-----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, WCmZlZms00UGMDbmWkH+3NCsKOXeGRCdPsediUmJEewgOxGx0hGk3MxYMGbQjYgY P1HiVraaXsAA9ywLEYO2IQ== 0000051396-96-000021.txt : 19960927 0000051396-96-000021.hdr.sgml : 19960927 ACCESSION NUMBER: 0000051396-96-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MALLINCKRODT GROUP INC CENTRAL INDEX KEY: 0000051396 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 361263901 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00483 FILM NUMBER: 96635171 BUSINESS ADDRESS: STREET 1: 7733 FORSYTH BLVD CITY: ST LOUIS STATE: MO ZIP: 63105-1820 BUSINESS PHONE: 3148545299 MAIL ADDRESS: STREET 1: 7733 FORSYTH BLVD CITY: ST LOUIS STATE: MO ZIP: 63105-1820 FORMER COMPANY: FORMER CONFORMED NAME: IMCERA GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL MINERALS & CHEMICAL CORP DATE OF NAME CHANGE: 19900614 10-K 1 UNITED STATES 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 (FEE REQUIRED) For the fiscal year ended June 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 1-483 ______________________ MALLINCKRODT GROUP INC. (Exact name of Registrant as specified in its charter) New York 36-1263901 (State or other jurisdiction of (I.R.S. Employer) incorporation or organization Identification No.) 7733 Forsyth Boulevard St. Louis, Missouri 63105-1820 (Address of principal (Zip Code) executive offices) (Zip Code) Registrant's telephone number, including area code: 314-854-5200 ______________________ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- 4% Cumulative Preferred Stock, par value $100 per share New York Stock Exchange Common Stock, par value $1 per share New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange 9.875% Debentures due March 15, 2011 New York Stock Exchange 7% Debentures due December 15, 2013 New York Stock Exchange 6.75% Notes due September 15, 2005 New York Stock Exchange 6.5% Notes due November 15, 2007 New York Stock Exchange 6% Notes due October 15, 2003 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. ______________________ State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $3,009,949,976 as of August 30, 1996. Market value is based on the August 30, 1996, closing prices of Registrant's Common Stock and 4% Cumulative Preferred Stock. Applicable Only To Corporate Registrants: Indicate the number of shares outstanding of each of the Registrant's classes of common stock: 74,184,397 shares as of August 30, 1996. Documents Incorporated By Reference: Information required by Items 10, 11, 12, and 13 of Part III is incorporated by reference from pages 1 through 4, pages 5 through 19, pages 7 and 8, and pages 7, 9 and 10, respectively, of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 16, 1996. 1996 FORM 10-K CONTENTS Item Page - ---- ---- Part I: 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . .1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . .1 General Factors Related to Business Segments. . . . . . . . .2 International Operations. . . . . . . . . . . . . . . . . . .3 Human Healthcare. . . . . . . . . . . . . . . . . . . . . . .3 Specialty Chemicals . . . . . . . . . . . . . . . . . . . . .7 Animal Health . . . . . . . . . . . . . . . . . . . . . . . .9 Joint Venture . . . . . . . . . . . . . . . . . . . . . . . 11 Other Activities. . . . . . . . . . . . . . . . . . . . . . 11 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 13 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 13 4. Submission of Matters to a Vote of Security Holders . . . . 15 Executive Officers of the Registrant. . . . . . . . . . . . 16 Part II: 5. Market for the 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 . . . . . . . . 28 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 51 Part III: 10. Directors and Executive Officers of the Registrant. . . . . 51 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 51 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . 51 13. Certain Relationships and Related Transactions. . . . . . . 51 Part IV: 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 51 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 PART I. ITEM 1. BUSINESS INTRODUCTION Company Profile - --------------- Mallinckrodt Group Inc. (Mallinckrodt, the Company, or the Corporation) is an international company serving specialty markets in human healthcare, chemicals and animal health. The Company was incorporated in New York in 1909 under the name International Agricultural Corporation. The corporate headquarters is located at 7733 Forsyth Boulevard, St. Louis, Missouri 63105-1820, and the telephone number is (314) 854-5200. Transition of the Company - ------------------------- During the past several years, the Company has taken significant steps to develop its current composition of businesses as follows: - In February 1986, the Company, then called International Minerals & Chemical Corporation, purchased Mallinckrodt, Inc. for $675 million in cash. - In October 1986, the Company sold its gas and oil segment and its industrial products segment for $162 million. - From March 1987 through July 1989, the Company expanded its animal health business by acquiring Pitman-Moore, Inc., Coopers Animal Health and the animal health business of Glaxo Holdings for an aggregate $266 million in cash plus the assumption of certain liabilities. - In February 1988, IMC Global, Inc. then called IMC Fertilizer Group, Inc. (IFL), then a wholly owned subsidiary, completed an initial public offering (IPO) of shares of common stock. The Company owned 10 million shares of IFL common stock until March 1991, which represented 38 percent of the then outstanding common stock. The Company accounted for its investment in IFL by the equity method. In September 1988, the Company's holdings of IFL's Preferred Stock, Series A, were redeemed by IFL for $200 million. - In June 1990, shareholders approved changing the Company's name from International Minerals & Chemical Corporation to IMCERA Group Inc. - In March 1991, the Company entered into a sale and option agreement with IFL under which IFL purchased, in three stages, all 10 million shares of IFL common stock which the Company owned for total net proceeds of $385 million. As of July 1991, the Company no longer owned any IFL shares. - In January 1992, Mallinckrodt, Inc., then a wholly owned subsidiary of IMCERA Group, Inc., divided its principal operations to form two separate subsidiaries, Mallinckrodt Medical, Inc. and Mallinckrodt Specialty Chemicals Company. ____________________ The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements, so long as they are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. This report contains forward-looking statements within the meaning of the Act. These include statements concerning: the Company's outlook for fiscal 1997 and subsequent periods; volume and pricing trends and other forces in the industries in which the Company's businesses operate; the Company's expectations for the funding of capital expenditures and operations during fiscal 1997; potential costs of compliance with environmental and other laws and regulations; and other statements of future plans and strategies, anticipated events or trends, expectations, beliefs, and similar expressions regarding matters that are not historical in nature. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include but are not limited to the following: the effect of business and economic conditions; constraints on supplies and/or changes in the cost of raw materials used in the manufacturing of certain of the Company's products; capacity limiting the production of certain products; difficulties or delays in the development, production, testing, and marketing of products; difficulties or delays in receiving required governmental or regulatory approvals; market acceptance issues, including the failure of products to generate anticipated sales levels; the effects of, and changes in, trade, monetary and fiscal policies, laws and regulations; risks associated with investments and operations in foreign jurisdictions, including those related to foreign regulatory requirements, exchange rate fluctuations, and local political, social, and economic factors; changes in governmental laws and regulations affecting environmental compliance, taxes, and other matters impacting the Company; the costs and effects of legal and administrative proceedings, including the environmental proceedings involving the Company; the ability of the Company to develop and execute effective marketing and sales strategies for its products; the potential erosion of prices for certain of the Company's products as a result of increased competition in its markets; and the risk factors reported from time to time in the Company's SEC reports. - In June 1993, the Company announced the details of a restructuring program which resulted in a charge of $242 million after taxes, most of which was for actions taken at Mallinckrodt Veterinary, then called Pitman-Moore. Further discussion is included in the Specialty Chemicals and Animal Health business segment discussions and Note 1 of Notes to Consolidated Financial Statements (Notes). - On March 15, 1994, shareholders approved changing the Company's name from IMCERA Group Inc. to Mallinckrodt Group Inc. Simultaneous with the corporate name change, Mallinckrodt Specialty Chemicals changed its name to Mallinckrodt Chemical, Inc. and Pitman-Moore changed its name to Mallinckrodt Veterinary, Inc. - In March 1994, the Company moved its headquarters from Northbrook, Illinois to St. Louis, Missouri. - In June 1994, the Company announced the details of a restructuring program which resulted in a charge of $59 million after taxes, most of which related to Mallinckrodt Medical. Further discussion is included in the Human Healthcare and Animal Health business segment discussions and Note 1 of the Notes. - In December 1995, the Company announced a Strategic Change Initiative which eliminated the management and administrative structures of the three former operating companies: Mallinckrodt Chemical, Inc., Mallinckrodt Medical, Inc. and Mallinckrodt Veterinary, Inc. Those businesses are now managed through divisions with global responsibility under a chief operating officer. Other recent acquisitions, divestitures and continuing investments in each of Mallinckrodt's businesses are described in the discussions of the business segments, Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 on pages 21-27, and Note 1 of the Notes. General Points - -------------- In this report: Mallinckrodt Group Inc. and its subsidiaries, collectively, are called the "Company," the "Corporation," or "Mallinckrodt," unless otherwise indicated by the context. The Company has three business segments: Human Healthcare, Specialty Chemicals and Animal Health. The term "operating earnings" of a business segment represents that business segment's revenues, including sales to other Mallinckrodt business segments, less all operating expenses. Operating expenses of a business segment do not include interest expense, corporate income or expense and taxes on income. All references to years are to fiscal years ended June 30 unless otherwise stated. Registered trademarks are indicated by an asterisk (*). GENERAL FACTORS RELATED TO BUSINESS SEGMENTS Numerous healthcare reform proposals have been introduced in the U.S. Congress, and various states have also introduced or enacted such reform measures. Mallinckrodt is unable to predict what effect any healthcare reform measures might have on its businesses. None of Mallinckrodt's business segments is dependent upon any single customer or supplier or group of related or affiliated customers or suppliers whose loss would have a material effect on its sales and operating results. In general, Mallinckrodt's business segments, including related working capital requirements, are not materially affected by seasonal