Director January 30, 1996 (John A. Bogardus, Jr.) - --------------------------------- Director January 30, 1996 (Thomas R. Bremer) - --------------------------------- Director January 30, 1996 (Turi Josefsen) - --------------------------------- Director January 30, 1996 (Douglas L. King) - --------------------------------- Director January 30, 1996 (William F. May) - --------------------------------- Senior Vice President, Finance January 30, 1996 (Howard M. Rosenkrantz) and Chief Financial Officer and Director - --------------------------------- Director January 30, 1996 (Marianne Scipione) - --------------------------------- Director January 30, 1996 (John R. Silber) - --------------------------------- Vice President and Controller January 30, 1996 (Joseph C. Scherpf) (Principal Accounting Officer)
31 34 UNITED STATES SURGICAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page ---- Independent Auditors' Report and Consent ................................ F-2 Management Report on Responsibility for Financial Reporting ............. F-3 Consolidated Balance Sheets - December 31, 1995 and 1994 ................ F-4 Consolidated Statements of Operations - Years Ended December 31, 1995, 1994 and 1993 ........................................................ F-5 Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 1995, 1994 and 1993 ............................... F-6 Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 ........................................................ F-7 Notes to Consolidated Financial Statements .............................. F-8 Schedule II - Valuation and Qualifying Accounts ......................... S-1
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 35 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders UNITED STATES SURGICAL CORPORATION We have audited the accompanying consolidated financial statements and financial statement schedule of United States Surgical Corporation and subsidiaries listed in the Index to Consolidated Financial Statements and Financial Statement Schedule of the Annual Report on Form 10-K of United States Surgical Corporation for the year ended December 31, 1995. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of United States Surgical Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Stamford, Connecticut January 22, 1996 INDEPENDENT AUDITORS' CONSENT TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS ON FORM S-3 AND FORM S-8 We consent to the incorporation by reference in United States Surgical Corporation's Registration Statements Nos. 33-53297 and 33-59729 on Form S-3 and Registration Statements Nos. 2-64804, 2-78663, 33-3419, 33-13997, 33-37328, 33-38710, 33-40171, 33-59278 and 33-61912 on Form S-8 of our report dated January 22, 1996 and appearing on page F-2 of the Annual Report on Form 10-K for the year ended December 31, 1995. Deloitte & Touche LLP Stamford, Connecticut January 22, 1996 F-2 36 MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of United States Surgical Corporation and its subsidiaries (the "Company") has the responsibility for preparing the accompanying consolidated financial statements and related notes. The consolidated financial statements were prepared in accordance with generally accepted accounting principles and necessarily include amounts based upon judgments and estimates by management. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements. Management of the Company has established and maintains a system of internal controls that provide reasonable assurance that the accounting records may be relied upon for the preparation of the consolidated financial statements. Management continually monitors the system of internal controls for compliance. Also, the Company maintains an internal auditing function that independently assesses the effectiveness of the internal controls and recommends possible improvements thereto. The Company's consolidated financial statements have been audited by Deloitte & Touche LLP, independent auditors. Management has made available to Deloitte & Touche LLP all the Company's financial records and related data. In addition, in order to express an opinion on the Company's consolidated financial statements, Deloitte & Touche LLP considered the internal accounting control structure in order to determine the extent of their auditing procedures for the purpose of expressing such opinion but not to provide assurance on the internal control structure. Management believes that the Company's system of internal controls is adequate to accomplish the objectives discussed herein. The Board of Directors monitors the internal control system through its Audit Committee which consists solely of outside directors. The Audit Committee meets periodically with the independent auditors, internal auditors and senior financial management to determine that they are properly discharging their responsibilities. Leon C. Hirsch Chief Executive Officer Howard M. Rosenkrantz Chief Financial Officer F-3 37 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, - ------------------------------------------------------------------------------------------------------------- In thousands except share data 1995 1994 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents ...................................... $ 10,500 $ 11,300 Receivables, less allowance of $8,200 (1995); $7,300 (1994) .... 247,300 211,500 Inventories: Finished goods ............................................... 92,700 95,500 Work in process .............................................. 28,800 27,100 Raw materials ................................................ 39,700 44,600 ---------- ---------- 161,200 167,200 Other current assets ........................................... 87,900 49,500 ---------- ---------- Total Current Assets ..................................... 506,900 439,500 ---------- ---------- Property, plant, and equipment (net) .............................. 504,900 540,000 Other assets (net) ................................................ 253,700 124,000 ---------- ---------- Total Assets ............................................. $1,265,500 $1,103,500 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 28,600 $ 28,200 Accrued liabilities ............................................ 148,900 125,200 Income taxes payable ........................................... 78,600 29,400 Current portion of long-term debt .............................. 4,200 1,300 ---------- ---------- Total Current Liabilities ................................ 260,300 184,100 Long-term debt .................................................... 256,500 248,500 Deferred income taxes ............................................. 7,600 8,900 Stockholders' equity: Preferred stock $5.00 par value, authorized 2,000,000 shares; 9.76% Series A cumulative convertible, 177,400 shares issued and outstanding (liquidation value - $200 million) .... 900 900 Additional paid-in capital - preferred stock ................... 190,600 190,600 Common stock $.10 par value, authorized 250,000,000 shares; issued, 65,293,157 at December 31, 1995 and 64,973,192 at December 31, 1994 ............................................ 6,500 6,500 Additional paid-in capital - common stock ...................... 394,200 380,700 Retained earnings .............................................. 233,200 178,100 Treasury stock at cost; 8,127,219 shares at December 31, 1995 and 8,137,053 shares at December 31, 1994 ............................................ (86,600) (86,700) Accumulated translation adjustments ............................ 2,300 (8,100) ---------- ---------- Total Stockholders' Equity ............................... 741,100 662,000 ---------- ---------- Commitments and contingencies Total Liabilities and Stockholders' Equity ............... $1,265,500 $1,103,500 ========== ==========
See Notes to Consolidated Financial Statements. F-4 38 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ----------------------------------------------- In thousands, except per share data 1995 1994 1993 - --------------------------------------------------------------------------------------------- Net sales ................................ $1,022,300 $918,700 $1,037,200 ---------- -------- ---------- Costs and expenses: Cost of products sold ................. 451,700 463,600 518,400 Research and development .............. 43,100 37,500 50,800 Selling, general and administrative ... 417,000 366,700 449,300 Interest .............................. 20,700 18,200 18,500 Restructuring charges ................. 137,600 ---------- -------- ---------- Total costs and expenses ........ 932,500 886,000 1,174,600 ---------- -------- ---------- Income (loss) before income taxes ........ 89,800 32,700 (137,400) Income taxes ............................. 10,600 13,500 1,300 ---------- -------- ---------- Net income (loss) ........................ 79,200 19,200 (138,700) Preferred stock dividends ................ 19,500 14,900 ---------- -------- ---------- Net income (loss) applicable to common stock .......................... $ 59,700 $ 4,300 $ (138,700) ========== ======== ========== Average number of common shares outstanding ........................... 57,000 56,600 56,000 ========== ======== ========== Net income (loss) per common share (primary and fully diluted) ........... $ 1.05 $ .08 $ (2.48) ========== ======== ========== Dividends paid per common share .......... $ .08 $ .08 $ .245 ========== ======== ==========
See Notes to Consolidated Financial Statements. F-5 39 United States Surgical Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity
Additional Additional Paid-in Paid-in Preferred Capital - Common Capital - Retained Years ended December 31, 1995, 1994 and 1993 Stock Preferred Stock Common Earnings - -------------------------------------------------------------------------------------------------------------------------- Dollars in thousands - -------------------- BALANCE AT JANUARY 1, 1993........................... $6,400 $345,200 $ 330,700 Common stock issued to employees-net (626,079 shares)................................. 12,100 Income tax benefit from stock options exercised recognized upon adoption of FAS 109.............. 14,400 Payment received from officer on installment receivables...................................... Aggregate adjustment resulting from the translation of foreign financial statements...... Common stock dividends paid ($.245 per share)................................ (13,700) Net loss........................................... (138,700) ---- -------- ------ -------- --------- BALANCE AT DECEMBER 31, 1993......................... 6,400 371,700 178,300 Issuance of preferred stock (177,400) shares....... $900 $190,600 Common stock issued to employees-net (577,991 shares)................................. 100 7,900 Income tax benefit from stock options exercised................................ 1,100 Payment received from officer on installment receivables...................................... Aggregate adjustment resulting from the translation of foreign financial statements...... Preferred stock dividends.......................... (14,900) Common stock dividends paid ($ .08 per share)................................ (4,500) Net income......................................... 19,200 ---- -------- ------ -------- --------- BALANCE AT DECEMBER 31, 1994......................... 900 190,600 6,500 380,700 178,100 Common stock issued to employees-net (329,799 shares)................................. 5,300 Income tax benefit from stock options exercised................................ 8,200 Aggregate adjustment resulting from the translation of foreign financial statements...... Preferred stock dividends.......................... (19,500) Common stock dividends paid ($ .08 per share)................................ (4,600) Net income......................................... 79,200 ---- -------- ------ -------- --------- BALANCE AT DECEMBER 31, 1995......................... $900 $190,600 $6,500 $394,200 $ 233,200 ==== ======== ====== ======== =========
Installment Accumulated Receivables Translation from Sale of Treasury Years ended December 31, 1995, 1994 and 1993 Adjustments Common Stock Stock Total - ----------------------------------------------------------------------------------------------------------------------------------- Dollars in thousands - -------------------- BALANCE AT JANUARY 1, 1993........................... $ 400 $(6,000) $(86,700) $ 590,000 Common stock issued to employees-net (626,079 shares)................................. 12,100 Income tax benefit from stock options exercised recognized upon adoption of FAS 109.............. 14,400 Payment received from officer on installment receivables...................................... 600 600 Aggregate adjustment resulting from the translation of foreign financial statements...... (20,800) (20,800) Common stock dividends paid ($.245 per share)................................ (13,700) Net loss........................................... (138,700) -------- ------- -------- --------- BALANCE AT DECEMBER 31, 1993......................... (20,400) (5,400) (86,700) 443,900 Issuance of preferred stock (177,400) shares....... 191,500 Common stock issued to employees-net (577,991 shares)................................. 8,000 Income tax benefit from stock options exercised................................ 1,100 Payment received from officer on installment receivables...................................... 5,400 5,400 Aggregate adjustment resulting from the translation of foreign financial statements...... 12,300 12,300 Preferred stock dividends.......................... (14,900) Common stock dividends paid ($ .08 per share)................................ (4,500) Net income......................................... 19,200 -------- ------- -------- --------- BALANCE AT DECEMBER 31, 1994......................... (8,100) 0 (86,700) 662,000 Common stock issued to employees-net (329,799 shares)................................. 100 5,400 Income tax benefit from stock options exercised................................ 8,200 Aggregate adjustment resulting from the translation of foreign financial statements...... 10,400 10,400 Preferred stock dividends.......................... (19,500) Common stock dividends paid ($ .08 per share)................................ (4,600) Net income......................................... 79,200 -------- ------- -------- --------- BALANCE AT DECEMBER 31, 1995......................... $ 2,300 $ 0 $(86,600) $ 741,100 ======== ======= ======== =========
See Notes to Consolidated Financial Statements. F-6 40 United States Surgical Corporation and Subsidiaries Consolidated Statements of Cash Flows
Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- In thousands 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers ....................................... $ 1,000,000 $ 913,100 $ 1,103,300 Cash paid to vendors, suppliers, and employees ..................... (784,100) (749,300) (941,200) Interest paid ...................................................... (17,500) (24,800) (18,300) Income taxes paid .................................................. (10,300) (14,900) (12,800) ----------- ----------- ----------- Net cash provided by operating activities ........................ 188,100 124,100 131,000 ----------- ----------- ----------- Cash flows from investing activities: Additions to property, plant, and equipment ........................ (33,600) (47,000) (216,400) Acquisitions ....................................................... (84,000) Other assets ....................................................... (18,100) 13,900 (30,000) ----------- ----------- ----------- Net cash used in investing activities ............................ (135,700) (33,100) (246,400) ----------- ----------- ----------- Cash flows from financing activities: Long-term debt borrowings under credit agreements .................. 2,407,300 3,483,900 2,614,400 Long-term debt repayments under credit agreements .................. (2,445,800) (3,753,800) (2,495,900) Long-term debt issuance fees ....................................... (1,700) (3,300) (1,100) Issuance of preferred stock, net ................................... 191,500 Common stock issued from stock plans ............................... 5,300 13,400 12,100 Dividends paid ..................................................... (24,100) (14,500) (13,700) ----------- ----------- ----------- Net cash (used in) provided by financing activities .............. (59,000) (82,800) 115,800 ----------- ----------- ----------- Effect of exchange rate changes ....................................... 5,800 2,200 (2,000) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents .................. (800) 10,400 (1,600) Cash and cash equivalents, beginning of year .......................... 11,300 900 2,500 ----------- ----------- ----------- Cash and cash equivalents, end of year ................................ $ 10,500 $ 11,300 $ 900 =========== =========== =========== Reconciliation of net income (loss) to net cash provided by operating activities: Net income (loss) ..................................................... $ 79,200 $ 19,200 $ (138,700) ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .................................... 91,700 89,400 83,200 Asset writedowns - restructuring ................................. 73,800 Adjustment of property, plant, and equipment reserves ............ 18,600 22,300 17,400 Receivables -- (increase) decrease ............................... (23,900) (3,300) 67,800 Inventories -- (increase) decrease .............................. (2,600) 7,400 (48,400) Adjustment of inventory reserves ................................. 26,600 39,200 44,200 Other current assets-(increase) .................................. (26,200) (13,000) (23,900) Accounts payable and accrued liabilities -- increase (decrease) .. 13,500 (42,500) 34,300 Income taxes payable and deferred -- increase (decrease) ......... 3,100 (2,900) (24,300) Income tax benefit from stock options exercised .................. 8,200 1,100 14,400 Other assets -- net .............................................. (100) 7,200 31,200 ----------- ----------- ----------- Total adjustments ............................................ 108,900 104,900 269,700 ----------- ----------- ----------- Net cash provided by operating activities ............................. $ 188,100 $ 124,100 $ 131,000 =========== =========== ===========
See Notes to Consolidated Financial Statements. F-7 41 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES United States Surgical Corporation and Subsidiaries (the Company) is primarily engaged in developing, manufacturing and marketing a proprietary line of technologically advanced surgical wound management products to hospitals throughout the world. The Company currently operates domestically and internationally through subsidiaries, divisions, and distributors. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATION. The consolidated financial statements include the accounts and transactions of United States Surgical Corporation and Subsidiaries, excluding intercompany accounts and transactions. Certain subsidiaries (including branches), primarily operating outside the United States, are included in the consolidated financial statements on a fiscal-year basis ending November 30. PROPERTY, PLANT, AND EQUIPMENT. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Years ----------------------------------------------- Buildings .......................... 40 Molds and dies ..................... 2 to 7 Machinery and equipment ............ 3 to 10 Leasehold improvements ............. 3 to 30
The Company capitalizes interest incurred on funds used to construct property, plant, and equipment. Interest capitalized during 1995, 1994 and 1993 was immaterial. INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out method) or market. OTHER ASSETS. The Company capitalizes and includes in Other assets the costs of acquiring patents on its products, the costs of computer software developed and used in its information processing systems, goodwill arising from the excess of cost over the fair value of net assets of purchased businesses and deferred start-up costs incurred prior to 1991 relating to the Company's entrance in 1991 into the suture portion of the wound management market. Costs of Other assets are amortized on the straight-line basis over the following estimated useful lives:
Years ------------------------------------------------- Patents................................ 10 Computer software costs................ 3 Deferred start-up costs................ 5 Goodwill............................... 10 to 40
F-8 42 REVENUE RECOGNITION. Revenues from sales are recognized when products are sold directly by the Company to ultimate consumers, primarily hospitals, or to authorized distributors. FOREIGN CURRENCY TRANSLATION. For translation of the financial statements of its international operations the Company has determined that the local currencies of its international subsidiaries are the functional currencies. Assets and liabilities of foreign operations are translated at year end exchange rates, and income statement accounts are translated at average exchange rates for the year. The resulting translation adjustments are made directly to the Accumulated Translation Adjustments component of Stockholders' Equity. Foreign currency transactions are recorded at the exchange rate prevailing at the transaction date. NET INCOME (LOSS) PER COMMON SHARE. Net income (loss) per common share is based on the weighted average number of common shares and, where material, common share equivalents (stock options) outstanding. Common share equivalents are not included in the computation of net income (loss) per share in 1995, 1994 and 1993 since the effect of their inclusion would be antidilutive. NOTE B - RESTRUCTURING CHARGES The Company recorded restructuring charges of approximately $7 million in 1995. These restructuring charges related primarily to lease termination and employee severance costs associated with the relocation of one of the Company's largest international subsidiaries as part of the plan to centralize the distribution of the Company's products to its European customers. In addition, severance payments and other charges were incurred in 1995 in relation to the restructuring of the Company's manufacturing plants. The majority of the cash outlays relative to these restructuring charges were made in the third and fourth quarters of 1995 with the remainder of the cash outlays to be made in the subsequent two quarters. The 1995 restructuring charges were basically offset by the reversal of restructuring cost estimates in excess of ultimate costs which were originally recognized in the Company's 1993 consolidated statements of operations. Accrued liabilities at December 31, 1995 and 1994 included $9 million and $18 million, respectively, which related primarily to severance costs and accrued lease obligations associated with the Company's 1995 and 1993 restructuring charges. The Company has either terminated or bought out the leases of the leased properties and paid substantially all employee severence costs which were part of the 1993 restructuring charges. The majority of the 1995 accrued termination charges and other restructuring charges will be liquidated by the end of the second quarter 1996. F-9 43 NOTE C - ACQUISITIONS The Company acquired Surgical Dynamics, Inc., (a subsidiary of E-Z-EM, Inc.) a developer, manufacturer, and distributor of surgical devices for use in spinal procedures, in November 1995 for $60 million in a cash transaction. The acquisition was accounted for by the purchase method of accounting. Goodwill of approximately $40 million and patents resulting from the acquisition will be amortized on a straight-line basis to operations over 20 years and 10 years, respectively. The Company has made a preliminary allocation of the purchase price based on the estimated fair values of assets and liabilities acquired. As additional information is gained, adjustments to the allocation of the purchase price may occur. Results of operations subsequent to acquisition are included in the Company's consolidated financial statements. The Company completed on September 29, 1995 its 6.1 billion Yen (approximately $62 million or a present value of $54 million) purchase acquisition of certain assets and liabilities from the Company's former distributor in Japan. The Company has made a preliminary allocation of the purchase price based on the estimated fair values of assets and liabilities acquired. As additional information is gained, adjustments to the allocation of the purchase price may occur. The Company and the former distributor had agreed that all of the conditions to closing the purchase had either been met or could be met as of April 1, 1995 and, accordingly, had entered into an agency agreement effective April 1, 1995 under which the Company assumed the risks and rewards of selling the Company's products to third parties in Japan and recognized, since April 1, 1995, the former distributor's revenue and selling expenses in the Company's consolidated financial statements relative to the sale of the Company's products in Japan. Approximately $24 million was recorded as goodwill and such goodwill will be amortized over 25 years on a straight-line basis. In the third quarter of 1995, the Company acquired through purchase transactions certain assets of an internal stapling business and a 9.5% equity interest in a private biopharmaceutical company which will be accounted for under the cost method. In addition, the Company acquired the exclusive worldwide rights to market transgenic pig organs from the private biopharmaceutical company. These two acquisitions did not currently have a material impact on the Company's consolidated results of operations or financial position. The unaudited consolidated results of operations on a pro-forma basis as though the purchase business combinations noted above, excluding the purchase accounted for under the cost method, had collectively been completed by the Company as of the beginning of 1995 and 1994 are as follows (dollars in thousands, except per share amounts):
Twelve Months Ended December 31, ------------------------ 1995 1994 ---------- ---------- Net sales $1,058,100 $1,013,600 Net income $ 74,100 $ 24,300 Net income per common share $ .96 $ .17
The pro-forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. F-10 44 NOTE D - PROPERTY, PLANT, AND EQUIPMENT At December 31, 1995 and 1994, Property, plant, and equipment (at cost) was comprised of the following items:
In thousands 1995 1994 --------------------------------------------------------------------------- Land ............................................... $ 27,500 $ 23,800 Buildings .......................................... 170,500 149,600 Molds and dies ..................................... 92,200 100,500 Machinery and equipment ............................ 309,200 321,700 Leasehold improvements ............................. 153,700 155,500 --------- --------- 753,100 751,100 Less allowance for depreciation and amortization ... (248,200) (211,100) --------- --------- $ 504,900 $ 540,000 ========= =========
Property, plant, and equipment includes land and buildings in Elancourt, France with a net book value at December 31, 1995 and 1994 of $82 million and $70 million, respectively. During 1995 the Company took out of service and removed from its balance sheet property, plant, and equipment which had an original cost of $27 million and was fully depreciated. NOTE E - OTHER ASSETS At December 31, 1995 and 1994 Other assets (net of accumulated amortization of $73 million and $57 million in 1995 and 1994, respectively) was comprised of the following items:
In thousands 1995 1994 ------------------------------------------------------------- Patents and licenses................. $ 86,500 $ 64,000 Goodwill............................. 69,400 5,200 Deferred tax assets.................. 31,600 11,600 Prepaid rent......................... 28,500 19,700 Computer software costs.............. 7,800 8,300 Deferred start-up costs.............. 0 4,200 Other................................ 29,900 11,000 -------- -------- $253,700 $124,000 ======== ========
During 1995 the Company removed from its Balance Sheet fully amortized Other assets with a cost of $24 million. F-11 45 NOTE F - INCOME TAXES In August 1995, the Company reached agreement with respect to settlement of all issues raised by the Internal Revenue Service (IRS) in its examination of the Company's income tax returns for the years 1984 through 1990. Prior to this resolution, a significant portion of deferred tax assets relating to available net operating loss and tax credit carryforwards had been fully reserved by the Company because of uncertainty over the future utilization of the tax benefits. Based upon current circumstances relative to the IRS audit and the Company's estimate of future domestic taxable income, it now appears more likely than not that a significant portion of such fully reserved assets will be realized in the future. As a result, in the third quarter of 1995 the Company reduced the valuation allowances related to a significant portion of these deferred tax assets by $54.3 million (change in valuation allowances in 1995 was a reduction of $75.6 million), increased its current tax liabilities by $28.6 million for the remaining estimated tax liabilities relating to years subsequent to 1990, decreased tax assets by $7.4 million, recognized a net credit to the tax provision of $10.0 million ($.18 per common share) and recorded a credit to Additional Paid-in Capital (for windfall tax benefits related to net operating losses generated from stock compensation deductions in prior years) of $8.3 million. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 - "Accounting for Income Taxes" (FAS 109) in February 1992, and the Company was required to adopt FAS 109 by January 1, 1993. This statement requires that deferred income taxes reflect the tax consequences on future years of differences between the tax return bases of assets and liabilities and their financial statement amounts. Prior to 1993, provisions were made by the Company for deferred income taxes where differences existed between the time that transactions affected taxable income and the time that these transactions entered into the determination of income for financial reporting purposes. The effect of the adoption of FAS 109 on a prospective basis from January 1, 1993 was not material. A summary of the source of income (loss) before income taxes follows:
In thousands 1995 1994 1993 ----------------------------------------------------------- Domestic (a) ........ $81,100 $35,600 $ (61,800) Foreign ............. 8,700 (2,900) (75,600) ------- ------- --------- $89,800 $32,700 $(137,400) ======= ======= =========
(a) Includes Puerto Rico and U.S. branches in foreign locations. F-12 46 A summary of the provision for income taxes follows:
In thousands 1995 1994 1993 ------------------------------------------------------------- Current: Federal $ 1,700 Foreign $ 9,700 1,000 $ 4,800 State and local (a) 3,900 6,500 4,700 Deferred: Federal (5,700) (900) Foreign 2,300 500 (8,800) State and local (a) 400 4,700 600 ------- ------- ------ $10,600 $13,500 $ 1,300 ======= ======= =======
(a) Includes Puerto Rico A reconciliation between income taxes based on the application of the statutory federal income tax rate (35%) to income (loss) before income taxes and the provision for income taxes as set forth in the Consolidated Statements of Operations follows:
In thousands 1995 1994 1993 ---------------------------------------------------------------------- Provision (benefit) for taxes at statutory rates $ 31,400 $11,400 $(48,100) Benefit of operating loss carryforward (recognized)/not recognized for U.S. federal or foreign taxes (16,100) 6,500 63,600 Benefit of operating loss and credit carryforward incident to settlement of IRS tax audit (10,000) Tax savings from operations in Puerto Rico (6,600) (7,500) (18,700) State and local income taxes, net of federal income tax benefit 2,800 900 800 Foreign income taxed at rates different than U.S. statutory rate 8,200 1,600 1,600 Other 900 600 2,100 -------- ------- -------- $ 10,600 $13,500 $ 1,300 ======== ======= ========
The Company has provided for taxes on the income of its subsidiary's operations in Puerto Rico at an effective rate that is lower than the U.S. federal income tax statutory rate. This rate reflects the fact that approximately 90% of income is exempt from local taxes in Puerto Rico as well as the availability of a tax credit under Section 936 of the Internal Revenue Code. Withholding taxes at a negotiated rate of 8% (7% in 1994 and 6% in 1993) have been provided on the expected repatriation of the income of this subsidiary. F-13 47 At December 31, 1995 and 1994 deferred tax liabilities and assets under FAS 109 were comprised of the following:
1995 1994 --------- --------- Patent amortization $ (14,900) $ (21,700) Depreciation (34,100) (30,900) Other amortization (9,700) (300) Operating lease (9,500) (8,500) Accrued interest (5,500) (2,200) Other (7,100) (8,400) --------- --------- Gross deferred tax liabilities (80,800) (72,000) --------- --------- Restructuring reserves 34,800 28,700 Inventory reserves 33,400 32,800 Fixed asset reserves 25,400 25,300 Accrued expenses 9,500 9,500 Other 9,400 15,700 Tax loss and credit carryforwards 143,100 172,300 --------- --------- Gross deferred tax assets 255,600 284,300 Less: Valuation allowance (129,000) (204,600) --------- --------- 126,600 79,700 Net deferred tax assets $ 45,800 $ 7,700 ========= =========
Deferred taxes resulted from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of the temporary differences are: the use of accelerated methods of computing depreciation for income tax purposes and the straight-line method for financial reporting purposes; expensing certain patent costs as incurred for income tax purposes and capitalizing and amortizing them over their estimated useful lives for financial reporting purposes; expensing certain deferred start-up costs for income tax purposes and deferring and amortizing such costs over a five year period for financial reporting purposes; and other temporary differences applicable to current assets and liabilities. At December 31, 1995 current deferred tax assets of $23 million and non-current deferred tax assets of $32 million were included in the Consolidated Balance Sheet captions Other current assets and Other assets, respectively. Current deferred tax liabilities of $1 million and non-current deferred tax liabilities of $8 million were included in the Consolidated Balance Sheet captions Income taxes payable and Deferred income taxes, respectively. The Company's loss carryforwards prior to 1993 are primarily attributable to compensation expense deductions on its income tax return which were not recognized for financial accounting purposes. A valuation allowance in the amount of $129 million has been recorded as of December 31, 1995 because of the uncertainty over the future utilization of the tax benefit of its gross deferred tax assets. As of January 1, 1995, the valuation allowance was $205 million. F-14 48 At December 31, 1995 the Company's consolidated subsidiaries have unremitted earnings of $119 million on which the Company has not accrued a provision for federal income taxes since these earnings are considered to be permanently invested. The amount of the unrecognized deferred tax liability relating to unremitted earnings was approximately $31 million at December 31, 1995. The Company has available for U.S. Federal income tax return purposes the following net operating loss and tax credit carryforwards:
NET INVESTMENT RESEARCH OPERATING TAX AND OTHER IN THOUSANDS LOSSES CREDITS CREDITS ----------------------------------------------------------------- YEAR SCHEDULED TO EXPIRE: 1996........................ $1,400 1997........................ 1,400 1998........................ 1,300 $ 200 1999........................ 900 100 2000........................ 900 300 2001........................ 500 500 2002........................ 700 2003........................ 800 2004........................ 500 2005........................ 1,800 2006........................ $ 28,100 3,000 2007........................ 133,600 6,500 2008........................ 39,800 2,800 2009........................ 14,400 2010 ....................... -------- ------ ------- $215,900 $6,400 $17,200 ======== ====== =======
In addition, the Company has available for state and foreign income tax return purposes net operating loss carryforwards of $142 million and $115 million, respectively, and tax credits of $3.5 million, which expire at various dates. The exercise of stock options which have been granted under the Company's various stock option plans and the vesting of restricted stock give rise to compensation which is includable in the taxable income of the applicable employees and deductible by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company's Common Stock subsequent to the date of grant of the applicable exercised stock options and restricted stock and, accordingly, in accordance with Accounting Principles Board Opinion No. 25, such compensation is not recognized as an expense for financial accounting purposes and the related tax benefits are taken directly to Additional Paid-in Capital. In the years ended December 31, 1990 - 1992 such deductions resulted in significant federal and state deductions which may be carried forward. Utilization of such deductions will increase Additional Paid-in Capital. The compensation deductions arising from the exercise of stock options were not material in 1993, 1994 and 1995. F-15 49 With respect to the U.S. federal net operating loss and credit carryforwards set forth above, the Company estimates that if such carryforwards are ultimately recognizable, the remainder of such tax assets would result in increases to Additional Paid-in Capital of up to approximately $64 million and a reduction of the tax provision up to approximately $9 million. NOTE G - ACCRUED LIABILITIES Included in Accrued liabilities at December 31, 1995 are accrued payroll, property and sales taxes $17 million (1994 - $15 million), accrued commissions $16 million (1994 - $12 million), accrued restructuring charges $9 million (1994 - $18 million) and accrued inventory repurchase $0 million (1994 - $17 million). NOTE H - LONG-TERM DEBT At December 31, 1995 the Company's long term debt consisted of $124 million in bank borrowings, $93 million in financing lease obligations outstanding relating to its European headquarters office building and distribution center complex in Elancourt, France, and $40 million of notes payable outstanding to its former Japanese distributor which arose as part of the Company's acquisition of certain assets from the former Japanese distributor. During December 1995, the Company entered into a new five year, $325 million syndicated credit agreement which replaced its previous $350 million revolving credit facility which was scheduled to mature in January 1997. The new syndicated credit facility provides the Company with a choice of interest rates based upon the banks' CD rate, prime rate or the London Interbank Offered Rate (LIBOR) for US dollar borrowings and Tokyo Interbank Offered Rate (TIBOR) for yen borrowings. The actual interest charges paid by the Company are determined by a pricing schedule which considers the ratio of consolidated debt at each calendar quarter end to consolidated earnings before interest, taxes, depreciation and amortization for the trailing twelve months. The effective interest rate on long-term bank debt outstanding as of December 31, 1995 and 1994 was 7.4% and 7.7%, respectively. The new credit agreement and the Company's operating lease for its primary domestic manufacturing, distribution and warehousing complex in North Haven, Connecticut, provide for certain restrictions including sales of assets, capital expenditures, dividends and subsidiary debt. The most restrictive covenants of the Company's financing agreements require the maintenance of certain minimum levels of tangible net worth, fixed charges coverage and a maximum ratio of total debt to total capitalization, as defined. The Company is prohibited from declaring dividends on its common stock in excess of 20% of net income, subject to changes in the number of common shares outstanding, until it achieves investment grade status, as defined. During 1995, the Company entered into uncommitted Japanese Yen credit agreements with two Japanese banks for a total of 3 billion Yen (approximately $30 million) in order to enhance liquidity for its Japanese subsidiary. Additionally, the Company had $50 million of uncommitted credit agreements with three other banks. The uncommitted credit agreements F-16 50 are short term in nature. Borrowings of 800 million Yen ($7.7 million) and $21 million were outstanding and included in long-term debt as of December 31, 1995. Such borrowings have been categorized as long-term debt as such borrowings will be refinanced under the Company's five-year bank credit agreement. The Company is in full compliance with all of the covenants associated with its various financing agreements. The Company's French franc denominated financing lease requires principal amortization in varying amounts over the remaining thirteen year term of the lease with a balloon payment of approximately 42 million French franc ($8 million) at the end of the lease. Interest is payable at a rate approximately 1.4% above (Paris Interbank Offered Rate) PIBOR. After considering the effects of an interest rate swap agreement, the effective interest rate on the financing lease debt was approximately 8.05% and 7.9% at December 31, 1995 and 1994, respectively. The Company's yen-denominated note payable are non-interest bearing and repayable annually in amounts based upon the higher of 350 million yen or 8% of the landed value of products shipped to the Company's subsidiary in Japan. In any event, any notes payable still outstanding on December 31, 2001 must be repaid on that date. The Company has calculated the present value of these notes using a discount rate of 4% and the estimated value of products expected to be shipped to its subsidiary over the next six years. Based upon these assumptions, the Company estimates that the present value of the final payment on December 31, 2001 will be approximately $15 million. At December 31, 1995, the scheduled principal repayments under loan agreements and future minimum payments under a financing lease and note payable were as follows:
Bank Credit Financing Note In thousands Facilities Lease Payable Total ------------------------------------------------------------------ 1996.................. $ 9,400 $ 2,800 $ 12,200 1997.................. 9,400 2,400 11,800 1998.................. 9,500 4,300 13,800 1999.................. 10,900 5,000 15,900 2000.................. 11,600 5,900 17,500 After 2000............ $123,700 119,500 21,900 265,100 -------- -------- ------- -------- 123,700 170,300 42,300 336,300 Current portion long-term debt and note payable.......... (1,400) (2,800) (4,200) Amount representing interest.............. (75,600) (75,600) -------- -------- ------- -------- Long-term debt........ $123,700 $ 93,300 $39,500 $256,500 ======== ======== ======= ========
F-17 51 NOTE I - STOCKHOLDERS' EQUITY On March 28, 1994 the Company issued approximately $200 million of 9.76% Series A Convertible Preferred Stock (convertible into a maximum of approximately 8.9 million shares or a minimum of approximately 8.5 million shares of the Company's Common Stock), par value $5 per share, in an offering exempt from the registration requirements of the Securities Act of 1933, as amended. Dividends on the Convertible Preferred Stock are cumulative at the annual rate of $110 per share, payable quarterly in arrears commencing July 1, 1994. On April 1, 1998 each share of Convertible Preferred Stock outstanding will automatically convert into 50 shares of Common Stock of the Company, and prior to this date it may be converted into 47.65 shares of Common Stock at any time at the option of the holder. The Company may redeem the Convertible Preferred Stock at any time after April 1, 1997 for a maximum of 50 shares of Common Stock together with an additional cash dividend of up to $27.50 per share with the additional cash dividend declining ratably after April 1, 1997 to $0 by March 1, 1998. The Preferred Stock trades principally as depositary receipts, each representing a one-fiftieth interest in a share of Preferred Stock. The proceeds from the sale of Preferred Stock were used to reduce bank indebtedness. The Company had 57,165,938 and 56,836,139 shares of its $.10 par value Common Stock outstanding as of December 31, 1995 and 1994, respectively. In the past, the Company announced programs to repurchase up to a total of 9,200,000 shares of its outstanding Common Stock. As of December 31, 1995, a total of 8,712,537 shares had been acquired at a total cost of $89.3 million. No treasury shares had been acquired in 1994 and 1995. Acquired shares are being held as treasury shares, the majority of which are reserved for issuance upon conversion of the Company's Preferred Stock. Shares of Common Stock reserved for future issuance in connection with restricted stock awards, stock option plans and employee stock purchase plans amounted to 17,303,361 and 17,631,774 at December 31, 1995 and 1994, respectively. The Compensation/Option Committee (the "Committee") of the Board of Directors is responsible for administering the Company's stock plans. The Restricted Stock Incentive Plan (the "Incentive Plan") provides for grants to key employees of the Company's Common Stock in the maximum aggregate amount of 5,000,000 shares. As of December 31, 1995, 3,839,740 shares were issued and vested under the Incentive Plan and 142,160 shares were cancelled. There were no restricted stock grants during the three-year period ended December 31, 1995. The 1990 Employee Stock Option Plan (the "1990 Option Plan") provides for grants to key employees and certain key consultants of options and stock appreciation rights for up to 11,000,000 shares of the Company's Common Stock at the per share market price at the date of grant unless the Committee determines otherwise. As of December 31, 1995, no stock appreciation rights have been granted. Subject to a maximum exercise period of fifteen years, the exercise period of awards under the 1990 Option Plan will be as determined by the Committee. F-18 52 The 1993 Employee Stock Option Plan (the "1993 Option Plan") provides for grants to key employees (excluding executive officers) of options and stock appreciation rights for up to 3,500,000 shares of the Company's Common Stock at the per share market price at the date of grant unless the Committee deems otherwise. As of December 31, 1995 no stock appreciation rights have been granted. Subject to a maximum exercise period of fifteen years, the exercise period of awards under the 1993 Option Plan will be as determined by the Committee. The Service-Based Stock Option Plan (the "Service Option Plan") provides for grants of options for up to 1,144,132 shares of the Company's Common Stock at the per share market price at the date of grant to individuals employed by the Company who are within an eligible category. Options under the Service Option Plan are awarded for a fixed number of shares of Common Stock based solely upon the eligible recipient's years of service within the eligible category, and are exercisable for a period of up to ten years. The Outside Directors Stock Plan provides for an aggregate maximum of up to 160,000 shares of Common Stock to be issued under restricted stock awards and option grants to certain non-employee members of the Board of Directors. At December 31, 1995 and 1994, restricted stock awards and option grants for 134,000 shares and 112,000 shares, respectively, had been granted under the Outside Directors Stock Plan. As of December 31, 1995 and 1994, 26,000 and 48,000 shares, respectively, are reserved for future issuance under the Outside Directors Stock Plan. A summary of stock option transactions under the employee option plans and the Outside Directors Stock Plan for each of the three years in the period ended December 31, 1995 follows:
NUMBER OPTION OF SHARES PRICE RANGE ------------------------------------------------------------------------ OUTSTANDING JANUARY 1, 1993..... 10,853,606 $ 3.28 - $114.13 Granted....................... 1,977,081 23.06 - 69.75 Exercised..................... (245,055) 3.28 - 58.19 Canceled or lapsed............ (1,080,079) 19.75 - 114.13 ---------- OUTSTANDING DECEMBER 31, 1993... 11,505,553 3.58 - 114.13 Granted....................... 2,287,869 20.50 - 22.55 Exercised..................... (347,487) 3.58 - 22.69 Canceled or lapsed............ (713,319) 7.50 - 114.13 ---------- OUTSTANDING DECEMBER 31, 1994... 12,732,616 4.97 - 111.94 Granted....................... 1,570,525 20.50 - 26.06 Exercised..................... (157,195) 4.97 - 23.25 Canceled or lapsed............ (433,049) 7.50 - 103.69 ---------- OUTSTANDING DECEMBER 31, 1995... 13,712,897 5.13 - 111.94 ========== At December 31, 1995: Exercisable................... 9,531,754 5.13 - 111.94 ==========
F-19 53 Under the USSC Employees 1979 Stock Purchase Plan (the "1979 Purchase Plan") and the 1994 Employees Stock Purchase Plan (the "1994 Purchase Plan"), all eligible employees may authorize payroll deductions of up to 10% of their base earnings, as defined, to purchase shares of the Company's Common Stock at 85% of the market price when such deductions are made. There are no charges or credits to income in connection with the Purchase Plan. The plans will continue in effect as long as shares authorized under the Purchase Plan remain available for issuance thereunder. The Company has reserved 2,400,000 shares of its Common Stock for issuance under the 1979 Purchase Plan, of which 137,811 shares are available for future issuance, and it has reserved 650,000 shares of its Common Stock for issuance under the 1994 Purchase Plan, of which 390,185 are available for future issuance, at December 31, 1995. NOTE J - SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company develops, manufactures and markets wound management products which constitute a single business segment. The following information sets forth geographic information with respect to the Company's net sales, operating profits and identifiable assets.