factors. Mallinckrodt's business segments do not extend long-term credit to customers. The Company believes this non-extension of credit as well as its working capital requirements are not materially different from the credit policies and working capital requirements of its competitors. Competition with manufacturers and suppliers in Mallinckrodt's business segments involves price, service, quality and technological innovation. Competition is strong in all markets served. Financial information about industry segments is included in Note 18 of the Notes. Financial information about foreign and domestic operations and export sales is included in Note 17 of the Notes. INTERNATIONAL OPERATIONS The Company operates globally, with manufacturing and distribution facilities in various countries throughout the world and as such is subject to certain opportunities and risks, including currency fluctuations and government actions. Mallinckrodt generates a significant portion of its operating earnings and cash flows outside the United States and is positioned to benefit from its use of approximately 26 functional currencies as currency fluctuations are often offsetting. Operations in each country are monitored to respond to changing economic and political environments quickly and take advantage of changing foreign currencies and interest rates. The Company uses certain derivative financial instruments, principally purchased options, forward contracts and currency swaps, to manage its exposure to fluctuations in foreign exchange and interest rate risk. Additionally, various operational initiatives are employed to help manage business risks. The net impact of foreign exchange activities was immaterial for 1996, 1995 and 1994, including the conversion of certain currencies into functional currencies and the costs of hedging certain transactions and balance sheet exposures. The Company does not consider the present rate of inflation to have a significant impact on the businesses in which it operates. While future economic events cannot be predicted, the Company does not believe its current operations and future expansion plans should result in a significantly different risk profile. Mallinckrodt sales outside the U.S. represented approximately 40 percent of consolidated net sales in 1996, 1995 and 1994. Products are manufactured and marketed through a variety of subsidiaries, affiliates and joint ventures around the world. See discussions of individual business segments included below; under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations; and in Note 17 of the Notes for additional information. HUMAN HEALTHCARE Human healthcare sales were: Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales Imaging agents. . . . . . . . . . . . . . $ 716 $ 688 $ 622 Critical care products. . . . . . . . . . 338 324 290 Pharmaceutical specialties. . . . . . . . 368 325 281 ------ ------ ------ $1,422 $1,337 $1,193 ====== ====== ====== Human healthcare products are instrumental in the delivery of healthcare services and are sold to hospitals, clinical laboratories, pharmaceutical manufacturers and other customers on a worldwide basis. Human healthcare products are related by a high degree of innovation and technology, by regulation from agencies such as the U.S. Food and Drug Administration (FDA), industry standards and by markets served. They are significantly affected by conditions within the healthcare industry, including continuing legislative initiatives and public and private healthcare insurance and reimbursement programs. An aging population and demand for technologically superior products to improve the quality of life while lowering the cost of care are two major factors fueling growth within the industry. Human healthcare provides advanced, innovative products for radiology, cardiology, nuclear medicine, anesthesiology, critical care and therapeutic pharmaceuticals. Principal products of this industry segment are contrast media for various imaging modalities, radiopharmaceuticals for medical diagnostic procedures, disposable medical devices, instruments and systems for use in surgical procedures and in critical care and alternate site facilities, drug chemicals, high-purity process chemicals and peptides. During 1994, Mallinckrodt conducted studies to develop strategies to effectively respond to human healthcare customer needs and compete in a market that is changing rapidly as the result of healthcare reform. As a result of these efforts, in the fourth quarter Mallinckrodt recorded a pre-tax charge of $74 million related to the reengineering process. The key components of the charge included the reorganization of the medical specialty oriented U.S. sales structure into a unified organization divided into geographical districts; reorganization to reduce, centralize and standardize certain non-sales related functions and management processes; relocation of the Argyle, New York tracheal tube manufacturing operations to existing plants in Athlone, Ireland and Irvine, California, and to a new facility in Juarez, Mexico; and severance costs related to an associated workforce reduction. The process of restructuring the U.S. sales force addresses new alliances being created on a market-by-market basis and the changing dynamics of existing customers' decision-making processes. Sales organizations for imaging agents and critical care products have been consolidated into one team in order to increase responsiveness to the customer. The consolidation has also created 12 geographic regions to improve planning and strategy development on a local basis. Emphasis will continue to be placed on contact with the clinical community within its customer base; however, the sales structure provides a single point of contact with each purchasing entity, providing quicker, more efficient and effective customer service. Cash expenditures for this restructuring should approximate the original estimate of $65 million, consisting of $28 million for severance costs for about 500 people at various locations around the world, $15 million for consulting, $13 million for manufacturing rationalization and $9 million for other items. Approximately $48 million of the cash expenditures were incurred through June 30, 1996, the majority of which related to severance associated with the workforce reduction and consulting costs. The majority of the remaining cash expenditures of approximately $17 million will be paid in 1997 and relate to severance for terminated employees. Based on expenditures to date and those anticipated by the original plan, no material adjustment to the reserve balance is expected at this time. The noncash pre-tax portion of the charge should approximate $9 million, primarily relating to asset value adjustments associated with manufacturing rationalization. The restructuring action is generating annualized pre-tax savings at a level approximating $40 million. Management expects incremental benefits in 1997 and beyond. The restructuring will assist Mallinckrodt to remain flexible to address future change, reduce costs, remain competitive and sustain a strong market presence in an ever changing healthcare environment. Imaging Agents - -------------- Imaging agents include the manufacture, sale and distribution of products used in radiology, cardiology and nuclear medicine. Radiology products include iodinated contrast media (ionic and nonionic) and catheters for use in studies of the brain, abdominal organs, renal system, peripheral vascular system and other areas of the body to aid in diagnosis and therapy. Pursuant to the 1994 restructuring discussed above, these products are marketed principally by a geographically organized sales force. Since its introduction in the U.S. seven years ago, Optiray*, a low osmolar, nonionic medium, has been widely accepted in both radiology and cardiology indications. Optiray* began to be introduced outside the U.S. in 1991. To source growing Optiray* volumes in the international market, the Company opened a new production facility in Dublin, Ireland during 1994 for the manufacture of Optiray* in its bulk drug form. In addition, a capacity expansion at Mallinckrodt's existing plant in St. Louis, Missouri was completed in 1994. In June 1990, Mallinckrodt introduced Ultraject*, a patented innovation in contrast media agent administration. This prefilled syringe provides a more efficient, convenient and safer method of delivering contrast agents. Ultraject* continues to fuel the growth of Optiray* by providing advantages over traditional glass syringes because it reduces handling hazards and the potential for dosage error. In January 1996, Mallinckrodt acquired Liebel-Flarsheim Company of Cincinnati, Ohio to enhance its position in the contrast imaging arena. Liebel-Flarsheim's products include contrast media power injectors for angiography and CT, X-ray components, and specialized equipment for diagnostic urology procedures. The cardiology business is directed toward meeting the needs of both invasive and non-invasive cardiology in diagnosing and treating diseases of the heart and the cardiovascular system. The business currently offers both ionic and nonionic contrast agents, and interventional catheters and related supplies. These products are sold directly to hospitals, primarily by a dedicated sales organization within Mallinckrodt's geographically organized sales force. During 1989, Mallinckrodt acquired an equity position of less than two percent of the then currently outstanding common shares of Molecular Biosystems, Inc. of San Diego, California, and obtained exclusive marketing rights in the Western Hemisphere for Albunex*, a new ultrasound contrast agent. Albunex* was unanimously recommended for approval by the Radiology Device Advisory Panel of the FDA in July 1992. Molecular Biosystems received an approvable letter for Albunex* from the FDA in April 1994. Final approval was received early in August 1994 with Mallinckrodt's launch of the product occurring in the second quarter of 1995. On September 7, 1995, Mallinckrodt entered into a new distribution and investment agreement for Albunex* and FS069, a major new ultrasound contrast agent in development. Under the September 7, 1995 agreement, Mallinckrodt made an additional equity investment of $13 million in Molecular Biosystems. In addition, the agreement also provides for Mallinckrodt to partially fund FS069 clinical development and make various milestone payments. Mallinckrodt's total equity position in Molecular Biosystems pursuant to this agreement is under ten percent of that Company's outstanding and publicly traded common stock. During 1995, Mallinckrodt entered into a research and license agreement with OPTIMEDx to develop optical imaging agents designed to aid in the detection and localization of cancer cells in patients. Pursuant to the agreement, Mallinckrodt made an equity investment in exchange for licensing rights and will make payments to OPTIMEDx for achieving certain milestones in researching, developing and obtaining regulatory approval. Nuclear medicine products consist of radiopharmaceuticals used to provide images of numerous body organs' anatomy and function, and to diagnose and treat diseases. Nuclear medicine products are sold to hospitals and clinics in the U.S. by both a direct geographically organized sales force and through a nationwide network of nuclear pharmacies. Internationally, nuclear medicine products are marketed through direct sales forces and distributors. In 1995, Mallinckrodt signed an agreement with Medi+Physics to distribute human healthcare proprietary radiopharmaceutical products through Medi+Physics' radiopharmacies in the U.S. and Canada. Additionally, in 1995, Mallinckrodt signed a license agreement with Immunomedics for Mallinckrodt to market CEA-Scan in select European countries subject to receipt of regulatory approval in