In thousands 1995 1994 1993 ------------------------------------------------------------------------------------- NET SALES: United States..................... $ 828,500 $ 775,000 $ 895,500 International (1)................. Europe..................... 357,300 314,700 313,800 Japan...................... 63,900 0 0 Other...................... 30,500 27,400 27,200 Inter-area transfers eliminated... (257,900) (198,400) (199,300) ---------- ---------- ---------- $1,022,300 $ 918,700 $1,037,200 ========== ========== ========== OPERATING PROFIT (LOSS): United States .................... $ 121,100 $ 71,200 $ 30,500 International .................... Europe..................... 84,600 66,300 (63,000) Japan...................... 6,200 0 0 Other...................... 5,300 4,500 (2,600) Profit on inter-area transfers eliminated...................... (106,700) (91,100) (83,800) ---------- ---------- ---------- $ 110,500 $ 50,900 $ (118,900) ========== ========== ========== IDENTIFIABLE ASSETS AT DECEMBER 31: United States..................... $ 867,900 $ 807,500 $ 877,100 International .................... Europe..................... 349,400 302,800 299,200 Japan...................... 64,300 0 0 Other...................... 10,400 5,800 5,700 Inter-area assets eliminated...... (26,500) (12,600) (11,500) ---------- ---------- ---------- $1,265,500 $1,103,500 $1,170,500 ========== ========== ==========
(1) Does not include sales made primarily to international distributors (1995 - $50,200, 1994 - $84,800 and 1993 - $69,600) from a location in the United States. The combination of sales to international distributors and international sales above approximate 49% in 1995, 46% in 1994 and 40% in 1993 of consolidated sales, respectively. F-20 54 NOTE K - COMMITMENTS AND CONTINGENCIES The Company is engaged in litigation as a defendant in cases involving alleged patent infringement, product liability claims and a consolidated shareholders' class action suit (see Item 3). In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits should not have a material adverse effect on the Company's consolidated financial statements. The Company is committed to certain undertakings, including the maintenance of specified levels of employment and capitalization for its Puerto Rican subsidiary. The future minimum rental commitments for building space, leasehold improvements, data processing and automotive equipment for all operating leases as of December 31, 1995, were as follows: 1996 - $61 million; 1997 - $76 million; 1998 - $88 million; 1999 - $67 million; 2000 - $64 million; after 2000 - $197 million. Rent expense was $33 million, $31 million and $34 million in 1995, 1994 and 1993, respectively. The Company's North Haven lease agreement includes contingent rent provisions based on formulas utilizing the consumer price index. The Company's North Haven facilities are leased from a trust, of which the original developer (the "Owner Participant") holds the beneficial interest. The Owner Participant has the right to require the Company or the Company's designee to purchase the Owner Participant's beneficial interest. This right cannot be exercised by the Owner Participant until January 1998 and continues for a period of four years thereafter. The Company's obligation, if the right is exercised, would be to take title to the beneficial interest in the trust, or find another investor, suitable to the noteholders who financed these facilities, to take such title. In either case the Company's obligations as lessee under the lease would not change. The Company would be obligated, whether or not the right is exercised, to make payments called for under the existing lease of approximately $57 million annually through the year 2002, a payment of $28 million in January 2003 and nominal annual payments of $100,000 through 2022. In addition, the Company may be obligated to make an additional payment of approximately $19 million if the right is exercised which could be payable as early as January 1998, or ratably throughout the remaining term of the lease. The foregoing amounts in the preceding two sentences represent cash flow impacts whereas rent expense would aggregate less than $20 million per year. NOTE L - FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK DERIVATIVES The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange rate risks. F-21 55 The Company enters into contracts to reduce its exposure to and risk from foreign currency exchange rate changes and interest rate fluctuations in the regular course of the Company's global business. As of December 31, 1995, the Company had approximately $25 million of foreign currency exchange contracts outstanding that will mature at various dates through February 1996. Realized and unrealized foreign currency gains and losses with respect to such contracts are recognized when incurred and amounted to gains of $.6 million in 1995 and losses of $4 million and $1 million in 1994 and 1993, respectively. The Company has swapped with certain banks its exposure to floating interest rates on $50 million of its variable rate U.S. dollar debt and 200 million ($37 million) of variable rate French franc debt. These swap agreements expire August 1996 for the U.S. dollar debt and December 1997 for the French franc debt. The Company makes fixed interest payments at rates of approximately 7.8% for the U.S. dollar swap and 8.1% for the French franc swap and receives payments based on the floating six-month LIBOR and three-month PIBOR, respectively. The net gain or loss from the exchange of interest rate payments, which is immaterial, is included in interest expense. Based upon the fair value of the Company's interest rate swap agreements at December 31, 1995, termination of such agreements would require a payment by the Company of approximately $3.3 million dollars. The Company does not currently intend to terminate its interest rate swap agreements prior to their expiration dates. CONCENTRATION OF CREDIT RISK The Company invests its excess cash in both deposits with major banks throughout the world and other high quality short-term liquid money market instruments (commercial paper, bank CDs, government and government agency notes and bills, etc.). The Company has a policy of making investments only with institutions that have at least an "A" (or equivalent) credit rating from a national rating agency. The investments generally mature within six months but certain investments in bank CDs mature within five years. The Company has not incurred losses related to these investments. The Company sells products in the surgical wound management field in most countries of the world. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and, generally, no collateral is required. In certain European countries the Company's receivables are not paid until the customers receive governmental reimbursement for their purchases. The Company has not encountered difficulty in ultimately collecting accounts receivable in these countries. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not significantly exceeded management's estimates. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The fair value of certificates of deposit, long-term debt and foreign interest rate swap agreements were estimated based on quotes obtained from brokers for those or similar instruments. The fair value of interest rate swap contracts were estimated based on quoted market prices at year-end. F-22 56 The estimated fair value of the Company's financial instruments are as follows:
December 31 --------------------------------------------- 1995 1994 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- (In thousands) Cash, cash equivalents and certificates of deposit......... $ 31,800 $ 32,600 $ 20,600 $ 20,400 Long-term debt .................... 256,500 256,500 248,500 248,500 Interest rate swaps payable-net..................... 500 3,800 400 900
The Company believes that the other parties to the foreign exchange contracts and interest rate swaps have the ability to perform under the contracts and swaps. NOTE M - SUPPLEMENTAL CASH FLOW INFORMATION The Company has purchased certain assets from its former Japanese distributor for approximately 6.1 billion Yen ($62 million or a present value of $53.5 million). In conjunction with this purchase a long-term payable was recorded as follows: Fair Value of net assets acquired $ 53.5 Cash paid through December 31, 1995 (11.2) ------ Present value of non-interest bearing notes payable to former distributor over six years $ 42.3 ======
NOTE N - ADOPTION OF NEW ACCOUNTING PRINCIPLES ADOPTION OF FAS 116. In 1995, the Company adopted Statement of Financial Accounting Standards No. 116 "Accounting for Contributions Received and Contributions Made" (FAS 116). The effect of the adoption of FAS 116 was not material. ADOPTION OF FAS 121. In 1995, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (FAS 121). In accordance with FAS 121, the Company evaluates the carrying value of its long lived assets and identifiable intangibles, including goodwill, when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The effect of the adoption of FAS 121 was not material. ADOPTION OF FAS 123. The Company will adopt the provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) in the first quarter of 1996. The Company, as provided for by FAS 123, will continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for employee stock compensation measurement. The anticipated effect of adopting this new standard is not expected to have a material effect on the Company's consolidated financial position or results of operations. F-23 57 SCHEDULE II UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD ----------- --------- -------- ---------- ------ In thousands Year ended December 31, 1995: Allowance for doubtful accounts $ 7,300 $ 1,300 $ 400(A) $ 8,200 Reserve for inventory valuation 60,900 26,600 13,400(B) 74,100 Reserve for fixed assets valuation 59,300 18,600 3,100(C) 74,800 Year ended December 31, 1994: Allowance for doubtful accounts $ 5,000 $ 2,400 $ 100(A) $ 7,300 Reserve for inventory valuation 48,700 39,200 27,000(B) 60,900 Reserve for fixed assets valuation 40,100 22,300 3,100(C) 59,300 Year ended December 31, 1993: Allowance for doubtful accounts $ 3,500 $ 1,700 $ 200(A) $ 5,000 Reserve for inventory valuation 25,900 44,200 21,400(B) 48,700 Reserve for fixed assets valuation 24,400 17,400 1,700(C) 40,100
(A) Represents amounts written off. Normal recurring credits and returns are charged against sales. (B) Represents disposition of inventory which has been superseded by a new generation of products. (C) Represents disposition of fixed assets. S-1 58 EXHIBIT INDEX --------------- (3) ARTICLES OF INCORPORATION AND BY-LAWS. (a) Certificate of Incorporation filed March 14, 1990 - Exhibit 3(a) to registrant's Form 8-B declared effective August 3, 1990.* (b) Certificate of Merger filed May 1, 1990 - Exhibit 3(b) to registrant's Form 8- B declared effective August 3, 1990.* (c) Certificate of Amendment filed May 15, 1991 - Exhibit 3(c) to registrant's Form 10-K for 1991.* (d) By-laws, as amended January 30, 1996. Filed Herewith. (e) Certificate of Designations relating to the issuance of the Company's Series A Convertible Preferred Stock, filed March 28, 1994. Exhibit 3(e) to registrant's Form 10-K for 1993.* (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. (a) Credit Agreement dated as of December 20, 1995 among registrant, signatory banks, Morgan Guaranty Trust Company of New York as Documentation Agent, NationsBank, N.A., as Administrative Agent, and The Bank of New York, as Yen Administrative Agent. Filed Herewith. (10) MATERIAL CONTRACTS. (a) 1981 Employee Stock Option Plan. Exhibit 10(a)(1) to registrant's Form 10-K for 1987. * + (b) 1990 Employee Stock Option Plan, as amended through February 7, 1995. Filed herewith. + (c) 1993 Employee Stock Option Plan, as amended through February 7, 1995. Filed herewith. + (d) Restricted Stock Incentive Plan, as amended through February 7, 1995. Filed Herewith. + (e) Installment Option Purchase Agreement with Leon C. Hirsch dated September 10, 1984, as amended through May 18, 1994. Exhibit 10 (j) to registrant's Form 10-K for 1994.+ (f) Outside Directors Stock Plan - Exhibit 10(a)(4) to registrant's Form 10-K for 1988.* + (g) Amendment to Outside Directors Stock Plan adopted May 1, 1990 - Exhibit 10(j) to registrant's Form 10-K for 1990.* + (h) Long-Term Incentive Plan - Exhibit 10(a)(5) to registrant's Form 10-K for 1988.* + (i) Lease Agreement dated as of January 14, 1993 between State Street Bank and Trust Company of Connecticut, National Association, as Lessor and the registrant, as Lessee - Exhibit 10(o) to registrant's Form 10-K for 1992.* (j) Participation Agreement dated as of January 14, 1993 among registrant, Lessee, Baker Properties Limited Partnership, Owner Participant, The Note Purchasers listed in Schedule 1 thereto, State Street Bank and Trust Company of Connecticut, National Association, Owner Trustee, and Shawmut Bank Connecticut, N.A., Indenture Trustee - Exhibit 10(p) to registrant's Form 10-K for 1992.* (k) Lease and financing agreements dated January 4, 1994 between registrant's French subsidiary, A.S.E. Partners, and (i) the Corporation for the Financing of Commercial Buildings ("FINABAIL") and (ii) the Association for the Financing of Commercial Buildings ("U.I.S.") - Exhibit 10(r) to registrant's Form 10-K for 1993.* (l) Lease and financing agreement dated December 26, 1991 between registrant's subsidiary, U.S.S.C. Puerto Rico, Inc., and The Puerto Rico Industrial Development Company ("PRIDCO") - Exhibit 10(s) to registrant's Form 10-K for 1993.* (m) Agreement between Howard M. Rosenkrantz and the registrant dated January 30, 1996. Filed herewith.+ (12) Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Filed herewith. (21) Subsidiaries of the registrant. Filed herewith. (27) Financial Data Schedule. Filed herewith. * Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC File No. 1-9776. + Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this report. EX-3.D 2 BY-LAWS, AS AMENDED JANUARY 30, 1996 1 Exhibit 3(d) ------------ UNITED STATES SURGICAL CORPORATION BY-LAWS (As amended and restated January 30, 1996) ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1.1 Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held each year on such date, and at such time and place within or without the State of Delaware, as may be designated by the Board of Directors. Notice of any nominations of persons for election to the Board of Directors or of any other business to be brought before an annual meeting of stockholders by a stockholder must be provided in writing to the Secretary of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the one hundred and twentieth (120th) day prior to the date of the meeting. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, as applicable, such person's written consent to being named in the Proxy Statement as a nominee and to serving as a director if elected), and evidence reasonably satisfactory to the Company that such nominee has no interests that would limit their ability to fulfill their duties of office; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. SECTION 1.2 Special Meetings. Special meetings of the stockholders for any proper purpose or purposes may be called at any time only by the Board of Directors, the Chairman of the Board, the President or any Vice President, to be held on such date, and at such time and place within or without the State of Delaware, as the Board of Directors, the Chairman of the Board, the President or any Vice President, whichever has called the meeting, shall direct. SECTION 1.3 Notice of Meeting. Written notice, signed by the Chairman of the Board, the President, any Vice President, the Secretary or any Assistant Secretary, of every meeting of stockholders stating the date and time when, and the place where, such meeting is to be held, shall be delivered either personally or by mail to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of such meeting, except as otherwise provided by law. The purpose or purposes for which such meeting is called may, in the case of an annual meeting, and shall, in the case of a special meeting, also be stated in such notice. If mailed, such notice shall be directed to a stockholder at such stockholder's address as it shall appear on the stock books of the Corporation, unless such stockholder shall have filed with the Secretary a written request that notices intended for such stockholder be mailed to some other address, in which case it shall be mailed to the address designated in such request. Whenever any notice is required to be given under the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-laws, a waiver thereof, signed by the stockholder entitled to such notice, whether before or after the 2 time stated therein, shall be deemed equivalent thereto. Attendance of a stockholder at the meeting shall be deemed equivalent to a written waiver of notice of such meeting. SECTION l.4 Quorum. The presence at any meeting of stockholders, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law. SECTION 1.5 Adjournments. In the absence of a quorum, a majority in interest of the stockholders entitled to vote, present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer entitled to preside at or act as secretary of a meeting of stockholders, may adjourn such meeting from time to time until a quorum shall be present. SECTION 1.6 Voting. Directors shall be chosen by a plurality of the votes cast at the election, and, except as otherwise provided by law or by the Certificate of Incorporation, all other questions shall be determined by a majority of the votes cast on such question. No share shall be entitled to vote if any installment payable thereon to the Corporation is overdue and unpaid. SECTION 1.7 Proxies. Any stockholder entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing or cabling) by the stockholder himself or by such stockholder's duly authorized attorney. SECTION 1.8 Judges of Election. The Board of Directors may appoint judges of election to serve at any election of directors and at balloting on any other matter that may properly come before a meeting of stockholders. If no such appointment shall be made, or if any of the judges so appointed shall fail to attend, or refuse or be unable to serve, then such appointment may be made by the presiding officer at the meeting. ARTICLE II BOARD OF DIRECTORS SECTION 2.1 Number. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution of the Board of Directors or stockholders (any such resolution of either the Board of Directors or stockholders being subject to any later resolution of either of them). SECTION 2.2 Election and Term of Office. Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2.3. Each director (whether elected at an annual meeting or to fill a vacancy or otherwise) shall continue in office until such Director's successor shall have been elected and qualified or until such Director's earlier death, resignation or removal in the manner hereinafter provided. SECTION 2.3 Vacancies and Additional Directorships. If any vacancy shall occur among the directors by reason of death, resignation or removal, or as the result of an increase in the number of directorships, a majority of the directors then in office, or a sole remaining director, though less than a quorum, may fill any such vacancy. SECTION 2.4 Regular Meetings. The Board of Directors by resolution may provide for the holding of regular meetings and may fix the times and places at which such meetings shall be held. Notice of regular meetings shall not be required to be given, provided that whenever the time or place of regular meetings shall be fixed or changed, notice of such action shall be mailed promptly to each 2 3 director who shall not have been present at the meeting at which such action was taken, addressed to such Director at such Director's residence or usual place of business. SECTION 2.5 Special Meetings. Special meetings of the Board of Directors may be called at any time by the Board of Directors or by any committee with such authority by vote at a meeting, or by the Chairman of the Board or the President or by a majority of the Directors or a majority of the members of such committee in writing with or without a meeting. Except as otherwise required by law, notice of each special meeting shall be mailed to each director, addressed to such director at such director's residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to such director at such place by telex, facsimile transmission, telegram, radio or cable, or telephoned or delivered to him personally, not later than the day before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purposes thereof, unless otherwise required by law, the Certificate of Incorporation or these By-laws. SECTION 2.6 Waiver of Notice. Whenever any notice is required to be given under the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-laws, a waiver thereof, signed by the director entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a director at a meeting shall be deemed equivalent to a written waiver of notice of such meeting. SECTION 2.7 Quorum and Manner of Acting. At each meeting of the Board of Directors, the presence of a majority of the total number of members of the Board of Directors as constituted from time to time shall be necessary and sufficient to constitute a quorum for the transaction of business, except that when the Board of Directors consists of one or two directors, then the one or two directors, respectively, shall constitute a quorum. In the absence of a quorum, a majority of those present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present and the meeting may be held as so adjourned without further notice or waiver. A majority of those present at any meeting at which a quorum is present may decide any question brought before such meeting, except as otherwise provided by law, the Certificate of Incorporation or these By-laws. SECTION 2.8 Telephone Meetings, etc. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 2.9 Resignation of Directors. Any director may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, any Vice President or the Secretary. Unless otherwise specified in such notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer, and the acceptance of such resignation shall not be necessary to make it effective. SECTION 2.10 Removal of Directors. At any special meeting of the stockholders, duly called as provided in these By-laws, any director or directors may be removed from office, either with or without cause, as provided by law. At such meeting a successor or successors may be elected by a plurality of the votes cast, or if any such vacancy is not so filled, it may be filled by the directors as provided in Section 2.3. SECTION 2.11 Compensation of Directors. Directors shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained 3 4 shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE III COMMITTEES OF THE BOARD SECTION 3.1 Designation, Power, Alternate Members and Term of Office. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in such resolution and permitted by law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation or a facsimile thereof to be affixed to or reproduced on all such papers as said committee shall designate. The Board of Directors may designate one or more directors as alternate members of any committee who, in the order specified by the Board of Directors, may replace any absent or disqualified member at any meeting of such committee. If at a meeting of any committee one or more of the members thereof should be absent or disqualified, and if either the Board of Directors has not so designated any alternate member or members, or the number of absent or disqualified members exceeds the number of alternate members who are present at such meeting, then the member or members of such committee (including alternates) present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at such meeting in the place of any such absent or disqualified member. The term of office of the members of each committee shall be as fixed from time to time by the Board of Directors, subject to these By-laws, or until such member's successor shall have been designated by the Board of Directors; provided, however, that any committee member who ceases to be a member of the Board of Directors shall ipso facto cease to be a committee member. Each committee may appoint a secretary, who may be a director or an officer of the Corporation. SECTION 3.2 Meetings, Notices and Records. Each committee may provide for the holding of regular meetings, with or without notice, and may fix the times and places at which such meetings shall be held. Special meetings of each committee shall be held upon call by or at the direction of its chairman or, if there be no chairman, by or at the direction of any one of its members. Except as otherwise provided by law, notice of each special meeting of a committee shall be mailed to each member of such committee, addressed to such member at such member's residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to him at such place by telex, facsimile transmission, telegram, radio or cable, or telephoned or delivered to such member personally, not later than the day before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purposes thereof, unless otherwise required by law, the Certificate of Incorporation of the Corporation or these By-laws. Notice of any meeting of a committee need not be given to any member thereof who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in a signed writing. Each committee shall keep a record of its proceedings. SECTION 3.3 Quorum and Manner of Acting. At each meeting of any committee the presence of a majority of its members then in office shall be necessary and sufficient to constitute a quorum for the transaction of business, except that when a committee consists of one member, then the one member shall constitute a quorum. In the absence of a quorum, a majority of the members present at the time and place of any meeting may adjourn the meeting from time to time until a quorum shall be present and the meeting may be held as so adjourned without further notice or waiver. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee. Subject to the foregoing and other provisions of these By-laws and except as otherwise determined by the Board of Directors, each committee may make rules for the conduct of its business. 4 5 SECTION 3.4 Resignations. Any member of a committee may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, any Vice President or the Secretary. Unless otherwise specified in such notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer, and the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.5 Removal. Any member of any committee may be removed at any time with or without cause by the Board of Directors. SECTION 3.6 Vacancies. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining member or members of such committee, so long as a quorum is present, may continue to act until such vacancy is filled by the Board of Directors. SECTION 3.7 Compensation. Committee member shall receive such reasonable compensation for their services as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any committee member from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV OFFICERS SECTION 4.1 Officers. The officers of the Corporation shall be a Chairman of the Board, a President, a Chief Financial Officer, one or more Vice Presidents, any of whom may be designated an Executive Vice President or Senior Vice President upon his or her election, a Secretary, a Treasurer, and such other officers as may be appointed in accordance with the provisions of Section 4.3. SECTION 4.2 Election, Term of Office and Qualifications. Each officer (except such officers as may be appointed in accordance with the provision of Section 4.3) shall be elected by the Board of Directors. Each such officer shall hold such office until such officer's successor shall have been elected and shall qualify, or until such officer's death, or until such officer shall have resigned in the manner provided in Section 4.4 or shall have been removed in the manner provided in Section 4.5. SECTION 4.3 Other Officers and Agents. The Board of Directors from time to time may appoint other officers or agents (including one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers), to hold office for such periods, have such authority and perform such duties as are provided in these By-laws or as may be provided in the resolutions appointing them. The Board of Directors may delegate to any officer the power to appoint any such officers or agents and to prescribe their respective terms of office, authorities and duties. SECTION 4.4 Resignations. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the President, any Vice President or the Secretary. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or any such officer, and the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.5 Removal. Any officer specifically designed in Section 4.1 may be removed with or without cause at any meeting of the Board of Directors by affirmative vote of a majority of the directors then in office. Any officer of agent appointed in accordance with the provisions of Section 4.3 may be removed with or without cause at any meeting of the Board of Directors by affirmative vote of a 5 6 majority of the directors present at such meeting, or at any time by any superior officer or agent upon whom such power of removal shall have been conferred by the Board of Directors. Any removal of an officer shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 4.6 Vacancies. A vacancy in any office by reason of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these By-laws for regular election or appointment to such office. SECTION 4.7 The Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation, subject to the direction of the Board of Directors, shall have general charge of the business, affairs and property of the Corporation and shall have general supervision over its officers and agents. The Chairman of the Board shall preside at all meetings of the Board of Directors and of stockholders of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board may sign, with any other officer thereunto duly authorized, certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature) and may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts, agreements or other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent or shall be required by law to be otherwise executed. From time to time the Chairman of the Board shall report to the Board of Directors all matters within the knowledge of the Chairman of the Board which the interests of the Corporation may require to be brought to their attention. The Chairman of the Board shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors or these By-laws. If no Chief Financial Officer shall have been elected by the Board of Directors, the Chairman of the Board shall have, in addition to and not in limitation of the foregoing, the powers afforded the Chief Financial Officer pursuant to Section 4.12 hereof. SECTION 4.8 The President. In the absence of the Chairman of the Board, or in the event of the inability or refusal to act of the Chairman of the Board, the President shall perform the duties and exercise the powers of the Chairman of the Board until such vacancy shall be filled in the manner prescribed by these By-laws or by law. The President may sign, with any other officer thereunto duly authorized, certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature) and may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts, agreements or other instruments duly authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent, or shall be required by law to be otherwise executed. The President shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board or these By-laws. SECTION 4.9 The Vice Presidents. At the request of the President or in the absence or disability of the President, the Vice President designated by the Board of Directors shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also sign, with any other officer thereunto duly authorized, certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature) and may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts, agreements or other instruments duly authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent or shall be required by law to be otherwise executed. Each Vice President shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or these By-laws. 6 7 SECTION 4.10 The Secretary. The Secretary shall: (a) record all the proceedings of the meetings of the stockholders, the Board of Directors, and any committees of the Board of Directors in a book or books to be kept for that purpose; (b) cause all notices to be duly given in accordance with the provisions of these By-laws and as required by law; (c) whenever any committee shall be appointed in pursuance of a resolution of the Board of Directors, furnish the chairman of such committee with a copy of such resolution; (d) be custodian of the records and of the seal of the Corporation, and cause such seal to be affixed to or a facsimile to be reproduced on all certificates representing stock of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized; (e) see that its lists, books, reports, statements, certificates and other documents and records required by law are properly kept and filed; (f) have charge of the stock and transfer books of the Corporation, and exhibit such stock book at all reasonable times to such persons as are entitled by law to have access thereto; (g) sign (unless the Chief Financial Officer or the Treasurer or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (h) in general, perform all duties incident to the office of Secretary and have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or these By-laws. SECTION 4.11 Assistant Secretaries. At the request of the Secretary or in the absence or disability of the Secretary, the Assistant Secretary designated by the Board of Directors (or in the absence of such designation, the Chairman of the Board or the President) shall perform all the duties of the Secretary and, when so acting, shall have all the powers of and be subject to all restrictions upon the Secretary. Each Assistant Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, the Secretary or these By-laws. SECTION 4.12 The Chief Financial Officer. The Chief Financial officer shall: (a) have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation; (b) cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Sections 5.3 or to be otherwise dealt with in such manner as the Board of Directors may direct; (c) cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositaries of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed; 7 8 (d) render to the Board of Directors, the Chairman of the Board or the President, whenever requested, a statement of the financial condition of the Corporation and of all his transactions as Chief Financial Officer; (e) cause to be kept at the Corporation's principal office correct books of account of all its business and transactions and such duplicate books of account as the Chief Financial Officer shall determine and upon application cause such books or duplicates thereof to be exhibited to any director; (f) be empowered, from time to time, to require from the officers or agents of the Corporation reports or statements giving such information as the Chief Financial Officer may desire with respect to any and all financial transactions of the Corporation; (g) sign (unless the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature); and (h) in general, perform all duties incident to the office of Chief Financial Officer and have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President or these By-laws. SECTION 4.13 The Treasurer. The Treasurer shall have such powers and perform such duties with respect to the financial affairs of the Company as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer or these By-laws. In addition, the Treasurer shall sign (unless the Chief Financial Officer or the Secretary or an Assistant Secretary or an Assistant Treasurer shall sign) certificates representing stock of the Corporation the issuance of which shall have been duly authorized (the signature to which may be a facsimile signature). SECTION 4.14 Assistant Treasurers. At the request of the Treasurer or in the absence or disability of the Treasurer, the Assistant Treasurer designated by the Board of Directors (or in the absence of such designation, the Chairman of the Board or the President) shall perform all the duties of the Treasurer and, when so acting, shall have all the powers of and be subject to all restrictions upon the Treasurer. Each Assistant Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer, the Treasurer or these By-laws. SECTION 4.15 Salaries. The salaries of the officers of the Corporation shall be fixed from time to time by the Board of Directors, except that the Board of Directors may delegate to any person the power to fix the salaries or other compensation of any officers or agents appointed in accordance with the provisions of Section 4.3. No officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation. ARTICLE V EXECUTION OF INSTRUMENTS AND DEPOSIT OF CORPORATE FUNDS SECTION 5.1 Execution of Instruments Generally. The Chairman of the Board, the President, the Chief Financial Officer, any Vice President, the Secretary or the Treasurer, subject to the approval of the Board of Directors, may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any officer or officers, or agent 8 9 or agents, to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation, and such authorization may be general or confined to specific instances. SECTION 5.2 Borrowing. No loan or advance shall be obtained or contracted for, by or on behalf of the Corporation, and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Any officer or agent of the Corporation thereunto so authorized may obtain loans and advances for the Corporation, and for such loans and advances may make, execute and deliver promissory notes, bonds, or other evidences of indebtedness of the Corporation. Any officer or agent of the Corporation thereunto so authorized may pledge, hypothecate or transfer as security for the payment of any and all loan, advances, indebtedness and liabilities of the Corporation, any and all stocks, bonds, other securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same and do every act and thing necessary or proper in connection therewith. SECTION 5.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositaries as the Board of Directors may select, or as may be selected by any officer or officers or agent or agents authorized so to do by the Board of Directors. Endorsements for deposit to the credit of the Corporation in any of its duly authorized depositaries shall be made in such manner as the Board of Directors from time to time may determine. SECTION 5.4 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, and all notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or agent or agents of the Corporation, and in such manner, as from time to time shall be determined by the Board of Directors. SECTION 5.5 Proxies. Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the Chairman of the Board, the President, the Chief Financial Officer or any Vice President or by any other person or persons thereunto authorized by the Board of Directors. ARTICLE VI RECORD DATES In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Only those stockholders of record on the date so fixed shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Corporation after any such record date fixed by the Board of Directors. ARTICLE VII CORPORATE SEAL The corporate seal shall be circular in form and shall bear the name of the Corporation and words and figures denoting its organization under the laws of the State of Delaware and the year thereof and otherwise shall be in such form as shall be approved from time to time by the Board of Directors. 9 10 ARTICLE VIII FISCAL YEAR The fiscal year of the Corporation shall be the calendar year unless the Board of Directors shall otherwise determine. ARTICLE IX AMENDMENTS All By-laws of the Corporation may be amended or repealed, and new By-laws may be made, by an affirmative majority of the votes cast at any annual or special stockholders' meeting by holders of outstanding shares of stock of the Corporation entitled to vote, or by an affirmative vote of a majority of the directors present at any organizational, regular, or special meeting of the Board of Directors. ARTICLE X ACTION WITHOUT A MEETING Any action which might have been taken under these By-laws by a vote of the stockholders at a meeting thereof may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be individually signed and dated by the holders of all outstanding shares entitled to vote thereon, provided that no written consent will be effective unless the necessary number of written consents is delivered to the Corporation within sixty days of the earliest delivered consent to the Corporation. Any action which might have been taken under these By-laws by vote of the directors at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all the members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the Board of Directors of such committee. ARTICLE XI INDEMNIFICATION The Corporation shall indemnify, in the manner and to the full extent permitted by law, any person (or the estate of any person) who was or is a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Where required by law, the indemnification provided for herein shall be made only as authorized in the specific case upon a determination, in the manner provided by law, that indemnification of the director, officer, employee or agent is proper in the circumstances. The Corporation may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person. To the full extent permitted by law, the indemnification provided herein shall include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, and, in the manner provided by law, any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceedings. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the 10 11 full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. 11 EX-4.A 3 CREDIT AGREEMENT DATED AS OF DECEMBER 20, 1995 1 EXHIBIT 4(a) ------------ $325,000,000 CREDIT AGREEMENT dated as of December 20, 1995 among United States Surgical Corporation The Eligible Subsidiaries Referred to Herein The Banks and Issuing Banks Party Hereto NationsBank, N.A. as Administrative Agent The Yen Lenders Party Hereto The Bank of New York as Yen Administrative Agent and Morgan Guaranty Trust Company of New York as Documentation Agent Arranged By: J.P. Morgan Securities, Inc. as Lead Arranger BA Securities, Inc. as Co-Arranger NationsBanc Capital Markets, Inc. as Co-Arranger and The Bank of New York as Co-Arranger 2 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Accounting Terms and Determinations . . . . . . . . . . . . . . . 24 ARTICLE 2 THE DOLLAR CREDITS SECTION 2.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 2.2. Notice of Committed Borrowing . . . . . . . . . . . . . . . . . . 25 SECTION 2.3. Money Market Borrowings . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.4. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . . 30 SECTION 2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.6. Mandatory Termination of Commitments; Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.7. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 2.8. Method of Electing Interest Rates . . . . . . . . . . . . . . . . 36 SECTION 2.9. Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 2.10. Optional Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 2.11. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 2.12. Mandatory Reduction of Commitments . . . . . . . . . . . . . . . 39 SECTION 2.13. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 2.14. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 2.15. General Provisions as to Payments . . . . . . . . . . . . . . . . 48 SECTION 2.16. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 2.17. Computation of Interest, Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 2.18 Eligible Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 3 THE YEN CREDITS SECTION 3.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 3.2. Notice of Yen Borrowing . . . . . . . . . . . . . . . . . . . . . 51 SECTION 3.3. Notice to Yen Lenders; Funding of Yen Loans . . . . . . . . . . . 51 SECTION 3.4. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 3.5. Mandatory Termination of Yen Commitments; Maturity of Yen Loans . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 3.6. Method of Electing Additional Interest Periods . . . . . . . . . 53 SECTION 3.7. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 3.8. Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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Page SECTION 3.9. Optional Termination or Reduction of Yen Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 3.10. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 3.11. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 3.12. General Provisions as to Payments . . . . . . . . . . . . . . . . 57 SECTION 3.13. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 3.14. Computation of Interest and Fees . . . . . . . . . . . . . . . . 59 ARTICLE 4 CONDITIONS SECTION 4.1. Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 4.2. Each Extension of Credit . . . . . . . . . . . . . . . . . . . . 61 SECTION 4.3. First Extension of Credit to Each Eligible Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 5 REPRESENTATIONS AND WARRANTIES SECTION 5.1. Corporate Existence and Power . . . . . . . . . . . . . . . . . . 63 SECTION 5.2. Corporate and Governmental Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.4. Financial Information . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 5.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 5.6. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 5.7. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 5.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 5.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 5.10. Not an Investment Company . . . . . . . . . . . . . . . . . . . . 66 SECTION 5.11. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 5.12. Other Existing Debt Documents . . . . . . . . . . . . . . . . . . 66 SECTION 5.13. No Default under Other Agreements . . . . . . . . . . . . . . . . 66 SECTION 5.14. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE 6 COVENANTS SECTION 6.1. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 6.2. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . 70 SECTION 6.3. Maintenance of Property; Insurance . . . . . . . . . . . . . . . 71 SECTION 6.4. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 6.5. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 6.6. Inspection of Property, Books and Records . . . . . . . . . . . 72
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Page SECTION 6.7. Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . 73 SECTION 6.8. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 6.9. Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 6.10. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 6.11. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 6.12. Dividends and Common Stock Payments . . . . . . . . . . . . . . . 75 SECTION 6.13. Limitation on Subsidiary Debt . . . . . . . . . . . . . . . . . . 76 SECTION 6.14. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 6.15. Consolidations and Mergers . . . . . . . . . . . . . . . . . . . 77 SECTION 6.16. Transactions with Affiliates . . . . . . . . . . . . . . . . . . 77 SECTION 6.17. Prepayment of Other Debt . . . . . . . . . . . . . . . . . . . . 78 SECTION 6.18. Other Existing Debt Documents . . . . . . . . . . . . . . . . . . 79 SECTION 6.19. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 79 ARTICLE 7 DEFAULTS SECTION 7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 7.2. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 7.3. Notice of Termination . . . . . . . . . . . . . . . . . . . . . . 83 ARTICLE 8 THE AGENTS SECTION 8.1. Appointment and Authorization . . . . . . . . . . . . . . . . . . 83 SECTION 8.2. Agents and Affiliates . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 8.3. Action by Agents . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 8.4. Consultation with Experts; Attorneys in Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 8.5. Liability of Agents . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 8.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 8.7. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 8.8. Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 8.9. Fees of Administrative Agent and Yen Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 8.10. Arrangers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE 9 CHANGE IN CIRCUMSTANCES SECTION 9.1. Basis for Determining Dollar Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 9.2. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 9.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . 88 SECTION 9.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
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Page SECTION 9.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . 93 ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES SECTION 10.1. Corporate Existence and Power . . . . . . . . . . . . . . . . . . 94 SECTION 10.2. Corporate and Governmental Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 10.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 10.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 ARTICLE 11 GUARANTY SECTION 11.1. The Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 95 SECTION 11.2. Guaranty Unconditional . . . . . . . . . . . . . . . . . . . . . 95 SECTION 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances . . . . . . . . . . . . . 96 SECTION 11.4. Waiver by the Company . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 11.5. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 11.6. Stay of Acceleration . . . . . . . . . . . . . . . . . . . . . . 97 ARTICLE 12 MISCELLANEOUS SECTION 12.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 12.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 12.3. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . 98 SECTION 12.4. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 12.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 99 SECTION 12.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 100 SECTION 12.7. Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 12.8. Foreign Subsidiary Costs . . . . . . . . . . . . . . . . . . . . 103 SECTION 12.9. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 103 SECTION 12.10. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 SECTION 12.11. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . 104 SECTION 12.12. Counterparts; Integration . . . . . . . . . . . . . . . . . . . . 105 SECTION 12.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 105 SECTION 12.14. COMMERCIAL TRANSACTION; WAIVER OF RIGHTS . . . . . . . . . . . . 105
iv 6 SCHEDULES AND EXHIBITS Commitment Schedule Yen Commitment Schedule Pricing Schedule Exhibit A - Note Exhibit B - Yen Note Exhibit C - Money Market Quote Request Exhibit D - Invitation for Money Market Quotes Exhibit E - Money Market Quote Exhibit F - Opinion of Counsel for the Company Exhibit G - Opinion of Special Counsel for the Documentation Agent Exhibit H - Form of Election to Participate Exhibit I - Form of Election to Terminate Exhibit J - Opinion of Counsel for an Eligible Subsidiary Exhibit K - Assignment and Assumption Agreement Exhibit L - Calculation of Funding Losses Exhibit M - List of Borrower's Active Subsidiaries Exhibit N - List of Disclosure Documents Exhibit O - List of Existing Liens Securing Debt v 7 CREDIT AGREEMENT AGREEMENT dated as of December 20, 1995 among UNITED STATES SURGICAL CORPORATION, the ELIGIBLE SUBSIDIARIES referred to herein, the BANKS and ISSUING BANKS party hereto, NATIONSBANK, N.A., as Administrative Agent, the YEN LENDERS party hereto, THE BANK OF NEW YORK, as Yen Administrative Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent. WHEREAS, the Company wishes to replace its Existing Credit Agreement (as such term is defined below) with a new credit facility which allows the Company and certain of its Subsidiaries to be able (i) to borrow revolving credit loans denominated in United States Dollars in an aggregate outstanding principal amount not to exceed $300,000,000, (ii) to obtain letters of credit denominated in United States Dollars in an aggregate outstanding face amount not to exceed $50,000,000 (such letters of credit, when issued, to constitute a utilization of the revolving credit facility referred to in clause (i)) and (iii) to borrow revolving credit loans denominated in Japanese yen in an aggregate outstanding Dollar Equivalent Amount (as such term is defined below) not to exceed $25,000,000; WHEREAS, the Company is willing to guarantee the obligations of its Eligible Subsidiaries under such credit facility; and WHEREAS, the Banks and the Yen Lenders are willing to provide such credit facility to the Company and its Eligible Subsidiaries on the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3. "Adjusted CD Rate" has the meaning set forth in Section 2.7(b). 1 8 "Adjusted Consolidated Net Income" means, for any period, the consolidated net income of the Company and its Consolidated Subsidiaries for such period minus dividends on the Company's outstanding preferred stock accrued or paid with respect to such period. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Administrative Agent" means NationsBank, in its capacity as Administrative Agent for the Banks hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Relevant Agent, duly completed by such Lender and submitted to the Relevant Agent (with a copy to the Company). "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Company (a "Controlling Person") or (ii) any Person which is controlled by or is under common control with a Controlling Person; provided that the term "Affiliate" shall not include (i) the Company, (ii) any Subsidiary or (iii) any Person in which the Company or a Subsidiary owns an equity interest if none of the other equity interests in such Person are owned directly or indirectly by an Affiliate. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means the Administrative Agent, the Yen Administrative Agent or the Documentation Agent, as the context may require, and "Agents" means all of the foregoing. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office and (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. "Arrangers" means J.P. Morgan Securities, Inc., in its capacity as Lead Arranger of the credit facility provided hereunder, and BA Securities, Inc., NationsBanc Capital Markets, Inc. and The Bank of New York, in their respective capacities as Co-Arrangers of the credit facility provided hereunder. 2 9 "Assessment Rate" has the meaning set forth in Section 2.7(b). "Asset Sale" means any sale of any asset by the Company or any Subsidiary, excluding (i) sales of inventory and used, surplus or worn out equipment in the ordinary course of business and (ii) sales of accounts and notes receivable pursuant to a Permitted Asset Securitization. "Assignee" has the meaning set forth in Section 12.6(c). "Bank" means each bank or other institution listed on the Commitment Schedule attached hereto, each Assignee which becomes a Bank pursuant to Section 12.6(c), and their respective successors. "Bank of America" means Bank of America National Trust and Savings Association. "BNY" means The Bank of New York. "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 (i) 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 Article 9 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "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 the Company or any Eligible Subsidiary, as the context may require, and their respective successors, and "Borrowers" means all of the foregoing. "Borrowing" means a borrowing hereunder consisting of Loans which are made to a single Borrower at the same time by the Banks pursuant to Article 2 and (except for Base Rate Loans) have the same initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing 3 10 comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.3 in which the Bank participants are determined on the basis of their bids in accordance therewith). "CD Base Rate" has the meaning set forth in Section 2.7(b). "CD Loan" means (i) a Committed Loan which bears interest at a CD Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately before it became overdue. "CD Margin" has the meaning set forth in Section 2.7(b). "CD Rate" means a rate of interest determined pursuant to Section 2.7(b) on the basis of an Adjusted CD Rate. "CD Reference Banks" means Bank of America, Morgan, NationsBank and BNY. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the Commitment Schedule attached hereto (or, in the case of an Assignee, the portion of the transferor Bank's Commitment assigned to such Assignee pursuant to Section 12.6(c)), in each case as such amount may be reduced from time to time pursuant to Section 2.10 or 2.12 or changed as a result of an assignment pursuant to Section 12.6(c). "Committed Loan" means a loan made by a Bank pursuant to Section 2.1; 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. "Common Stock Dividend" means any dividend or other distribution on any shares of the Company's common stock (except dividends payable solely in shares of its common stock and dividends consisting solely of rights to acquire shares of its common stock). 4 11 "Common Stock Payment" means any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Company's common stock or (ii) any option, warrant or other right to acquire shares of the Company's common stock; provided that, if pursuant to the Company's stock option plans, an optionee surrenders shares of the Company's common stock in payment of the exercise price of options then being exercised by such optionee, the acquisition by the Company of the shares so surrendered shall not constitute a "Common Stock Payment". "Company" means United States Surgical Corporation, a Delaware corporation, and its successors. "Company's 1994 Form 10-K" means the Company's annual report on Form 10-K for 1994, as filed with the SEC pursuant to the Exchange Act. "Company's Latest Form 10-Q" means the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995, as filed with the SEC pursuant to the Exchange Act. "Consolidated Capital Expenditures" means, for any period, the gross amount of all additions to property, plant and equipment of the Company and its Consolidated Subsidiaries for such period; provided that, if the Company acquires a going concern business, "Consolidated Capital Expenditures" shall not include (i) the book value of the property, plant and equipment of such business immediately before such acquisition or (ii) the amount by which such property, plant and equipment are written up in connection with such acquisition, except to the extent (if any) that the amounts referred to in the foregoing clauses (i) and (ii) are attributable to expenditures made in contemplation of such acquisition. "Consolidated Debt" means at any date the sum of all Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBITDA" means, for any period, the sum of (i) the consolidated net income of the Company and its Consolidated Subsidiaries for such period (excluding any extraordinary income or extraordinary charges) plus (ii) to the extent deducted in determining such consolidated net income, the sum of (A) Consolidated Net Interest Expense, (B) income taxes, (C) depreciation, amortization and write-offs of assets theretofore being depreciated or amortized (or the creation or increase of reserves against such assets), (D) the cost of settling any or all of the lawsuits 5 12 referred to under the caption "Legal Proceedings" in the Company's 1994 Form 10-K or the Company's Latest Form 10-Q, provided that the aggregate amount added pursuant to this clause (D) with respect to all Fiscal Quarters ending after September 30, 1995 shall not exceed $25,000,000 and (E) non-cash charges related to real estate subject to the U.I.S. Financing Documents, provided that the aggregate amount added pursuant to this clause (E) with respect to all Fiscal Quarters ending after September 30, 1995 shall not exceed $35,000,000. "Consolidated Net Interest Expense" means, for any period, the interest expense (net of interest income) of the Company and its Consolidated Subsidiaries for such period determined on a consolidated basis. "Consolidated Net Rent Expense" means, for any period, the rent expense of the Company and its Consolidated Subsidiaries under operating leases for such period, net of rental income for such period, determined on a consolidated basis. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries at such date minus, to the extent reflected therein, all Intangible Assets (other than patents, patent applications pending and patent licenses) acquired after September 30, 1992. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Total Capital" means at any date Consolidated Debt plus Consolidated Net Worth at such date. "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 as lessee which are (or are required to be) capitalized in accordance with generally accepted accounting principles, (iv) all guarantees and endorsements (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) by such Person of the Debt of other Persons and all letters of credit issued on the responsibility of such Person to support the Debt of other Persons, (v) in the case of the Company, the obligations evidenced by the North Haven 6 13 Notes and (vi) with respect to obligations of such Person as lessee under any operating lease (except the North Haven Lease) under which the aggregate rental payments over the term of such lease exceed $15,000,000, the lesser of (x) the remaining unpaid rental payments due during the term of such lease or (y) six times the rental payments due under such lease during the next year. In calculating the amount of any Person's Debt for purposes hereof, the amount of any guarantee, endorsement or letter of credit referred to in clause (iv) of this definition shall be deemed to be the amount of the Debt of another Person guaranteed, endorsed or otherwise supported thereby. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice (under this Agreement or under an agreement relating to Material Debt), lapse of time and/or the making of a determination by the Required Lenders would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Documentation Agent" means Morgan, in its capacity as Documentation Agent hereunder, and its successors in such capacity. "Dollar" and the sign "$" mean lawful money of the United States of America. "Dollar Equivalent Amount" means, with respect to any amount of Yen on any date, the amount of Dollars converted from such amount of Yen at the Yen Administrative Agent's spot buying rate (based on the Tokyo interbank market rate then prevailing) for Yen against Dollars as of approximately 9:00 A.M. (Eastern Time) four Tokyo Business Days before such date. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City or Charlotte, North Carolina are authorized or required by law to close. 7 14 "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 Company and the Administrative Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.7(b). "Eastern Time" means eastern standard time or eastern daylight time, as appropriate. "Effective Date" means the date on which the Documentation Agent shall have received all the documents and other items specified in or pursuant to Section 4.1. "Election to Participate" means an Election to Participate substantially in the form of Exhibit H hereto. "Election to Terminate" means an Election to Terminate substantially in the form of Exhibit I hereto. "Eligible Subsidiary" means at any time any Substantially Wholly-Owned Consolidated Subsidiary which is a corporation and shall have become an Eligible Subsidiary pursuant to Section 2.18(a) and shall not have ceased to be an Eligible Subsidiary pursuant to Section 2.18(b). "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, 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 8 15 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 Company, 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 Company or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "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 Company and the Administrative Agent. "Euro-Dollar Loan" means (i) 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 or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Margin" has the meaning set forth in Section 2.7(c). "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.7(c) on the basis of an Adjusted London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of Bank of America, Morgan, NationsBank and BNY. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.7(c). "Event of Default" has the meaning set forth in Section 7.1. 9 16 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Existing Credit Agreement" means the Credit Agreement dated as of June 27, 1994 among the Company, the Banks party thereto, Morgan, as Documentation Agent and NationsBank, as Administrative Agent. "Extension of Credit" means, with respect to any Borrower, the making of a Loan or Yen Loan to it or the issuance or extension of a Letter of Credit for its account. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal 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 NationsBank on such day on such transactions as determined by the Administrative Agent. "Fiscal Quarter" means a fiscal quarter of the Company. "Fiscal Year" means a fiscal year of the Company. "Fixed Rate Borrowings" means CD Borrowings or Euro-Dollar Borrowings or Money Market Borrowings (excluding any such Borrowings consisting of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 9.1(a)) or any combination of the foregoing. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 9.1(a)) or any combination of the foregoing. "GAAP" means at any time generally accepted accounting principles as then in effect in the United States, applied on a basis consistent (except for changes with which the Company's independent public accountants have concurred) with the most recent audited consolidated 10 17 financial statements of the Company and its Consolidated Subsidiaries theretofore delivered to the Lenders. "Governmental Authority" means any government or any state, department or other political subdivision thereof, or any governmental body, agency, authority (including, without limitation, any central bank or taxing authority) or instrumentality (including, without limitation, any court or tribunal) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation, partnership or other entity directly or indirectly owned by or subject to the control of any of the foregoing. "Group of Loans" or "Group" means, with respect to any Borrower at any time, a group of Loans consisting of (i) all Committed Loans made to such Borrower which are Base Rate Loans at such time, (ii) all Euro-Dollar Loans made to such Borrower having the same Interest Period at such time or (iii) all CD Loans made to such Borrower 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 9, 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, for purposes of Sections 6.16 and 6.18 only, 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 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 obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include the North Haven Lease. 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. 11 18 "Indemnitee" has the meaning set forth in Section 12.3(b). "Intangible Assets" means goodwill, patents, patent applications pending, patent licenses, trade names, trademarks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets (other than prepaid insurance, prepaid rent in respect of the North Haven Lease and prepaid or deferred taxes), the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" in accordance with GAAP. "Intercompany Debt" means (i) Debt owed by the Company to any Subsidiary or (ii) Debt owed by any Subsidiary to the Company or to another Subsidiary. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the relevant Borrower may elect in the applicable 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 Termination Date shall end on the Termination Date; (2) with respect to each CD Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the relevant Borrower may elect in the applicable notice; provided that: 12 19 (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; (3) with respect to each Money Market LIBOR Loan, the period commencing on the date specified in the applicable Notice of Money Market Borrowing and ending such number of days thereafter (but not less than 7 days) as the relevant Borrower may elect in accordance with Section 2.3; 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 (i) such Euro-Dollar Business Day falls in another calendar month and (ii) such Interest Period has a duration of one or more whole months, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) if any Interest Period has a duration of one or more whole months and 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), 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; (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date specified in the applicable Notice of Money Market Borrowing and ending such number of days thereafter (but not less than 7 days) as the relevant Borrower may elect in accordance with Section 2.3; 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 13 20 (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; and (5) with respect to each Yen Loan, a period commencing on the date of borrowing specified in the applicable Notice of Yen Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the relevant Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Tokyo Business Day shall be extended to the next succeeding Tokyo Business Day unless such Tokyo Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Tokyo Business Day; (b) any Interest Period which begins on the last Tokyo 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 Tokyo 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. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. "Investment" means any investment in any Person, whether made by means of share purchase, capital contribution, loan, time deposit, contribution of assets, assumption of liabilities or otherwise. "Investment Grade Status" exists at any date if the Company's outstanding senior unsecured long-term debt securities (without any third-party credit enhancement) are rated BBB- or higher by S&P and Baa3 or higher by Moody's on such date; provided that, if the Company has no senior unsecured long-term debt securities outstanding at such date, such ratings may be established by letters from each of S&P and Moody's until either (i) the Company shall have received notice from either S&P or Moody's that its letter rating has been lowered below BBB- or Baa3, as the case may be, or withdrawn or (ii) either S&P or Moody's shall have refused to affirm its letter rating when asked to do so by the Administrative Agent (at the request of any Lender). 14 21 "Invitation for Money Market Quotes" means an Invitation for Money Market Quotes substantially in the form of Exhibit D hereto. "Issuing Banks" means NationsBank, BNY and any other Bank appointed pursuant to Section 2.14(j), each in its capacity as issuing bank for one or more Letters of Credit hereunder, and their respective successors. "Lender" means a Bank or a Yen Lender, as the context may require, and "Lenders" means all of the Banks and Yen Lenders. "Lending Office" means an Applicable Lending Office or a Yen Lending Office, as the context may require. "Letters of Credit" means, subject to the last sentence of Section 2.14(a)(iii), each letter of credit issued by an Issuing Bank pursuant to Section 2.14. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.3. "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 Company 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. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Material Debt" means (i) the North Haven Notes and (ii) any other Debt (except the Loans and the Reimbursement Obligations) of the Company and/or one or more Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate outstanding principal amount exceeding $10,000,000. "Material Financial Obligations" means a principal or face amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Company and/or one or more 15 22 Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $10,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(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 Company and the Administrative Agent; provided that any Bank may from time to time by notice to the Company and the Administrative 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. "Money Market LIBOR Loan" means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 9.1(a)). "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 2.3(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Money Market Quote Request" means a Money Market Quote Request substantially in the form of Exhibit C hereto. "Moody's" means Moody's Investors Service, Inc. "Morgan" means Morgan Guaranty Trust Company of New York. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 16 23 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. "NationsBank" means NationsBank, N.A. "Non-United States Borrower" means a Borrower that is organized under the laws of a jurisdiction outside the United States. "North Haven Financing Documents" means (i) the Participation Agreement dated of January 14, 1993 among the Company (as lessee), Bakers Properties Limited Partnership (as owner participant), the note purchasers listed therein, State Street Bank and Trust Company of Connecticut, National Association (Owner Trustee) and Norwest Bank Minnesota, National Association (successor Indenture Trustee) and (ii) each of the "Operative Documents" referred to therein, in each case as in effect from time to time. "North Haven Lease" means the Lease Agreement dated as of January 14, 1993 between State Street Bank and Trust Company of Connecticut, National Association (Owner Trustee), as lessor, and the Company, as lessee, as in effect from time to time. "North Haven Notes" means the notes outstanding from time to time under the Trust Indenture, Assignment of Leases, Open-End Mortgage and Security Agreement dated as of January 14, 1993 between State Street Bank and Trust Company of Connecticut, National Association (Owner Trustee) and Norwest Bank Minnesota, National Association (successor Indenture Trustee), as in effect from time to time. "Notes" means promissory notes of a Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans made to it, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.2) or a Notice of Money Market Borrowing (as defined in Section 2.3(f)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.8(a). 17 24 "Notice of LC Extension" has the meaning set forth in Section 2.14(b). "Notice of LC Issuance" has the meaning set forth in Section 2.14(b). "Notice of Yen Borrowing" has the meaning set forth in Section 3.2. "Notice of Yen Interest Period Election" has the meaning set forth in Section 3.6. "Other Existing Debt Documents" means the North Haven Financing Documents and the U.I.S. Financing Documents. "Other Scheduled Debt Payments" means, for any period, the aggregate amount (without duplication) of (a) all scheduled repayments of principal (including the principal component of scheduled payments of rent under capital leases) required to be made by the Company and its Consolidated Subsidiaries during such period with respect to Debt of the types described in clauses (i), (ii) and (iii) of the definition of "Debt" and (b) all scheduled payments of principal and interest required to be made in cash with respect to the North Haven Notes during such period (but only to the extent that such scheduled payments exceed the amount included in Consolidated Net Rent Expense for such period in respect thereof), but excluding payments in respect of the North Haven Notes that result from payments of contingent rent under the North Haven Lease. "Parent" means, with respect to any Lender, any Person controlling such Lender. "Participant" has the meaning set forth in Section 12.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Asset Securitization" means a sale or other disposition by the Company of its accounts and notes receivable in a transaction permitted by Section 6.14(c). "Permitted Temporary Cash Investment" means any Investment in: 18 25 (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) direct obligations of the Commonwealth of Puerto Rico or any agency thereof or any authority organized under the laws thereof, provided in each case that such obligation is, at the time of acquisition thereof, rated BBB+ or better by S&P or Baa1 or better by Moody's, (iii) commercial paper rated, at the time of acquisition thereof, at least A-1 by S&P and P-1 by Moody's, (iv) time deposits with, including certificates of deposit issued by, any office located in the United States of any Eligible Bank, (v) repurchase agreements with respect to securities described in clause (i) above entered into with an office located in the United States of any Eligible Bank, (vi) timedeposits with, including certificates of deposit issued by, any office located in Puerto Rico of Banco Popular de Puerto Rico, Banco Santander Puerto Rico or any Eligible Bank, or (vii) shares of an investment company with an aggregate net asset value of not less than $500,000,000, the investments of which are limited to short-term direct obligations of the United States or obligations backed by short-term direct obligations of the United States, provided that (x) each such Investment (other than an Investment permitted by clause (ii) or (vi) above) matures within one year from the date of acquisition thereof and (y) each Investment permitted by clause (ii) or (vi) above matures within five years from the date of acquisition thereof. As used in this definition, the term "Eligible Bank" means any bank or trust company which shall have a combined capital, surplus and undivided profits of not less than $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof, rated A or better by S&P and A or better by Moody's. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or 19 26 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. "Preferred Dividends" means, for any period, all dividends declared by the Company during such period with respect to its preferred stock. "Pricing Level" has the meaning set forth in the Pricing Schedule. "Pricing Period" has the meaning set forth in the Pricing Schedule. "Pricing Ratio" has the meaning set forth in the Pricing Schedule. "Pricing Schedule" means the Pricing Schedule attached hereto. "Prime Rate" means the rate of interest publicly announced by NationsBank in Charlotte, North Carolina, from time to time as its Prime Rate. The Prime Rate is not necessarily the best or lowest rate of interest offered by NationsBank. "Quarterly Payment Date" means the last Euro-Dollar Business Day of each March, June, September and December during the period from the Effective Date to the Termination Date. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, 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. 20 27 "Relevant Agent" means the Administrative Agent or the Yen Administrative Agent, as the context requires. "Reimbursement Obligation" means an obligation of a Borrower to reimburse the relevant Issuing Bank pursuant to Section 2.14 for the amount of a drawing under a Letter of Credit. "Required Banks" means at any time Banks having at least 60% of the aggregate amount of the Commitments or, if the Commitments have been terminated, having at least 60% of the aggregate amount of the Total Exposures. "Required Lenders" means at any time Lenders having at least 60% of aggregate amount of the Total Commitments or, if the Commitments and the Yen Commitments have been terminated, having Total Exposures and/or outstanding Yen Loans in an aggregate amount equal to at least 60% of the sum of all the Total Exposures and Yen Loans then outstanding. Interest accrued on the Loans, Reimbursement Obligations and Yen Loans shall not be included in any calculation for purposes of this definition, and the principal amounts of the Yen Loans shall be deemed to be the Dollar Equivalent Amounts thereof. "Required Yen Lenders" means at any time Yen Lenders having at least 60% of the aggregate amount of the Yen Commitments or, if the Yen Commitments have been terminated, holding Yen Notes evidencing at least 60% of the aggregate outstanding principal amount of the Yen Loans. "Responsible Officer" as it applies to the Company means the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer, the general counsel or any other officer of the Company whose responsibilities include the administration of the transactions contemplated by this Agreement. "S&P" means Standard & Poor's Ratings Services. "SEC" means the Securities and Exchange Commission. "Subsidiary" means, at any time, 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 the Company. 21 28 "Substantially Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary at least 98% of the shares of capital stock or other ownership interests of which are at the time directly or indirectly owned by the Company. "Termination Date" means January 5, 2001. "TIBOR Margin" has the meaning set forth in Section 3.7. "Tokyo Business Day" means any Domestic Business Day on which commercial banks are open for business in Tokyo. "Tokyo Interbank Offered Rate" has the meaning set forth in Section 3.7. "Total Commitment" means, with respect to each Lender, the sum of its Commitment (if any) and its Yen Commitment (if any). "Total Committed Exposure" means, with respect to any Bank at any time, the sum of (i) the aggregate principal amount of its Committed Loans then outstanding, (ii) its share of the undrawn amount which is then, or may thereafter become, available for drawing under each Letter of Credit then outstanding and (iii) its share of the principal amount of each unpaid Reimbursement Obligation then outstanding. "Total Exposure" means, with respect to any Bank at any time, the sum of its Total Committed Exposure and the aggregate outstanding principal amount of its Money Market Loans at such time. "U.I.S. Financing Documents" means (i) the financing lease among Union pour le Financement d'Immeubles de Societes (Association for the Financing of Commercial Buildings or "U.I.S.") and Societe pour le Financement des Immeubles d'Entreprise FINABAIL (Corporation for the Financing of Commercial Buildings or "FINABAIL") together, as Lessor, A.S.E. PARTNERS ("ASE"), as Lessee, and the Company, as Guarantor, governed by the favorable regime applicable to SICOMIs (Societe Immobilieres pour le Commerce et l'Industrie), with respect to the DC Building (as defined therein) dated January 4, 1994; (ii) the financing lease among U.I.S. and FINABAIL together, as Lessor, ASE, as Lessee, and the Company, as Guarantor, governed by the common-law regime, with respect to the H.Q. Building (as defined therein) dated January 4, 1994; and (iii) the side 22 29 agreement dated January 4, 1994 between FINABAIL, U.I.S., ASE and the Company, as Guarantor. "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 thereof and the District of Columbia, but excluding its territories and possessions. "United States Borrower" means a Borrower that is organized under the laws of the United States or any of the States thereof. "Yen" and the sign "Yen" mean lawful money of Japan. "Yen Administrative Agent" means BNY, in its capacity as Yen Administrative Agent for the Yen Lenders hereunder, and its successors in such capacity. "Yen Borrowing" means at any time a borrowing hereunder consisting of Yen Loans which are made to a single Borrower at the same time by the Yen Lenders pursuant to Article 3 and have the same Interest Period. "Yen Commitment" means, with respect to each Yen Lender, the amount set forth opposite the name of such Yen Lender on the Yen Commitment Schedule attached hereto (or in the case of an Assignee, the portion of the transferor Yen Lender's Commitment assigned to such Assignee pursuant to Section 12.6(c)), in each case as such amount may be reduced from time to time pursuant to Section 3.9 or changed as a result of an assignment pursuant to Section 12.6(c). "Yen Lender" means each bank or other institution listed on the Yen Commitment Schedule attached hereto, each Assignee which becomes a Yen Lender pursuant to Section 12.6(c), and their respective successors. "Yen Lending Office" means, as to each Yen Lender, its office located at its address set forth in its 23 30 Administrative Questionnaire or such other office as such Yen Lender may hereafter designate as its Yen Lending Office by notice to the Company and the Yen Administrative Agent. "Yen Loan" means a loan made by a Yen Lender pursuant to Section 3.1. "Yen Notes" means promissory notes of a Borrower, substantially in the form of Exhibit B hereto, evidencing the obligation of such Borrower to repay the Yen Loans made to it, and "Yen Note" means any one of such promissory notes issued hereunder. "Yen Overdraft Rate" means, for each day, the Bank of Japan overdraft interest rate in effect for such day. 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; provided that, if the Company notifies the Documentation Agent that the Company wishes to amend any provision of the Pricing Schedule and/or any covenant in Article 6 to eliminate the effect of any change in GAAP on the calculation of the Pricing Ratio and/or on the operation of such covenant (or if the Documentation Agent notifies the Company that the Required Lenders wish to amend any such provision and/or any such covenant for such purpose), then the Pricing Ratios shall be calculated and/or the Company's compliance with such covenant shall be determined on the basis of GAAP as in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such provision and/or covenant is amended in a manner satisfactory to the Company and the Required Lenders. Subject to the foregoing proviso, the amounts used to determine the Company's compliance with the financial covenants contained herein shall be the amounts that are (or will be) set forth or otherwise reflected in the Company's consolidated financial statements prepared in accordance with GAAP. ARTICLE 2 THE DOLLAR CREDITS SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans in Dollars to the Borrowers pursuant to this Section from time to time on and after the 24 31 Effective Date and prior to the Termination Date; provided that at no time shall such Bank's Total Committed Exposure exceed its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Commitments) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, a Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.11, and reborrow under this Section at any time prior to the Termination Date. SECTION 2.2. Notice of Committed Borrowing. The relevant Borrower shall give the Administrative Agent notice (a "Notice of Committed Borrowing") not later than 11:00 A.M. (Eastern Time) (x) on the date of each Base Rate Borrowing, (y) on the second Domestic Business Day before each CD Borrowing and (z) on the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the name of the relevant Borrower, (ii) 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, (iii) the aggregate amount of such Borrowing, (iv) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate, and (v) in the case of a Fixed Rate Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.3. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.1, any Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans in Dollars to such Borrower from time to time on and after the Effective Date and prior to the Termination Date. The Banks may, but shall have no obligation to, make such offers and such Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. 25 32 (b) Money Market Quote Request. When a Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to 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 Company 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: (i) the name of the proposed Borrower, (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, (iii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iv) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (v) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. A 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 Company and the Administrative Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Administrative Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes which shall constitute an invitation by the relevant 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. 26 33 (d) Submission and Contents of Money Market Quotes. (i) EachBank 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 subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 12.1 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to 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 Company 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 relevant Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 4 and 7, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the relevant Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit E 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 27 34 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, expressed as a percentage (specified to the nearest 1/10,000th 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 1/10,000th 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 E hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language, except an aggregate limitation permitted by subsection (d)(ii)(B)(z); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes, except an aggregate limitation permitted by subsection (d)(ii)(B)(z); or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the relevant Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank 28 35 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 relevant 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. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (Eastern time) on (x) the third Euro-Dollar Business Day prior to 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 Company 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 relevant Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (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 relevant 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 $5,000,000 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, and (iv) the relevant Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. 29 36 (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. Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank participating in the relevant Borrowing of the contents thereof and of such Bank's share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the relevant Borrower. In the case of a Base Rate Borrowing, the Administrative Agent shall give such notice to each Bank as promptly as practicable and in any event not later than 12:30 P.M. (Eastern Time) on the date of such Base Rate Borrowing. (b) Not later than 2:00 P.M. (Eastern Time) on the date of each Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 12.1. Unless the Administrative Agent determines that any applicable condition specified in Article 4 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the relevant Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Bank prior to 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 subsection (b) of this Section and the Administrative Agent may, in reliance upon such assumption, make available to the relevant 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 relevant Borrower 30 37 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 relevant Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the relevant Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.5. Notes. (a) The Loans of each Bank to each Borrower shall be evidenced by a single Note of such Borrower payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans to such Borrower. (b) Upon receipt of a Note of a Borrower for each Bank pursuant to Section 4.1(b) or 4.3(a), the Documentation Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it to each Borrower and the date and amount of each payment of principal made by such Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note of such Borrower, endorse on the schedule forming a part thereof appropriate notations (or attach thereto a schedule containing such notations) to evidence the foregoing information with respect to each such Loan to such Borrower then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of such Borrower hereunder or under its Notes. Each Bank is hereby irrevocably authorized by each Borrower so to endorse its Notes and to attach to and make a part of any Note such a schedule and a continuation of any such schedule as and when required. SECTION 2.6. Mandatory Termination of Commitments; Maturity of Loans. (a) The Commitments shall terminate on the Termination Date, unless terminated earlier in accordance with this Agreement, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount 31 38 thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.7. 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 (or converted to a Base Rate Loan) until it becomes due (or is converted to a CD Loan or Euro-Dollar Loan), 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 and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on the date such principal amount is so converted. 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 CD 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 CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD 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 higher of (i) the rate applicable to Base Rate Loans for such day and (ii) the sum of the CD Margin plus the Adjusted CD Rate applicable to such CD Loan immediately before such payment was due. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: ACDR = [ CDBR * 1.00-DRP ] + AR ACDR = Adjusted CD Rate CDBR = CD Base Rate 32 39 DRP = Domestic Reserve Percentage AR = Assessment Rate --------------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1%. The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (Eastern Time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic 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 (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion Dollars in respect of new non-personal time deposits in Dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.3(d) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. 33 40 (c) 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 Adjusted London Interbank Offered Rate applicable to such Interest Period. 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. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 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. "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). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for 34 41 each day until paid, at a rate per annum equal to the sum of 2% plus the Euro-Dollar Margin for such day plus the higher of (i) 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 1/16 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 six 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 and (ii) the Adjusted London Interbank Offered Rate applicable to such Euro-Dollar Loan immediately before such payment was due; provided that, if the circumstances described in clause (a) or (b) of Section 9.1 shall exist, the rate per annum applicable to such overdue amount for each such day shall be equal to the sum of 2% plus the Base Rate for such day. (e) Subject to Section 9.1, 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 2.7(c) 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 in accordance with Section 2.3. 