those countries. The following year, a license agreement was signed for the U.S. CEA-Scan is an in vivo diagnostic imaging product for colorectal cancer. In June 1994, the FDA authorized U.S. marketing of OctreoScan*. This unique radiopharmaceutical assists physicians in diagnosing and determining the extent of spread in certain types of cancers, using a non- invasive procedure instead of surgical biopsy. OctreoScan* is manufactured at facilities in St. Louis, Missouri and Petten, Netherlands. Introduction of the product began in June 1994 through key hospitals specializing in cancer treatment. Marketing of the product was expanded in 1995 upon FDA approval of promotional material. In 1992, Mallinckrodt signed an agreement with the Netherlands Energy Research Foundation to construct a plant in Petten, Netherlands dedicated to the manufacture of molybdenum-99 (Mo99), a key raw material used in the production of the nuclear medicine imaging product technetium-99m. Production began in June 1996. In 1990, Mallinckrodt introduced TechneScan* MAG3* for improved imaging of the kidneys and the renal system. Unlike a standard X-ray based imaging procedure, a nuclear medicine scan utilizing MAG3* can accurately assess renal tubular function in addition to providing anatomical information. In 1991, the Company introduced the highly successful UltraTag* RBC blood pool imaging kit which is used for gated blood pool, "first pass" cardiac studies, and for the detection of hemangiomas and gastrointestinal bleeding sites. To meet growing worldwide demand for cyclotron-produced products, Mallinckrodt brought a new cyclotron on-line at Petten, Netherlands in 1993 and in 1995, expanded cyclotron capacity at its radiopharmaceutical production facility in Maryland Heights, Missouri. The Company is also expanding the Maryland Heights, Missouri manufacturing facility to introduce an improved generator product in early 1997. Mallinckrodt's largest developmental effort in the area of cardiology and radiology is directed toward contrast agents for magnetic resonance imaging, primarily in neurology, oncology and cardiovascular applications. Imaging agents manufacturing facilities are located in Angleton, Texas; Cincinnati, Ohio; Maryland Heights, Missouri; Mexico City, Mexico; Mulhuddart, Ireland; Petten, Netherlands; Pointe Claire, Canada; Raleigh, North Carolina; and St. Louis, Missouri. Mallinckrodt owns these facilities. The Company also operates 36 nuclear pharmacies located in population centers throughout the U.S. Critical Care Products - ---------------------- The critical care business includes products for anesthesiology, respiratory care and blood analysis. Anesthesiology products include continuous core temperature monitoring systems; convective warm air temperature management systems; and airway management products. Continuous core temperature monitoring and temperature management systems are utilized both in surgical procedures and postoperatively. The airway management product line consists of basic and specialty tracheal tubes, breathing systems and other disposables used in hospitals for maintaining a secure airway during anesthesia and intensive care, and tracheostomy tubes which are used in hospitals and alternate site facilities for maintaining airways during respiratory care. Anesthesiology products are marketed directly through Mallinckrodt's geographically organized sales force and through distributors in the U.S. and internationally. In June 1995, Mallinckrodt acquired Alton Dean, Inc. of Salt Lake City, Utah to complement its temperature management business. Alton Dean's products include in-line sterile fluid warmers, pressure infusers, and irrigation pumps used in operating rooms and intensive care units. These products are marketed through distributors in the U.S. and Europe. In 1994, Mallinckrodt acquired DAR S.p.A. of Mirandola, Italy to complement its tracheal and tracheostomy tube business and expand the core airway management business into related anesthesia and respiratory disposables. DAR products include disposable filters, heat/moisture exchanges, masks and breathing circuits used in operating rooms and intensive care units to provide respiratory support to critically ill patients. In 1994, Juarez, Mexico became the new production base for the temperature monitoring systems products used in emergency and critical care settings. Mallinckrodt capitalized on the rapid conversion to disposable tracheal tubes in Europe by expanding its anesthesiology products plant in Athlone, Ireland. Also, as discussed earlier, the Argyle, New York tracheal tube manufacturing operations is in the process of being relocated to a new facility in Juarez, Mexico. In 1993, Mallinckrodt expanded its airway management product line by acquiring the tracheostomy products business of Sorin Biomedical in Irvine, California. This business's products include a broad range of tracheostomy tubes and related accessories used to maintain the airway after a tracheostomy surgical procedure. During 1993, Mallinckrodt acquired the HemoCue businesses; HemoCue A.B. of Angelholm, Sweden and HemoCue Inc. of Mission Viejo, California. HemoCue products include blood hemoglobin and glucose analysis systems for use in hospitals and alternate site facilities. These products are distributed directly by the Company and through independent distributors in the U.S. and internationally. On September 9, 1996, the Company announced an agreement under which Instrumentation Laboratory Company is to acquire the stock of Mallinckrodt Sensor Systems, Inc., a Michigan corporation. Mallinckrodt Sensor Systems, Inc. manufacturers and markets GEM instruments and systems to analyze blood gases and electrolytes during cardiovascular surgery and in intensive care units and hospital stat and central laboratories. The June 30, 1996 financial statements include the results of this business; however, the sales, earnings and assets associated with it are not material to the human healthcare segment or to Mallinckrodt Group, Inc. Critical care manufacturing facilities are located in Angelholm, Sweden; Ann Arbor, Michigan; Argyle, New York; Athlone, Ireland; Irvine, California; Juarez, Mexico; Mirandola, Italy; and Salt Lake City, Utah. Mallinckrodt owns the Argyle, Athlone and Mirandola facilities. The remainder are leased. Pharmaceutical Specialties - -------------------------- Pharmaceutical specialties products include analgesics such as acetaminophen (APAP) used to control pain and fever; codeine salts and other opium-based narcotics and synthetic narcotics used to treat pain and coughs; and peptides which are used in many new pharmaceuticals. Other pharmaceutical specialties products include Toleron brand of ferrous fumarate which stimulates the formation of red blood cells; magnesium stearate for use as a tableting aid in pharmaceuticals; potassium chloride for use as a potassium supplement in pharmaceutical and nutritionals; and other salts, chemicals and reagents used in the production of pharmaceutical and food products. Mallinckrodt expanded its product offering in human healthcare by acquiring an analgesic pharmaceutical product line from King Pharmaceuticals, Inc. in 1996. Most pharmaceutical specialties products are sold to the pharmaceutical industry for use in the manufacture of dosage form drugs. Narcotic prescription chemicals are also sold directly to drug wholesalers and chain pharmacies, while opiate addiction products are sold primarily to clinics. All pharmaceutical specialties are marketed through distributors and by a direct sales force. The Company continued to make modifications of its St. Louis, Missouri peptides facility in 1994 and 1993. The APAP manufacturing and waste treatment capacity at the Raleigh, North Carolina facility has been expanded significantly in the past few years, while costs have been reduced. Capacity of the Derbyshire, England para-aminophenol (PAP, a precursor of APAP) manufacturing plant has also been significantly increased. In 1993, Mallinckrodt acquired Contech Laboratories, a facility located in Greenville, Illinois, which has performed certain processing steps related to the manufacturing of Compap* and other products. Mallinckrodt is also working on several projects to expand and upgrade the narcotics facility in St. Louis, Missouri, to meet growing worldwide demand. Pharmaceutical specialties are manufactured in Derbyshire, England; Greenville, Illinois; Mexico City, Mexico; Paris, Kentucky; Phillipsburg, New Jersey; Raleigh, North Carolina; St. Louis, Missouri; and Torrance, California. The Company has distribution locations in Athlone, Ireland; Bondoufle, France; Brussels, Belgium; Catano, Puerto Rico; Cincinnati, Ohio; El Paso, Texas; Gemenos, France; Hennef, Germany; Madrid, Spain; Mexico City, Mexico; Mission Viejo, California; Northampton, United Kingdom; Nottinghill, Australia; Petten, Netherlands; Pointe Claire, Canada; Singapore; Tokyo, Japan; Vienna, Austria; and Zurich, Switzerland. Mallinckrodt owns the facilities in Athlone, Cincinnati, Mexico City, Petten and Pointe Claire. The remainder are leased. SPECIALTY CHEMICALS Specialty chemicals' sales were: Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales . . . . . . . . . . . . . . . . . $ 322 $ 252 $ 156 ====== ====== ====== Specialty chemicals products are sold to a variety of markets. These products possess a higher degree of technology and service than is characteristic of commodity chemicals. Generally, specialty chemicals products are sold as chemical intermediates which are used by customers worldwide as components, ingredients or reagents, rather than as final consumer products. Many specialty chemicals products are processed in multi-purpose manufacturing facilities. Specialty chemicals products include catalysts, performance chemicals, plastic additives and laboratory and microelectronics chemicals. Catalysts are sold to the petrochemical and food industries. They include such products as platinum and palladium on carbon or alumina substrates; copper chromite; tableted, flaked and droplet shapes of nickel catalysts; and a variety of custom catalysts. Such catalysts are used to manufacture plasticizers, detergents, rubber products, insecticides, synthetic motor oil and edible fats and oils. These catalysts are marketed directly by Mallinckrodt under the registered trademark Calsicat*. Catalyst Resources, based in Pasadena, Texas, produces custom and proprietary catalysts for manufacturers of polypropylene and polyethylene. Catalyst Resources products are marketed by a direct sales force, with a large percentage of sales to international customers. TRIMET, a small specialty chemical business, was reclassified to continuing operations in 1995. Based in Allentown, Pennsylvania, TRIMET manufactures specialty additives to enhance the performance of water-based paints and coatings. Its products are sold internationally through Mallinckrodt's sales force and selected agents. Plastic additives include customized additive blends for use as processing aids in the production of polymers, and calcium stearates and other metal soaps for use as internal lubricants to facilitate the manufacture of molded and extruded plastics. Plastic additives are sold internationally to industrial consumers through a direct sales force and selected agents. Laboratory chemical products include high-purity reagent chemicals used in research and development and analytical laboratories. These high-purity products consist of thousands of reagent chemicals sold primarily through distributors to medical, industrial, educational and governmental laboratories. Microelectronic chemicals encompass high purity acids, solvents, etchants and photoresist strippers used for the manufacture of semiconductor chips. A direct sales force is used to offer approximately 500 microelectronic chemicals and photoresist