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 in accordance with Section 2.3. 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 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. (f) Within 45 days after the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending December 31, 1995), the Company will notify the Administrative Agent and each Bank of the Pricing Ratio determined as of the end of such Fiscal Quarter and the Pricing Level to be applicable during the Pricing Period that begins 46 days after the end of such Fiscal Quarter. The Administrative 35 42 Agent will rely on such notification in determining interest rates and fees hereunder for such Pricing Period, unless and until the Administrative Agent determines (on the basis of financial statements of the Company subsequently delivered or otherwise) that a different Pricing Level (the "Corrected Pricing Level") is applicable during such Pricing Period, in which event the Administrative Agent shall (i) thereafter determine interest rates and fees for such Pricing Period based on the Corrected Pricing Level and (ii) promptly notify the Yen Administrative Agent of the Corrected Pricing Level. If any interest or fees accrue during such Pricing Period and are paid before the Administrative Agent determines that the Pricing Level should be corrected as aforesaid, the Administrative Agent shall notify the relevant Borrower and the Banks of the amount of any resulting underpayment or overpayment. In the case of an underpayment, the relevant Borrower shall, within three Domestic Business Days after receiving such notice thereof, pay the amount thereof to the Administrative Agent for the account of the relevant Banks. In the case of an overpayment, the amount thereof shall be credited against subsequent payments of interest and fees payable hereunder for the account of the relevant Banks, all as determined by the Administrative Agent. (g) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the relevant Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (h) 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 Reference Banks or, if none of such quotations is available on a timely basis, the provisions of Section 9.1 shall apply. SECTION 2.8. 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 relevant Borrower in the applicable Notice of Committed Borrowing. Thereafter, the relevant Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 9), as follows: 36 43 (i) if such Loans are Base Rate Loans, the relevant Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the relevant Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans; or (iii) if such Loans are Euro-Dollar Loans, the relevant Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current 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 at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans to Domestic Loans of the other type or continued as Domestic Loans of the same type for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent at least three Domestic Business Days before such conversion or continuation 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, and the remaining portion to which it does not apply, are each $5,000,000 or any larger multiple of $1,000,000. (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 subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new 37 44 Loans are Fixed Rate Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or 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) Upon receipt of a Notice of Interest Rate Election from a Borrower pursuant to subsection (a) above, the Administrative Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by such Borrower. If the relevant Borrower fails to deliver a timely Notice of Interest Rate Election to the Administrative Agent for any Group of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto. SECTION 2.9. Facility Fee. The Company shall pay to the Administrative Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined for each day in accordance with the Pricing Schedule). Such facility fee shall accrue (i) for each day from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the aggregate amount of the Commitments (whether used or unused) on such day and (ii) for each day from and including such date of termination to but excluding the date the Committed Loans and the Reimbursement Obligations shall be repaid in their entirety and no Letter of Credit shall be outstanding, on the sum of the aggregate outstanding principal amount of the Committed Loans, the aggregate undrawn amount of the outstanding Letters of Credit and the aggregate outstanding principal amount of the Reimbursement Obligations on such day. Such facility fee shall be payable quarterly in arrears on each Quarterly Payment Date and on the date of termination of the Commitments in their entirety (and, if later, the date the Committed Loans and the Reimbursement Obligations shall be repaid in their entirety and no Letter of Credit shall be outstanding). SECTION 2.10. Optional Termination or Reduction of Commitments. The Company may, upon at least three Domestic Business Days' notice to the Administrative Agent, terminate at any time or ratably reduce from time to time, by an aggregate amount of $5,000,000 or any larger multiple 38 45 of $1,000,000, the unused portions of the Commitments. Upon any such termination or reduction of the Commitments, the Administrative Agent shall promptly notify each Bank thereof. If the Commitments are terminated in their entirety, all facility fees accrued hereunder shall be payable on the effective date of such termination. SECTION 2.11. Optional Prepayments. (a) Any Borrower may, upon at least (i) one Domestic Business Day's notice to the Administrative Agent, in the case of a Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 9.1), (ii) two Domestic Business Days' notice to the Administrative Agent in the case of any Group of CD Rate Loans, or (iii) three Euro-Dollar Business Days' notice to the Administrative Agent, in the case of any Group of Euro-Dollar Loans, prepay the Loans comprising such Group of Loans, in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans. In connection with any such prepayment of Fixed Rate Loans, the relevant Borrower shall comply with the provisions of Section 2.16, if applicable. (b) Except as provided in subsection (a) of this Section, no Borrower may prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the relevant Borrower. SECTION 2.12. Mandatory Reduction of Commitments. The Company shall, within four Euro-Dollar Business Days after any net cash proceeds are received from the lenders or purchasers of securities in any Permitted Asset Securitization, ratably reduce the Commitments by an aggregate amount not less than 50% of the amount of such net cash proceeds. Upon any such reduction of the Commitments, the Administrative Agent shall promptly notify each Bank thereof. SECTION 2.13. Mandatory Prepayments. Concurrently with each reduction of the Commitments pursuant to Section 2.12, the Company shall prepay Committed Loans, 39 46 in the manner provided in Section 2.11, to the extent (if any) required so that no Bank's Total Committed Exposure exceeds its Commitment as so reduced. SECTION 2.14. Letters of Credit. (a) Commitments to Issue and Participate in Letters of Credit. (i) EachIssuing Bank agrees, on the terms and conditions set forth in this Agreement (and in accordance with its customary procedures, to the extent such procedures are not inconsistent with the terms of this Agreement), at the request of any Borrower to issue and extend Letters of Credit for the account of such Borrower from time to time on and after the Effective Date and prior to the date which is 14 Domestic Business Days before the Termination Date. (ii) EachBank agrees to participate as provided in this Section, ratably in proportion to its Commitment, in each drawing made under each Letter of Credit. (iii) The obligation of each Issuing Bank to issue or extend a Letter of Credit pursuant to this Section is subject to the conditions set forth in Section 4.2 and the following additional conditions: (A) no such Letter of Credit shall be issued or extended if, immediately after the issuance or extension thereof, (i) any Bank's Total Committed Exposure would exceed its Commitment or (ii) the sum of (x) the aggregate undrawn amount which is, or may thereafter become, available for drawing under all outstanding Letters of Credit and (y) the aggregate principal amount of any outstanding Reimbursement Obligations would exceed $50,000,000; (B) no such Letter of Credit shall, when issued, have an expiry date that is more than 15 months after its date of issuance or, when extended, have an extended expiry date that is more than 15 months after the date on which such Issuing Bank extends such Letter of Credit; (C) no such Letter of Credit shall have an original or extended expiry date later than seven Domestic Business Days before the Termination Date; 40 47 (D) without the approval of the Required Banks, no such Letter of Credit shall be issued to support, directly or indirectly, the obligations of any Person under any of the Other Existing Debt Documents; and (E) the form of such Letter of Credit shall be satisfactory to the relevant Issuing Bank. A letter of credit issued by an Issuing Bank shall not constitute a "Letter of Credit" for purposes of this Agreement, and the Banks shall not be obligated to participate in drawings made thereunder, unless such letter of credit complies with the conditions set forth in clauses (B), (C) and (D) above and, immediately prior to the issuance of such letter of credit, such Issuing Bank is advised by the Administrative Agent that (x) the condition set forth in clause (A) above is satisfied and (y) the Administrative Agent has not determined that any applicable condition specified in Section 4.2 has not been satisfied; provided that this sentence shall not apply to any letter of credit issued at a time when all conditions to the relevant Issuing Bank's obligation to issue such letter of credit are in fact satisfied. (iv) No Issuing Bank shall be obligated to issue any Letter of Credit in connection with the financing of imports into or exports from the United States if such Issuing Bank believes that the issuance of such Letter of Credit would not meet the criteria (with regard to goods shipped, nationality of beneficiary, country of origin, or other similar considerations) customarily applied by it when considering a request to issue such letters of credit. (b) Notice of LC Issuance or LC Extension. At least five Domestic Business Days before any Letter of Credit is to be issued pursuant to this Section, the relevant Borrower shall give notice (a "Notice of LC Issuance") to the Administrative Agent and the relevant Issuing Bank (which shall be selected by such Borrower) specifying: (A) the name of the Borrower that is to be the account party for such Letter of Credit, (B) the date of issuance and expiry date of such Letter of Credit, (C) the proposed terms of such Letter of Credit, including the face amount thereof, and (D) the transaction that is to be supported or financed by such Letter of Credit. At least five Domestic Business Days before any Letter of Credit is 41 48 to be extended pursuant to this Section, the relevant Borrower shall give notice (a "Notice of LC Extension") to the Administrative Agent and the relevant Issuing Bank identifying such Letter of Credit and requesting the extension of the expiry date thereof to a specified date complying with clauses (B) and (C) of subsection (a)(iii) above. The Administrative Agent shall, upon receipt of each such Notice of LC Issuance or Notice of LC Extension, promptly notify each Bank of the contents thereof and of the amount of such Bank's ratable participation in such Letter of Credit, and such Notice of LC Issuance or Notice of LC Extension shall not thereafter be revocable by the relevant Borrower. (c) Drawings under Letters of Credit. Upon receipt from the beneficiary of any Letter of Credit of demand for payment under such Letter of Credit, the relevant Issuing Bank shall promptly notify the relevant Borrower and the Administrative Agent of such demand for payment and shall determine in accordance with the terms of such Letter of Credit whether such demand for payment should be honored. If such Issuing Bank determines that a demand for payment by the beneficiary of a Letter of Credit should be honored, such Issuing Bank shall make available to such beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing under such Letter of Credit. Such Issuing Bank shall thereupon notify the relevant Borrower, the Administrative Agent and each Bank of the amount of such drawing paid by it. (d) Reimbursement and Other Payments by the Borrower. (i) If any amount is drawn under any Letter of Credit, the relevant Borrower shall reimburse the relevant Issuing Bank for all amounts paid by such Issuing Bank upon such drawing, together with any and all reasonable charges and expenses which such Issuing Bank may pay or incur relative to such drawing and interest on the amount drawn, for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable, at the Federal Funds Rate for such day. Such reimbursement payment shall be due and payable (x) on the date such Issuing Bank notifies the relevant Borrower of such drawing, if such notice is given at or before 12:00 Noon (Eastern Time) on such date, or (y) if such notice is given after 12:00 Noon (Eastern Time) on such date, then not later than 11:00 A.M. (Eastern Time) on the first Domestic Business Day after the date such notice is given. 42 49 (ii) In addition, each Borrower agrees to pay to the relevant Issuing Bank (A) interest on any amount not paid by such Borrower when due hereunder with respect to a Letter of Credit for each day from the date when such amount became due until such amount is paid in full, whether before or after judgment, payable on demand, at a rate per annum equal to the sum of 2% plus the Base Rate for such day, and (B) upon each transfer of any Letter of Credit in accordance with its terms, a sum equal to such amount as shall be necessary to cover the reasonable costs and expenses of such Issuing Bank incurred in connection with such transfer. (iii) If a Borrower makes any payment under this subsection (d) to any Issuing Bank for its own account after 3:00 P.M. (Eastern Time) on any Domestic Business Day, such payment shall be deemed to have been made on the next succeeding Domestic Business Day. If a Borrower makes any payment under this subsection (d) to any Issuing Bank for the account of one or more other Banks at or after 12:00 Noon (Eastern Time) on any Domestic Business Day and such Issuing Bank fails to distribute such payment to such Banks before the end of such Domestic Business Day, such payment shall be deemed to have been made on the next succeeding Domestic Business Day. (iv) EachIssuing Bank shall promptly notify the Administrative Agent and each Bank of the amount of each reimbursement payment received by it from a Borrower pursuant to this Section. (e) Payments by Banks with Respect to Letters of Credit. (i) EachBank shall be obligated to make available to the relevant Issuing Bank an amount equal to such Bank's ratable share of any drawing under a Letter of Credit; provided that each Bank's obligation shall be reduced by its pro rata share of any reimbursement by the relevant Borrower in respect of such drawing pursuant to subsection (d)(i) above. The relevant Issuing Bank shall notify each Bank and the Administrative Agent of the net amount of such Bank's obligation in respect of any drawing under a Letter of Credit as soon as practicable after such Issuing Bank determines whether it has received timely reimbursement for such drawing from the relevant Borrower pursuant to subsection (d)(i) above. Each Bank shall pay the net amount so notified to it, in Federal or other immediately available funds, to the relevant Issuing 43 50 Bank at such Issuing Bank's address specified in or pursuant to Section 12.1, by 3:00 P.M. (Eastern Time) on the date such Bank receives such notice (or, if such notice is received after 11:00 A.M. (Eastern Time) on such day, by 2:00 P.M. (Eastern Time) on the next following Domestic Business Day), together with interest on the net amount of such Bank's share of such drawing, for each day from and including the date of such drawing to but excluding the day on which such Bank's payment to the relevant Issuing Bank in respect thereof is due, at the Federal Funds Rate for such day. If such Bank fails to make such payment to the relevant Issuing Bank when due, such Bank shall pay to such Issuing Bank, on demand, interest on the overdue amount (i) for each day from and including the date such payment is due to but excluding the first succeeding Domestic Business Day (and any intervening days), at the Federal Funds Rate for such day and (ii) for each day thereafter until such Bank makes such payment, at a rate per annum equal to the sum of 2% plus the Base Rate for such day. Any payment made by any Bank after 3:00 P.M. (Eastern Time) on any Domestic Business Day shall be deemed for purposes of this clause (i) to have been made on the next succeeding Domestic Business Day. (ii) Whena Bank pays to the relevant Issuing Bank the full amount required to be paid by it pursuant to the foregoing subsection (e)(i) in connection with any drawing under a Letter of Credit, such Bank shall be subrogated to the rights of such Issuing Bank against the relevant Borrower to the extent of (A) an amount equal to the portion of such drawing so paid by such Bank and (B) the interest on such amount payable by the relevant Borrower pursuant to subsection (d) above. (iii) If a Borrower shall reimburse the relevant Issuing Bank for any drawing under a Letter of Credit after one or more Banks shall have made funds available to such Issuing Bank with respect to such drawing in accordance with clause (i) of this subsection, such Issuing Bank shall promptly upon receipt of such reimbursement distribute to each such Bank its pro rata share thereof, including interest, to the extent received by such Issuing Bank. If any Bank has not yet made funds available to such Issuing Bank in respect of such drawing, such Issuing Bank shall promptly notify such Bank of the amount of such reimbursement received by such Issuing Bank from such Borrower and the related reduction of the net amount to 44 51 be paid by such Bank to such Issuing Bank pursuant to clause (i) of this subsection. (iv) If any Issuing Bank receives any payment for the account of one or more other Banks before 12:00 Noon (Eastern Time) on any Domestic Business Day and fails to distribute such payment to such Banks before the end of such Domestic Business Day, such Issuing Bank shall pay to each such Bank interest on its share of such payment, for each day from and including such Domestic Business Day to but excluding the Domestic Business Day on which such Issuing Bank distributes such payment, at the Federal Funds Rate for such day. If any Issuing Bank receives any payment for the benefit of one or more other Banks at or after 12:00 Noon (Eastern Time) on any Domestic Business Day and fails to distribute such payment to such Banks before the end of the next succeeding Domestic Business Day, such Issuing Bank shall pay to each such Bank interest on its share of such payment, for each day from and including such next succeeding Domestic Business Day to but excluding the Domestic Business Day on which such Issuing Bank distributes such payment, at the Federal Funds Rate for such day. (f) Letter of Credit Commissions. The relevant Borrower shall pay to the Administrative Agent for the account of each Bank a letter of credit commission with respect to each Letter of Credit, computed for each day from and including the date of issuance of such Letter of Credit to and including the last day a drawing is available under such Letter of Credit, at the LC Commission Rate on the undrawn amount of such Letter of Credit on such day. The relevant Borrower also agrees to pay to each Issuing Bank, for its own account, a commission, computed with respect to the undrawn amount of each Letter of Credit issued by such Issuing Bank as set forth in the preceding sentence, at a rate equal to 1/8 of 1% per annum. Such commissions shall be payable in arrears on each Quarterly Payment Date and on the Termination Date (or on such earlier date as no Letters of Credit are outstanding and the Commitments are terminated in their entirety). "LC Commission Rate" means a rate per annum determined in accordance with the Pricing Schedule. (g) Letter of Credit Status Report. The Administrative Agent shall provide to the Company, each Bank and each Issuing Bank, within 15 days after the close of each calendar quarter ending before the Termination Date, a summary of the Letters of Credit that are then outstanding, 45 52 setting forth (to the best of its knowledge) with respect to each such Letter of Credit (A) the name of the Borrower that is the account party, (B) the name of the Issuing Bank, (C) the date of issuance, face amount and expiry date thereof, (D) the undrawn amount which is then, or may thereafter become, available for drawing thereunder and (E) the principal amount of any unpaid Reimbursement Obligations outstanding as a result of drawings thereunder. (h) Payment upon Acceleration. If the Commitments shall be terminated or the principal of the Notes or the Yen Notes shall become immediately due and payable pursuant to Section 7.1, each Borrower shall immediately pay to the Administrative Agent an amount in immediately available funds equal to the aggregate amount which is then, or may thereafter become, available for drawing under all outstanding Letters of Credit issued for such Borrower's account. The Administrative Agent shall hold the amount paid to it by each Borrower pursuant to this subsection (h) in a separate collateral account in the name of the Administrative Agent and shall from time to time invest and reinvest such amount, together with any interest or other income thereon, in Permitted Temporary Cash Investments (which shall also be held in such collateral account), but shall have no liability for any failure to keep such amounts so invested. Each Borrower grants to the Administrative Agent a continuing security interest in all amounts and Permitted Temporary Cash Investments held from time to time in the collateral account in which such Borrower's funds are deposited to secure such Borrower's obligations under this Section and all other amounts payable by such Borrower under this Agreement. The Administrative Agent shall apply amounts in each such collateral account in the following order of priorities: first to reimburse the relevant Issuing Banks for drawings under Letters of Credit issued for the account of such Borrower and to pay any other amounts due from such Borrower under this Section; second to pay, as promptly as practicable after all such Letters of Credit expire or are fully drawn and reimbursed, any other amounts then due and payable by such Borrower under this Agreement; and finally to pay any surplus then remaining to such Borrower. (i) Limited Liability of Issuing Banks. Each Borrower's obligations under this Section shall be absolute and unconditional under any and all circumstances and 46 53 irrespective of any claim, set-off, counterclaim or defense to payment which such Borrower may have or have had against any Issuing Bank, any Bank, any beneficiary of a Letter of Credit or any other Person. Each Borrower assumes all risks of the acts or omissions of any beneficiary and any transferee of any Letter of Credit issued for its account with respect to the use of such Letter of Credit. The Banks, the Issuing Banks and their respective officers and directors shall not be liable or responsible for, and the obligations of each Bank to make payments, and of the relevant Borrower to reimburse the Banks or the Issuing Banks for payments, pursuant to this Section shall not be excused by, any action or inaction of any Bank or Issuing Bank related to: (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (ii) the validity, sufficiency or genuineness of documents presented under any Letter of Credit, or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged (and notwithstanding any notification from any Borrower to such effect); (iii) payment by any Issuing Bank against presentation of documents to such Issuing Bank which do not comply with the terms of the relevant Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or (iv) under any other circumstances whatsoever, making or failing to make any payment under any Letter of Credit or notifying or failing to notify any Bank that it is required to participate therein. Notwithstanding the foregoing, a Borrower shall have a claim against an Issuing Bank, and such Issuing Bank shall be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by such Borrower which were caused by (i) such Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit issued by it comply with the terms thereof or (ii) such Issuing Bank's willful failure to pay under any Letter of Credit issued by it after the timely presentation to such Issuing Bank by any beneficiary (or a successor beneficiary to whom such Letter of Credit has been transferred in accordance with its terms) of documents strictly complying with the terms and conditions of such Letter of Credit (other than pursuant to a court order). Subject to the preceding sentence, any Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless any beneficiary (or a successor beneficiary to whom the relevant Letter of Credit has been transferred in accordance with its terms) and the relevant Borrower shall have notified such 47 54 Issuing Bank that such documents do not comply with the terms and conditions of such Letter of Credit. Each Bank shall, ratably in accordance with its Commitment, indemnify each Issuing Bank (to the extent not reimbursed by the Borrowers, and without limiting any such reimbursement obligation) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such Issuing Bank's gross negligence or willful misconduct) that such Issuing Bank may suffer or incur in connection with this Agreement or any action taken or omitted by such Issuing Bank hereunder. (j) Appointment of Issuing Banks. The Company and the Documentation Agent may, by one or more written instruments acceptable to and executed by each of them, appoint one or more Banks to perform all or any portion of the functions of an Issuing Bank under this Agreement; provided that each Bank so appointed (i) has a combined capital and surplus of at least $500,000,000 and (ii) agrees in writing to act as an Issuing Bank under this Agreement. SECTION 2.15. General Provisions as to Payments. (a) The relevant Borrower shall make each payment of principal of, and interest on, its Loans and of fees and commissions payable by it hereunder, not later than 11:00 A.M. (Eastern Time) on the date when due, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 12.1. The Administrative Agent will promptly distribute to each Bank its ratable share (if any) of each such payment received by the Administrative Agent for the account of one or more Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees or commissions 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. 48 55 (b) Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due from such Borrower to one or more Banks hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon 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 such 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 for such day. (c) If the Administrative Agent receives any payment for the account of one or more Banks before 12:00 Noon (Eastern Time) on any Domestic Business Day and fails to distribute such payment to such Banks before the end of such Domestic Business Day, the Administrative Agent shall pay to each such Bank interest on its share of such payment, for each day from and including such Domestic Business Day to but excluding the Domestic Business Day on which the Administrative Agent distributes such payment, at the Federal Funds Rate for such day. If the Administrative Agent receives any payment for the benefit of one or more Banks at or after 12:00 Noon (Eastern Time) on any Domestic Business Day and fails to distribute such payment to such Banks before the end of the next succeeding Domestic Business Day, the Administrative Agent shall pay to each such Bank interest on its share of such payment, for each day from and including such next succeeding Domestic Business Day to but excluding the Domestic Business Day on which the Administrative Agent distributes such payment, at the Federal Funds Rate for such day. (d) If a Borrower makes any payment to the Administrative Agent for the account of one or more Banks at or after 12:00 Noon (Eastern Time) on any Domestic Business Day and the Administrative Agent fails to distribute such payment to such Banks before the end of such Domestic Business Day, such Borrower shall be deemed to have made such payment on the next succeeding Domestic Business Day. SECTION 2.16. Funding Losses. If the relevant Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a Base Rate Loan (pursuant to Article 2, 7 or 9 otherwise) on 49 56 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 2.7(d), or if the relevant Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.4(a), 2.8(c) or 2.11(c), such Borrower shall pay to each Bank within 15 days after demand an amount calculated as provided in Exhibit L hereto to compensate such Bank for any 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, provided that such Bank shall have delivered to such Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.17. Computation of Interest, Fees and Commissions. 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 payable under this Article 2 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 2.18 Eligible Subsidiaries. (a) Any Substantially Wholly-Owned Consolidated Subsidiary may become an Eligible Subsidiary either (i) by signing this Agreement as originally executed or (ii) by signing and delivering to the Administrative Agent an Election to Participate duly executed by such Subsidiary and by the Company in such number of copies as the Administrative Agent shall request. (b) Any Eligible Subsidiary shall cease to be an Eligible Subsidiary upon receipt by the Administrative Agent of an Election to Terminate duly executed by such Subsidiary and by the Company in such number of copies as the Administrative Agent shall request. The delivery of an Election to Terminate to the Administrative Agent shall not affect any obligation of such Subsidiary theretofore incurred by such Subsidiary under this Agreement, its Notes or its Yen Notes. (c) Promptly upon receiving any such Election to Participate or Election to Terminate, the Administrative Agent shall notify the Yen Administrative Agent and each Lender thereof. 50 57 ARTICLE 3 THE YEN CREDITS SECTION 3.1. Commitments to Lend. Each Yen Lender severally agrees, on the terms and conditions set forth in this Agreement, to make loans in Yen to the Borrowers pursuant to this Section from time to time on and after the Effective Date and prior to the Termination Date; provided that no Yen Borrowing under this Section shall be made if, immediately after giving effect thereto, the Dollar Equivalent Amount of the aggregate outstanding principal amount of Yen Loans made by any Yen Lender would exceed its Yen Commitment. Each Yen Borrowing under this Section shall be in an aggregate principal amount of Yen 500,000,000 or any larger multiple of Yen 100,000,000 (except that the Dollar Equivalent Amount of any Yen Borrowing may be in the aggregate amount of the unused Yen Commitments) and shall be made from the several Yen Lenders ratably in proportion to their respective Yen Commitments. Within the foregoing limits, a Borrower may borrow under this Section, prepay Yen Loans to the extent permitted by Section 3.10, and reborrow under this Section at any time prior to the Termination Date. SECTION 3.2. Notice of Yen Borrowing. The relevant Borrower shall give the Yen Administrative Agent notice (a "Notice of Yen Borrowing") not later than 10:00 A.M. (Eastern Time) on the fourth Tokyo Business Day before each Yen Borrowing, specifying: (i) the name of the proposed Borrower; (ii) the date of such Yen Borrowing, which shall be a Tokyo Business Day; (iii) the aggregate amount of such Yen Borrowing; and (iv) the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 3.3. Notice to Yen Lenders; Funding of Yen Loans. (a) Upon receipt of a Notice of Yen Borrowing, the Yen Administrative Agent shall promptly notify each Yen Lender of the contents thereof and of such Yen Lender's ratable share of such Yen Borrowing and such Notice of Yen Borrowing shall not thereafter be revocable by the relevant Borrower. 51 58 (b) Not later than 2:00 P.M. (Tokyo time) on the date of each Yen Borrowing, each Yen Lender participating therein shall make available its share of such Yen Borrowing, in Yen immediately available in Tokyo, to the Yen Administrative Agent at its address in Tokyo referred to in Section 12.1. Unless the Yen Administrative Agent determines that any applicable condition specified in Article 4 has not been satisfied, the Yen Administrative Agent will make the funds so received from the Yen Lenders available to the relevant Borrower at the Yen Administrative Agent's aforesaid address. (c) Unless the Yen Administrative Agent shall have received notice from a Yen Lender at least three Tokyo Business Days prior to the date of any Yen Borrowing that such Yen Lender will not make available to the Yen Administrative Agent such Yen Lender's share of such Yen Borrowing, the Yen Administrative Agent may assume that such Yen Lender has made such share available to the Yen Administrative Agent on the date of such Yen Borrowing in accordance with subsection (b) of this Section and the Yen Administrative Agent may, in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent that such Yen Lender shall not have so made such share available to the Yen Administrative Agent, such Yen Lender and the relevant Borrower severally agree to repay to the Yen Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Yen Administrative Agent, at (i) in the case of such Borrower, a rate per annum equal to the higher of the Yen Overdraft Rate for such day and the interest rate applicable to such Yen Borrowing pursuant to Section 3.7 and (ii) in the case of such Yen Lender, the Yen Overdraft Rate for such day. If such Yen Lender shall repay to the Yen Administrative Agent such corresponding amount, such amount so repaid shall constitute such Yen Lender's Yen Loan included in such Yen Borrowing for purposes of this Agreement. SECTION 3.4. Notes. (a) The Yen Loans of each Yen Lender to each Borrower shall be evidenced by a single Yen Note of such Borrower payable to the order of such Yen Lender for the account of its Yen Lending Office in an amount equal to the aggregate unpaid principal amount of such Yen Lender's Loans to such Borrower. (b) Upon receipt of a Yen Note of a Borrower for each Yen Lender pursuant to Section 4.1(c) or 4.3(b), the Documentation Agent shall forward such Yen Note to such Yen 52 59 Lender. Each Yen Lender shall record the date and amount of each Yen Loan made by it to each Borrower and the date and amount of each payment of principal made by such Borrower with respect thereto, and may, if such Yen Lender so elects in connection with any transfer or enforcement of its Yen Note of such Borrower, endorse on the schedule forming a part thereof appropriate notations (or attach thereto a schedule containing such notations) to evidence the foregoing information with respect to each such Yen Loan to such Borrower then outstanding; provided that the failure of any Yen Lender to make any such recordation or endorsement shall not affect the obligations of any Borrower hereunder or under the Yen Notes. Each Yen Lender is hereby irrevocably authorized by each Borrower so to endorse its Yen Notes and to attach to and make a part of any Yen Note such a schedule and a continuation of any such schedule as and when required. SECTION 3.5. Mandatory Termination of Yen Commitments; Maturity of Yen Loans. The Yen Commitments shall terminate on the Termination Date, unless terminated earlier in accordance with this Agreement, and any Yen Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 3.6. Method of Electing Additional Interest Periods. At the end of each Interest Period applicable to a Yen Borrowing, the relevant Borrower may elect the duration of the next succeeding Interest Period applicable thereto by delivering a notice (a "Notice of Yen Interest Period Election") to the Yen Administrative Agent at its address in New York at least four Tokyo Business Days before such Interest Period is to begin. Each such Notice of Yen Interest Period Election shall specify: (i) the Yen Borrowing to which it applies; (ii) the date on which the next succeeding Interest Period applicable thereto will begin; and (iii) the duration of such succeeding Interest Period (which shall comply with the provisions of the definition of Interest Period). Upon receipt of a Notice of Yen Interest Period Election from a Borrower pursuant to this Section, the Yen Administrative Agent shall promptly notify each Yen Lender of the contents thereof and such notice shall not thereafter be revocable by such Borrower. If the relevant Borrower fails to deliver a timely Notice of Yen Interest Period Election to the Yen Administrative Agent for any Yen 53 60 Borrowing, the duration of the next Interest Period applicable thereto shall be one month. SECTION 3.7. Interest Rates. (a) Each Yen 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 TIBOR Margin for such day plus the Tokyo Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable in Yen 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. "TIBOR Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Tokyo Interbank Offered Rate" applicable to any Interest Period means the rate per annum shown on page 17096 of the Dow Jones Company Telerate screen or any successor page as the composite offered rate for Tokyo interbank deposits in Yen with a maturity comparable to such Interest Period as shown under the heading "Yen" in the "Offered" column as of 11:00 A.M. (Tokyo time) two Tokyo Business Days prior to the first day of such Interest Period. If no such rate is available, the Tokyo Interbank Offered Rate applicable to any Interest Period means the relevant rate per annum displayed on the equivalent page of the Reuters Money Rates as of 11:00 A.M. (Tokyo time) two Tokyo Business Days prior to the first day of such Interest Period for Tokyo interbank deposits in Yen with a maturity comparable to such Interest Period. (b) Any overdue principal of or interest on any Yen Loan shall bear interest, payable in Yen on demand, for each day until paid, at a rate per annum equal to the sum of 2% plus the TIBOR Margin for such day plus the Tokyo Interbank Offered Rate applicable to such Yen Loan immediately before such payment was due. (c) Within 45 days after the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending December 31, 1995), the Company will notify the Yen Administrative Agent and each Yen Lender of the Pricing Ratio determined as of the end of such Fiscal Quarter and the Pricing Level to be applicable during the Pricing Period that begins 46 days after the end of such Fiscal Quarter. The Yen Administrative Agent will rely on such notification in determining interest rates and fees hereunder for such Pricing Period, unless and until the Administrative Agent notifies the Yen Administrative Agent pursuant to Section 54 61 2.7(f) that a different Pricing Level (the "Corrected Pricing Level") is applicable during such Pricing Period, in which event the Yen Administrative Agent shall thereafter determine interest rates and fees for such Pricing Period based on the Corrected Pricing Level. If any interest or fees accrue during such Pricing Period and are paid before the Administrative Agent notifies the Yen Administrative Agent that the Pricing Level should be corrected as aforesaid, the Yen Administrative Agent shall notify the relevant Borrower and the Yen Lenders of the amount of any resulting underpayment or overpayment. In the case of an underpayment, such Borrower shall, within three Tokyo Business Days after receiving such notice thereof, pay the amount thereof to the Yen Administrative Agent for the account of the relevant Yen Lenders. In the case of an overpayment, the amount thereof shall be credited against subsequent payments of interest and fees payable hereunder for the account of the relevant Yen Lenders, all as determined by the Yen Administrative Agent. (d) If, for any reason, the Tokyo Interbank Offered Rate applicable to any Interest Period cannot be determined by reference to page 17096 of the Dow Jones Company Telerate screen or the equivalent page of the Reuters Money Rates, the Yen Administrative Agent shall give notice of such condition to the Company and the Yen Lenders forthwith. Each Yen Lender shall, within two Tokyo Business Days after the date of such notice, notify the Yen Administrative Agent of the interest rate (or the basis for determining the interest rate) at which it is prepared to make or maintain its affected Yen Loan for the affected Interest Period. The interest rate applicable to the affected Yen Loans for the affected Interest Period shall be the highest of the rates so provided (or so determined). (e) The Yen Administrative Agent shall determine each interest rate applicable to the Yen Loans hereunder. The Yen Administrative Agent shall give prompt notice to the Company and the Yen Lenders of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. SECTION 3.8. Facility Fee. The Company shall pay to the Yen Administrative Agent for the account of the Yen Lenders ratably a facility fee in Dollars at the Facility Fee Rate (determined for each day in accordance with the Pricing Schedule). Such facility fee shall accrue (i) for each day from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Yen Commitments in their entirety), on the daily aggregate amount of the Yen Commitments (whether 55 62 used or unused) on such day and (ii) for each day from and including such date of termination to but excluding the date the Yen Loans shall be repaid in their entirety, on the Dollar Equivalent Amount of the aggregate outstanding principal amount of the Yen Loans on such day. Such facility fee shall be payable quarterly in arrears on each Quarterly Payment Date and on the date of termination of the Yen Commitments in their entirety (and, if later, the date the Yen Loans shall be repaid in their entirety). SECTION 3.9. Optional Termination or Reduction of Yen Commitments. The Company may, upon at least three Tokyo Business Days' notice to the Yen Administrative Agent, terminate at any time or ratably reduce from time to time, by an aggregate amount of $5,000,000 or any larger multiple of $1,000,000, the unused portions of the Yen Commitments. Upon any such termination or reduction of the Yen Commitments, the Yen Administrative Agent shall promptly notify each Yen Lender thereof. If the Yen Commitments are terminated in their entirety, all facility fees accrued hereunder shall be payable on the effective date of such termination. SECTION 3.10. Optional Prepayments. (a) Any Borrower may, upon at least three Tokyo Business Days' notice to the Yen Administrative Agent, ratably prepay the Yen Loans, in whole at any time, or from time to time in part in amounts aggregating Yen 500,000,000 or any larger multiple of Yen 100,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. In connection with any such prepayment, the relevant Borrower shall comply with the provisions of Section 3.13 if applicable. (b) Upon receipt of a notice of prepayment pursuant to this Section, the Yen Administrative Agent shall promptly notify each Yen Lender of the contents thereof and of such Yen Lender's ratable share of such prepayment and such notice shall not thereafter be revocable by the relevant Borrower. SECTION 3.11. Mandatory Prepayments. On the first date of each Interest Period (except the initial Interest Period) applicable to each Yen Borrowing, the relevant Borrower shall ratably prepay the Yen Loans included in such Yen Borrowing to the extent, if any, required so that the Dollar Equivalent Amount of the aggregate principal amount of all Yen Loans outstanding immediately after such Interest Period begins will not exceed $25,000,000. The Yen Administrative Agent shall determine the aggregate amount, if any, required to be 56 63 prepaid on the first day of any such Interest Period and notify the relevant Borrower thereof at least three Tokyo Business Days before such Interest Period begins. At least two Tokyo Business Days before such Interest Period begins the Yen Administrative Agent shall notify each Yen Lender of the aggregate amount required to be prepaid (or any larger amount that the relevant Borrower shall have advised the Yen Administrative Agent that it wishes to prepay) and of such Yen Lender's ratable share of such prepayment and such notice of prepayment shall not thereafter be revocable by the relevant Borrower. SECTION 3.12. General Provisions as to Payments. (a) The relevant Borrower shall make each payment of principal of, and interest on, the Yen Loans to be paid by it hereunder, not later than 11:00 A.M. (Tokyo Time) on the date when due, in Yen to the Yen Administrative Agent at its address in Tokyo referred to in Section 12.1. The Yen Administrative Agent will promptly distribute to each Yen Lender its ratable share of each such payment received by the Yen Administrative Agent for the account of the Yen Lenders. Whenever any payment of principal of, or interest on, the Yen Loans shall be due on a day which is not a Tokyo Business Day, the date for payment thereof shall be extended to the next succeeding Tokyo 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) The Company shall make each payment of facility fees with respect to the Yen Commitments to be paid by it hereunder, not later than 11:00 A.M. (Eastern Time) on the date when due, in Dollars to the Yen Administrative Agent at its address in New York referred to in Section 12.1. The Yen Administrative Agent will promptly distribute to each Yen Lender at its address in New York referred to in Section 12.1 its ratable share of each such payment received by the Yen Administrative Agent for the account of the Yen Lenders. Whenever any such payment of facility 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. (c) Unless the Yen Administrative Agent shall have received notice from a Borrower prior to the date on which any payment of principal or interest is due from such Borrower to the Yen Lenders hereunder that such Borrower will not make such payment in full, the Yen Administrative Agent may assume that such Borrower has made such payment in full to the Yen Administrative Agent on such date and the Yen Administrative Agent may, in reliance upon such 57 64 assumption, cause to be distributed to each Yen Lender on such due date an amount equal to the amount then due such Yen Lender. If and to the extent that such Borrower shall not have so made such payment, each Yen Lender shall repay to the Yen Administrative Agent forthwith on demand such amount distributed to such Yen Lender together with interest thereon, for each day from the date such amount is distributed to such Yen Lender until the date such Yen Lender repays such amount to