strippers to world wide semi-conductor chip producers. In 1995, Mallinckrodt acquired J.T. Baker Inc., a worldwide manufacturer and supplier of laboratory, process and microelectronic chemicals. The acquisition brought an excellent brand name and a strong organization, including international operations, to specialty chemicals' existing laboratory chemicals business. To maximize the synergies of the two businesses, specialty chemicals has combined its laboratory chemicals business with J.T. Baker's and renamed the business Mallinckrodt Baker, Inc. Former facilities and offices from both organizations are now being operated under the Mallinckrodt Baker name. The restructuring program begun in 1993, in as much as it pertains to specialty chemicals, is complete at June 30, 1996 with no material adjustments to the original reserve balance recorded. Specialty chemicals are manufactured in Allentown, Pennsylvania; Dalum, Germany; Deventer, Netherlands; Erie, Pennsylvania; Greenville, Illinois; Hayward, California; Mexico City, Mexico; Paris, Kentucky; Pasadena, Texas; Phillipsburg, New Jersey; and St. Louis, Missouri. ANIMAL HEALTH Animal health sales were: Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales Animal health . . . . . . . . . . . . . . $ 456 $ 455 $ 429 ===== ===== ===== Mallinckrodt's animal health segment initiated the restructure of its global operations during 1993 to improve operating earnings and growth potential by strengthening its global distribution and marketing capabilities and consolidating manufacturing facilities to improve worldwide product sourcing and increase plant utilization. Under the 1993 restructuring program, approximately 1,000 positions have been eliminated; 10 manufacturing facilities have been closed; more than 200 low margin products have been dropped from the lines offered by the company; commercial and administrative functions have been streamlined, including the consolidation of most of the research and development operations into one global facility located near the corporate headquarters; and non-core businesses and high risk development projects that have diminished in potential have been exited, including a project for the development of a porcine somatotropin (PST) product under the name Grolene*. Restructuring actions related to the program are complete at June 30, 1996 and no material adjustments to the original reserve balance have been required. Cash expenditures for restructuring are expected to approximate the original 1993 estimate of $162 million and 1994 adjustment of $20 million and are primarily related to manufacturing rationalization, productivity improvement and organization development costs of $132 million and severance costs of $50 million. The $121 million noncash portion of the charge primarily related to the write-off of plant facilities. Approximately $119 million of the cash expenditures were incurred through June 30, 1996, the majority of which related to severance from a workforce reduction of approximately 1,000 people and consulting costs. The majority of the remaining cash expenditures associated with the 1993 restructuring, together with the additional $20 million pre-tax charge taken as part of the 1994 restructuring, represents the present value of long-term lease payments to be paid through 2010 related to a closed PST facility. Mallinckrodt has now concluded that the animal health business will have greater potential and be more successful through alignment with a company that possesses core technology more directly related to the development of animal health products. Therefore, on August 29, 1996, the Company announced that it has decided to explore all strategic options related to this business. The animal health segment of Mallinckrodt ranks in the top eight companies in the animal health industry worldwide in terms of sales, and continues to have direct presence in the top 25 animal health markets of the world, with more than half its net sales originating outside the U.S. Animal health focuses on pharmaceutical, biological and parasiticide products which represent 80 percent of the $10.6 billion global animal health market. Animal health operations support a product line approaching 1,000 products. The Company's strategy calls for the addition of new products, particularly in biologicals and for geographic expansion into new markets. Animal health continues to focus its efforts on product areas that offer the greatest opportunities. Consequently, animal health expects to continue to derive most of its sales and profit from the food animal sector, while developing product lines in the faster growing companion animal market. In the worldwide animal health industry, products for food animals comprise about 78 percent of the market and approximately 85 percent of animal health's revenues are from products used for food animals. Cross registration, or filing for approval of products already marketed in other countries, is a key component of animal health's geographic expansion efforts. Approximately 550 product approvals have resulted from cross registration through 1996, with additional approvals expected over the next three to four years. Operations are currently located in more than 30 countries, with distribution networks in more than 100 countries. Animal health's organizational structure of four geographic regions is aligned for increased market focus and customer responsiveness and enables sales directly to the consumer, veterinarian, distributor, dealer or agent, depending on the maximum market opportunity. Asia Pacific Animal health's focus is on improving its leading position in sheep and cattle biological products and ectoparasiticides in Australia and New Zealand and in poultry and swine biological products and antimicrobials in Southeast Asia. Its aim is to maintain regional leadership by maximizing cross registration opportunities and by introducing new products. Animal health is increasing its presence in Japan and adding resources to take advantage of the growth potential in developing nations such as China and Vietnam. Europe European sales were impacted in the fourth quarter of 1996 by a worldwide ban on beef exports from the United Kingdom. The ban was a result of a government-issued report linking Bovine Spongiform Encephalopathy (BSE), a neurological disease in cattle and Creutzfeldt Jakob Disease (CJD), a disease in humans. The European Union is currently weighing how to address this issue. Animal health intends to build on its leading market positions across the region through cross registration of existing products and introduction of new products, by improving leverage and focusing on key regional brands. France, Germany and Spain represent the greatest potential opportunity and this strategy is expected to lead to above average market growth. Animal health is positioned to maximize market opportunities as they evolve in Eastern Europe, Africa and the Middle East. Important products in Europe are Paracox*, Rotavec* and Leptavoid*, vaccines for food animals; Autoworm Pulse Release Bolus*, a de-wormer for cattle; and Spot-On*, an ectoparasiticide for cattle. The novel anaesthetic Isoflo* successfully launched in the United Kingdom in April 1996 is expected to contribute to the expansion of the companion animal business in the region. Late in 1995, the launch of Exspot*, a flea and tick product for companion animals, was met with strong customer acceptance in Germany. Launch of Exspot* in other European markets is expected in 1996 and beyond. Latin America In this growing region, animal health maintains a leading position in cattle products and expects to increase market share from a combination of new products and cross registration. In August 1995, CBM, a poultry and companion animal vaccine business located in Brazil was acquired to enhance the position in the growing poultry market in the region. This acquisition also helped replace the loss during 1995 of rights to distribute certain products of other companies. The foot and mouth disease vaccine continues to be a prominent product in the region and the Brazilian market accounts for more than half of the region's earnings. General economic conditions remained relatively stable, with the exception of the devaluation of the Venezuelan bolivar in 1996 and the Mexican peso in 1995, neither of which has had a significant impact on operating results. Although no significant changes to general economic policy or political conditions are anticipated within the region, the short term economic outlook remains uncertain. North America Animal health has a significant position in North America. Ralgro*, animal health's long-established and most consistent performer, is the leading growth promotant for cattle on grass in the U.S. Animal health intends to leverage cattle knowledge and strong customer service capabilities to build a strong position for new cattle and swine products. Ralgro Magnum*, a more potent formulation of Ralgro* for improved gain and efficiency in feedlot cattle, was launched in late 1995. In October 1995, Syntro Corporation, a manufacturer of recombinant vaccines, was acquired for $38.2 million. Syntro is the first company to license a vectored vaccine in the U.S. The purchase of Syntro provides a proven technological platform to discover and develop vaccines for all species. In 1994, the Company committed to build and commenced construction on a biological production facility in Raleigh, North Carolina. The $48 million, 63,000 square-foot plant is expected to begin commercial production in 1998 and will produce livestock and companion animal vaccines for distribution around the world. Manufacturing Facilities Animal health manufacturing facilities are located in Asuncion, Paraguay; Baton Rouge, Louisiana; Bray, Ireland; Burgwedel, Germany; Cali, Colombia; Campinos, Brazil; Compton, United Kingdom; Friesoythe, Germany; Lenexa, Kansas; Kuala Lumpur, Malaysia; Manila, Philippines; Millsboro, Delaware; Sao Paulo, Brazil; Terre Haute, Indiana; and Upper Hutt, New Zealand. Other Actions In October 1995, the Company sold its feed ingredients business to IMC-Agrico joint venture of IMC Global Inc. and Freeport-McMoRan Resources Partners, Limited Partnership. Sale of the feed ingredients business has been accounted for as a discontinued operation and prior years' statements of operations and balance sheets have been reclassified to reflect the disposal. JOINT VENTURE In February 1992, a 50/50 joint venture partnership was formed with Hercules Incorporated to manufacture and market flavor products. The venture, named Tastemaker, was created by combining Mallinckrodt's Fries & Fries flavors business with Hercules' PFW Flavors and Citrus Specialties businesses. Tastemaker is headquartered in Cincinnati, Ohio, and has a major presence in the world's three largest flavors markets Europe, North America and Asia/Pacific. It manufactures products for use in convenience foods and beverages; dry and liquid beverage mixes; cordials, cocktails and wines; ice cream, cheese and other dairy products; cake and cookie mixes, snacks and other bakery products; main meals and entrees; and pharmaceutical products. Production and distribution of these products are subject to regulation by governmental agencies in various countries. Tastemaker manufacturing facilities are located in Barneveld, Netherlands; Cincinnati, Ohio; Lakeland, Florida; Mexico City, Mexico; Milton Keynes, United Kingdom; St. Louis, Missouri; and Sydney, Australia. Distribution is primarily through direct sales forces and distributors. On August 29, 1996, Mallinckrodt announced that it is prepared to sell its interest in Tastemaker in cooperation with its joint venture partner, Hercules, Inc., if an acceptable offer is received. OTHER ACTIVITIES Research and Development - ------------------------ The Company performs applied research