the Yen Administrative Agent, at the Yen Overdraft Rate for such day. (d) If the Yen Administrative Agent receives any payment of principal or interest for the account of the Yen Lenders before 12:00 Noon (Tokyo time) on any Tokyo Business Day and fails to distribute such payment to the Yen Lenders before the end of such Tokyo Business Day, the Yen Administrative Agent shall pay to each Yen Lender interest on its share of such payment, for each day from and including such Tokyo Business Day to but excluding the Tokyo Business Day on which the Yen Administrative Agent distributes such payment, at the Yen Overdraft Rate for such day. If the Yen Administrative Agent receives any payment of principal or interest for the benefit of the Yen Lenders at or after 12:00 Noon (Tokyo time) on any Tokyo Business Day and fails to distribute such payment to the Yen Lenders before the end of the next succeeding Tokyo Business Day, the Yen Administrative Agent shall pay to each Yen Lender interest on its share of such payment, for each day from and including such next succeeding Tokyo Business Day to but excluding the Tokyo Business Day on which the Yen Administrative Agent distributes such payment, at the Yen Overdraft Rate for such day. (e) If a Borrower makes any payment of principal or interest to the Yen Administrative Agent for the account of the Yen Lenders at or after 12:00 Noon (Tokyo time) on any Tokyo Business Day and the Yen Administrative Agent fails to distribute such payment to the Yen Lenders before the end of such Tokyo Business Day, such Borrower shall be deemed to have made such payment on the next succeeding Tokyo Business Day. SECTION 3.13. Funding Losses. If the relevant Borrower makes any payment of principal with respect to any Yen Loan on any day other than the last day of an Interest Period applicable thereto, or if the relevant Borrower fails to borrow or prepay any Yen Loan after notice has been given to any Yen Lender in accordance with Section 3.3(a), 3.6 or 3.10(a), such Borrower shall pay to each Yen Lender within 15 days after demand an amount calculated as provided in Exhibit L hereto to compensate such Yen Lender for any loss 58 65 or expense incurred by it (or by an existing or prospective Participant in the related Yen Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, provided that such Yen Lender shall have delivered to the Company a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 3.14. Computation of Interest and Fees. All interest and fees payable under this Article 3 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). ARTICLE 4 CONDITIONS SECTION 4.1. Effectiveness. This Agreement shall become effective upon receipt by the Documentation Agent of the following: (a) a counterpart 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, telegraphic, telex, facsimile or other written confirmation, in form satisfactory to the Documentation Agent, confirming that such party has executed a counterpart hereof); (b) a duly executed Note of each of the Company, Auto Suture Japan Inc. and USSC Financial Services, Inc. for the account of each Bank dated on or before the Effective Date and complying with the provisions of Section 2.5; (c) a duly executed Yen Note of each of the Company, Auto Suture Japan Inc. and USSC Financial Services, Inc. for the account of each Yen Lender dated on or before the Effective Date and complying with the provisions of Section 3.4; (d) an opinion of Donald F. Crane, Jr., Senior SEC Counsel of the Company, substantially in the form of Exhibit F hereto, dated the Effective Date and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; (e) an opinion of Davis Polk & Wardwell, special counsel for the Documentation Agent, substantially in 59 66 the form of Exhibit G hereto, dated the Effective Date and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; (f) an opinion of counsel acceptable to the Documentation Agent, for each Eligible Subsidiary that signs this Agreement as originally executed, substantially in the form of Exhibit J hereto (appropriately modified to reflect the fact that such Eligible Subsidiary has signed this Agreement rather than an Election to Participate) and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; provided that no such opinion shall be required with respect to matters that, with the consent of the Documentation Agent, are included in the opinion delivered pursuant to clause (d) of this Section; (g) evidence satisfactory to the Documentation Agent that the Company has paid (or made arrangements satisfactory to the Documentation Agent for the payment of) all principal of and interest on any loans outstanding under the Existing Credit Agreement on the Effective Date, all fees accrued thereunder to but excluding the Effective Date and all other amounts then due and payable by the Company thereunder; (h) evidence satisfactory to the Documentation Agent that the Company has paid to the Administrative Agent a participation fee for the account of each Lender as set forth in the memorandum dated November 13, 1995 from the Arrangers to the Lenders on the subject of "Upfront Fees"; (i) the certificate with respect to insurance required by Section 6.3(b) to be delivered on the Effective Date (with a copy thereof for each Lender); and (j) all documents that the Documentation Agent may reasonably request relating to the existence of the Borrowers, the corporate authority for and the validity of this Agreement, the Notes and the Yen Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Documentation Agent. The Documentation Agent shall promptly notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks 60 67 that are parties to the Existing Credit Agreement and the Company agree that the commitments of such Banks under the Existing Credit Agreement shall terminate in their entirety simultaneously with the effectiveness of this Agreement. SECTION 4.2. Each Extension of Credit. The obligation of any Bank, Issuing Bank or Yen Lender to make any Extension of Credit to any Borrower is subject to the satisfaction of the following conditions: (a) the fact that the Effective Date shall have occurred on or prior to December 29, 1995; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.2 or 2.3, or by the Yen Administrative Agent of a Notice of Yen Borrowing as required by Section 3.2, or receipt by such Issuing Bank of a Notice of LC Issuance or Notice of LC Extension as required by Section 2.14, as the case may be; (c) except in the case of a Yen Borrowing, the fact that, immediately after giving effect to such Extension of Credit, the sum of (i) the Total Committed Exposures of the Banks and (ii) the aggregate outstanding principal amount of the Money Market Loans will not exceed the aggregate amount of the Commitments; (d) the fact that, immediately before and after such Extension of Credit, no Default shall have occurred and be continuing; (e) the fact that the representations and warranties of the Borrowers contained in this Agreement shall be true on and as of the date of such Extension of Credit; (f) the fact that, immediately after such Extension of Credit (and after applying the proceeds thereof, if any), not more than 25% of the value of the assets subject to each of the restrictions set forth in Sections 6.10 and 6.14 is represented by "margin stock" (as defined in Regulation U); and (g) receipt by the Administrative Agent or the Yen Administrative Agent, as the case may be, of a certificate signed by the Company's president, chief executive officer, chief operating officer, chief financial officer, treasurer or controller (which certificate may be included in and dated the date of 61 68 the related Notice of Borrowing, Notice of Yen Borrowing, Notice of LC Issuance or Notice of LC Extension delivered pursuant to clause (b) of this Section) as to the facts specified in clauses (c), (d), (e) and (f) of this Section and, in the case of an issuance or extension of a Letter of Credit, as to compliance with the conditions specified in clauses (A) and (D) of Section 2.14(a)(iii). SECTION 4.3. First Extension of Credit to Each Eligible Subsidiary. The obligation of any Bank, Issuing Bank or Yen Lender to make any Extension of Credit on the occasion of the first Extension of Credit to any Eligible Subsidiary is subject to the receipt by the Documentation Agent of the following: (a) a duly executed Note of such Eligible Subsidiary for the account of each Bank dated on or before the date of such Extension of Credit and complying with the provisions of Section 2.5; (b) a duly executed Yen Note of such Eligible Subsidiary for the account of each Yen Lender dated on or before the date of such Extension of Credit and complying with the provisions of Section 3.4; (c) an opinion of counsel for such Eligible Subsidiary acceptable to the Documentation Agent, substantially in the form of Exhibit J hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Lenders may reasonably request; and (d) all documents which the Documentation Agent may reasonably request relating to the existence of such Eligible Subsidiary, the corporate authority for and the validity of the Election to Participate of such Eligible Subsidiary, this Agreement, the Notes and/or the Yen Notes of such Eligible Subsidiary, and any other matters relevant thereto, all in form and substance satisfactory to the Documentation Agent. The opinion referred to in clause (c) above shall be dated no more than five Euro-Dollar Business Days before the date of the first Extension of Credit to such Eligible Subsidiary hereunder. 62 69 ARTICLE 5 REPRESENTATIONS AND WARRANTIES The Company represents and warrants that: SECTION 5.1. Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 5.2. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and its Notes and Yen Notes (if any) are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing (except filings under the Exchange Act) 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 Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. SECTION 5.3. Binding Effect. This Agreement constitutes a valid and binding agreement of the Company and each Note and Yen Note (if any) of the Company, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Company, in each case enforceable in accordance with its terms. SECTION 5.4. Financial Information. (a) The consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 1994 and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the Fiscal Year then ended, reported on by Deloitte & Touche LLP and set forth in the Company's 1994 Form 10-K, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such Fiscal Year. 63 70 (b) The unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of September 30, 1995 and the related unaudited consolidated statements of operations, cash flows and changes in stockholders' equity for the nine months then ended, set forth in the Company's Latest Form 10-Q, a copy of which has been delivered to each of the Lenders, fairly present, on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine-month period (subject to normal year-end adjustments). (c) Since September 30, 1995 there has been no material adverse change in the business, financial position, operations or properties of the Company and its Consolidated Subsidiaries, considered as a whole. SECTION 5.5. Litigation. Except as disclosed in the Company's 1994 Form 10-K or the Company's Latest Form 10-Q, there is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to result in an adverse decision that would materially adversely affect the business, financial position, operations or properties of the Company and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of this Agreement or any of the Notes or Yen Notes. SECTION 5.6. 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 (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 64 71 SECTION 5.7. Environmental Matters. In the ordinary course of its business, the Company conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Company 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 Company has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial position, operations or properties of the Company and its Subsidiaries, considered as a whole. SECTION 5.8. Taxes. The Company and its Subsidiaries have filed all 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 Company or any Subsidiary, except any such assessment that is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Company, adequate. SECTION 5.9. Subsidiaries. Each of the Company's corporate Subsidiaries (except inactive 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. All of the Company's active Subsidiaries are listed on Exhibit M hereto (which may be amended from time to time by notice from the Company to each of the Lenders). 65 72 SECTION 5.10. Not an Investment Company. No Borrower is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 5.11. Full Disclosure. All information (other than financial forecasts and projections) contained in the documents listed on Exhibit N hereto is, and all information (other than financial forecasts and projections) hereafter furnished by the Company in writing to any of the Agents or the Lenders for purposes of or in connection with this Agreement or any transaction contemplated hereby will be, true and accurate in all material respects on the date as of which such information is stated or certified. All financial forecasts and projections contained in the documents listed in Exhibit N hereto were, and all financial forecasts and projections hereafter furnished by the Company in writing to any of the Agents or the Lenders for purposes of or in connection with this Agreement or any transaction contemplated hereby will be, prepared by the Company in good faith based on assumptions believed by the Company, at the time such financial forecasts and/or projections were or hereafter are prepared, to be reasonable. The Company has disclosed to the Lenders in writing any and all facts (other than facts affecting the health care business generally) which materially and adversely affect, or are reasonably likely to materially and adversely affect (to the extent the Company can now reasonably foresee), the business, financial position, operations or properties of the Company and its Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations under this Agreement, its Notes and its Yen Notes (if any). SECTION 5.12. Other Existing Debt Documents. Each copy of an Other Existing Debt Document heretofore delivered by the Company to any of the Agents or the Lenders is a complete and correct copy of such Other Existing Debt Document as in effect on the Effective Date. Each of the Other Existing Debt Documents is a valid and binding agreement of the parties thereto and is in full force and effect. The Company is not in default under any of the provisions of any of the Other Existing Debt Documents to which it is a party. SECTION 5.13. No Default under Other Agreements. Neither the Company nor any Subsidiary is a party to any indenture, loan agreement, credit agreement, lease or other agreement or instrument (excluding this Agreement and the Other Existing Debt Documents) or subject to any charter or corporate restriction, in each case which could reasonably be expected to have a material adverse effect on the business, financial position, operations or properties of 66 73 the Company and its Subsidiaries, considered as a whole, or the ability of the Company to perform its obligations under this Agreement, its Notes and its Yen Notes (if any). Neither the Company nor any Subsidiary is in default under any of the provisions of any indenture, loan agreement, credit agreement, lease or other agreement or instrument to which it is party (excluding this Agreement and the Other Existing Debt Documents) which default could reasonably be expected to have a material adverse effect on the business, financial position, operations or properties of the Company and its Subsidiaries, considered as a whole. SECTION 5.14. Compliance with Laws. The Company and each Subsidiary is in compliance in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including, without limitation, Environmental Laws and the rules and regulations thereunder), except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) failures to comply therewith, in the aggregate, could not reasonably be expected to have a material adverse effect on the business, financial position, operations or properties of the Company and its Subsidiaries, considered as a whole. ARTICLE 6 COVENANTS The Company agrees that, so long as any Lender has any Commitment or Yen Commitment hereunder or any Letter of Credit remains outstanding or any amount payable under any Note or Yen Note remains unpaid or any Reimbursement Obligation remains unpaid: SECTION 6.1. Information. The Company will deliver to each of the Lenders: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of operations, cash flows and changes in stockholders' equity for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all audited by Deloitte & Touche LLP or other independent public accountants of nationally recognized standing and accompanied by an opinion of such auditors (without any qualification that would not be acceptable to the SEC for purposes of filings under the Exchange Act); 67 74 (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related consolidated statements of operations, cash flows and changes in stockholders' equity for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in the case of such consolidated statements of operations, cash flows and changes in stockholders' equity in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer, the treasurer or the principal accounting officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the Company, signed by its chief financial officer, treasurer or principal accounting officer, (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 6.7 to 6.14, inclusive, on the date of such financial statements; (ii) setting forth in reasonable detail the calculation of the Pricing Ratio to be determined as of the date of such financial statements and (iii) 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 Company is taking or proposes to take with respect thereto; (d) as soon as available and in any event within 45 days after the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending December 31, 1995), the notice required by Section 2.7(f) with respect to the Pricing Ratio determined as of the end of such Fiscal Quarter and the Pricing Level to be applicable for the next Pricing Period; (e) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which audited and reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed under Sections 6.7 to 6.14, inclusive, on the date of such statements and (ii) confirming the calculations set forth in the officer's 68 75 certificate delivered simultaneously therewith pursuant to clause (c) above; (f) within five Domestic Business Days after any Responsible Officer of the Company obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer, the treasurer or the principal accounting officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (g) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (h) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto (unless requested by such Lender) and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall have filed with the SEC; (i) unless Investment Grade Status exists at the time, as soon as available and in any event on or before March 31 of each Fiscal Year, a budget for such Fiscal Year, approved by the Company's board of directors, setting forth anticipated income, expense and capital expenditure items for each Fiscal Quarter during such Fiscal Year, and concurrently with the delivery of financial statements for each such Fiscal Quarter pursuant to clauses (a) and (b) above, a report setting forth a detailed comparison to such budget; provided that, if such a budget has not been prepared and approved by the Company's board of directors before January 31 of such Fiscal Year, projections of such items for such Fiscal Year shall be delivered pursuant to this clause (i) no later than January 31 of such Fiscal Year (to be replaced by the approved budget when delivered); (j) 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; 69 76 (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, the treasurer or the principal accounting officer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposes to take; (k) as soon as reasonably practicable after any Responsible Officer of the Company obtains knowledge of the commencement of, or of a threat (with respect to which there is a reasonable likelihood of assertion) of the commencement of, an action, suit or proceeding against the Company or any Subsidiary before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could reasonably be expected to materially adversely affect the business, financial position, operations or properties of the Company and its Subsidiaries considered as a whole, or which in any manner questions the validity or enforceability of this Agreement or any of the Notes or Yen Notes, information as to the nature of such pending or threatened action, suit or proceeding and any material developments from time to time with respect thereto; (l) upon execution thereof, a copy of each amendment, waiver or other document modifying any Other Existing Debt Document; and (m) from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as the Documentation Agent, at the request of any Lender, may reasonably request. SECTION 6.2. Payment of Obligations. The Company will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all 70 77 their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same are contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. SECTION 6.3. Maintenance of Property; Insurance. (a) The Company will keep, and will cause each Subsidiary to keep, all of its property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Company will maintain, and will cause each Subsidiary to maintain, to the extent commercially available, with financially sound and reputable insurers, (i) physical damage insurance on all of its real and personal property on an all risks basis (including the perils of flood and earthquake, if such insurance is available on reasonable terms), covering the repair and replacement cost of all such property and consequential loss coverage for business interruption and extra expense, (ii) general public liability insurance (including product liability coverage) in an amount not less than $50,000,000 and (iii) such other insurance coverage in such amounts and with respect to such risks as the Required Lenders may reasonably request; provided that the Company and its Subsidiaries may self-insure against, and/or such insurance may provide for deductibles with regard to, hazards and risks with respect to which, and in such amounts as, the Company in good faith determines to be prudent, but only so long as the aggregate of all such deductibles and self-insurance applicable with respect to any Fiscal Year under all such insurance required under clauses (i) and (ii) above does not exceed 4% of Consolidated Net Worth at the end of the immediately preceding Fiscal Year. The Company will deliver, with respect to the types of insurance required by this Section, (i) to the Documentation Agent on the Effective Date, a certificate dated such date (with a copy for each Lender) showing the amount of coverage as of such date, (ii) to each Lender, upon request by any Lender through the Administrative Agent, from time to time full information as to the insurance carried, (iii) to each Lender, within five days of receipt of notice from any insurer, a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement and (iv) to each Lender, prompt notice of any cancellation or nonrenewal of coverage by the Company. SECTION 6.4. Conduct of Business and Maintenance of Existence. The Company will continue, and will cause 71 78 each Subsidiary to continue, to engage in business of the same general type as now conducted by the Company and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect, their respective existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 6.4 shall prohibit (i) the merger of a Subsidiary into the Company, if immediately after such merger no Default shall have occurred and be continuing, (ii) the merger or consolidation of a Subsidiary with or into a Person other than the Company, if the corporation surviving such consolidation or merger is a Subsidiary and, immediately after giving effect thereto, no Default shall have occurred and be continuing or (iii) the termination of the existence of any Subsidiary or any of the rights, privileges and franchises of the Company or any Subsidiary if, in each case, the Company in good faith determines that such termination is in the best interest of the Company and is not materially disadvantageous to the Lenders. SECTION 6.5. Compliance with Laws. The Company will comply, and cause each 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 (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) failures to comply therewith, in the aggregate, could not reasonably be expected to have a material adverse effect on the business, financial position, operations or properties of the Company and its Subsidiaries, considered as a whole. SECTION 6.6. Inspection of Property, Books and Records. The Company will keep, and will cause each 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, subject to the Company's normal security procedures, will permit, and will cause each Subsidiary to permit, representatives of any Lender at such Lender'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 (after reasonable notice to the Company's chief financial officer) and as often as may reasonably be desired, but only for the purpose of 72 79 determining the condition of the assets of the Company or such Subsidiary, as the case may be, and the Company's compliance with the terms and conditions of this Agreement; provided that, so long as no Event of Default shall have occurred and be continuing, one or more persons designated by the Company's chief financial officer shall be entitled to attend any such visit or discussion. SECTION 6.7. Minimum Consolidated Net Worth. Consolidated Net Worth will not at any time be less than the sum of (i) $505,300,000 and (ii) 50% of the consolidated net income (if positive) of the Company and its Consolidated Subsidiaries for each Fiscal Quarter ending prior to such time, commencing with the Fiscal Quarter ending December 31, 1995. SECTION 6.8. Leverage Ratio. Consolidated Debt will at no time be greater than 60% of Consolidated Total Capital. SECTION 6.9. Fixed Charge Coverage. At the end of each Fiscal Quarter commencing with the Fiscal Quarter ending December 31, 1995, the ratio of (i) the sum of Consolidated EBITDA plus Consolidated Net Rent Expense less Consolidated Capital Expenditures to (ii) the sum of Consolidated Net Interest Expense plus Consolidated Net Rent Expense plus Preferred Dividends plus Other Scheduled Debt Payments, in each case for the period of four consecutive Fiscal Quarters then ended, will not be less than 1.6:1. SECTION 6.10. Negative Pledge. Neither the Company nor any Subsidiary will create, assume or suffer to exist any Lien on any asset (including, without limitation, the capital stock of any of its Subsidiaries) now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement, provided that such Liens and the principal amounts secured thereby on the date of this Agreement are listed on Exhibit O hereto; (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 of any corporation existing at the time such corporation is merged or consolidated with or into the Company or a Subsidiary and not created in contemplation of such event; 73 80 (d) any Lien existing on any asset prior to the acquisition thereof by the Company or a Subsidiary and not created in contemplation of such acquisition; (e) 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 within 12 months after the acquisition thereof; (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) any Lien created for the direct or indirect benefit of the purchasers or lenders in connection with any Permitted Asset Securitization; (h) Liens arising by operation of law in the ordinary course of its business which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any single obligation or series of related obligations in an amount exceeding $50,000,000 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; (i) 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 $25,000,000; and (j) Liens not otherwise permitted by the foregoing clauses of this Section securing an aggregate amount at any time outstanding not to exceed $15,000,000. Nothing in clause (h) or (j) of this Section shall permit any Lien securing any obligation arising under the Other Existing Debt Documents. Whenever this Section permits a Lien to exist on any asset owned or leased by the Company or any Subsidiary, it shall be construed to permit the same Lien to exist with respect to any improvements to such asset. SECTION 6.11. Investments. Neither the Company nor any Subsidiary will make or acquire any Investment in any Person, other than: 74 81 (i) Permitted Temporary Cash Investments; (ii) any Investment in a Person which is a Consolidated Subsidiary immediately after such Investment is made; (iii) any Debt of a buyer received as all or part of the consideration for an Asset Sale permitted by Section 6.14; (iv) any investment in a trust or other entity created for purposes of any Permitted Asset Securitization; and (v) any other Investment if, immediately after such Investment is made, the aggregate original cost of all Investments made after September 30, 1995 pursuant to this clause (v) does not exceed 10% of Consolidated Net Worth. SECTION 6.12. Dividends and Common Stock Payments. (a) The Company will not declare any Common Stock Dividend and neither the Company nor any Subsidiary will make any Common Stock Payment unless, after giving effect to such declaration or Common Stock Payment, no Default shall have occurred and be continuing and either: (i) the aggregate amount of all Common Stock Dividends declared and Common Stock Payments made in the then current Fiscal Quarter will not exceed $1,250,000, as such amount may be adjusted from time to time pursuant to subsection (c) of this Section, or (ii) the aggregate amount of all Common Stock Dividends declared and all Common Stock Payments made in the then current Fiscal Quarter and the three immediately preceding Fiscal Quarters will not exceed 20% of the Adjusted Consolidated Net Income of the Company and its Consolidated Subsidiaries for the immediately preceding four Fiscal Quarters; provided that the Company may declare Common Stock Dividends and the Company and its Subsidiaries may make Common Stock Payments at any time when Investment Grade Status exists without regard to the limitation in clause (ii) of this Section; but, if Investment Grade Status subsequently ceases to exist, Common Stock Dividends declared and Common Stock Payments made when Investment Grade Status existed shall be taken into account in determining whether other Common Stock Dividends may be declared or other Common Stock Payments may be made under this Section. 75 82 (b) The Company will not declare any Common Stock Dividend more than 50 days before such Common Stock Dividend is payable. (c) If the number of outstanding shares of the Company's common stock changes during any Fiscal Quarter ending after September 30, 1995 (by reason of a conversion of outstanding preferred stock, a new issuance of common stock or otherwise), the amount specified in subsection (a)(i) of this Section (as such amount may theretofore have been adjusted pursuant to this subsection (c)) shall be adjusted for purposes of all subsequent Fiscal Quarters by multiplying such amount by a fraction of which the numerator is the number of shares of the Company's common stock outstanding at the end of such Fiscal Quarter and the denominator is the number of shares of the Company's common stock outstanding at the beginning of such Fiscal Quarter (adjusted to eliminate the effect of any stock split, stock dividend or reverse stock split during such Fiscal Quarter). SECTION 6.13. Limitation on Subsidiary Debt. The aggregate principal amount of all Debt of all Consolidated Subsidiaries (excluding (i) Debt existing on the Effective Date under the U.I.S. Financing Documents in an aggregate principal amount not greater than FF 545,000,000 and (ii) Intercompany Debt owed to the Company or to a Substantially Wholly-Owned Consolidated Subsidiary) will at no time exceed $100,000,000 (or its equivalent in foreign currencies). For purposes of this Section any preferred stock of a Consolidated Subsidiary held by a Person other than the Company or a Substantially Wholly-Owned Consolidated Subsidiary shall be included, at the higher of its voluntary or involuntary liquidation value, in the "Debt" of such Consolidated Subsidiary. SECTION 6.14. Asset Sales. (a) The Company will not, and will not permit any Subsidiary to, make any Asset Sale unless, after giving effect thereto, the aggregate consideration received or to be received for all Asset Sales during the then current Fiscal Year would not exceed $50,000,000; provided that, without regard to the limitation in this subsection (a), the Company or any Subsidiary may (x) make or become legally obligated to make Asset Sales at any time when Investment Grade Status exists and (y) make any Asset Sale that it has become legally obligated to make at a time when Investment Grade Status existed, even if Investment Grade Status subsequently ceases to exist; but, if Investment Grade Status subsequently ceases to exist, all Asset Sales made as permitted by the foregoing clauses (x) and (y) shall be taken into account in determining whether other Asset Sales are permitted by this Section. 76 83 (b) Whether or not Investment Grade Status exists, (i) the Company and its Subsidiaries will not sell, lease, transfer or otherwise dispose of all or any substantial part of the assets of the Company and its Subsidiaries, taken as a whole, to any Person other than the Company and its Subsidiaries and (ii) the Company will not sell, lease, transfer or otherwise dispose of all or any substantial part of its assets to any other Person; provided that this subsection (b) shall not apply to (i) sales of inventory and used, surplus or worn-out equipment in the ordinary course of business or (ii) sales of accounts and notes receivable pursuant to Permitted Asset Securitizations. (c) Notwithstanding the restrictions in subsection (b) of this Section, the Company may sell or otherwise dispose of (whether in one or a series of transactions) any of its accounts and notes receivable; provided that (i) the Required Lenders shall have consented in writing to the terms and conditions of such transactions (including, without limitation, any Liens to be created in connection therewith) and (ii) the cash purchase price paid by the purchasers of such accounts and notes receivable shall not exceed $75,000,000 in aggregate unrecovered amount at any time. SECTION 6.15. Consolidations and Mergers. The Company will not consolidate or merge with or into any other Person; provided that the Company may merge with another Person if (A) the Company is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing. SECTION 6.16. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any Investment in, Guarantee any Debt of, lease, sell, transfer or otherwise dispose of any assets (tangible or intangible) to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; provided that the foregoing provisions of this Section shall not prohibit (a) the Company from declaring or paying any lawful dividend permitted by Section 6.12; (b) the Company or any Subsidiary from paying compensation or providing benefits to any of its officers or directors in the ordinary course of business; (c) the Company or any Subsidiary from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the 77 84 ordinary course of business and on terms and conditions comparable to the terms and conditions which would apply in a similar transaction with a Person not an Affiliate; (d) the Company or any Subsidiary from making payments of principal, interest and premium on any Debt of the Company or such Subsidiary held by an Affiliate if the terms of such Debt are substantially as favorable to the Company or such Subsidiary as the terms which could have been obtained at the time of the creation of such Debt from a Lender which was not an Affiliate or (e) the Company or any Subsidiary from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Company or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates. SECTION 6.17. Prepayment of Other Debt. (a) The Company will not, and will not permit any Subsidiary to, directly or indirectly, redeem, retire, purchase, acquire or otherwise make any payment in respect of any Debt (other than the Notes, the Yen Notes and Intercompany Debt) of the Company or any Subsidiary more than 21 days before the stated due date thereof, unless such payment is made with the net cash proceeds of (i) Debt specifically incurred for such purpose and containing terms and conditions substantially similar to or more favorable to the Company and the Lenders than the Debt with respect to which such payment is made, (ii) common stock of the Company sold after September 30, 1995 or (iii) preferred stock of the Company sold after September 30, 1995 which is not subject to redemption, repurchase or other acquisition by the Company or any Subsidiary (except redemption or repurchase at the option of the Company) under any circumstances prior to February 5, 2001. (b) The Company will not, and will not permit any Subsidiary to, pay any amount under the North Haven Financing Documents more than 21 days before such payment is due; provided that the rent payable under the North Haven Lease on January 14, 2001 shall not be prepaid. (c) The Company will not, and will not permit any Subsidiary to, consent to or enter into any amendment, supplement, waiver or other modification of any agreement or instrument evidencing or governing any such Debt if the result of such modification would be, directly or indirectly, to permit a payment that would have been prohibited pursuant to this Section prior to such modification. 78 85 SECTION 6.18. Other Existing Debt Documents. The Company will not, and will not permit any Subsidiary to, (i) consent or enter into any amendment, supplement, waiver or other modification of any of the Other Existing Debt Documents which would increase the amount of the payments to be made by the Company or any Subsidiary in connection therewith (except for reasonable and customary fees and expenses paid, currently or periodically, in connection with any such amendment, supplement, waiver or other modification) or would otherwise be materially adverse to the Company or any Subsidiary or to the Lenders or (ii) directly or indirectly Guarantee the obligations of any Person under the North Haven Financing Documents. SECTION 6.19. Use of Proceeds. The Letters of Credit and the proceeds of the Loans will be used by the Borrowers for general corporate purposes. None of such proceeds will be used (i) in violation of any applicable law or regulation (including without limitation Regulation U) or (ii) to purchase any securities evidencing Debt (other than Permitted Temporary Cash Investments) of any Person. ARTICLE 7 DEFAULTS SECTION 7.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) any Borrower shall fail to pay (i) any principal of any Loan, Yen Loan or Reimbursement Obligation when due or (ii) any interest, fee, commission or other amount payable hereunder within two Domestic Business Days (or two Tokyo Business Days, in the case of any such interest, fees or other amounts payable in Yen) after the due date thereof; (b) the Company shall fail to observe or perform any covenant contained in Sections 6.7 to 6.19, inclusive, and such failure shall continue for two Domestic Business Days after the Required Lenders shall have determined that such failure, if not cured within two Domestic Business Days, should be an Event of Default under this clause (b) and the Administrative Agent shall have given the Company written notice of such determination; (c) any Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) 79 86 for 30 days after written notice thereof has been given to the Company by the Administrative Agent at the request of any Lender; (d) any representation, warranty, certification or statement made by any Borrower or by a Responsible Officer 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; (e) the Company or any Subsidiary shall fail to make any payment in respect of Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of Material Debt or enables the holders of Material Debt or any Person acting on such holders' behalf to accelerate the maturity thereof or permits the holders of Material Debt or any Person acting on such holders' behalf to terminate their commitments (if any) to renew, extend, refund or lend additional amounts of such Material Debt; (g) any event or condition shall occur which, with the giving of notice or lapse of time or both, would enable the holders of Material Debt or any Person acting on such holders' behalf to accelerate the maturity thereof or would permit the holders of Material Debt or any Person acting on such holders' behalf to terminate their commitments to renew, extend, refund or lend additional amounts of such Material Debt, and the Company shall fail to cure such event or condition for two Domestic Business Days after the Required Lenders shall have determined that such event or condition, if not cured within two Domestic Business Days, should be an Event of Default under this clause (g) and the Administrative Agent shall have given the Company written notice of such determination; (h) the Company or any Subsidiary 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 80 87 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 Company or any Subsidiary 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 order for relief shall be entered against the Company or any Subsidiary 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 $10,000,000 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 $10,000,000; (k) a judgment or order for the payment of money in excess of $10,000,000 shall be rendered against the Company or any 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 Exchange Act) shall 81 88 have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 25% or more of the outstanding shares of common stock of the Company; or, during any period of twelve consecutive calendar months, individuals who were directors of the Company on the first day of such period shall cease to constitute a majority of the board of directors of the Company; provided that such beneficial ownership or change in the Company's directors, as the case may be, shall continue for two Domestic Business Days after the Required Lenders shall have determined that it should be an Event of Default under this clause (l) and the Administrative Agent shall have given the Company written notice of such determination; or (m) any provision of Article 11 shall cease to be in full force and effect with respect to the Company, or any Person acting on behalf of the Company shall so assert in writing; then, and in every such event, the Administrative Agent shall (i) if requested by Lenders having more than 60% in aggregate amount of the Total Commitments, by notice to the Company terminate the Commitments and the Yen Commitments and they shall thereupon terminate, and (ii) if requested by Lenders holding Notes and/or Yen Notes evidencing more than 60% of the sum of (x) the aggregate outstanding principal amount of the Loans and (y) the Dollar Equivalent Amount of the aggregate outstanding principal amount of the Yen Loans, by notice to the Company declare the Notes and Yen Notes and any Reimbursement Obligations (together with all accrued interest thereon and all accrued fees, commissions and other amounts payable by the Borrowers hereunder) to be, and the same shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; provided that in the case of any of the Events of Default specified in clause (h) or (i) above with respect to any Borrower, without any notice to any Borrower or any other act by the Agents or the Lenders, the Commitments and Yen Commitments shall thereupon terminate and the Notes, Yen Notes and Reimbursement Obligations (together with all accrued interest thereon and all accrued fees, commissions and other amounts payable by the Borrowers hereunder) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. SECTION 7.2. Notice of Default. The Administrative Agent shall give notice to the Company under 82 89 Section 7.1(c) promptly upon being requested to do so by any Lender, and shall thereupon notify all the Lenders thereof. The Administrative Agent shall give notice to the Company under clause (b), (g) or (l) of Section 7.1 promptly upon being requested to do so by the Required Lenders and shall thereupon notify all the Lenders thereof. If the Borrowers fail to pay when due any principal, interest, fee or commission payable to the Relevant Agent for the account of any Lender, and such payment default is not cured before the end of the first Domestic Business Day or the first Tokyo Business Day, as the case may be, after the day on which such payment was due, the Relevant Agent shall notify each Lender of such payment default during the second Domestic Business Day or second Tokyo Business Day, as the case may be, after the date on which such payment was due. SECTION 7.3. Notice of Termination. Promptly upon any termination of the Commitments and Yen Commitments, the Administrative Agent will notify each Lender and Issuing Bank thereof. ARTICLE 8 THE AGENTS SECTION 8.