directed at development of new products, development of new uses for existing products and improvement of existing products and processes. Research and development programs include laboratory research as well as product development and application. The overall efforts of the Company are under the leadership of the Vice President, Science and Technology, who is responsible for developing an integrated technology program to ensure that investments made in research will support growth objectives. Internal research efforts in each of its business segments are supplemented with third-party and university technical agreements. Human healthcare's various development activities are focused on market-place needs. Research and development of imaging agents are carried on by a centralized organization. Research and development for critical care products and pharmaceutical specialties are performed within these businesses. Specialty chemicals' research and development efforts are organized within its operating divisions to focus technical resources on the development of new and improved products meeting defined market and customer needs. Technical personnel for process support are located at each manufacturing location. Animal health currently has many products under development that address the needs of world and regional markets. Its primary research and development capabilities were consolidated at a single site in the Chicago, Illinois area in 1993, in conjunction with the restructuring of its businesses. Products in development include vaccines, growth enhancers and parasiticides for livestock, poultry and companion animals. Patents, Trademarks, and Licenses - --------------------------------- Mallinckrodt owns a number of patents and trademarks, has a substantial number of patent applications pending and is licensed under patents owned by others. No single patent is considered to be essential to the businesses as a whole, but in the aggregate, the patents are of material importance to the Company's business. Environmental and Other Regulatory Matters - ------------------------------------------ The Company is subject to various environmental protection and occupational safety and health laws and regulations in the United States and foreign countries in which it operates. In addition, in its current operations and over the years, the Company has handled, and will continue to deal in or otherwise handle, materials and wastes classified as hazardous or toxic by one or more regulatory agencies. The Company is also subject to the Federal Food, Drug, and Cosmetic Act, other federal statutes and regulations, various state statutes and regulations, and laws and regulations of foreign governments, affecting and involving testing, approval, production, labeling, distribution, post-market surveillance and advertising of most of the Company's existing, new and prospective products. Significant capital expenditures, as well as operating costs, have been incurred to comply with the laws and regulations governing the protection of the environment, occupational safety and health, and the handling of hazardous materials. There are inherent and unquantifiable risks in handling hazardous or toxic materials and wastes. On the basis of its best information, the Company does not believe the expenditures and risks occasioned by these circumstances have become materially adverse to its financial condition or results of operations; however, no assurance can be given that this will continue to be true. Similarly, the manner of interpretation and enforcement of the laws and regulation pertaining to the Company's products or facilities by government agencies, such as the U.S. Food and Drug Administration and the U.S. Environmental Protection Agency (EPA), and state and foreign counterparts, at any particular production site or in connection with any particular product or any proposed new or modified product, may be different than anticipated, and could result in production interruption and product holds or recalls. The Company endeavors to comply with all of these laws and regulations, as well as with all other applicable laws and regulations, but there can be no assurance that its compliance efforts will always be acceptable. Instances of non-compliance have occurred in the past and although they have not had a material adverse impact on the Company, such instances could occur in the future and possibly have a material adverse impact. In particular, the Company is unable to predict the extent to which it may be adversely affected by future regulatory developments such as new or changed laws or regulations. Most of the Company's environmental related capital expenditures are in response to provisions of the Federal Clean Air Act, Water Pollution Control Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, land use, air and water protection regulations of the various localities and states, and their foreign counterparts. Capital expenditures worldwide relating to air emission control, wastewater purification, land reclamation and solid waste disposal totaled approximately $14 million in 1996 and 1995. The Company currently estimates that environmental capital expenditures over the next two years will average about $13 million per year. During 1996, the Company assumed and was compensated for certain costs to remediate various sites in the future. In addition, the Company established additional environmental reserves for discontinued operations. The Company had accruals of $97 million at June 30, 1996 for costs associated with the study and remediation of Superfund sites and for study and remediation of current and former operating sites of the Company. Claims for recovery have not been netted against the accrued environmental liabilities. While ongoing litigation may eventually result in recovery of costs expended at certain of the environmental sites, any gain is contingent upon a successful outcome and has not been accrued. Environmental clean up costs are often incurred over extended periods of time. Nevertheless, to the extent these costs can be reasonably estimated, and the Company's responsibility is probable, accruals are established although the costs are not yet payable, and are reflected in the Company's consolidated financial statements. Based on information presently available, the Company believes any amounts paid in excess of the accrued liabilities will not have a material adverse effect on its financial position or results of operations. See also Item 3., Legal Proceedings, and Note 20 of the Notes for additional information. Employees - --------- Mallinckrodt had 10,395 employees at June 30, 1996, consisting of 6,186 U.S. based employees and 4,209 employees outside the U.S. Labor Relations - --------------- In the U.S., the Company has eleven collective bargaining agreements with ten U.S. international unions or their affiliated locals covering 846 employees. Four agreements covering 472 employees were negotiated during 1996, with no work stoppages. Two agreements covering 136 employees will expire in 1997. Twelve operating locations outside the U.S. have collective bargaining agreements and/or work counsel agreements covering approximately 1,170 employees. Recent wage and benefit increases were consistent with competitive industry and community patterns. ITEM 2. PROPERTIES Information regarding the principal plant and properties of Mallinckrodt is included in the respective business segment discussions in Item 1., Business. Additionally, Mallinckrodt leases office space in St. Louis, Missouri. The Company believes its manufacturing and distribution facilities are adequate, suitable and of sufficient capacity to support its current operations. ITEM 3. LEGAL PROCEEDINGS Environmental Matters - --------------------- The Company's operations are subject to a variety of federal, state, and local environmental laws and regulations that govern, among other things, the generation, handling, storage, transportation, treatment and disposal of hazardous substances, discharges to water, and air emissions from equipment and facilities. The Company is involved in various administrative or judicial proceedings relating to the environment that have been initiated by EPA, by state authorities, or by third parties. These proceedings are in various stages of development and generally include demands for reimbursement of previously incurred costs and for future investigation or remedial actions. In many instances, the dollar amount of the claim is not specified. For some sites, other potentially responsible parties may be jointly and severally responsible, along with the Company, to pay remediation and other related expenses. For other sites, the Company may be solely responsible for remediation and related costs. The Company anticipates that a portion of these costs will be covered by insurance or third party indemnities. A number of the currently pending matters relate to discontinued operations of the Company. To the extent costs and related liabilities for environmental matters can be reasonably estimated and the Company's responsibility is probable, accruals are established although costs are not yet payable. In establishing accruals the Company considers, among other things: its past experience at the site in question and at other sites; the probable costs to be paid by other potentially responsible parties, if any; total projected remediation costs for the site, if known; existing technology; and the currently enacted laws and regulations. The Company frequently engages qualified environmental contractors to assist it in evaluating and developing an appropriate response to environmental issues. Although it is not possible to predict with certainty the outcome of such matters or the total cost of remediation efforts, based on information presently available the Company does not believe that the ultimate disposition of pending environmental matters will have a material adverse effect on the Company's business or financial condition taken as a whole. The following is a brief discussion of certain pending environmental proceedings which the Company believes, based on currently available information, are most significant: Orrington, ME -- Hanlin Group, Inc. purchased a chemical manufacturing facility located in Orrington, Maine from the Company in 1982. In 1989, Hanlin filed suit in the U.S. District Court for the District of Maine alleging that the Company had operated the facility in violation of federal and state environmental laws. More specifically, Hanlin asserted that the Company had allowed the discharge of unlawful amounts of mercury, contaminating the soil, air, ground water, and adjoining waterways. Hanlin also alleged that the Company illegally caused carbon tetrachloride and chloroform contamination at the facility. The parties settled these claims in 1991. The facility was subsequently sold to HoltraChem Manufacturing Company, L.L.C.; the settlement agreement was assigned to HoltraChem as part of the sale. Under the settlement agreement, the Company agreed to pay specified costs of a study ordered by EPA. Costs of implementing remedial action at the site will be shared by the Company and HoltraChem on a yet-to-be agreed basis; if the parties cannot reach agreement, the matter will be referred to binding arbitration. Auburn Hills, MI -- The Company is a defendant in an action pending in the U.S. District Court for the Eastern District of Michigan relating to a drum reconditioning facility located in Auburn Hills, Michigan, that was leased and operated by the Company in the 1970s. The State of Michigan and the present owner of the facility claim that the Company is jointly and severally liable, along with approximately twenty other former owners and operators of the facility, for alleged contamination of soil and surface groundwater resulting from improper disposal practices. The State seeks remedial measures at the site and reimbursement for costs incurred to date. The current owner seeks reimbursement for previously incurred clean-up costs and compensation for damages to the site. The Company denies any violation of applicable law on its part. The Company has filed a third-party complaint against approximately 110 parties that sent drums to the facility, seeking contribution for damages that might be assessed against the Company. The court has not held any hearings on this case since 1987 and has stayed all third party proceedings. In March 1995, the State issued a proposed remedial action plan (PRAP) for public comment. The Company submitted formal comments on the PRAP in July 1995, and has subsequently developed further site information it believes could reduce remediation costs. The Company is presently working with the State to develop a revised or new remedial action plan. St. Louis, MO / CT Decommissioning -- The Company also processed certain ores, columbium and tantalum, under license with the Nuclear Regulatory Commission (NRC) in the 1960s through 1986. The Company is required to complete decommissioning of the processing areas, building and soil on the site where manufacturing occurred pursuant to NRC regulations. The Company submitted a Phase I Characterization Plan to NRC and has implemented the characterization plan. The Company will submit a Phase II Characterization Plan based upon the results of the first plan. Raleigh, NC -- The Company owns a bulk pharmaceutical facility which has been operating since the mid-1960s. The facility has a Resource Conservation Recovery Act (RCRA) Part B permit which requires the facility to undergo corrective action. There are several phases to the corrective action process. The Company has worked with federal and state agencies to complete the Remedial Feasibility Investigation and identified certain Solid Waste Management Units (SWMUs). The Company received its permit and recently submitted a Remedial Investigation Work Plan to the North Carolina Department of Environmental Protection proposing the work plan to investigate the SWMUs. The Company has not received a response to this Remedial Investigation. Springville, UT -- In 1996, the Company entered into an interim settlement agreement with Ensign-Bickford Industries, Inc. ("EBI") to share certain costs of remediating groundwater that allegedly has been impacted by nitrates and explosive compounds emanating from EBI's Springville, Utah explosives plant. The plant, under a series of owners, has been manufacturing explosives at the mouth of the Spanish Fork Canyon in Utah since the 1940s. The Company sold the plant and related assets to the Trojan Corporation in 1982. EBI acquired the Trojan Corporation in 1986 and has operated the plant since that time. Pursuant to a 1991 stipulation and consent order with the State of Utah, EBI has conducted a feasibility study of alternatives for remediating impacted off-site groundwater. EBI also is conducting a corrective action study under a 1995 consent order with Utah. EBI and the Company are investigating whether additional parties should share in possible remediation costs. EBI has notified the Company that a resident with property bordering the site filed suit against EBI for nuisance and trespass for contamination that allegedly migrated onto the resident's property, and that other residents near the plant have threatened to sue EBI for bodily injuries and property damage which they claim to have suffered as a result of contamination of their drinking water by chemicals emanating from the plant. The State also has advised EBI that it is investigating a natural resource damages claim. Pierce County, WA -- In 1995, Centrum Properties Corporation filed an action in the U.S. District Court for the Western District of Washington against the Company and Olin Corporation concerning property that was owned by Olin between 1935 and 1963 and by the Company between 1963 and 1976. The suit alleges that the property's groundwater is contaminated with carbon tetrachloride, and that this contamination was caused by releases from the explosives manufacturing facility operated on the property first by Olin and then by the Company. Centrum seeks to recover the costs of investigating and remediating the site. In November 1995, the Company answered Centrum's complaint, denying liability, and filed a third-party complaint against Boeing Company, the current site owner, seeking contribution. In June 1996, the court granted Centrum's motion for partial summary judgment against Olin and the Company regarding liability under CERCLA and the Washington Model Toxic Act; however, the court did not decide the manner in which responsibility should be allocated among the parties. A court ordered mediation is scheduled to address this issue. The Company has also been named a "potentially liable party" for this site by the Washington Department of Ecology. The Company, Olin, Centrum and the Department of Ecology are negotiating an order that would govern remedial activities at the site. For additional information relating to environmental matters, see Item 1., Business--Environmental and Other Regulatory Matters. Other Litigation - ---------------- The Company is a party to a number of other legal proceedings arising in the ordinary course of business. The Company does not believe that these pending legal matters will have a material adverse effect on its financial condition or the results of the Company's operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended June 30, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The ages and five-year employment histories of Mallinckrodt's executive officers at June 30, 1996, were as follows: C. Ray Holman Age 53. Chairman of the Company since October 1994; Chief Executive Officer of the Company since December 1992; President of the Company from 1992-1995; Vice President of the Company from October 1990 to December 1992; President and Chief Executive Officer, Mallinckrodt Medical, Inc. from January 1989 until December 1992. Mack G. Nichols Age 58. President and Chief Operating Officer of the Company since December 1995; Senior Vice President of the Company since October 1993; Vice President of the Company from October 1990 to October 1993; President and Chief Executive Officer of Mallinckrodt Chemical, Inc. from January 1989 to December 1995. Barbara A. Abbett Age 56. Vice President, Communications of the Company since April 1994; Vice President and Senior Partner with Fleishman-Hillard, Inc., from 1979 to April 1994. James C. Carlile Age 44. Vice President of the Company since May 1996; President, Medical Imaging Division, since December 1995; Senior Vice President, Mallinckrodt Medical, Inc., 1994-1995; Group Vice President, Imaging, Mallinckrodt Medical, Inc., 1992-1994; and Vice President and General Manager, Radiology, Mallinckrodt Medical, Inc., 1990-1992. Ashok Chawla Age 46. Vice President, Strategic Management of the Company since July 1991; Vice President Strategic Planning and Business Development, Mallinckrodt Veterinary, Inc., August 1990 to July 1991. Charles R. Clark III Age 44. Vice President of the Company since May 1996; Vice President, Strategic Services, since December 1995; Group Vice President, Mallinckrodt Medical, Inc., 1994-1995; and Vice President and General Manager, Anesthesiology U.S., Mallinckrodt Medical, Inc., 1988-1994. Michael J. Collins Age 43. Vice President of the Company since May 1996; President, Pharmaceutical Specialties Division since December 1995; Group Vice President, Pharmaceutical Specialties, Mallinckrodt Chemical, Inc., 1992-1995; Group Vice President, Analgesics & Pharmaceutical Specialties Group, Mallinckrodt Chemical, Inc., 1992; and Senior Vice President and General Manager, Drug and Cosmetic Chemicals Division, Mallinckrodt Chemical, Inc., 1990-1991. Paul D. Cottone Age 48. Senior Vice President of the Company since October 1994; President, Mallinckrodt Veterinary Division since December 1995; President and Chief Executive Officer, Mallinckrodt Veterinary, Inc., 1994-1995; Vice President, U.S. Operations of the Merck AgVet Division from 1993 to October 1994; and Executive Director, International Operations of the Merck AgVet Division from 1987 to 1993. Bruce K. Crockett, Ph.D. Age 52. Vice President, Human Resources of the Company since March 1995; and Vice President, Organization Development at Eastern Enterprises from 1990 to February 1995. J. Eugene Fox, Ph.D. Age 61. Vice President, Science & Technology of the Company since December 1995; Senior Vice President, New Technology and Chief Scientist, Mallinckrodt Medical, Inc., since 1995; Senior Vice President, Science and Technology, Mallinckrodt Medical, Inc., 1992-1995; and Vice President, Science and Technology, Mallinckrodt Medical, Inc., 1989-1992. Roger A. Keller Age 51. Vice President, Secretary and General Counsel of the Company since July 1993; Senior Vice President and General Counsel, Mallinckrodt Medical, Inc., March 1992 to July 1993; Vice President and General Counsel, Mallinckrodt Medical, Inc., September 1989 to March 1992. Douglas A. McKinney Age 43. Treasurer of the Company since November 1995; and Assistant Treasurer July 1991 to November 1995. Michael K. Milosovich Age 50. Vice President of the Company since May 1996; President, Pharmaceutical Chemicals Division since December 1995; Vice President and General Manager, Bulk Analgesics, Mallinckrodt Chemical, Inc., 1992-1995; and General Manager, PAP/APAP, Mallinckrodt Chemical, Inc., 1990-1992. David Morra Age 40. Vice President of the Company since May 1996; President, Nuclear Medicine Division since December 1995; Senior Vice President, Europe, Mallinckrodt Veterinary, Inc., 1995; Group Vice President, Europe/Australia, New Zealand, Mallinckrodt Veterinary, Inc., 1994-1995; and Vice President and General Manager, Cardiology, U.S., Mallinckrodt Medical, Inc., 1991-1994. Robert G. Moussa Age 49. President, International of the Company since December 1995; Senior Vice President of the Company since October 1993; Vice President of the Company 1992-1993; President and Chief Executive Officer, Mallinckrodt Medical, Inc., 1992-1995; Senior Vice President and Group Executive, Mallinckrodt Medical, Inc., September-December 1992; and Group Vice President, International, Mallinckrodt Medical, Inc., January 1989 to September 1992. Adeoye Y. Olukotun Age 51. Vice President, Medical and Regulatory Affairs of the Company since June 1996; Vice President, Bristol-Meyers Squibb Company 1991 to June 1996. Michael A. Rocca Age 51. Senior Vice President and Chief Financial Officer of the Company since April 1994; Corporate Vice President and Treasurer of Honeywell Inc., March 1992 to April 1994; Vice President, Finance, Honeywell Europe, 1990-1992. William B. Stone Age 53. Vice President and Controller of the Company since November 1990; and Vice President of Mallinckrodt, Inc. since April 1983. Thomas R. Trotter Age 48. Vice President of the Company since May 1996; President, Critical Care Division since December 1995; Senior Vice President, U.S. Markets, Mallinckrodt Medical, Inc., 1994-1995; Group Vice President, Critical Care and Anesthesiology, Mallinckrodt Medical, Inc., 1992-1994; and Vice President and General Manager, Mallinckrodt Critical Care, Mallinckrodt Medical, Inc., 1991-1992. Fred K. Vogt Age 51. Vice President of the Company since May 1996; President, Mallinckrodt Baker Division since December 1995; Group Vice President, Laboratory & Specialty Chemicals, Mallinckrodt Chemical, Inc., 1992-1995; and Vice President and General Manager, Performance & Laboratory Chemicals, Mallinckrodt Chemical, Inc., 1991-1992. Daniel E. Woods, Jr. Age 52. Vice President of the Company since May 1996; President, Industrial Specialties Division since December 1995; Group Vice President, Catalysts & Chemicals, Mallinckrodt Chemical, Inc., 1993-1995; and Group Vice President, Catalysts, Performance & Laboratory Chemicals, Mallinckrodt Chemical, Inc., 1991-1993. Miscellaneous All of the Company's officers are elected annually in October. No "family relationships" exist among any of the listed officers. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Prices and Dividends QUARTER ------------------------------- First Second Third Fourth ----- ------ ----- ------ Fiscal 1996 Dividends per common share. . . . . . . . $ .14 $.155 $.155 $.155 Common stock prices High. . . . . . . . . . . . . . . . . . 41.88 39.88 42.00 40.88 Low . . . . . . . . . . . . . . . . . . 35.13 32.50 35.13 36.75 Fiscal 1995 Dividends per common share. . . . . . . . $.125 $ .14 $ .14 $ .14 Common stock prices High. . . . . . . . . . . . . . . . . . 34.00 34.13 34.63 36.88 Low . . . . . . . . . . . . . . . . . . 28.38 29.00 29.13 33.50 The principal market on which Mallinckrodt's common stock is traded is the New York Stock Exchange. Common stock prices are from the composite tape for New York Stock Exchange issues, as reported in The Wall Street Journal. As of July 31, 1996, the number of registered holders of common stock as reported by the Company's registrar was 8,734. ITEM 6. SELECTED FINANCIAL DATA (Dollars in millions except per share amounts)