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes each of the Administrative Agent and the Documentation Agent and each Yen Lender irrevocably appoints and authorizes each of the Yen Administrative Agent and the Documentation Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes and Yen Notes as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 8.2. Agents and Affiliates. Each of Morgan, NationsBank and BNY shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising the same as though it were not an Agent hereunder. Each of Morgan, NationsBank and BNY (and their respective affiliates) may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or affiliate of the Company as if it were not an Agent hereunder. SECTION 8.3. Action by Agents. None of the Agents shall have any duties or responsibilities hereunder, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied 83 90 covenants, functions, responsibilities, duties, obligations or liabilities shall be read into or inferred from this Agreement or otherwise exist against any of the Agents. Without limiting the generality of the foregoing, none of the Agents shall (i) be required to take any action with respect to any Default, except in the case of the Administrative Agent and the Yen Administrative Agent as expressly provided in Article 7, or (ii) except for notices, reports and other documents expressly required to be furnished to the Lenders hereunder, have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries which may come into the possession of such Agent or any of its affiliates. SECTION 8.4. Consultation with Experts; Attorneys in Fact. Any of the Agents may consult with legal counsel (who may be counsel for any Borrower), independent public accountants and other experts selected by it and none of the Agents shall 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. Any of the Agents may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. None of the Agents shall be responsible to the Lenders for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 8.5. Liability of Agents. None of the Agents, their respective affiliates and their respective directors, officers, agents or employees shall be liable for any action taken or not taken in connection herewith (i) with the consent or at the request of the Required Lenders or (ii) in the absence of its own gross negligence or willful misconduct. None of the Agents, their respective affiliates and their respective directors, officers, agents or 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 or any issuance or extension of a Letter of Credit hereunder; (ii) the performance or observance of any of the covenants or agreements of any Borrower or the properties, books or records of any Borrower or its Subsidiaries; (iii) the satisfaction of any condition specified in Article 4, except, in the case of the Documentation Agent, receipt of items required to be delivered to it; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes, 84 91 the Yen Notes or any other instrument or writing furnished in connection herewith. None of the Agents shall incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 8.6. Indemnification. Each Lender shall, ratably in accordance with its Total Commitment, indemnify each of the Agents, their respective affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrowers and without limiting any obligation of the Borrowers to do so) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability that such indemnitee may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitee hereunder (but, in the case of each Agent, only actions taken or omitted in its capacity as such Agent hereunder); provided that the Lenders shall not be obligated to indemnify any Agent or affiliate (or their respective directors, officers, agents and employees) under this Section for (i) such Agent's or affiliate's own gross negligence or willful misconduct or (ii) such Agent's breach of its contractual obligations to the Lenders (or any of them) under this Agreement. SECTION 8.7. Credit Decision. Each Lender acknowledges that none of the Agents, the Arrangers or their respective affiliates has made any representations or warranties to such Lender and that no act by any Agent or Arranger hereafter taken, including any review of the affairs of any Borrower, shall be deemed to constitute any representation or warranty by such Agent or Arranger to such Lender. Each Lender acknowledges that it has, independently and without reliance upon any of the Agents, any of the Arrangers or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any of the Agents, any of the Arrangers or any other Lender, 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 8.8. Successor Agents. Any of the Agents may resign at any time by giving notice thereof to the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor 85 92 to such Agent. If no successor Agent shall have been so appointed and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Lenders, Banks or Yen Lenders, as the case may be, appoint a successor 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 an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as an Agent, 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 an Agent hereunder. SECTION 8.9. Fees of Administrative Agent and Yen Administrative Agent. The Company shall pay to each of the Administrative Agent and the Yen Administrative Agent for its own account fees and expenses in the amounts and at the times previously agreed upon between the Company and such Agent. SECTION 8.10. Arrangers. None of the Arrangers shall have any responsibility, obligation or liability under this Agreement. ARTICLE 9 CHANGE IN CIRCUMSTANCES SECTION 9.1. Basis for Determining Dollar Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any CD Loan, Euro-Dollar Loan or Money Market LIBOR Loan: (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 CD Loans or Euro-Dollar Loans, Banks having 50% or more of the aggregate principal amount of the affected Loans advise the Administrative Agent that the Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not 86 93 adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Company and the Banks, whereupon until the Administrative Agent notifies the Company that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to convert outstanding Loans into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Company notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate 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 9.2. Illegality. If, on or after the date of this Agreement, 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 to any Borrower and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Company, whereupon until such Bank notifies the Company 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 to such Borrower, or to convert outstanding Loans to such Borrower into 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 87 94 such designation will avoid 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 to the relevant Borrower then outstanding shall be converted to a Base Rate Loan either (a) 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 to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 9.3. Increased Cost and Reduced Return. (a) If, on or after (x) the date hereof, in the case of any Extension of Credit except a Money Market Loan 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 Lender (or its 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 (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (or its Lending Office) or shall impose on any Lender (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market or the Tokyo interbank market any other condition affecting its Fixed Rate Loans, Yen Loans, Note or Yen Note or its obligation to make Fixed Rate Loans or Yen Loans and the result of any of the foregoing is to increase the cost to such Lender (or its Lending Office) of making or maintaining any Fixed Rate Loan or Yen Loan, or to reduce the amount of any sum received or receivable by such Lender (or its Lending Office) under this Agreement or under its Note or Yen Note with respect thereto, by an amount deemed by such Lender to be material, then, within 15 days after demand by such Lender (with a copy to the Relevant Agent), the Company 88 95 shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (b) 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 Issuing Bank or 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), special deposit, insurance assessment or similar requirement against or with respect to letters of credit or participations in letters of credit or shall impose on any Issuing Bank or any Bank (or its Applicable Lending Office) any other condition regarding any Letter of Credit, any Issuing Bank's obligation to issue any Letter of Credit or make any payment under any Letter of Credit, or any Bank's obligation to pay any Issuing Bank its ratable share of any drawing under any Letter of Credit, and the result of any of the foregoing is to increase the cost to such Issuing Bank or such Bank (or its Applicable Lending Office) of issuing or maintaining any Letter of Credit or participating therein or making any payment under any Letter of Credit, or to reduce the amount of any sum received or receivable by such Issuing Bank or such Bank (or its Applicable Lending Office) under this Agreement by an amount deemed by such Issuing Bank or such Bank to be material, then, within 15 days after demand by such Issuing Bank or such Bank (with a copy to the Administrative Agent), the Company shall pay to such Issuing Bank or such Bank such additional amount or amounts as will compensate such Issuing Bank or such Bank for such increased cost or reduction. (c) If any Lender (including for this purpose any Issuing 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 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, has or would have the effect of reducing the rate of return on capital of such Lender (or 89 96 its Parent) as a consequence of such Lender's obligations hereunder or under any Letter of Credit to a level below that which such Lender (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 Lender to be material, then from time to time, within 15 days after demand by such Lender (with a copy to the Relevant Agent), the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its Parent) for such reduction. (d) Each Lender (including for this purpose any Issuing Bank) will promptly notify the Company and the Relevant Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and (except in the case of a Yen Lender) will designate a different 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 Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. SECTION 9.4. Taxes. (a) For purposes of this Section 9.4, 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 any Borrower pursuant to this Agreement or under any Note or Yen Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank, each Issuing Bank, each Yen Lender and each Agent, taxes imposed on its net income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank, Issuing Bank, Yen Lender or Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank and each Yen Lender, in which its Lending Office is located and (ii) in the case of each Bank and each Issuing Bank, any United States withholding tax imposed on any such payments that, for United States federal income tax purposes, are from United States sources, but only to the extent that such Bank or such Issuing Bank would have been subject to United States withholding tax on such payments under the applicable 90 97 laws and treaties in effect when such Bank or such Issuing 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 any Borrower to or for the account of any Bank, Issuing Bank, Yen Lender or Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if any 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 9.4), such Bank, Issuing Bank, Yen Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) such Borrower shall furnish to the Administrative Agent, at its address referred to in Section 12.1, the original or a certified copy of a receipt evidencing payment thereof. (c) The Company agrees to indemnify each Bank, Issuing Bank, Yen Lender and Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 9.4) paid by such Bank, Issuing Bank, Yen Lender or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. In addition, the relevant Borrower agrees to indemnify each Bank, Issuing Bank, Yen Lender and Agent for all income taxes otherwise expressly excluded from the definition of "Taxes" (calculated at the maximum marginal rate applicable to corporations) to the extent such taxes result from Taxes or Other Taxes that are payable pursuant to this Section 9.4. Indemnification payments pursuant to this Section 9.4(c) shall be made within 15 days after such Bank, Issuing Bank, Yen Lender or Agent (as the case may be) makes written demand therefor. (d) Each Bank, Issuing Bank and Yen Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and 91 98 delivery of this Agreement in the case of each Bank, Issuing Bank or Yen Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Bank, Issuing Bank or Yen Lender in the case of each other Bank, Issuing Bank or Yen Lender, and from time to time thereafter if requested in writing by the Company (but only so long as such Bank, Issuing Bank or Yen Lender remains lawfully able to do so), shall provide the Company and each United States 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, Issuing Bank or Yen Lender is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Bank, Issuing Bank or Yen Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank, Issuing Bank or Yen Lender 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 required to do so has failed to provide the Company or any United States Borrower with the appropriate form as required by Section 9.4(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, Issuing Bank or Yen Lender shall not be entitled to indemnification under Section 9.4(b) or 9.4(c) with respect to Taxes imposed by the United States on payments made by the Company or any such United States Borrower; provided that if a Bank, Issuing Bank or Yen Lender, that 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 Company and the United States Borrowers shall take such steps as such Bank, Issuing Bank or Yen Lender shall reasonably request to assist such Bank, Issuing Bank or Yen Lender to recover such Taxes. (f) Each Bank, Issuing Bank and Yen Lender shall, at the request of the Company or any Non-United States Borrower, use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or such Non-United States Borrower if the making of such a filing (i) would eliminate or reduce any additional amount payable by any Non-United States Borrower to or for the account of any Bank, Issuing Bank or Yen Lender pursuant to this Section 9.4 that may thereafter accrue and (ii) would not, in the judgment of such Bank, Issuing Bank or Yen Lender, require such Bank, Issuing Bank 92 99 or Yen Lender to disclose any confidential or proprietary information or be otherwise disadvantageous to such Bank, Issuing Bank or Yen Lender. (g) If any Borrower is required to pay additional amounts to or for the account of any Bank, Issuing Bank or Yen Lender pursuant to this Section 9.4, then such Bank, Issuing Bank or Yen Lender 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. SECTION 9.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans to any Borrower has been suspended pursuant to Section 9.2 or (ii) any Bank has demanded compensation under Section 9.3 or 9.4 with respect to its CD Loans or Euro-Dollar Loans and the relevant 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 Company that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans to such Borrower which would otherwise be made by such Bank as (or continued as or converted into) CD Loans or 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 Fixed Rate Loans of the other Banks); and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, to such Borrower has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Company that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. 93 100 ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES Each Eligible Subsidiary that signs this Agreement represents and warrants, and each Eligible Subsidiary that signs an Election to Participate by doing so shall be deemed to have represented and warranted, that: SECTION 10.1. Corporate Existence and Power. It is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and is a Substantially Wholly-Owned Consolidated Subsidiary of the Company. SECTION 10.2. Corporate and Governmental Authorization; No Contravention. The execution and delivery by it of this Agreement or its Election to Participate, as the case may be, and its Notes and Yen Notes, and the performance by it of this Agreement and its Notes and Yen 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 its certificate or incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or such Eligible Subsidiary or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. SECTION 10.3. Binding Effect. This Agreement constitutes a valid and binding agreement of such Eligible Subsidiary and each of its Notes and Yen Notes, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of such Eligible Subsidiary, in each case enforceable in accordance with its terms. SECTION 10.4. Taxes. Except as disclosed in such Election to Participate, there is no tax, levy, impost, deduction, charge or withholding imposed by any Governmental Authority either (i) on any payment to be made by any Non-United States Borrower pursuant to this Agreement or on its Notes or Yen Notes, or (ii) on or by virtue of the execution, delivery, performance, enforcement or admissibility into evidence of this Agreement or such Election to Participate or the Notes or Yen Notes of any NonUnited States Borrower. 94 101 ARTICLE 11 GUARANTY SECTION 11.1. The Guaranty. The Company hereby unconditionally and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note and Yen Note issued by each Eligible Subsidiary pursuant to this Agreement, and the full and punctual payment of all other amounts payable by each Eligible Subsidiary under this Agreement. Upon failure by any Eligible Subsidiary to pay punctually any such amount, the Company shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. SECTION 11.2. Guaranty Unconditional. The obligations of the Company under this Article 11 shall be unconditional and irrevocable and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) anyextension, renewal, settlement, compromise, waiver or release in respect of any obligation of any Eligible Subsidiary under this Agreement or any Note or Yen Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement or any Note or Yen Note; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of any Eligible Subsidiary under this Agreement or any Note or Yen Note; (iv) any change in the corporate existence, structure or ownership of any Eligible Subsidiary, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Eligible Subsidiary or its assets or any resulting release or discharge of any obligation of any Eligible Subsidiary contained in this Agreement or any Note or Yen Note; (v) the existence of any claim, set-off or other rights which the Company may have at any time against any Eligible Subsidiary, any Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; 95 102 (vi) any invalidity or unenforceability relating to or against any Eligible Subsidiary for any reason of this Agreement or any Note or Yen Note, or any provision of applicable law or regulation purporting to prohibit the payment by any Eligible Subsidiary of the principal of or interest on any Note or Yen Note or any other amount payable by it under this Agreement; or (vii) any other act or omission to act or delay of any kind by any Eligible Subsidiary, any Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Company's obligations hereunder. SECTION 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances. The Company's obligations under this Article 11 shall remain in full force and effect until the Commitments and the Yen Commitments shall have terminated and the principal of and interest on the Notes and Yen Notes and all other amounts payable by each Eligible Subsidiary under this Agreement shall have been paid in full. If at any time any payment of principal of or interest on any Note or Yen Note of any Eligible Subsidiary or any other amount payable by any Eligible Subsidiary under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Eligible Subsidiary or otherwise, the Company's obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. SECTION 11.4. Waiver by the Company. The Company irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Eligible Subsidiary or any other Person. SECTION 11.5. Subrogation. Upon making any payment with respect to the obligations of any Eligible Subsidiary hereunder, the Company shall be subrogated to the rights of the payee against such Eligible Subsidiary with respect to such payment; provided that the Company shall not enforce any payment by way of subrogation against such Eligible Subsidiary so long as any Lender has any Commitment or Yen Commitment to such Eligible Subsidiary hereunder or any Letter of Credit issued to such Eligible Subsidiary remains outstanding or any amount payable under any Note or Yen Note of such Eligible Subsidiary remains unpaid or any Reimbursement Obligation of such Eligible Subsidiary remains unpaid. 96 103 SECTION 11.6. Stay of Acceleration. In the event that acceleration of the time for payment of any amount payable by any Eligible Subsidiary under this Agreement or its Notes or Yen Notes is stayed upon insolvency, bankruptcy or reorganization of such Eligible Subsidiary, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company hereunder forthwith on demand by the Administrative Agent made at the request of the Required Lenders. ARTICLE 12 MISCELLANEOUS SECTION 12.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of any Borrower or any Agent, at its address, facsimile number or telex number set forth on the signature pages hereof (or, in the case of any Eligible Subsidiary that signs an Election to Participate, set forth therein), (y) in the case of any Lender, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) 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, the Yen Administrative Agent and the Company. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified 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 specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 9 or to the Yen Administrative Agent under Article 3 or Article 9 shall not be effective until received. SECTION 12.2. No Waivers. No failure or delay by any Agent or any Lender in exercising any right, power or privilege hereunder or under any Note or Yen 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 97 104 cumulative and not exclusive of any rights or remedies provided by law. SECTION 12.3. Expenses; Indemnification. (a) The Company shall pay (i) the fees and disbursements of special counsel for the Documentation Agent incurred on or prior to the Effective Date in connection with the preparation of this Agreement, (ii) all out-of-pocket expenses incurred by the Documentation Agent after the Effective Date, including fees and disbursements of its special counsel, in connection with post-closing distribution of documents and any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (iii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent (including fees and disbursements of their respective special counsel) in connection with such Event of Default and by each Agent and each Lender, including (without duplication) the fees and disbursements of counsel (including allocated costs of internal counsel), in connection with collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Company agrees to indemnify each Agent, each Arranger, each Issuing Bank and each Lender, 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 or Yen Loans hereunder or any Letter of Credit; 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 12.4. Sharing of Set-Offs. Each Lender 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 due with respect to (i) any Note or Yen Note held by it and (ii) its participation in any Reimbursement Obligation (collectively, its "Relevant Debt") which is greater than the proportion received by any other Lender in respect of the Relevant Debt of such other Lender, the Lender receiving such proportionately greater payment shall purchase such 98 105 participations in the Relevant Debt of the other Lender, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Relevant Debt of the Lenders shall be shared by the Lenders pro rata; provided that nothing in this Section shall impair the right of any Lender 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 a Borrower other than the Relevant Debt of such Lender. SECTION 12.5. Amendments and Waivers. Any provision of this Agreement or the Notes or Yen Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Lenders (and, if the rights or duties of any Agent or Issuing Bank are affected thereby, by such Agent or Issuing Bank, as the case may be); provided that: (a) no such amendment or waiver shall, unless signed by all the Lenders, (i) increase or decrease the Commitment or Yen Commitment of any Lender (except for a ratable decrease in the Commitments or the Yen Commitments, as the case may be) or subject any Lender to any additional obligation, (ii) forgive all or any portion of the principal of or interest on, or reduce the rate of interest on, any Loan or Yen Loan or any Reimbursement Obligation or forgive or reduce any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or Yen Loan or any Reimbursement Obligation or any fees hereunder or for the termination of the Commitments or Yen Commitments, (iv) change any provision of Article 11 or this Section 12.5 or (v) change the percentage of the Total Commitments or of any other amount or the number of Lenders, Banks or Yen Lenders, which shall be required for the Lenders, Banks or Yen Lenders, or any of them, to take any action under this Section or any other provision of this Agreement; (b) Exhibit M hereto may be amended as provided in Section 5.9; (c) clause (a)(ii) of this Section shall not apply to any amendment pursuant to Section 1.2 for the purpose of eliminating the effect of any change in GAAP; (d) no such amendment or waiver shall, unless signed by an Eligible Subsidiary, (w) subject such Eligible Subsidiary to any additional obligation, (x) increase the principal of or rate of interest on any outstanding Loan or Yen Loan of such Eligible Subsidiary, (y) accelerate the 99 106 stated maturity of any outstanding Loan or Yen Loan of such Eligible Subsidiary or (z) change any provision of this clause (d); (e) no such amendment or waiver that affects the rights or obligations of the Yen Lenders (but does not affect the corresponding rights or obligations of the Banks on a pro rata or other equivalent basis) shall be effective unless signed by the Required Yen Lenders; and (f) no such amendment or waiver that affects the rights or obligations of the Banks (but does not affect the corresponding rights and obligations of the Yen Lenders on a pro rata or other equivalent basis) shall be effective unless signed by the Required Banks. SECTION 12.6. Successors and Assigns. (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 no Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all the Lenders. (b) Any Lender may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or Yen Commitment, any or all of its Loans or Yen Loans, or in the case of any Bank, its participation in any or all of the Letters of Credit or outstanding Reimbursement Obligations; provided that no Lender may grant any such participating interest to a business competitor of the Company. In the event of any such grant by a Lender of a participating interest to a Participant, such Lender shall notify the Company and the Administrative Agent (and, in the case of a Yen Lender, the Yen Administrative Agent) thereof, but such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrowers, the Issuing Banks and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrowers 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 Lender will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 12.5(a) without the consent of the Participant. The Borrowers agree that each Participant shall, to the extent 100 107 provided in its participation agreement, be entitled to the benefits of Article 9 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (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 (b). (c) Any Lender may at any time assign to one or more banks or other institutions (each an "Assignee") either (i) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of all, of its rights and obligations as a Bank under this Agreement and the Notes or (ii) all, or a proportionate part (equivalent to an initial Yen Commitment of not less than $5,000,000) of all of its rights and obligations as a Yen Lender under this Agreement and the Yen Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit K hereto executed by such Assignee and such transferor Lender, with (and subject to) the subscribed consent of the Company, the Relevant Agent and the Issuing Banks, which shall not be unreasonably withheld; provided that (i) if an Assignee is an affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consent shall be required and (ii) no Lender shall make any such assignment to a business competitor of the Company; and provided further that such assignment may, but need not, include rights of a transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment or Yen Commitment, as set forth in such instrument of assumption, and the transferor Lender 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 (c), the transferor Lender and the Borrowers shall make appropriate arrangements so that, if required, a new Note or Yen Note is issued to the Assignee. In connection with any such assignment, the transferor Lender shall pay to the Relevant 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 Company and the Relevant Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 9.4. 101 108 (d) Any Lender 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 Lender from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Lender's rights shall be entitled to receive any greater payment under Section 9.3 or 9.4 than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 9.2, 9.3 or 9.4 requiring a Lender to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 12.7. Judgment Currency. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from any Borrower hereunder or under any Note in Dollars or due hereunder or under any Yen Note in Yen (in each case, the "Contract Currency") into another currency (the "Judgment Currency"), the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Relevant Agent could purchase the Contract Currency with the Judgment Currency at the Relevant Agent's New York office on the Domestic Business Day (or the Tokyo Business Day in the case of the Yen Administrative Agent) preceding that on which final judgment is given. The obligations of each Borrower in respect of any sum due to any Lender or any Agent hereunder or under any Note or Yen Note shall, notwithstanding any judgment in a currency other than the Contract Currency, be discharged only to the extent that on the Domestic Business Day (or Tokyo Business Day) following receipt by such Lender or such Agent (as the case may be) of any sum adjudged to be so due in the Judgment Currency such Lender or such Agent (as the case may be) may in accordance with normal banking procedures purchase the Contract Currency with the Judgment Currency; if the amount of the Contract Currency so purchased is less than the sum originally due to such Lender or such Agent, as the case may be, in the Contract Currency, each Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or such Agent, as the case may be, against such loss, and if the amount of the Contract Currency so purchased exceeds (a) the sum originally due to any Lender or any Agent, as the case may be, and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender 102 109 under Section 12.4, such Lender, as the case may be, agrees to remit such excess to the appropriate Borrower. SECTION 12.8. Foreign Subsidiary Costs. (a) If the cost to any Lender of making or maintaining any Loan or Yen Loan to an Eligible Subsidiary is increased, or the amount of any sum received or receivable by any Lender (or its Lending Office) is reduced by an amount deemed by such Lender to be material, by reason of the fact that such Eligible Subsidiary is incorporated in, or conducts business in, a jurisdiction outside the United States, the Company shall indemnify such Lender for such increased cost or reduction within 15 days after demand by such Lender (with a copy to the Relevant Agent). A certificate of such Lender claiming compensation under this subsection (a) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. (b) Each Lender will promptly notify the Company and the Relevant Agent of any event of which it has knowledge that will entitle such Lender to compensation pursuant to subsection (a) of this Section and will designate a different Lending Office, if, in the judgment of such Lender, such designation will avoid the need for, or reduce the amount of, such compensation and will not be otherwise disadvantageous to such Lender. SECTION 12.9. Confidentiality. Each Lender agrees to use its reasonable efforts (consistent with its established procedures, if reasonable) to (i) keep confidential all non-public information received by it from the Company which has been identified (or may from time to time be identified) as "confidential" by the Company in writing (herein called "Confidential Information") and (ii) not disclose, or cause to be disclosed, such Confidential Information to third parties or use such Confidential Information competitively against the Company or in violation of federal securities laws; provided that the provisions of this Section shall not apply to any Confidential Information that becomes generally available to the public other than as a result of a disclosure or other action or omission by any of the Lenders or any of their respective affiliates. Any Lender may disclose Confidential Information to any prospective permitted transferee of any of its interests hereunder if such permitted transferee shall, prior to such disclosure, agree in writing for the benefit of the Company to hold such Confidential Information confidential subject to the terms of this Section. Each Lender may disclose Confidential Information as required by any applicable law, governmental rule or governmental 103 110 regulation or by court order or by any governmental authority or as such Lender may reasonably deem necessary or desirable in its dealings with any governmental authority. Each Lender may disclose Confidential Information (x) to its Parent, its affiliates, its legal counsel or its independent auditors who agree to hold such Confidential Information confidential subject to the terms set forth in this Section (and each Lender agrees to use its reasonable efforts (consistent with its established procedures, if reasonable) to ensure that each Person to whom it makes disclosure pursuant to this sentence shall keep such Confidential Information confidential on such terms) or (y) in the course of any litigation relating to this Agreement if such Lender is a party to such litigation. Each Lender may also disclose Confidential Information to its directors, trustees, employees, agents, attorneys and accountants who would ordinarily have access to such data and information in the normal course of the performance of their duties. Notwithstanding anything in the foregoing to the contrary, no Lender shall be liable to the Company or any other Person for damages arising from the disclosure of Confidential Information despite compliance by such Lender with this Section. SECTION 12.10. Collateral. Each of the Lenders represents to the Agents and the other Lenders 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 12.11. Governing Law; Submission to Jurisdiction. This Agreement, each Note, each Yen Note and each Letter of Credit (except Letters of Credit to the extent therein stated to be governed by the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce, Publication No. 500 (1993 revision)) shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law rules of such State. Each 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, the Notes, the Yen Notes or the transactions contemplated hereby. Each 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. 104 111 SECTION 12.12. 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 12.13. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENTS, THE ISSUING BANKS AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, THE YEN NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 12.14. COMMERCIAL TRANSACTION; WAIVER OF RIGHTS. EACH BORROWER ACKNOWLEDGES THAT THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY CONSTITUTE COMMERCIAL TRANSACTIONS WITHIN THE MEANING OF SECTION 52-278A OF THE CONNECTICUT GENERAL STATUTES. EACH BORROWER EXPRESSLY WAIVES ANY AND ALL RIGHTS TO PRIOR NOTICE AND A PRIOR HEARING IN CONNECTION WITH ANY PREJUDGMENT REMEDY AVAILABLE TO THE LENDERS, THE ISSUING BANKS OR THE AGENTS UNDER SECTIONS 52-278A TO 52-278G, INCLUSIVE, OF THE CONNECTICUT GENERAL STATUTES AND ANY AND ALL CONSTITUTIONAL RIGHTS WITH RESPECT TO SUCH PRIOR NOTICE AND HEARING. THE FOREGOING WAIVER DOES NOT AFFECT ANY BORROWER'S RIGHTS TO A SUBSEQUENT NOTICE AND HEARING. 105 112 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. UNITED STATES SURGICAL CORPORATION By: /s/ Richard A. Douville ----------------------------------------- Name: Richard A. Douville Title: Vice President & Treasurer 150 Glover Avenue Norwalk, Connecticut 06856 Attn: Treasurer Facsimile number: (203) 845-0315 AUTO SUTURE JAPAN INC. By: /s/ Thomas R. Bremer ----------------------------------------- Name: Thomas R. Bremer Title: Representative Director c/o United States Surgical Corporation 150 Glover Avenue Norwalk, Connecticut 06856 Attn: Treasurer Facsimile number: (203) 845-0315 USSC FINANCIAL SERVICES, INC. By: /s/ Richard A. Douville ----------------------------------------- Name: Richard A. Douville Title: Vice President c/o United States Surgical Corporation 150 Glover Avenue Norwalk, Connecticut 06856 Attn: Treasurer Facsimile number: (203) 845-0315 106 113 BANK OF AMERICA ILLINOIS By: /s/ Wendy L. Loring ----------------------------------------- Name: Wendy L. Loring Title: Vice President THE BANK OF NEW YORK By: /s/ David C. Judge ----------------------------------------- Name: David C. Judge Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Adam J. Silver ----------------------------------------- Name: Adam J. Silver Title: Associate NATIONSBANK, N.A. By: /s/ Lucine Kirchhoff ----------------------------------------- Name: Lucine Kirchhoff Title: Senior Vice President CREDITANSTALT CORPORATE FINANCE, INC. By: /s/ Gregory F. Mathis ----------------------------------------- Name: Gregory F. Mathis Title: Vice President By: /s/ Stacy Harmon ----------------------------------------- Name: Stacy Harmon Title: Senior Associate 107 114 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ M. Christina Debler ----------------------------------------- Name: M. Christina Debler Title: Vice President By: /s/ Ian Reece ----------------------------------------- Name: Ian Reece Title: Vice President & Manager BANCA POPOLARE DI MILANO - NEW YORK BRANCH By: /s/ Fulvio Montanari ----------------------------------------- Name: Fulvio Montanari Title: First Vice President By: /s/ Esperanza Quintero ----------------------------------------- Name: Esperanza Quintero Title: Vice President BANK OF BOSTON CONNECTICUT By: /s/ W. Lincoln Schoff, Jr. ----------------------------------------- Name: W. Lincoln Schoff, Jr. Title: Director CORESTATES BANK, N.A. By: /s/ Brian M. Haley ----------------------------------------- Name: Brian M. Haley Title: Vice President 108 115 PNC BANK, NATIONAL ASSOCIATION By: /s/ Nancy S. Goldman ----------------------------------------- Name: Nancy S. Goldman Title: Vice President THE DAI-ICHI KANGYO BANK, LTD. By: /s/ Andreas Panteli ----------------------------------------- Name: Andreas Panteli Title: Vice President BANQUE NATIONALE DE PARIS By: /s/ Richard L. Sted ----------------------------------------- Name: Richard L. Sted Title: Senior Vice President By: /s/ Sophie Revillard Kaufman ----------------------------------------- Name: Sophie Revillard Kaufman Title: Vice President THE CHASE MANHATTAN BANK, N.A. By: /s/ Joan F. Garvin ----------------------------------------- Name: Joan F. Garvin Title: Vice President COMMERZBANK AKTIENGESELLSCHAFT - NEW YORK BRANCH By: /s/ G. Rod McWalters ----------------------------------------- Name: G. Rod McWalters Title: Vice President By: /s/ Michael D. Hintz ----------------------------------------- Name: Michael D. Hintz Title: Vice President 109 116 SUNTRUST BANK, ATLANTA By: /s/ Craig W. Farnsworth ----------------------------------------- Name: Craig W. Farnsworth Title: Vice President UNION BANK OF SWITZERLAND By: /s/ Christopher W. Criswell ----------------------------------------- Name: Christopher W. Criswell Title: Managing Director By: /s/ Dieter Hoeppli ----------------------------------------- Name: Dieter Hoeppli Title: Assistant Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH By: /s/ Teji Teramoto ----------------------------------------- Name: Teji Teramoto Title: Vice President & Manager THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: /s/ J. Kenneth Biegen ----------------------------------------- Name: J. Kenneth Biegen Title: Senior Vice President MELLON BANK, N.A. By: /s/ John Paul Marotta ----------------------------------------- Name: John Paul Marotta Title: Assistant Vice President 110 117 NATWEST BANK N.A. By: /s/ Susan M. O'Connor ----------------------------------------- Name: Susan m. O'Connor Title: Senior Vice President THE MITSUBISHI BANK, LIMITED By: /s/ David A. Kelson ----------------------------------------- Name: David A. Kelson Title: Vice President THE SUMITOMO BANK, LTD. - NEW YORK BRANCH By: /s/ S. Higashi ----------------------------------------- Name: S. Higashi Title: Joint General Manager NATIONSBANK, N.A., as Administrative Agent By: /s/ Lucine Kirchhoff ----------------------------------------- Name: Lucine Kirchoff Title: Senior Vice President 100 N. Tryon Street, 8th Floor Charlotte, North Carolina 28255 Attention: Michael A. Crabb, III Facsimile number: (704) 388-6002 THE BANK OF NEW YORK, as Yen Administrative Agent By: /s/ David C. Judge ----------------------------------------- Name: David C. Judge Title: Vice President One Wall Street New York, New York 10286 Attention: David C. Judge Facsimile number: (212) 635-6999 111 118 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent By: /s/ Adam J. Silver ----------------------------------------- Name: Adam J. Silver Title: Associate 60 Wall Street New York, New York 10260 Attention: Adam J. Silver Facsimile number: (212) 648-5021 112 119 COMMITMENT SCHEDULE
Bank Commitment - ------------------------------------------------------ ---------------------- Bank of America Illinois $ 27,000,000 The Bank of New York $ 27,000,000 Morgan Guaranty Trust Company of New York $ 27,000,000 NationsBank, N.A. $ 27,000,000 Creditanstalt Corporate Finance, Inc. $ 21,000,000 Cooperatieve Centrale Raiffesien- BoerenleenBank, B.A., "RaboBank $ 21,000,000 Nederland", New York Branch Banca Popolare di Milano - New York Branch $ 15,000,000 Bank of Boston Connecticut $ 15,000,000 Corestates Bank, N.A. $ 15,000,000 PNC Bank, National Association $ 15,000,000 The Dai-Ichi Kangyo Bank, Ltd. $ 14,000,000 Banque Nationale de Paris $ 10,000,000 The Chase Manhattan Bank, N.A. $ 10,000,000 CommerzBank Aktiengesellschaft - New York Branch $ 10,000,000 SunTrust Bank, Atlanta $ 10,000,000 Union Bank of Switzerland $ 10,000,000 The Fuji Bank, Limited, New York Branch $ 6,000,000 The Industrial Bank of Japan Trust Company $ 6,000,000 Mellon Bank, N.A. $ 5,000,000 NatWest Bank N.A. $ 5,000,000 The Mitsubishi Bank, Limited $ 2,000,000 The Sumitomo Bank, Ltd. - New York Branch $ 2,000,000 =============== TOTAL $ 300,000,000
120 YEN COMMITMENT SCHEDULE
Yen Lender Yen Commitment - ------------------------------------------------------ ---------------------- The Dai-Ichi Kangyo Bank, Ltd. $ 7,000,000 The Fuji Bank, Limited, New York Branch $ 5,000,000 The Industrial Bank of Japan Trust Company $ 5,000,000 The Mitsubishi Bank, Limited $ 4,000,000 The Sumitomo Bank, Ltd. -- New York Branch $ 4,000,000 =============== TOTAL $ 25,000,000
121 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin", "LC Commission Rate", "Facility Fee Rate" and "TIBOR Margin", for any day, are the respective rates per annum set forth below in the applicable row under the column corresponding to the Pricing Level that applies on such day:
- ------------------------------------------------------------------------------------------------------------ Level I Level II Level III Level IV Level V Level VI - ------------------------------------------------------------------------------------------------------------ Euro- .225% .325% .425% .525% .600% .650% Dollar Margin - ------------------------------------------------------------------------------------------------------------ TIBOR .225% .325% .425% .525% .600% .650% Margin - ------------------------------------------------------------------------------------------------------------ CD Margin .350% .450% .550% .650% .725% .775% - ------------------------------------------------------------------------------------------------------------ LC Commission .225% .325% .425% .525% .600% .650% Rate - ------------------------------------------------------------------------------------------------------------ Facility .150% .175% .200% .225% .275% .350% Fee Rate - ------------------------------------------------------------------------------------------------------------
For purposes of this Pricing Schedule, the following terms have the following meanings: "Level I Pricing" applies on any day during any Pricing Period if the Pricing Ratio for such Pricing Period is less than or equal to 1.5. "Level II Pricing" applies on any day during any Pricing Period if the Pricing Ratio for such Pricing Period is greater than 1.5 but less than or equal to 2.0. "Level III Pricing" applies on any day during any Pricing Period if the Pricing Ratio for such Pricing Period is greater than 2.0 but less than or equal to 2.5. "Level IV Pricing" applies on any day during any Pricing Period if the Pricing Ratio for such Pricing Period is greater than 2.5 but less than or equal to 3.0. "Level V Pricing" applies on any day during any Pricing Period if the Pricing Ratio for such Pricing Period is greater than 3.0 but less than or equal to 3.5. 122 "Level VI Pricing" applies on any day if none of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V Pricing applies on such day. "Pricing Level" refers to the determination of which of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing or Level VI Pricing applies on any day. "Pricing Period" means a period from and including the 46th day after the end of any Fiscal Quarter to and including the 45th day after the end of the next succeeding Fiscal Quarter; provided that the first Pricing Period shall begin on the Effective Date. "Pricing Ratio" for any Pricing Period means the ratio of (i) Consolidated Debt at the end of the Prior Fiscal Quarter to (ii) Consolidated EBITDA for the period of four consecutive Fiscal Quarters then ended. "Prior Fiscal Quarter" for any Pricing Period means the Fiscal Quarter ended 46 days before such Pricing Period begins. 123 EXHIBIT A NOTE New York, New York December 20, 1995 For value received, [Borrower], a [ ] 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 NationsBank, N.A., NationsBank Corporate Center, Charlotte, North Carolina. All Loans made by the Bank, the respective types 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, any other schedule attached hereto or on a continuation of any 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 Credit Agreement dated as of December 20, 1995 among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation 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 124 the mandatory and optional prepayment hereof and the acceleration of the maturity hereof. The payment in full of the principal and interest on this Note has, pursuant to the provisions of the Credit Agreement, been unconditionally guaranteed by United States Surgical Corporation.* [BORROWER] By: -------------------------------- Name: Title: - ----------------------------- * This paragraph should be deleted from Notes signed by the Company. 125 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
126 EXHIBIT B YEN NOTE New York, New York December 20, 1995 For value received, [Borrower], a [ ] corporation (the "Borrower"), promises to pay to the order of (the "Yen Lender"), for the account of its Yen Lending Office, the unpaid principal amount of each Yen Loan made by the Yen Lender to the Borrower pursuant to the Credit Agreement referred to below on the Termination Date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Yen 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 Japan in immediately available funds at the office of The Bank of New York in Tokyo, Japan. All Yen Loans made by the Yen Lender and all repayments of the principal thereof shall be recorded by the Yen Lender and, if the Yen Lender so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Yen Loan then outstanding may be endorsed by the Yen Lender on the schedule attached hereto, any other schedule attached hereto or on a continuation of any such schedule attached to and made a part hereof; provided that the failure of the Yen Lender 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 Yen Notes referred to in the Credit Agreement dated as of December 20, 1995 among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation 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 127 Agreement for provisions for the optional prepayment hereof and the acceleration of the maturity hereof. The payment in full of the principal and interest on this Yen Note has, pursuant to the provisions of the Credit Agreement, been unconditionally guaranteed by United States Surgical Corporation.* [BORROWER] By: -------------------------------- Name: Title: - ----------------------------- * This paragraph should be deleted from Yen Notes signed by the Company. 128 Yen Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