Years ended June 30, -------------------------------- 1996 1995 1994 (1) -------- -------- --------- Net sales...................................$2,210.2 $2,043.2 $1,777.9 Earnings (loss) from continuing operations..$ 191.2 $ 163.9 $ 87.9 Discontinued operations(4).................. 20.7 16.4 15.9 Cumulative effects of accounting changes.... --------- --------- --------- Net earnings (loss)......................... 211.9 180.3 103.8 Preferred stock dividends................... (.4) (.4) (.4) --------- --------- --------- Available for common shareholders...........$ 211.5 $ 179.9 $ 103.4 ========= ========= ========= Per Common Share Data (5) Earnings (loss) from continuing operations..$ 2.50 $ 2.11 $ 1.13 Net earnings (loss)......................... 2.77 2.32 1.33 Dividends declared.......................... .61 .55 .49 Book value.................................. 16.44 15.12 13.05 Weighted average common shares (in millions) 76.3 77.5 77.6 Years ended June 30, -------------------------------- 1993(2) 1992(3) 1991 -------- -------- --------- Net sales...................................$1,626.8 $1,530.8 $1,456.4 Earnings (loss) from continuing operations..$ (135.4) $ 103.7 $ 66.2 Discontinued operations(4).................. 15.6 23.8 22.0 Cumulative effects of accounting changes.... (80.6) --------- --------- --------- Net earnings (loss)......................... (200.4) 127.5 88.2 Preferred stock dividends................... (.4) (.4) (.4) --------- --------- --------- Available for common shareholders...........$ (200.8) $ 127.1 $ 87.8 ========= ========= ========= Per Common Share Data (5) Earnings (loss) from continuing operations..$(1.76) $ 1.33 $ .93 Net earnings (loss)......................... 2.60 1.63 1.24 Dividends declared.......................... .43 .38 .33 Book value.................................. 11.77 16.02 14.28 Weighted average common shares (in millions) 77.4 77.8 70.6 OTHER DATA Years ended June 30, -------------------------------- 1996 1995 1994 (1) -------- -------- --------- Total assets................................$3,405.9 $2,677.4 $2,401.0 Working capital............................. 359.1 271.9 261.3 Current ratio............................... 1.3:1 1.4:1 1.4:1 Total debt..................................$1,198.0 $ 609.0 $ 669.8 Shareholders' equity........................ 1,232.2 1,171.5 1,015.9 Return on shareholders'equity............... 16% 15% 9% Capital expenditures........................$ 169.2 $ 159.6 $ 171.2 Total dividends declared.................... 45.7 42.2 37.7 Common shares outstanding (in millions)..... 74.3 76.8 77.0 Number of employees......................... 10,400 10,200 10,200 Years ended June 30, -------------------------------- 1993(2) 1992(3) 1991 -------- -------- --------- Total assets................................$2,141.9 $1,992.3 $2,179.8 Working capital............................. 203.7 351.6 409.0 Current ratio............................... 1.3:1 1.8:1 1.6:1 Total debt..................................$ 617.1 $ 373.7 $ 643.4 Shareholders' equity........................ 910.5 1,224.2 1,084.2 Return on shareholders'equity............... (13%) 9% 7% Capital expenditures........................$ 187.5 $ 148.7 $ 121.5 Total dividends declared.................... 33.2 29.5 23.7 Common shares outstanding (in millions)..... 76.4 75.7 75.2 Number of employees......................... 9,900 9,500 9,700
(1) See "Management's Discussion and Analysis" for a description of nonrecurring items. (2) Results for 1993 included an after-tax charge of $242.2 million, or $3.13 per share, related to restructuring. (3) Results for 1992 included an after-tax charge of $2.4 million, or $.03 per share related to the formation of Tastemaker, the flavors joint venture and an after-tax charge of $3.0 million, or $.04 per share related to technical manufacturing control problems at an animal health Kansas City, Kansas, manufacturing facility. These charges were offset by an after-tax gain of $6.7 million, or $.08 per share from sales of investments. (4) See Note 1 of Notes to Consolidated Financial Statements for information on discontinued operations in 1996, 1995 and 1994. Results for 1993, 1992 and 1991 represent earnings from the feed ingredients business, partially offset by environmental and related litigation charges. (5) Presented on a primary per common share basis adjusted for the 3-for-1 stock split in November 1991. ITEM 7. MALLINCKRODT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW All references to years are to fiscal years ended June 30 unless otherwise stated. 1996 vs. 1995 - ------------- Mallinckrodt's earnings from continuing operations for the year ended June 30, 1996, were $191 million, or $2.50 per share. This represents an 18 percent increase in per share earnings from continuing operations compared to $164 million or $2.11 per share in the prior year. Operating results for 1996 reflect a noncash pre-tax charge of $4 million associated with the acquisition of Syntro Corporation during the second quarter. Net earnings for 1996 were $212 million, or $2.77 per share, compared with $180 million, or $2.32 per share in 1995. Fiscal 1996 net earnings include the gain resulting from the sale of the feed ingredients business in the second quarter, partially offset by a second quarter adjustment of provisions for environmental costs related to discontinued operations. Net earnings for 1996 and 1995 include $4 million and $20 million of earnings net of taxes, respectively, from the divested feed ingredients business. Net sales increased 8 percent to $2.2 billion, compared to $2.0 billion a year ago. Operating earnings were $330 million for 1996, up 11 percent compared to $297 million in 1995. During 1996, a Strategic Change Initiative was announced which included major organizational and operating changes designed to enhance global growth and improve operational effectiveness. This initiative eliminated the management and administrative structures of three former operating companies. Those businesses are now managed through divisions with global responsibility under a chief operating officer. Mallinckrodt realigned its operating segments to reflect the customer focus of its divisions. Prior periods for segments have been reclassified to conform with the 1996 presentation. Discontinued operations are discussed in Note 1 of the Notes to Consolidated Financial Statements (Notes). 1995 vs. 1994 - ------------- Mallinckrodt's 1995 earnings from continuing operations were $164 million, or $2.11 per share. These results, compared with 1994 earnings from continuing operations, excluding a restructuring charge and minor nonrecurring adjustments, were up 14 percent. Net earnings for 1995 were $180 million, or $2.32 per share, compared with $104 million, or $1.33 per share, in 1994. Included in the 1994 results was an after-tax restructuring charge totaling $59 million, or $.76 per share. Net sales for 1995 increased 15 percent to $2.0 billion, compared to $1.8 billion in 1994. Operating earnings for 1995 were $297 million, up 16 percent over comparable 1994 results excluding the restructuring charge. Each of Mallinckrodt's three segments contributed to sales and earnings growth in 1995. Restructuring charges are discussed in the business sections which follow, and in Note 1 of the Notes. HUMAN HEALTHCARE Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales...................................$1,422 $1,337 $1,193 ====== ====== ====== Operating earnings: Ongoing operations........................$ 309 $ 276 $ 252 Restructuring charge...................... (74) ------ ------ ------- $ 309 $ 276 $ 178 ====== ====== ======= Ongoing operating earnings as a percent of sales.................................. 21.7% 20.6% 21.1%* *Excluding restructuring charge 1996 vs. 1995 - ------------- Human healthcare's operating earnings for 1996 were $309 million, up 12 percent compared to $276 million in 1995. Net sales increased 6 percent to $1.4 billion. Productivity programs initiated during the last several years helped earnings improve at a faster rate than sales. Sales for imaging agents were up 4 percent, primarily from the acquisition of Liebel-Flarsheim in January 1996, and improved nuclear medicine sales in Europe. Volume gains for contrast media were offset by competitive pricing. Sales of critical care products increased 5 percent primarily from higher volume of respiratory therapy products in Japan and Europe. Pharmaceutical specialties sales improved 13 percent. Sales volume and pricing for medicinal narcotics were the main contributors to the increase. Sales also benefited from the acquisition of King Pharmaceuticals' specialty analgesic pharmaceuticals product line in December 1995. In January 1996, Liebel-Flarsheim Company, a leading manufacturer of contrast media power injector systems for diagnostic imaging procedures and equipment for urology procedures, was acquired. The acquisition enhanced sales performance but modestly impaired operating earnings. Management believes this operation will be a positive contributor to 1997 operating results. In December 1995, King Pharmaceuticals' product line of specialty analgesic pharmaceuticals was acquired. The business is important to our specialty pharmaceutical strategy and is expected to have a positive impact on future periods' results. Contributing to operating earnings were restructuring actions begun in 1994 which are generating annualized pre-tax savings at a level approximating $40 million. Management expects incremental benefits in 1997 and beyond as the program is ultimately completed. 