129 EXHIBIT C MONEY MARKET QUOTE REQUEST [Date] To: NationsBank, N.A. (the "Administrative Agent") From: [BORROWER] Re: Credit Agreement dated as of December 20, 1995 (as amended from time to time, the "Credit Agreement") among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent. We hereby give notice pursuant to Section 2.3 of the Credit Agreement that we request Money Market Quotes 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.] - ----------------------------- * Amount must be $5,000,000 or a larger multiple of $1,000,000. ** Not less than 7 days, subject to the provisions of the definition of Interest Period. 130 Terms used herein have the meanings assigned to them in the Credit Agreement. [BORROWER] By: -------------------------------- Name: Title: 131 EXHIBIT D INVITATION FOR MONEY MARKET QUOTES To: [Bank] Re: Invitation for Money Market Quotes to [Borrower] (the "Borrower") Pursuant to Section 2.3 of the Credit Agreement dated as of December 20, 1995 (as amended from time to time, the "Credit Agreement") among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, the undersigned, as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation 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 no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. Terms used herein have the meanings assigned to them in the Credit Agreement. NATIONSBANK, N.A., as Administrative Agent By: ------------------------------------- Authorized Officer 132 EXHIBIT E MONEY MARKET QUOTE To: NationsBank, N.A., as Administrative Agent Re: Money Market Quote to [Name of Borrower] (the "Borrower") In response to your invitation on behalf of the Borrower dated , 19 , 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. *** Not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. (Notes continued on following page.) 133 (Notes continued on following page.) 134 ********* We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of December 20, 1995 (as amended from time to time, the "Credit Agreement") among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Terms used herein have the meanings assigned to them in the Credit Agreement. Very truly yours, [BANK] Dated: By: ---------------------------- -------------------------------- Authorized Officer - ----------------------------- **** 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 1/10,000th of 1%). 135 EXHIBIT F OPINION OF COUNSEL FOR THE COMPANY To the Banks, Issuing Banks, Yen Lenders and Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York Gentlemen and Ladies: I have acted as counsel for United States Surgical Corporation (the "Company") in connection with the Credit Agreement (the "Credit Agreement") dated as of December 20, 1995 among the Company, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my client pursuant to Section 4.1(d) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Company of the Credit Agreement and its Notes and Yen Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with (excepting 136 such filings as may be required for reporting purposes under the federal securities laws), 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 Company. The execution, delivery and performance by each of the Company, USSC Financial Services, Inc. and Auto Suture Japan Inc. of the Credit Agreement and its Notes and Yen Notes do not contravene or constitute a default under any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Company and each of its Notes and Yen Notes constitutes a valid and binding obligation of the Company, 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. 4. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to result in an adverse decision that would materially adversely affect the business, financial position, operations or properties of the Company and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of the Credit Agreement or any of the Notes or Yen Notes. 5. Each of the Company's active corporate 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. Very truly yours, 137 EXHIBIT G OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE DOCUMENTATION AGENT To the Banks, Issuing Banks, Yen Lenders and Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York Gentlemen and Ladies: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of December 20, 1995 among United States Surgical Corporation (the "Company"), the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent, and have acted as special counsel for the Documentation Agent for the purpose of rendering this opinion pursuant to Section 4.1(e) 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. Upon the basis of the foregoing, we are of the opinion that, assuming that the execution, delivery and performance by the Company of the Credit Agreement and its Notes and Yen Notes are within the Company's corporate powers and have been duly authorized by all necessary corporate action, the Credit Agreement constitutes a valid and binding agreement of the Company and its Notes and Yen Notes constitute valid and binding obligations of the Company, 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. 138 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. 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 or Yen Lender is located which limits the rate of interest that such Bank or Yen Lender 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. Very truly yours, 139 EXHIBIT H ELECTION TO PARTICIPATE ___________, 19__ NATIONSBANK, N.A., as Administrative Agent under the Credit Agreement dated as of December 20, 1995 among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent (as amended from time to time, the "Credit Agreement") Gentlemen and Ladies: Reference is made to the Credit Agreement described above. Terms not defined herein which are defined in the Credit Agreement have for the purposes hereof the meaning provided therein. The undersigned, [Eligible Subsidiary], a [ ] corporation, hereby elects to be an Eligible Subsidiary for purposes of the Credit Agreement, effective from the date hereof until an Election to Terminate shall have been delivered on behalf of the undersigned in accordance with the Credit Agreement. The undersigned confirms that the representations and warranties set forth in Article 10 of the Credit Agreement are true and correct as to the undersigned as of the date hereof, and the undersigned hereby agrees to perform all the obligations of an Eligible Subsidiary under, and to be bound in all respects by the terms of, the Credit Agreement, including without limitation Sections 12.3(b), 12.11 and 12.13 thereof, as if the undersigned were a signatory party thereto. [Tax disclosure pursuant to Section 10.4.] The address to which all notices to the undersigned under the Credit Agreement should be directed is: 140 This instrument shall be construed in accordance with and governed by the laws of the State of New York. Very truly yours, [ELIGIBLE SUBSIDIARY] By: ---------------------------- Name: Title: The undersigned hereby confirms that [Eligible Subsidiary] is an Eligible Subsidiary for purposes of the Credit Agreement described above. UNITED STATES SURGICAL CORPORATION By: ---------------------------- Name: Title: Receipt of the above Election to Participate is hereby acknowledged on and as of the date set forth above. NATIONSBANK, N.A., as Administrative Agent By: ---------------------------- Name: Title: 141 EXHIBIT I ELECTION TO TERMINATE ___________, 19__ NATIONSBANK, N.A., as Administrative Agent under the Credit Agreement dated as of December 20, 1995 among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent (as amended from time to time, the "Credit Agreement") Gentlemen and Ladies: Reference is made to the Credit Agreement described above. Terms not defined herein which are defined in the Credit Agreement have for the purposes hereof the meaning provided therein. The undersigned, [Eligible Subsidiary], a [ ] corporation, hereby elects to terminate its status as an Eligible Subsidiary for purposes of the Credit Agreement, effective as of the date hereof. The undersigned hereby represents and warrants that all principal and interest on all Notes and Yen Notes of the undersigned and all other amounts payable by the undersigned pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. Notwithstanding the foregoing, this Election to Terminate shall not affect any obligation of the undersigned heretofore incurred under the Credit Agreement or under any Note or Yen Note. This instrument shall be construed in accordance with and governed by the laws of the State of New York. Very truly yours, [ELIGIBLE SUBSIDIARY] By:_______________________ Name: Title: 142 The undersigned hereby confirms that the status of [Eligible Subsidiary] as an Eligible Subsidiary for purposes of the Credit Agreement described above is terminated as of the date hereof. UNITED STATES SURGICAL CORPORATION By: ------------------------------- Name: Title: Receipt of the above Election to Terminate is hereby acknowledged on and as of the date set forth above. NATIONSBANK, N.A., as Administrative Agent By: ------------------------------- Name: Title: 143 EXHIBIT J OPINION OF COUNSEL FOR AN ELIGIBLE SUBSIDIARY [Dated as provided in Section 4.3 of the Credit Agreement] To the Banks, Issuing Banks, Yen Lenders and Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York 10260 Gentlemen and Ladies: I am counsel to [Eligible Subsidiary], a [ ] corporation (the "Eligible Subsidiary"), and give this opinion pursuant to Section 4.3(c) of the Credit Agreement dated as of December 20, 1995 (as amended from time to time, the "Credit Agreement") among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Eligible Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of [ ], and is a wholly owned Consolidated Subsidiary of the Company. 2. The execution and delivery by the Eligible Subsidiary of its Election to Participate and its Notes and Yen Notes and the performance by the Eligible Subsidiary of 144 the Credit Agreement and its Notes and Yen Notes are within the Eligible Subsidiary's 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 Eligible Subsidiary or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Eligible Subsidiary or the Company or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Eligible Subsidiary and its Notes and Yen Notes constitute valid and binding obligations of the Eligible Subsidiary, 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. 4. Except as disclosed in the Eligible Subsidiary's Election to Participate, there is no income, stamp or other tax of [jurisdiction of incorporation and, if different, principal place of business], or any taxing authority thereof or therein, imposed by or in the nature of withholding or otherwise, which is imposed on any payment to be made by the Eligible Subsidiary pursuant to the Credit Agreement or its Notes or Yen Notes, or is imposed on or by virtue of the execution, delivery or enforcement of its Election to Participate, the Credit Agreement, its Notes or its Yen Notes. Very truly yours, 145 EXHIBIT K ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee")[, the Issuing Banks listed on the signature pages hereof (the "Issuing Banks") and NATIONSBANK, N.A., as Administrative Agent (the "Administrative Agent")] [and THE BANK OF NEW YORK, as Yen Administrative Agent (the "Yen Administrative Agent")]. W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of December 20, 1995 among United States Surgical Corporation, the Eligible Subsidiaries referred to therein, the Banks and Issuing Banks party thereto, NationsBank, N.A., as Administrative Agent, the Yen Lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation 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 Borrowers and participate in Letters of Credit issued for the account of the Borrowers] [Yen Commitment to make Yen Loans to the Borrowers] in an aggregate [principal amount] [Dollar Equivalent Amount] at any time outstanding not to exceed $__________; WHEREAS, [Committed Loans made to the Borrowers by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ and Letters of Credit issued for the account of the Borrowers in which the Assignor has participations in the aggregate amount of $___________] [Yen Loans made to the Borrowers by the Assignor under the Credit Agreement in the aggregate principal amount of yen_________] are outstanding at the date hereof; and* - ---------------- *This clause (and certain other provisions herein) should be modified to reflect the assignment of Money Market Loans if such Loans are being assigned. 146 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 participations in Letters of Credit] [Yen Commitment thereunder in an amount equal to $_________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Yen 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 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 Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the outstanding principal amount of each of the [Committed Loans made by the Assignor and the participations in Letters of Credit and outstanding Reimbursement Obligations (if any) held by] [Yen Loans made by] the Assignor at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Issuing Banks and the Administrative Agent] [and the Yen 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] [Yen Lender] under the Credit Agreement with a [Commitment] [Yen Commitment] in an amount equal to the Assigned Amount, and (ii) the [Commitment] [Yen Commitment] of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor shall be 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, the Assignee 147 shall pay to the Assignor on the date hereof, in [Federal funds or other] immediately available funds, the amount heretofore agreed between them.* It is understood that facility fees [and/or Letter of Credit commissions] accrued to the date hereof are for the account of the Assignor and such fees and commissions accruing from and including the date hereof in respect of the Assigned Amount 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. SECTION 4. Consent of the [Administrative Agent and the Issuing Banks] [Yen Administrative Agent]. This Agreement is conditioned upon the consent of the [Administrative Agent and the Issuing Banks] [Yen Administrative Agent] pursuant to Section 12.6(c) of the Credit Agreement. The execution of this Agreement by the [Administrative Agent and the Issuing Banks] [Yen Administrative Agent] is evidence of this consent. 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 any Borrower, or the validity and enforceability of the obligations of any Borrower under the Credit Agreement or any Note or Yen 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 Borrowers. 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 - --------------- * 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. 148 an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 149 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: [ISSUING BANK] By: ------------------------------------- Name: Title: [ISSUING BANK] By: ------------------------------------- Name: Title: [NATIONSBANK, N.A., as Administrative Agent By: ------------------------------------- Name: Title:] 150 [THE BANK OF NEW YORK, as Yen Administrative Agent By: ------------------------------------- Name: Title:] 151 EXHIBIT L CALCULATION OF FUNDING LOSSES The following formula shall be used to calculate compensation for a funding loss (a "Funding Loss") due to a Bank under Section 2.16 or to a Yen Lender under Section 3.13 in the event of a prepayment or conversion or a failure to borrow or to prepay a Fixed Rate Loan of such Bank or a Yen Loan of such Yen Lender: (CR - RR) x PA x DR FL = ------------------- + AF 360 FL = Funding Loss CR = Contract Rate RR = Reinvestment Rate PA = Principal Amount DR = Days Remaining AF = Administrative Fee "Administrative Fee" means the administrative fee usually charged by such Bank or Yen Lender, not to exceed $250. "Contract Rate" means (i) with respect to any such Fixed Rate Loan, the London Interbank Offered Rate or CD Base Rate applicable thereto or (ii) with respect to any such Yen Loan, the Tokyo Interbank Offered Rate applicable thereto, in each case expressed as a decimal. "Days Remaining" means, with respect to any such Fixed Rate Loan or Yen Loan, (i) if prepaid or converted, the number of days in the period from and including the date of such prepayment or conversion to but excluding the last day of the applicable Interest Period and (ii) if not borrowed or not prepaid, the number of days in the applicable Interest Period. "Principal Amount" means, with respect to any such Fixed Rate Loan or Yen Loan, the principal amount thereof being prepaid or converted or not borrowed or not prepaid, as applicable. "Reinvestment Rate" means, with respect to any such Fixed Rate Loan or Yen Loan, a rate per annum (expressed as a decimal) reasonably determined by such Bank 152 or Yen Lender, as the case may be, to be the rate at which an amount approximately equal to the Principal Amount thereof could be reinvested in the relevant interbank market on the date prepaid or converted or not borrowed or not prepaid, as applicable, for a period of time comparable to the applicable Days Remaining. 153 EXHIBIT M ACTIVE SUBSIDIARIES ARR, Inc. (Delaware) ASE Continuing Education Center S.A. (France) ASE Partners S.A. (France) Auto Suture Austria GmbH (Austria) Auto Suture Belgium B.V. (Holland) Auto Suture Company, Australia (Conn.) Auto Suture Company, Canada (Conn.) Auto Suture Company, Netherlands (Conn.) Auto Suture Company, U.K. (Conn.) Auto Suture Deutschland GmbH (Germany) Auto Suture Eastern Europe, Inc. (Delaware) Auto Suture Espana, S.A. (Spain) Auto Suture Europe Holdings, Inc. (Conn.) Auto Suture Europe S.A. (France) Auto Suture European Services Center, S.A. (France) Auto Suture France S.A. (France) Auto Suture FSC Ltd. (U.S. Virgin Islands) Auto Suture International, Inc. (Conn.) Auto Suture Italia, S.p.A. (Italy) Auto Suture Japan, Inc. (Japan) Auto Suture Norden Co. (Conn.) Auto Suture Poland, Limited Liability Company (Poland) Auto Suture Puerto Rico, Inc. (Conn.) Auto Suture Russia, Inc. (Delaware) Auto Suture (Schweiz) AG (Switzerland) Auto Suture Surgical Instruments (Russia) EndoTherapeutics (Calif.) United States Surgical Corporation (Ireland) Limited (Ireland) USSC AG (Switzerland) USSC Cal Med, Inc. (California) USSC (Deutschland) GmbH (Germany) USSC Financial Services, Inc. (Conn.) USSC Japan Kabushiki Kaisha (Japan) USSC Medical GmbH (Germany) U.S.S.C. Puerto Rico, Inc. (NY) 154 EXHIBIT N DISCLOSURE DOCUMENTS 1. Company's 1994 Form 10-K 2. Company's Latest Form 10-Q (for quarter ended September 30, 1995) 3. Information Memorandum dated November 1995 distributed to the Lenders and entitled "United States Surgical Corporation $325 Million Syndicated Credit Facility" 155 EXHIBIT O EXISTING LIENS SECURING DEBT 1. A lien on improved real property in Elancourt, France, securing payment of an aggregate principal amount, at September 30, 1995, of FF 484,452,000, owing under the U.I.S. Financing Documents. 2. North Haven Notes in the aggregate principal amount of $300,000,000 are secured by a Lien on the facility (including improvements thereto) leased by the Company under the North Haven Lease. 3. A lien on the Company's Japanese patents securing a note of Auto Suture Japan Inc. in favor of Century Medical Inc. in the principal amount of yen 500,000,000 (approximately $5,000,000) issued as part of the consideration for the acquisition by the Company of the assets of its Japanese distributor. 4. Other Liens which may exist on miscellaneous property of the Company and its Subsidiaries securing obligations which, in the aggregate, do not exceed $5,000,000 and as to which the Responsible Officers do not, at December 20, 1995, have specific knowledge. 156 TARGET LIST ARTICLE 1 definitions ARTICLE 5 representations section 1.2 acctg terms section 5.9 subsidiaries ARTICLE 2 credits ARTICLE 6 covenants section 2.1 loans section 6.3(b) maintenance section 2.2 borrowing section 6.4 conduct of bus section 2.3 money market borrowings section 6.7 consolidated section 2.3(d) sub and con section 6.10 negative sales section 2.3(f) accept and notice section 6.12 dividend pymt section 2.4(a) receipt section 6.14 perm.acf section 2.5 notes section 6.14 asset sales section 2.7 interest section 6.14(c) company may sell or dispose section 2.7(b) adjusted cd rate section 6.16 transactions section 2.7(c) adjusted london section 6.18 other existing debt section 2.7(d) overdue section 6.19 use of proceeds section 2.7(f) pricing ratio section 2.8(a) int rate ARTICLE 7 defaults section 2.8(c) receipt of nir section 7.1 event of default section 2.10 optional term section 7.1(c) fail to observe section 2.11 optional prepay section 2.11(c) notice prepay ARTICLE 8 article-the agents section 2.12 mandatory reduction section 2.14 ltrs of credit ARTICLE 9 change in circum section 2.14(a)(iii) ltr of credit section 9.1 determination section 2.14(b) lc ext section 9.1(a) admin Agent section 2.14(j) issuing banks section 9.2 illegality section 2.16 funding losses section 9.3 increased cost section 2.18(a) eligible subs section 9.4 taxes section 2.18(b) sub shall cease section 9.4(b) any pymts section 9.4(c) agrees to indemnify ARTICLE 3 yen credits section 9.4(d) forms section 3.1 commit lend section 9.5 base rate section 3.2 yen borrowing section 3.3 notice yen ARTICLE 10 article-reps and warrs section 3.3(a) upon receipt of notice section 10.4 election to participate section 3.4 note section 3.5 maturity yen ARTICLE 11 article-guaranty section 3.6 method of electing section 11.1 guaranty section 3.7 interest rate yen section 3.7(b) overdue principal ARTICLE 12 section 3.8 facility fee section 12.1 notices section 3.9 opt yen commit section 12.3(b) indemnify section 3.10 opt prepay section 12.4 share setoffs section ? any broker may section 12.5 amendments section 3.12 general prov section 12.5(a) no amendment shall section 3.13 funding loss section 12.6(b) participant section 3.14 comp interest section 12.6(c) assignee section 12.11 governing law ARTICLE 4 conditions section 12.12 effect date section 4.1 closing section 12.13 waiver of jury trial section 4.1(b) receipt note section 4.1(c) auto.suture.note EXHIBITS/ANNEXES/SCHEDULES section 4.1(d) opinion exhibit c, page 1 money market quote request section 4.1(e) opinion dpw exhibit d, page 1 inv money market quotes section 4.2 satisfactions exhibit e, page 1 money market quote section 4.3 eligible sub 1st borrowing exhibit h, page 1 form of election to section 4.3(a) elig.sub.ex.note participate section 4.3(b) doc agt receipt exhibit i, page 1 form of election to terminate section 4.3(c) doc agt counsel exhibit j, page 1 opinion of counsel for borrower section 2 assign section 3 payments
**** EX-10.B 4 1990 EMPLOYEE STOCK OPTION PLAN 1 Exhibit 10.b ------------ UNITED STATES SURGICAL CORPORATION 1990 EMPLOYEE STOCK OPTION PLAN (Restated to reflect amendments and adjustments through February 7, 1995) 1. Purpose of the Plan. The purpose of the 1990 Employee Stock Option Plan (the "Plan") is to secure for United States Surgical Corporation (the "Company") and its stockholders the benefits of the incentive inherent in Common Stock ownership by permitting selected employees of the Company and its subsidiaries to obtain suitable recognition for services which have contributed or will contribute materially to the success of the Company. It is intended that the Plan will aid in retaining, encouraging and attracting employees of exceptional ability because of the opportunity offered to them to acquire a proprietary interest, or increase their proprietary interest, in the business of the Company. 2. Definitions. (a) "Appreciation Rights" means a right granted under the Plan to receive an amount representing appreciation in the Fair Market Value of a share of Common Stock between the date of grant and the date of exercise of such right, payable in cash or Common Stock. (b) "Boards" means the Board of Directors of the Company. (c) "Committee" means the Employee Benefit Plan Subcommittee of the Compensation/Option Committee of the Board or any successor committee appointed by the Board to administer the Plan. (d) "Common Stock" means the authorized common stock of the Company. (e) "Company" means United States Surgical Corporation. (f) "Eligible Employees" means any person who is, at the time of the grant of an Incentive Award, (i) an officer or other key employee of the Company or any Subsidiary, including a person who is also a member of the Board, or (ii) a consultant performing services for the Company or any Subsidiary which are equivalent or similar to services performed by key employees of the Company and its Subsidiaries. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute. (h) "Fair Market Value" means, at any date, the value of a share of Common Stock on such date as determined by the Committee by any fair and reasonable means, provided, however, that in the absence of a specific Committee determination to the contrary in a particular circumstance, "Fair Market Value" means the average of the high and low quoted sales prices of a share of Common Stock on the New York Stock Exchange on such date or, if no such sales 2 were made on such date, the closing price of such shares on the New York Stock Exchange on the next preceding date on which there were such sales. (i) "Incentive Award" means an Option or Appreciation Right. (j) "Incentive Stock Option" means an option to purchase Common Stock which has been granted under the Plan and which is intended to qualify under Section 422A of the Internal Revenue Code and regulations thereunder. (k) "Nonqualified Stock Option" means an option to purchase Common Stock which has been granted under the Plan and which is not an Incentive Stock Option. (l) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. (m) "Participant" means any Eligible Employee selected to receive an Incentive Award pursuant to Section 5. (n) "Plan" means the 1990 Employee Stock Option Plan as set forth herein and as amended from time to time. (o) "Subsidiary" means any subsidiary corporation, as defined in Section 425 of the Internal Revenue Code, of the Company. 3. Shares of Common Stock Subject to the Plan. (a) Subject to the provisions of Section 3(c) and Section 8 of the Plan, the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Incentive Awards under the Plan shall not exceed 5,500,000. Payment of cash in lieu of shares shall be deemed to be an issuance of the shares, and payment pursuant to an Appreciation Right shall be deemed to be an issuance of the shares covered thereby. (b) The shares of Common Stock to be delivered under the Plan will be made available, at the discretion of the Company, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market. (c) If shares covered by any Incentive Award cease to be issuable or transferable for any reason, such number of shares will no longer be charged against the limitations provided for in Section 3(a) and may again be made subject to Incentive Awards. However, shares subject to an Option which has been surrendered in connection with the exercise of a related Appreciation Right will not become available for the grant of any additional Incentive Awards, and shares subject to that portion of an Incentive Award which has been cancelled pursuant to Section 9(h) will not become available for the grant of any additional Incentive Awards. 4. Administration of the Plan 3 (a) The Plan will be administered by the Committee, which will consist of three or more persons (i) who are not eligible to receive Incentive Awards under the Plan and (ii) who qualify as "disinterested persons" under Rule 16b-3, or any successor or rule, under the Exchange Act. (b) The Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. The Committee has authority in its discretion to determine the Eligible Employees to whom, and the time or times at which, Incentive Awards may be granted and the number of shares subject to each Incentive Award. The Committee also has authority to (i) interpret the Plan, (ii) determine the terms and provisions of the Incentive Award instruments and (iii) make all other determinations necessary or advisable for Plan administration. The Committee has authority to prescribe, amend, and rescind rules and regulations relating to the Plan. All interpretations, determinations, and actions by the Committee will be final, conclusive, and binding upon all parties. (c) No member of the Board or the Committee will be liable for any action taken or determination made in good faith by the Board or the Committee with respect to the Plan or any Incentive Award made under the Plan. 5. Grants. (a) The Committee has authority, in its discretion, after receiving the recommendations of the management of the Company, to determine and designate from time to time those Eligible Employees who are to be granted Incentive Awards. The Committee shall determine the type of each Incentive Award to be granted and the number of shares covered thereby or issuable upon exercise thereof. Each Incentive Award will be evidenced by a written instrument briefly describing the material terms and conditions of the Incentive Award, including such terms and conditions, consistent with the Plan, as the Committee may deem advisable. (b) No person will be eligible for the grant of an incentive Stock Option who owns or would own immediately before the grant of such Option, directly or indirectly, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any parent corporation or Subsidiary. This limitation will not apply if, at the time such Incentive Stock Option is granted, the Incentive Stock Option exercise price is at least 110% of the Fair Market Value of the Common Stock. In this event, the Incentive Stock Option by its terms will not be exercisable after the expiration of five years from the date of grant. 6. Terms and Conditions of Options (a) Unless otherwise determined by the Committee, the price at which Common Stock may be purchased by a Participant under an Option shall be the Fair Market Value of the Common Stock on the date of grant; provided, however, that in no event shall the purchase price under an Incentive Stock Option be less than the Fair Market Value of the Common Stock on the date of grant. 4 (b) The Committee shall determine the option exercise period of each Option. The period shall not exceed 15 years from the date of grant. (c) Upon the exercise of an Option, the purchase price will be payable in full in cash; or, in the discretion of the Committee, by the assignment and delivery to the Company of shares of Common Stock owned by the Participant; or, in the discretion of the Committee, by installment payments or by a promissory note, in each case secured by shares of Common Stock and bearing interest at a rate determined by the Committee, but not less than the minimum rate permitted by the Internal Revenue Service; or by a combination of any of the above. Any shares assigned and delivered to the Company upon exercise of an Option in payment or valued at the Fair Market Value of the Common Stock on the exercise date. The Committee may permit installment payments or promissory note payments to be made by the assignment and delivery to the Company of shares of Common Stock owned by the Participant, in which case such shares will be valued at the Fair Market Value of the Common Stock on the date of payment. (d) With respect to Incentive Stock Options granted under the Plan, the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the number of shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year (under all stock option plans of the Company and Subsidiaries) shall not exceed $100,000 or such other limit as may be required by the Internal Revenue Code. (e) No fractional shares will be issued pursuant to the exercise of an Option nor will any cash payment be made in lieu of fractional shares. 7. Terms and Conditions of Appreciation Rights (a) An Appreciation Right may be granted in connection with an Option, either at the time of grant or at any time thereafter during the term of the Option. (b) An Appreciation Right will entitle the Participant, upon exercise, to surrender such Option or any portion thereof to the extent unexercised, with respect to the number of shares as to which such Appreciation Right is exercised, and to receive payment of an amount computed pursuant to Section 7(d). Such Option will, to the extent surrendered, cease to be exercisable. (c) Subject to Section 7(i), an Appreciation Right granted in connection with an Option hereunder will be exercisable at such time or times, and only to the extent, that the related Option is exercisable, and will not be transferable except to the extent that the related Option may be transferable. (d) Upon the exercise of an Appreciation Right related to an Option, the Participant will be entitled to receive payment of an amount determined by multiplying: (i) The difference obtained by subtracting the purchase price of a share of Common Stock specified in the related Option from the Fair Market Value of a share of Common Stock on the date of exercise of such Appreciation Right, by 5 (ii) The number of shares as to which such Appreciation Right has been exercised. (e) The Committee may also grant to Eligible Employees Appreciation Rights that are not related to Options. An Appreciation Right granted without relationship to an Option will be exercisable as determined by the Committee but in no event after 15 years from the date of grant. (f) An Appreciation Right granted without relationship to an Option will entitle the Participant, upon exercise of the Appreciation Right, to receive payment of an amount determined by multiplying: (i) The difference obtained by subtracting the Fair Market Value of a share of Common Stock on the date the Appreciation Right is granted (the "Base Price") from the Fair Market Value of a share of Common Stock on the date of exercise of such Appreciation Right, by (ii) The number of shares as to which such Appreciation Right has been exercised. (g) At the time of grant of an Appreciation Right, the Committee may determine a maximum amount that could be payable with respect to such Appreciation Right. (h) Payment of the amount determined under Section 7(d) or (f) may be made in whole shares of Common Stock valued at their Fair Market value on the date of exercise of the Appreciation Right, in cash, or in combination of the two, as the Committee determines in its sole discretion. If the Committee decides that payment may be made in shares of Common Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash. (i) No Appreciation Right granted to an officer of the Company may be exercised before six months after the date of grant except in the event that death or disability of the officer occurs before the expiration of the six-month period. 8. Adjustment Provisions (a) Subject to Section 8(b), if the outstanding shares of Common Stock of the Company are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock Split or other distribution with respect to such shares of Common Stock, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares provided in Section 3, (ii) the number and kind of shares or other securities subject to the then-outstanding Incentive Awards, and (iii) the purchase price or Base Price for each share or other unit of any other securities subject to then-outstanding Incentive Awards without change in the aggregate purchase price and Base Price as to which such Incentive Awards remain exercisable. 6 (b) Subject to Section 8(c), upon dissolution or liquidation of the Company or upon a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of all or substantially all the property of the Company, all Incentive Awards then outstanding under the Plan and held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time will be fully vested and exercisable, and the Committee may provide in connection with such transaction for the continuance of the Plan and the assumption of such Incentive Awards or the substitution for such Incentive Awards of new incentive awards covering the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices. (c) In the event a Change of Control of the Company occurs, all Incentive Awards then outstanding under the Plan and held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time under the Plan will be fully vested and exercisable, effective upon the occurrence of such Change of Control. In the event that any Person makes a filing under Section 14(d) of the Exchange Act with respect to the Company, the exercise dates of any outstanding Incentive Awards held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time shall be without further action by the Committee accelerated to make them fully vested and exercisable. In addition, in the event a Change of Control of the Company occurs, or in the event that any Person makes a filing under Section 14(d) of the Exchange Act with respect to the Company, the Committee may, in its sole discretion, without obtaining stockholder approval, and subject to the limitations imposed by Section 16 of the Securities Exchange Act of 1934, as amended, take any one or more of the following actions or any other action permitted under this Plan, subject in all cases to the limitations of Section 3(a): (i) Grant Appreciation Rights to holders of outstanding Options as permitted under Section 7(a); (ii) Pay cash to Participants in exchange for the cancellation of their outstanding Incentive Awards in accordance with Section 9(h); and (iii) Make any other appropriate adjustments or amendments to the Plan and outstanding Incentive Awards or substitute new Incentive Awards for outstanding Incentive Awards. For purposes of this Section 8(c), the following definitions shall apply: (A) A "Change in Control" of the Company shall have occurred when a Person, alone or together with its Affiliates and Associates, becomes the beneficial owner of 20% or more of the general voting power of the Company. (B) "Affiliate and Associates" shall have the respective meanings ascribed to such terms in Rule 12b-2, or any successor rule, of the General Rules and Regulations under the Exchange Act. 7 (C) "Person" shall mean an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company; any Subsidiary; any employee benefit plan or employee stock plan of the Company or any Subsidiary, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. (D) "Voting Stock" shall mean shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. (d) Adjustments under Sections 8(a), (b) and (c) will be made by the Committee, whose determination as to what adjustments will be made and the extent thereof will be final, binding, and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 9. General Provisions (a) Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Participant any right to continue in the employ of the Company or any of its Subsidiaries or affect the right of the Company or any Subsidiary to terminate the employment of any Participant at any time with or without cause. (b) No shares of Common Stock will be issued or transferred pursuant to an Incentive Award unless and until all then-applicable requirements imposed by Federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed, have been fully met. As a condition precedent to the issuance of shares pursuant to the grant or exercise of an Incentive Award, the Company may require the Participant to take any reasonable action to meet such requirements. (c) No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Incentive Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant. (d) The Committee shall adopt rules regarding the withholding of federal, state or local taxes of any kind required by law to be withheld with respect to payments and delivery of shares to Participants under the Plan. With respect to any Incentive Award, the Committee may, in its discretion, permit the Participant to satisfy, in whole or in part, any tax withholding obligation which may arise in connection with the exercise of the Incentive Award by electing to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of the tax withholding. (e) No Incentive Award and no right under the Plan, contingent or otherwise, will be transferable or assignable or subject to any encumbrance, pledge or charge of any nature except 8 that, under such rules and regulations as the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to an Incentive Award in the event of death of a participant. If such beneficiary is the executor or administrator of the estate of the Participant, any rights with respect to such Incentive Award may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Incentive Award. (f) The Company may make a loan to a Participant in connection with the exercise of an Option in an amount not to exceed the aggregate exercise price of the Option being exercised for the purpose of assisting such Participant to exercise such Option. The Company may additionally permit payment of all or any portion of the exercise price of an Option in installment payments. Any such loan or installment payment arrangement shall be secured by shares of Common Stock and shall comply in all respects with all applicable laws and regulations. The Committee may adopt policies regarding eligibility for such arrangements, the maximum amounts thereof and any terms and conditions not specified in the Plan upon which such arrangements will be made. In no event will the interest rate be less than the . minimum rate established by the Internal Revenue Service for the purpose or the purchase and sale of property pursuant to Section 483 of the Internal Revenue Code. (g) The Committee may cancel, with the consent of the Participant, all or a portion of any Option or Appreciation Right granted under the Plan to be conditioned upon the granting to the Participant of a new Option or Appreciation Right for the same or a different number of shares as the Option or Appreciation Right surrendered, or may require such voluntary surrender as a condition to a grant of a new Option or Appreciation Right to such Participant. Subject to the provisions of Section 6(d), such new Option or Appreciation Right shall be exercisable at the rice, during the period and in accordance with any other terns or conditions specified by the Committee at the time the new Option or Appreciation Right is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, or any other terms or conditions of the Option or Appreciation Right surrendered. (h) If authorized by the Committee, the Company may, with the consent of the Participant and at any time or from time to time, cancel all or a portion of any Incentive Award granted under the Plan then subject to exercise and discharge its obligation with respect to the cancelled portion of such Incentive Award either by payment to the Participant of an amount of cash equal to the excess, if any, of the Fair Market Value, at such time, of the shares subject to the portion of the Incentive Award so cancelled over the aggregate purchase price or Base Price specified in the Incentive Award covering such shares, or by issuance or transfer to the Participant of shares of Common Stock with a Fair Market Value, at such time, equal to any such excess, or by a combination of cash and shares. Upon any such payment of cash or issuance of shares, there shall be charged against the aggregate limitations set forth in Section 3(a) a number of shares equal to the number of shares subject to the portion of the Incentive Award so cancelled. (i) The Committee may, in its sole discretion, cancel any Incentive Award if the employment of the Participant holding such Incentive Award is terminated and such Participant has engaged in activities which are, by in the judgment of the Committee, competitive with, prejudicial to or in conflict with the interests of the Company or a Subsidiary or has breached the 9 terms of any agreement with the Company or a Subsidiary with respect to confidentiality and non-use of information or with respect to disclosure and assignment of inventions and ideas. Such actions by a Participant prior to, or during six months after, exercise of an Incentive Award shall constitute a rescission of the exercise, requiring the payment to the Company of, in the case of an Option, the difference between the purchase price of the Common Stock as to which the Option was exercised and the Fair Market Value on the date of exercise of such Common Stock or, in the case of an Appreciation Right, the amount paid to the Participant upon exercise of the Appreciation Right, in each case within ten days after notice of such rescission has been given to the terminated employee by the Company. 10. Amendment and Termination (a) The Board shall have the power, in its discretion, to amend, suspend or terminate the Plan at any time, subject to approval of the stockholders of the Company to the extent necessary for the continued applicability of Rule 16b-3, or any successor rule under the Exchange Act. (b) The Committee may, with the consent of a Participant, make such modifications in the terms and conditions of an Incentive Award as it deems advisable. (c) No amendment, suspension or termination of the Plan will, without the consent of the Participant, impair or adversely affect any right or obligation under any Incentive Award previously granted under the Plan. 11. Effective Date of Plan and Duration of Plan The Plan shall become effective upon its adoption by the Board and by the Company's stockholders. Unless previously terminated, the Plan will terminate when no more shares of Common Stock are available for issuance or transfer pursuant to Incentive Awards under the limitations of Section 3(a). EX-10.C 5 1993 EMPLOYEE STOCK OPTION PLAN 1 Exhibit 10.c ------------ UNITED STATES SURGICAL CORPORATION 1993 EMPLOYEE STOCK OPTION PLAN (Restated to reflect amendments and adjustments through February 7,1995) 1. Purpose of the Plan. The purpose of the 1993 Employee Stock Option Plan (the "Plan") is to secure for United States Surgical Corporation (the "Company") and its stockholders the benefits of the incentive inherent in Common Stock ownership by permitting selected key employees of the Company and its subsidiaries to obtain suitable recognition for services which have contributed or will contribute materially to the success of the Company. It is intended that the Plan will aid in retaining, encouraging and attracting employees of exceptional ability because of the opportunity offered to them to acquire a proprietary interest, or increase their proprietary interest, in the business of the Company. 2. Definitions. (a) "Appreciation Right" means a right granted under the Plan to receive an amount representing appreciation in the Fair Market Value of a share of Common Stock between the date of grant and the date of exercise of such right, payable in cash or Common Stock. (b) "Board" means the Board of Directors of the Company. (c) "Committee" means the Compensation/Option Committee of the Board or any successor committee appointed by the Board to administer the Plan. (d) "Common Stock" means the authorized common stock of the Company. (e) "Company" means United States Surgical Corporation. (f) "Eligible Employee" means any person who is, at the time of the grant of an Incentive Award, (i) a key employee of the Company or any Subsidiary, but not including any such person who is an officer or a member of the Board, or (ii) a consultant performing services for the Company or any Subsidiary which are equivalent or similar to services performed by key employees of the Company and its Subsidiaries. 2 (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute. (h) "Fair Market Value" means, at any date, the value of a share of Common Stock on such date as determined by the Committee by any fair and reasonable means, provided, however, that in the absence of a specific Committee determination to the contrary in a particular circumstance, "Fair Market Value" means the average of the high and low quoted sales prices of a share of Common Stock on the New York Stock Exchange on such date or, if no such sales were made on such date, the closing price of such shares on the New York Stock Exchange on the next preceding date on which there were such sales. (i) "Incentive Award" means an Option or Appreciation Right. (j) "Option" means an option to purchase Common Stock which has been granted under the Plan. Options shall not be treated as incentive stock options as defined in Section 422 of the Internal Revenue Code. (k) "Participant" means any Eligible Employee selected to receive an Incentive Award pursuant to Section 5. (l) "Plan" means the 1993 Employee Stock Option Plan as set forth herein and as amended from time to time. (m) "Subsidiary" means any subsidiary corporation, as defined in Section 425 of the Internal Revenue Code, of the Company. 3. Shares of Common Stock Subject to the Plan. (a) Subject to the provisions of Section 3(c) and Section 8 of the Plan, the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Incentive Awards under the Plan shall not exceed 2,000,000. Payment of cash in lieu of shares shall be deemed to be an issuance of the shares, and payment pursuant to an Appreciation Right shall be deemed to be an issuance of the shares covered thereby. (b) The shares of Common Stock to be delivered under the Plan will be made available, at the discretion of the Company, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market. (c) If shares covered by any Incentive Award cease to be issuable or transferable for any reason, such number of shares will no longer be charged against the limitations 2 3 provided for in Section 3(a) and may again be made subject to Incentive Awards. However, shares subject to an Option which has been surrendered in connection with the exercise of a related Appreciation Right will not become available for the grant of any additional Incentive Awards, and shares subject to that portion of an Incentive Award which has been cancelled pursuant to Section 9(h) will not become available for the grant of any additional Incentive Awards. 4. Administration of the Plan. (a) The Plan will be administered by the Committee. (b) The Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. The Committee has authority in its discretion to determine the Eligible Employees to whom, and the time or times at which, Incentive Awards may be granted and the number of shares subject to each Incentive Award. The Committee also has authority to (i) interpret the Plan, (ii) determine the terms and provisions of the Incentive Award instruments and (iii) make all other determinations necessary or advisable for Plan administration. The Committee has authority to prescribe, amend, and rescind rules and regulations relating to the Plan. All interpretations, determinations, and actions by the Committee will be final, conclusive, and binding upon all parties. (c) No member of the Board or the Committee will be liable for any action taken or determination made in good faith by the Board or the Committee with respect to the Plan or any Incentive Award made under the Plan. 5. Grants. The Committee has authority, in its discretion, after receiving the recommendations of the management of the Company, to determine and designate from time to time those Eligible Employees who are to be granted Incentive Awards. The Committee shall determine the type of each Incentive Award to be granted and the number of shares covered thereby or issuable upon exercise thereof. Each Incentive Award will be evidenced by a written instrument briefly describing the material terms and conditions of the Incentive Award, including such terms and conditions, consistent with the Plan, as the Committee may deem advisable. 6. Terms and Conditions of Options. 3 4 (a) Unless otherwise determined by the Committee, the price at which Common Stock may be purchased by a Participant under an Option shall be the Fair Market Value of the Common Stock on the date of grant. (b) The Committee shall determine the option exercise period of each Option. The period shall not exceed 15 years from the date of grant. (c) Upon the exercise of an Option, the purchase price will be payable in full in cash; or, in the discretion of the Committee, by the assignment and delivery to the Company of shares of Common Stock owned by the Participant; or, in the discretion of the Committee, by installment payments or by a promissory note, in each case secured by shares of Common Stock and bearing interest at a rate determined by the Committee, but not less than the applicable federal rate established by the Internal Revenue Service; or by a combination of any of the above. Any shares assigned and delivered to the Company upon exercise of an Option in payment or partial payment of the purchase price will be valued at the Fair Market Value of the Common Stock on the exercise date. The Committee may permit installment payments or promissory note payments to be made by the assignment and delivery to the Company of shares of Common Stock owned by the Participant, in which case such shares will be valued at the Fair Market Value of the Common Stock on the date of payment. (d) No fractional shares will be issued pursuant to the exercise of an Option nor will any cash payment be made in lieu of fractional shares. 7. Terms and Conditions of Appreciation Rights. (a) An Appreciation Right may be granted in connection with an Option, either at the time of grant or at any time thereafter during the term of the Option. (b) An Appreciation Right will entitle the Participant, upon exercise, to surrender such Option or any portion thereof to the extent unexercised, with respect to the number of shares as to which such Appreciation Right is exercised, and to receive payment of an amount computed pursuant to Section 7(d). Such Option will, to the extent surrendered, cease to be exercisable. (c) An Appreciation Right granted in connection with an Option hereunder will be exercisable at such time or times, and only to the extent, that the related Option is exercisable, and will not be transferable except to the extent that the related Option may be transferable. (d) Upon the exercise of an Appreciation Right related to an Option, the Participant will be entitled to receive payment of an amount determined by multiplying: 4 5 (i) The difference obtained by subtracting the purchase price of a share of Common Stock specified in the related Option from the Fair Market Value of a share of Common Stock on the date of exercise of such Appreciation Right, by (ii) The number of shares as to which such Appreciation Right has been exercised. (e) At the time of grant of an Appreciation Right, the Committee may determine a maximum amount that could be payable with respect to such Appreciation Right. (f) Payment of the amount determined under Section 7(d) may be made in whole shares of Common Stock valued at their Fair Market Value on the date of exercise of the Appreciation Right, in cash, or in a combination of the two, as the Committee determines in its sole discretion. If the Committee decides that payment may be made in shares of Common Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash. 8. Adjustment Provisions. (a) Subject to Section 8(b), if the outstanding shares of Common Stock of the Company are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock, through merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares provided in Section 3, (ii) the number and kind of shares or other securities subject to the then-outstanding Incentive Awards, and (iii) the purchase price or Base Price for each share or other unit of any other securities subject to then-outstanding Incentive Awards without change in the aggregate purchase price and Base Price as to which such Incentive Awards remain exercisable. (b) Subject to Section 8(c), upon dissolution or liquidation of the Company or upon a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of all or substantially all the property of the Company, all Incentive Awards then outstanding under the Plan and held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time will be fully vested and exercisable, and the Committee may provide in connection with such transaction for the continuance of the Plan and the assumption of such Incentive Awards or the substitution for such Incentive Awards of new incentive awards covering the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices. 5 6 (c) In the event a Change of Control of the Company occurs, all Incentive Awards then outstanding under the Plan and held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time will be fully vested and exercisable, effective upon the occurrence of such Change of Control. In the event that any Person makes a filing under Section 14(d) of the Exchange Act with respect to the Company, the exercise dates of any outstanding Incentive Awards held by Participants who have been employed or engaged as a consultant by the Company for at least one year at such time shall be without further action by the Committee accelerated to make them fully vested and exercisable. In addition, in the event a Change of Control of the Company occurs, or in the event that any Person makes a filing under Section 14(d) of the Exchange Act with respect to the Company, the Committee may, in its sole discretion, and subject to any limitations imposed by Section 16 of the Securities Exchange Act of 1934, as amended, take any one or more of the following actions or any other action permitted under this Plan, subject in all cases to the limitations of Section 3(a): (i) Grant Appreciation Rights to holders of outstanding Options as permitted under Section 7(a); (ii) Pay cash to Participants in exchange for the cancellation of their outstanding Incentive Awards in accordance with Section 9(h); and (iii) Make any other appropriate adjustments or amendments to the Plan and outstanding Incentive Awards or substitute new Incentive Awards for outstanding Incentive Awards. For purposes of this Section 8(c), the following definitions shall apply: (A) A "Change in Control" of the Company shall have occurred when a Person, alone or together with its Affiliates and Associates, becomes the beneficial owner of 20% or more of the general voting power of the Company. (B) "Affiliate and Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2, or any successor rule, of the General Rules and Regulations under the Exchange Act. (C) "Person" shall mean an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company; any Subsidiary; any employee benefit plan or employee stock plan of the Company or any Subsidiary, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. (D) "Voting Stock" shall mean shares of the Company's capital stock having general voting power, with "voting power" meaning the power under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. 6 7 (d) Adjustments under Sections 8(a), (b) and (c) will be made by the Committee, whose determination as to what adjustments will be made and the extent thereof will be final, binding, and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 9. General Provisions. (a) Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Participant any right to continue in the employ of the Company or any of its Subsidiaries or affect the right of the Company or any Subsidiary to terminate the employment of any Participant at any time with or without cause. (b) No shares of Common Stock will be issued or transferred pursuant to an Incentive Award unless and until all then-applicable requirements imposed by Federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed, have been fully met. As a condition precedent to the issuance of shares pursuant to the grant or exercise of an Incentive Award, the Company may require the Participant to take any reasonable action to meet such requirements. (c) No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Incentive Award except as to such shares of Common Stock, if any, that have been issued or transferred to such Participant. (d) The Committee shall adopt rules regarding the withholding of federal, state or local taxes of any kind required by law to be withheld with respect to payments and delivery of shares to Participants under the Plan. With respect to any Incentive Award, the Committee may, in its discretion, permit the Participant to satisfy, in whole or in part, any tax withholding obligation which may arise in connection with the exercise of the Incentive Award by electing to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of the tax withholding. (e) No Incentive Award and no right under the Plan, contingent or otherwise, will be transferable or assignable or subject to any encumbrance, pledge or charge of any nature except that, under such rules and regulations as the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to an Incentive Award in the event of death of a participant. If such beneficiary is the executor or administrator of the estate of the Participant, any rights with respect to such Incentive Award may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Incentive Award. (f) The Company may make a loan to a Participant in connection with the exercise of an Option in an amount not to exceed the aggregate exercise price of the Option being 7 8 exercised for the purpose of assisting such Participant to exercise such Option. The Company may additionally permit payment of all or any portion of the exercise price of an Option in installment payments. Any such loan or installment payment arrangement shall be secured by shares of Common Stock and shall comply in all respects with all applicable laws and regulations. The Committee may adopt policies regarding eligibility for such arrangements, the maximum amounts thereof and any terms and conditions not specified in the Plan upon which such arrangements will be made. In no event will the interest rate be less than the applicable federal rate established by the Internal Revenue Service. (g) The Committee may cancel, with the consent of the Participant, all or a portion of any Option or Appreciation Right granted under the Plan to be conditioned upon the granting to the Participant of a new Option or Appreciation Right for the same or a different number of shares as the Option or Appreciation Right surrendered, or may require such voluntary surrender as a condition to a grant of a new Option or Appreciation Right to such Participant Such new Option or Appreciation Right shall be exercisable at the price, during the period and in accordance with any other terms or conditions specified by the Committee at the time the new Option or Appreciation Right is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, or any other terms or conditions of the Option or Appreciation Right surrendered. (h) If authorized by the Committee, the Company may, with the consent of the Participant and at any time or from time to time, cancel all or a portion of any Incentive Award granted under the Plan then subject to exercise and discharge its obligation with respect to the cancelled portion of such Incentive Award either by payment to the Participant of an amount of cash equal to the excess, if any, of the Fair Market Value, at such time, of the shares subject to the portion of the Incentive Award so cancelled over the aggregate purchase price or Base Price specified in the Incentive Award covering such shares, or by issuance or transfer to the Participant of shares of Common Stock with a Fair Market Value, at such time, equal to any such excess, or by a combination of cash and shares. Upon any such payment of cash or issuance of shares, there shall be charged against the aggregate limitations set forth in Section 3(a) a number of shares equal to the number of shares subject to the portion of the Incentive Award so cancelled. (i) The Committee may, in its sole discretion, cancel any Incentive Award if the employment of the Participant holding such Incentive Award is terminated and such Participant has engaged in activities which are, in the judgment of the Committee, competitive with, prejudicial to or in conflict with the interests of the Company or a Subsidiary or has breached the terms of any agreement with the Company or a Subsidiary with respect to confidentiality and non-use of information or with respect to disclosure and assignment of inventions and ideas. Such actions by a Participant prior to, or during six months after, exercise of an Incentive Award shall constitute a rescission of the exercise, requiring the payment to the Company of, in the case of an Option, the difference between the purchase price of the Common Stock as to which 8 9 the Option was exercised and the Fair Market Value on the date of exercise of such Common Stock or, in the case of an Appreciation Right, the amount paid to the Participant upon exercise of the Appreciation Right, in each case within ten days after notice of such rescission has been given to the terminated employee by the Company. 10. Amendment and Termination. (a) The Board shall have the power, in its discretion, to amend, suspend or terminate the Plan at any time. (b) The Committee may, with the consent of a Participant, make such modifications in the terms and conditions of an Incentive Award as it deems advisable. (c) No amendment, suspension or termination of the Plan will, without the consent of the Participant, impair or adversely affect any right or obligation under any Incentive Award previously granted under the Plan. 11. Effective Date of Plan and Duration of Plan. The Plan shall become effective upon its adoption by the Board. Unless previously terminated, the Plan will terminate when no more shares of Common Stock are available for issuance or transfer pursuant to Incentive Awards under the limitations of Section 3(a). 9 EX-10.D 6 RESTRICTED STOCK INCENTIVE PLAN 1 Exhibit 10.d ------------ UNITED STATES SURGICAL CORPORATION RESTRICTED STOCK INCENTIVE PLAN (Restated to reflect amendments and adjustments through February 7, 1995) 1. Purpose The purpose of the Restricted Stock Incentive Plan (the "Plan") is to further the growth of United States Surgical Corporation (the "Company") by (a) providing incentives to selected key employees who are expected to contribute to the success of the Company and its subsidiaries; (b) maintaining competitive position in attracting and retaining the key personnel necessary for continued growth and profitability; and (c) furthering the identity of interests of such employees with those of the Company and its stockholders through stock ownership opportunities in the form of grants of the Company's Common Stock (the "Restricted Stock") in accordance with the terms and conditions of the Plan. 2. Effective Date of the Plan The effective date of the Plan is February 21, 1978 [approved by the holders of a majority of the Company's outstanding stock entitled to vote thereon in person or by proxy at the stockholders' meeting duly held on April 25, 1978]. 3. Administration The Plan shall be administered under the direction of a Committee of the Board of Directors currently known as the Management Compensation Committee (the "Committee"), which shall consist of three or more members, all of whom shall be directors of the Company appointed by and serving at the pleasure of the Board of Directors. No director of the Company shall serve as a member of the Committee, if the director is or has been eligible, at any time within one year prior to appointment as a member, for participation in awards under the Plan. The Committee shall have sole and complete authority, subject only to express limitations of the Plan, to (a) select key employees to be grantees in the Plan; (b) determine the award to be granted to each grantee; 1 2 (c) determine the time or times when awards will be granted and the conditions, including the Restricted Period, upon which the awards shall become payable; (d) establish, amend and rescind, from time to time, regulations and rules for interpretation and administration of the Plan. No member of the Committee shall be liable for any action, determination or interpretation taken or made in good faith with respect to the Plan. All expenses and liabilities, except for a member's willful misconduct or gross negligence, incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee, with the approval of the Board, may employ attorneys, consultants, accountants, or other persons. A majority of the Committee shall constitute a quorum and the acts of the majority shall be the acts of the Committee. The Committee may act either by vote at a meeting, which may be held telephonically, or by a memorandum or other written instrument signed by a majority of the Committee. 4. Shares Subject to the Plan The shares to be awarded under the Plan shall be shares of the Company's Common Stock, $.10 par value, and may be authorized but unissued shares or re-acquired shares, or both, as the Committee from time to time may determine. Subject to adjustment in the number and kind of shares, as provided below, an aggregate of 2,016,945 shares of the Company's Common Stock shall be authorized for issuance under the Plan. If an award is cancelled for any reason without the shares having been fully vested, the number of shares which did not vest may again be made subject to an award either to the same or a different grantee. In the event of a stock dividend, stock split, recapitalization, combination of shares, adjustment in the capital stock of the Company or if as a result of a merger, consolidation or other reorganization, the Company's Common Stock shall be increased, reduced or otherwise changed and a grantee, in his capacity as owner of unvested shares, shall be entitled to new, additional or different shares of stock or securities; such new, additional or different shares or securities thereupon shall be considered to be unvested Restricted Stock awards, except in the case of rights or warrants, and shall be subject to all of the terms, conditions and restrictions which were applicable to the prior shares pursuant to the Plan. If a grantee receives rights or warrants with respect to any shares awarded to him hereunder, such rights or warrants or any shares or securities acquired by their exercise shall be free and clear of the restrictions and obligations provided in this Plan. 2 3 5. Awards Any key employee of the Company or any of its subsidiaries shall be eligible to be granted awards. A "subsidiary" shall mean any company, a majority of whose outstanding stock entitled to elect a majority of its board of directors, is either at such time owned by the Company or by another subsidiary of the Company. The term "employee" shall include employees who are officers or directors as well as other employees of the Company or its subsidiaries. The Committee, from time to time, shall in its absolute discretion select the eligible key employees to whom awards shall be granted, determine the number of shares of Restricted Stock to be covered by such awards, the duration of the Restricted Period or Periods, and the terms and conditions of such awards consistent with the Plan. No member of the Board of Directors who is not an employee of the Company or a subsidiary or is a member of the Committee shall be eligible to receive a Restricted Stock Award. Any employee may elect irrevocably not to be eligible for grant of awards, either for a period of time or during the entire term of the Plan, by delivering to the Committee a written notice to such effect. Restricted Stock Awards may be made to the same person on more than one occasion. No employee shall have a right to be selected as a participant, or, having been selected, to be selected again. 6. Terms and Conditions of Awards All shares of Common Stock awarded to grantees under the Plan shall be subject to the following terms and conditions and to such other terms not inconsistent with the Plan as shall be prescribed by the Committee: (1) Shares of stock awarded as a Restricted Stock Award shall be issued in the name of the grantee and delivered to him as soon as practicable after the award is made. (2) The awarded shares shall be issued without the payment of any cash consideration by the grantee. (3) The awarded shares shall be issued against execution by the grantee of an Award Agreement, upon such terms as the Committee in its absolute discretion may require, pursuant to which the grantee shall agree that the shares are received in accordance with the terms and conditions of the Plan. (4) Upon making an award of Restricted Stock, the Committee shall establish a Restricted Period or Periods for the grantee. During the Restricted Period, as and to the extent so established, the shares awarded shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. 3 4 (5) (a) Upon the termination, during the Restricted Period, of the employment of the grantee by the Company or any of its subsidiaries, for any reason, voluntary or involuntary, except in the case of: (i) the death or permanent disability of the grantee, (ii) the termination of the employment of the grantee by the Company or any of its subsidiaries without cause, (iii) the acquisition (as herein defined) of the Company by another company, or (iv) a Change in Control (as herein defined), all of the shares awarded which are not then vested and are still subject to the restrictions imposed herein shall thereupon be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company. (b) An "Acquisition" of the Company, for the purposes of the Plan, shall be deemed to have been made if the Company shall merge into another company, other than a wholly owned subsidiary, which shall continue as the surviving Company, or if a majority of the Company's then outstanding Common Stock entitled to elect a majority of the Board of Directors, shall have been purchased by another company. (c) In the event a Change of Control of the Company occurs, or in the event that any Person makes a filing under Section 14(d) of the Exchange Act with respect to the Company, all Restricted Stock then outstanding under the Plan will be fully vested and the Restricted Period shall lapse, effective upon the occurrence of such Change of Control or filing. For purposes of this Section 5(c), the following definitions shall apply: (A) A "Change in Control" of the Company shall have occurred when a Person, alone or together with its Affiliates and Associates, becomes the beneficial owner of 20% or more of the general voting power of the Company. (B) "Affiliate and Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2, or any successor rule, of the General Rules and Regulations under the Exchange Act. (C) "Person" shall mean an individual, firm, corporation or other entity or any successor to such entity, but "Person" shall not include the Company; any Subsidiary; any employee benefit plan or employee stock plan of the Company or any Subsidiary, or any Person organized, appointed, established or holding Voting Stock by, for or pursuant to the terms of such a plan. (D) "Voting Stock" shall mean shares of the Company's capital stock having general voting power, with "voting power" meaning the power 4 5 under ordinary circumstances (and not merely upon the happening of a contingency) to vote in the election of directors. (6) Notwithstanding the foregoing, if a grantee ceases to be an employee as aforesaid, the Committee, may, in writing, determine, but need not, within 120 days of such termination of employment, that some or all of such shares be free of restrictions and shall not be forfeited. (7) Each certificate issued in respect of shares of Restricted Stock awarded shall bear the following or similar legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture, contained in the Restricted Stock Incentive Plan of United States Surgical Corporation and an Award Agreement entered into between the registered owner and such corporation. A copy of such Plan and Agreement is on file in the offices of the corporation." (8) Subject to the restrictions herein contained, a grantee, as owner of such shares, shall have all of the rights of a stockholder including the right to vote such shares and to receive all dividends, cash or stock, paid or delivered thereon. (9) Upon the lapse of restrictions prior to forfeiture as herein provided, such number of shares as to which such lapse applies shall be vested in the grantee, and the legend on the shares for which restrictions have lapsed shall be removed, at the request of the grantee, and an unlegended certificate issued in exchange therefor. The restrictions on the stock so awarded shall lapse in accordance with the number and period fixed by the Committee in its grant. (10) Notwithstanding the foregoing, if such employee has been in the continuous employment of the Company or any subsidiary since the date on which the award was granted to him, and while so employed, if he shall die or become permanently disabled, or his employment shall be terminated by the Company or any of its subsidiaries without cause, or the Company shall be acquired (as defined herein) by another company, all restrictions on unvested stock shall lapse upon his death, permanent disability or termination without cause or such acquisition. (11) Each employee granted a Restricted Stock Award shall agree that: (i) no later than the date of the lapse of the restrictions mentioned herein and in the instrument evidencing the grant of the Restricted Stock Award, he will pay to the Company, or make arrangements satisfactory 5 6 to the Committee regarding payment of, any federal, state or local taxes of any kind required by law to be withheld with respect of the shares of Common Stock subject to the Restricted Stock Award; and (ii) the Company and its subsidiaries shall, to the extent permitted by law, have the right to deduct from any payments of any kind otherwise due to the employee any federal, state or local taxes of any kind required by law to be withheld with respect of the shares of Common Stock subject to the Restricted Stock Award. (12) An employee granted a Restricted Stock Award may elect, within 30 days of the date of grant, and upon written notice of election mailed to the Committee, care of the Company's principal office, to realize income for federal income tax purposes equal to the fair market value of the shares of Common Stock awarded on the date of grant. In such event he shall make arrangements satisfactory to the Committee to pay in the year of such grant any federal, state or local taxes required to be withheld with respect to such shares. If he shall fail to make such payments, the Company and it subsidiaries shall, to the extent permitted by law, have the right to deduct in the year of such grant any federal, state or local taxes of any kind required by law to be withheld with respect to such shares of Common Stock. (13) The registration or qualification under any federal or state law of any shares of Common Stock to be granted pursuant to Restricted Stock Awards (whether to permit the making of Restricted Stock Awards or the resale or other disposition of any such shares of Common Stock by or on behalf of the employees receiving such shares) may be necessary or desirable as a condition of or in connection with such Restricted Stock Awards, and, in any such event, if the Board of Directors in its sole discretion so determines, delivery of the certificates for such shares of Common Stock shall not be made until such registration of qualification shall have been completed. In such connection, the Company agrees that it will use its best efforts to effect any such registration or qualification; provided, however, the Company shall not be required to use its best efforts to effect such registration under the Securities Act of 1933 other than on Form S-8 or Form S-16, as presently in effect, or such other forms as may be in effect from time to time calling for information comparable to that presently required to be furnished under Form S-8 and Form S-16. (14) If the shares of Common Stock that have been awarded to an employee pursuant to the terms of the Plan are not registered under the Securities Act of 1933, as amended, pursuant to an effective registration statement, such employee, if the Committee shall deem it advisable, may be required to represent and agree in writing (i) that any shares of 6 7 Common Stock acquired by such employee pursuant to the Plan will not be sold except pursuant to an exemption from registration under said Act and (ii) that such employee is acquiring such shares of Common Stock for his own account and not with a view to the distribution thereof. (15) The number of shares of Common Stock of the Company reserved for awards under the Plan shall be subject to adjustment by the Company, in its sole discretion, to reflect any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event. All determinations made by the Committee with respect to adjustments under this section shall be conclusive and binding for all purposes of the Plan. (16) The grantee, with the consent of the Committee, may designate a person or persons to receive, in the event of his death, any Restricted Stock to which he would then be entitled. Such designation shall be made upon forms supplied by the Company and may be revoked in writing. If a grantee fails so to designate a beneficiary, then his estate shall be deemed to be his beneficiary. 7. Amendments The Plan and, with the consent of the grantee, awards granted hereunder may be amended at any time and from time to time by the Board of Directors of the Company, but no amendment which increases the aggregate number of shares of Common Stock which may be granted pursuant to the Plan or which extends the period during which Restricted Stock Awards may be granted pursuant to the Plan shall be effective unless the same is approved, within one year after the date of amendment, by the affirmative vote of the holders of a majority of the shares of Common Stock of the Company present in person or by proxy and entitled to vote at a meeting duly held to take such action. Without the written consent of such employee, no amendment of the Plan shall adversely affect any right of any employee with respect to any Restricted Stock Award theretofore granted to him. 8. Termination of the Plan The Board of Directors of the Company may at any time suspend or terminate the Plan. No Restricted Stock Awards may be granted during any suspension of the Plan or after the Plan has been terminated. The Plan shall terminate upon the earlier of the following dates: (i) the date of termination specified in a resolution of the Board of Directors of the Company; or 7 8 (ii) the date on which no more shares of the Company's Common Stock are available for awards under the Plan. After the Plan terminates, the function of the Committee will be limited to supervising the administration of Restricted Stock Awards previously granted. 8 EX-10.M 7 AGREEMENT BETWEEN H.M. ROSENKRANTZ AND REGISTRANT 1 EXHIBIT 10(m) ------------- January 30, 1996 Mr. Howard M. Rosenkrantz 150 Glover Avenue Norwalk, CT 06856 Dear Howard: In consideration for your commitment to remain in your present position until at least April 1, 1997, the Compensation/Option Committee of the Board of Directors has approved the agreement set out below. That agreement will become effective if and when, within the next 30 days, you sign and return a copy of this letter to me. Subject to the foregoing, United States Surgical Corporation (the "Company") and you agree as follows: A. Benefits. The Company shall provide you with the separation benefits described below, if (i) you retire from your employment with the Company at anytime during the month of April of 1997, and, (ii) upon retirement, you sign and deliver to the Company a release in the form of Paragraph B below, dated as of your retirement date. 1. Payment. The Company shall make 12 equal monthly payments to you, equal in the aggregate to 12 months of your base annual salary (excluding bonus), beginning one month following the effective date of your retirement. 2. Tax Services. The Company shall continue to provide services by Deloitte & Touche to you in accordance with the Company's program of Executive Financial Planning, as in effect on the effective date of your retirement, until the later of the filing of your tax return for income received during the year in which you retire, or April 15, of the following year. 3. Stock Options. Subject to any other limitations imposed by law, the Company shall allow stock options granted by it to you to vest and be exercisable in accordance with their terms as follows: (a) if the stock options were granted to you prior to the date I receive your signed copy of this letter (the "Receipt Date"), and their exercise price is lower than the closing market price of the stock as of the Receipt Date, such stock options would vest and be exercisable until the effective date of your retirement (your "Retirement Date"), and, insofar as such options were vested as of your Retirement Date, to be exercisable until the earlier of the date the options would have expired had you remained an employee of the Company or six months after your 2 January 30, 1996 Page -2- Retirement Date, or (b) if the stock options were granted to you prior to the Receipt Date, and their exercise price is equal to or more than the closing market price of the stock as of the Receipt Date, or, if the stock options are granted to you upon or after the Receipt Date, such stock options would vest and be exercisable until the earlier of the date the options would have expired had you remained an employee of the Company or three years after your Retirement Date. 4. Insurance. If you elect COBRA continuation coverage under the United States Surgical Corporation Executive Medical Plan, the Company shall pay the COBRA premiums on your behalf for COBRA coverage for 12 months; provided, however, that, in any event, the Company-paid COBRA coverage will end on the date on which you first become employed by another employer. At the end of such period, you may continue COBRA coverage for the remainder of the applicable COBRA period at your own expense. In addition, the Company shall pay the premiums on your behalf for continuation, for 12 months from the effective date of your retirement, of the United States Surgical Corporation Executive Life Insurance Plan. B. Release. You hereby release and discharge the Company and its subsidiaries and divisions, and their respective directors, officers and employees from any and all claims and liabilities of whatsoever kind and nature existing as of or prior to your execution and return of a copy of this letter, whether or not related to your employment with the Company, including without limitation claims of discrimination based upon sex, race, age, nationality, disability or veteran status, and claims arising under the Age Discrimination in Employment Act of 1967, but excluding claims arising out of the performance of the Company of its agreements contained in this letter. You also hereby waive any right to file, or participate in, any charges or complaints relating to any of the foregoing claims and liabilities, insofar as such waiver is legally permissible. C. Non-Compete and Confidentiality. You acknowledge your continuing obligations to comply, during and after your employment, with the terms of your Employee Agreement Regarding Confidential Information, Inventions and Conflicting Employment (the "Employee Agreement"), including without limitation the covenant not to compete, the covenant not to disclose confidential information, and the employee inventions disclosure provision. You further agree that this letter and your Employee Agreement constitute the only agreements between you and the Company or any of its subsidiaries, and may only be amended by a written agreement signed by you and an authorized officer of the Company. Notwithstanding any inability to find non-competitive employment during the 12 months following your retirement, the Company shall have no obligation to make any payments to you in addition to those made pursuant to Paragraph A above, and your covenant not to compete shall, nonetheless, remain in full force and effect. Contrary language contained in your Employee Agreement is hereby amended accordingly. D. Breach. You agree that, if you breach any of the above agreements or any agreements contained in the Employee Agreement, or if you challenge the release 3 January 30, 1996 Page -3- contained in paragraph B above, the Company may terminate any benefits provided or to be provided to you in connection with this letter, and require you to return to the Company all moneys paid by it to you or on your behalf in connection with this letter. E. Entire Agreement; Governing Law and Courts. You agree that this letter constitutes the only agreement between you and the Company or any of its subsidiaries, and may only be amended by a written agreement signed by you and an authorized officer of the Company. The terms of this letter shall be governed by and construed in accordance with the laws of the State of Connecticut, without regard to any conflict of laws rules which might result in the application of the law of another jurisdiction. You and the Company hereby irrevocably agree that, other than a legal action brought by the Company in connection with any breach of your obligations under the Employee Agreement, any legal action with respect to any dispute between you and the Company or any of its directors, officers or employees relating in any way to this letter or your employment with the Company shall be brought solely before a State or Federal court located in Connecticut. If you accept and are in agreement with the foregoing, please so indicate by signing below on the attached copy of this letter, and returning the same to me. Very truly yours, Thomas R. Bremer Senior Vice President and General Counsel ACCEPTANCE AND AGREEMENT By signing below, I hereby acknowledge that I have read and understood, and voluntarily accept and agree to, the terms and conditions contained in this letter. - ---------------------------------------- Howard M. Rosenkrantz Date: EX-12 8 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 ---------- UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Years Ended December 31, ------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Determination of earnings: Income (loss) before provision for income taxes.............................. $ 89,800 $32,700 $(137,400) $192,900 $130,300 Fixed charges............................... 31,700 28,400 29,900 22,600 16,900 -------- ------- --------- -------- -------- Total earnings as defined............. 121,500 61,100 (107,500) 215,500 147,200 -------- ------- --------- -------- -------- Fixed charges and other: Interest expense............................ 20,700 18,200 18,500 14,700 12,000 Interest portion of rent expense............ 11,000 10,200 11,400 7,900 4,900 -------- ------- --------- -------- -------- Fixed charges......................... 31,700 28,400 29,900 22,600 16,900 Capitalized interest........................ 200 300 9,500 6,400 2,700 -------- ------- --------- -------- -------- Total fixed charges and capitalized interest.................................. 31,900 28,700 $ 39,400 $ 29,000 $ 19,600 ========= ======== ======== Preferred stock dividends (1)............... 30,000 22,900 -------- ------- Combined fixed charges, capitalized interest and preferred stock dividends................................... $ 61,900 $51,600 ======== ======= Ratio of Earnings to Fixed Charges and Capitalized Interest.................... 3.8 2.1 N.M.(2) 7.4 7.5 ======== ======= ========= ======== ======== Ratio of Earnings to Combined Fixed Charges, Capitalized Interest and Preferred Stock Dividends............... 2.0 1.2 ======== =======
The ratio of earnings to fixed charges and capitalized interest and to combined fixed charges, capitalized interest and preferred stock dividends is computed by dividing the sum of earnings before provision for income taxes and fixed charges (excluding capitalized interest) by total fixed charges and capitalized interest, or by the sum of total fixed charges and capitalized interest and preferred stock dividends. Total fixed charges and capitalized interest includes all interest (including capitalized interest) and the interest factor of all rentals, assumed to be one-third of consolidated rent expense. (1) Preferred stock dividends have been increased to an amount representing the pretax earnings which would be required to cover such dividend requirements, assuming a statutory tax rate of 35%. (2) Earnings are inadequate to cover fixed charges. The dollar amount of the deficiency at 12/31/93 is $147 million. If the restructuring charges of $138 million were excluded from the calculation, the dollar amount of the deficiency would have been $9 million. EX-21 9 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 ---------- UNITED STATES SURGICAL CORPORATION FORM 10-K ANNUAL REPORT For the Year Ended December 31, 1995 SUBSIDIARIES OF REGISTRANT
JURISDICTION NAME OF INCORPORATION - ----------------------------------------------------------------------------- ARR, Inc. ............................................ Delaware ASE Continuing Education Center S.A................... France ASE Partners S.A. .................................... France Auto Suture Austria GmbH ............................. Austria Auto Suture Belgium B.V. ............................. Holland Auto Suture Company, Australia........................ Connecticut Auto Suture Company, Canada .......................... Connecticut Auto Suture Company, Netherlands ..................... Connecticut Auto Suture Company, U.K. ........................... Connecticut Auto Suture Deutschland GmbH ......................... Germany Auto Suture Eastern Europe, Inc. ..................... Delaware Auto Suture Espana, S.A. ............................. Spain Auto Suture Europe Holdings, Inc. .................... Connecticut Auto Suture France, S.A............................... France Auto Suture FSC Ltd. ................................. U.S. Virgin Islands Auto Suture International, Inc. ...................... Connecticut Auto Suture Italia, S.p.A. ........................... Italy Auto Suture Japan, Inc................................ Japan Auto Suture Norden Co. ............................... Connecticut Auto Suture Poland, Limited Liability Company ....... Poland Auto Suture Puerto Rico, Inc. ........................ Connecticut Auto Suture Russia, Inc. ............................ Delaware Auto Suture (Schweiz) AG ............................ Switzerland Auto Suture Surgical Instruments .................... Russia Surgical Dynamics, Inc. .............................. Delaware USSC AG ............................................ Switzerland USSC (Deutschland) GmbH ............................. Germany USSC Financial Services, Inc. ........................ Connecticut USSC Medical GmbH..................................... Germany USSC Puerto Rico, Inc. ............................... New York
None of the registrant's subsidiaries does business under any name other than its corporate name. EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 10,500 0 255,500 8,200 161,200 506,900 753,100 248,200 1,265,500 260,300 0 0 900 6,500 733,700 1,265,500 1,022,300 1,022,300 451,700 451,700 460,100 1,300 20,700 89,800 10,600 79,200 0 0 0 79,200 1.05 1.05
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