1995 vs. 1994 - ------------- Human healthcare's 1995 operating earnings were $276 million, up 10 percent, excluding the 1994 restructuring charge. Net sales reached $1.3 billion, an increase of 12 percent from $1.2 billion in 1994. Contributing to the improved operating earnings were results of actions related to the restructuring program begun in 1994. Such actions included reorganization of the U.S. sales structure and non-sales related functions and management processes, relocation costs for manufacturing operations and a workforce reduction of approximately 600 positions, 500 of which were contemplated in the 1994 restructure plan. Pre-tax savings from the restructuring program approximated $11 million in 1995. Sales of imaging agents increased 11 percent, benefiting principally from higher worldwide sales volume of the X-ray contrast medium Optiray*, partially offset by pricing pressures in the U.S. Increased U.S. sales volume of TechneScan MAG3*, the introduction of OctreoScan* and higher sales of nuclear medicine products in Europe due to growth in existing markets, contributed to the improved results. Critical care products' sales were up 11 percent for 1995, boosted by the September 1994 acquisition of DAR S.p.A., higher anesthesia product sales in Europe and Japan and increased sales volume of hemoglobin testing products in the U.S. and Europe. Pharmaceutical specialties sales improved 16 percent in 1995. Continued strength in sales volume for medicinal narcotics was the main contributor to the increase. Higher worldwide acetaminophen (APAP) sales volume, improved plant performance in Raleigh, North Carolina, and higher sales of peptides also provided benefits in 1995. SPECIALTY CHEMICALS Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales................................... $332 $252 $156 ==== ==== ==== Operating earnings.......................... $ 28 $ 21 $ 13 ==== ==== ==== Operating earnings as a percent of sales.... 8.4% 8.2% 8.0% 1996 vs. 1995 - ------------- Specialty chemicals' operating earnings increased 35 percent in 1996, to $28 million. Net sales were $332 million, an improvement of 32 percent compared to 1995. The 1995 acquisition and subsequent successful integration of J.T. Baker and existing specialty chemical operations were principal contributors to year to year growth. 1995 vs. 1994 - ------------- Specialty chemicals achieved earnings of $21 million in 1995. This represented a 65 percent earnings improvement over 1994. Net sales increased 62 percent to $252 million. Results benefited from the acquisition of Catalyst Resources, Inc. in March 1994 and the reclassification of a small specialty chemical business to continuing operations. The acquisition of J. T. Baker in February 1995 enhanced sales performance, but modestly impaired operating earnings through normal acquisition accounting adjustments. Worldwide strength in the existing catalysts business also contributed to the sales and earnings improvements in 1995. The 1993 restructuring program was substantially completed during 1995, with the exit of the photochemicals business. ANIMAL HEALTH Years ended June 30, ------------------------ 1996 1995 1994 ------ ------ ------ (in millions) Net sales................................... $456 $455 $429 ==== ==== ==== Operating earnings: Ongoing operations........................ $ 35 $ 29 $ 21 Restructuring charge...................... (20) ---- ---- ----- $ 35 $ 29 $ 1 ==== ==== ===== Ongoing operating earnings as a percent of sales.................................. 7.7% 6.3% 4.9%* *Excluding restructuring charge 1996 vs. 1995 - ------------- Animal health's operating earnings were $35 million, up 22 percent. These results reflect a noncash pre-tax charge of $4 million for write-off of purchased research and development associated with the acquisition of Syntro Corporation. Excluding this charge, operating earnings improved 34 percent. Net sales were $456 million, up $1 million compared to the prior year, despite the exit from certain product lines in Latin America. Higher sales volume due to a new distribution agreement and favorable pricing in Asia partially offset lower volumes in North America and Latin America. European operations also contributed to improved operating results. An improved sales mix toward higher margin animal productivity and biological products, improved plant performance and lower expenses as a percentage of sales augmented the improved earnings performance. Although the results in 1996 and 1995 have substantially improved, the Company has concluded that the animal health business will have greater potential and be more successful through alignment with a company that possesses core technology more directly related to the development of animal health products. Therefore, the Company has decided to explore all strategic options related to this business. 1995 vs. 1994 - ------------- Animal health's 1995 operating earnings were $29 million, up 37 percent, excluding the 1994 restructuring charge. Net sales were $455 million, up 6 percent compared to $429 million in 1994. Sales volume growth was highest in Europe due to increases across all major product lines. Sales in Asia improved primarily from higher volumes of biological products. Contributing to the improved operating earnings were favorable currency effects, principally in Europe and Latin America, and the favorable impact of actions related to the restructuring program begun in 1993, which included various cost control measures, plant closures and a workforce reduction of approximately 1,000 employees. CORPORATE MATTERS A Strategic Change Initiative, announced in December 1995, involves the consolidation of operations and administrative staff support at the operating companies with respective corporate staff functions. Several actions have been taken, but the bulk of the effort will be implemented during 1997 and beyond. The increase in corporate expense in the fourth quarter and full year 1996 is primarily attributable to these efforts. The Strategic Change Initiative is expected to have generally negative effects for the first quarter and first half of 1997 and accelerating savings for the duration of the year, resulting in a program which is planned to be earnings neutral for all of 1997. Earnings for Tastemaker, the Company's flavors joint venture, were $32 million in 1996, and $25 million in 1995, due to strong worldwide sales growth and manufacturing cost improvements. These results represented annual growth of 26 percent and 37 percent for 1996 and 1995, respectively. Since its inception in 1992, Tastemaker has enjoyed significant success in its growth and profitability. Now, the Company is ready to realize the value that has been gained with its investment in Tastemaker. Accordingly, the Company is prepared to sell its interest in Tastemaker, in cooperation with our joint venture partner, Hercules, Inc., if an acceptable offer is received. Net interest and other nonoperating expense decreased $4 million in 1996 from 1995. This decrease related primarily to higher interest income in 1996 and the effect of a write-down of an investment and hedging losses in 1995. Mallinckrodt's effective tax rate for continuing operations was 36.9 percent in 1996, compared with 37.5 percent in 1995. See Note 9 of the Notes for further discussion of income taxes. FINANCIAL CONDITION Financial resources currently available to the Company are expected to continue to be adequate to support existing businesses, fund the remaining cash expenditures of approximately $95 million for the restructuring programs and fund new opportunities. Any resources generated by the potential strategic actions associated with animal health and Tastemaker previously discussed, will be reinvested in new and ongoing growth opportunities, especially in human healthcare. Growth initiatives in specialty chemicals and possible additional share repurchases of the company stock will also be considered. Since June 30, 1995, cash and cash equivalents increased $485 million. Operations provided $200 million of cash, while acquisition and capital spending totaled $323 million, $70 million of which related to the acquisition of Liebel-Flarsheim Company, $38 million to the acquisition of Syntro Corporation and $32 million to the acquisition of a product line from King Pharmaceuticals. In May 1996, the Company established a $600 million renewable credit agreement available until May 1997. Borrowings under the credit agreement were $600 million at June 30, 1996. A portion of the cash was used to retire existing debt, and, at June 30, 1996, $411 million remains in cash and cash equivalents for additional debt retirement and other general corporate purposes. The Company's debt as a percentage of invested capital was 49 percent at June 30, 1996; however, if adjusted for the $411 million of cash and cash equivalents noted above, this percentage would have been 39 percent. The Company's current ratio at June 30, 1996, was 1.3:1. In April 1992, a shelf registration statement was filed with the Securities and Exchange Commission (SEC) for $250 million of debt securities. As of June 30, 1996, $50 million of securities under the shelf remain unissued. In February 1995, a shelf registration statement was filed with the SEC for $250 million of debt securities. In September 1995 and November 1995, the Company issued $100 million of 6.75% notes due September 15, 2005, and $100 million of 6.5% notes due November 15, 2007, respectively. As of June 30, 1996, $50 million of securities under the February 1995 shelf remain unissued. Net proceeds from the sale of any debt securities would be used for general corporate purposes, except as noted in any prospectus supplement. The Company also has a $550 million private-placement commercial paper program. This program is backed by a $550 million credit agreement available until May 2001. There were no amounts outstanding under the commercial paper program or the credit agreement at June 30, 1996. Non-U.S. lines of credit totaling $214 million were also available and borrowings under these lines were $17 million at June 30, 1996. These non-U.S. lines are cancelable at any time. The Company's Board of Directors previously authorized repurchase of a total of 42 million shares of its common stock. Thirty-three million shares have been purchased under the previous authorization, 3.5 million during the year ended June 30, 1996. Estimated capital spending for the fiscal year ending June 30, 1997, is approximately $190 million. ENVIRONMENTAL MATTERS The Company is subject to various environmental protection and occupational safety and health laws and regulations in the United States and foreign countries in which it operates. In addition, in its current operations and over the years, the Company has handled, and will continue to deal in or otherwise handle, materials and wastes classified as hazardous or toxic by one or more regulatory agencies. Significant capital expenditures, as well as operating costs, have been incurred to comply with the laws and regulations governing the protection of the environment, occupational safety and health, and the handling of hazardous materials. There are inherent and unquantifiable risks in handling hazardous or toxic materials and wastes. On the basis of its best information, the Company does not believe the expenditures and risks occasioned by these circumstances have as yet become materially adverse to its financial condition or results of operations; however, no assurance can be given that this will continue to be true. In particular, the Company is unable to predict the extent to which it may be adversely affected by future regulatory developments such as new or changed laws or regulations. Most of the Company's environmental related capital expenditures are in response to provisions of the Federal Clean Air Act, Water Pollution Control Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, land use, air and water protection regulations of the various localities and states, and their foreign counterparts. Capital expenditures worldwide relating to air emission control, wastewater purification, land reclamation and solid waste disposal totaled approximately $14 million in 1996 and $14 million in 1995. The Company currently estimates that environmental capital expenditures over the next two years will average about $13 million per year. During 1996, the Company assumed and was compensated for certain costs to remediate various sites in the future. In addition, the Company established additional environmental reserves for discontinued operations. The Company has accruals of $97 million at June 30, 1996 for costs associated with the study and remediation of Superfund sites and for the Company's current and former operating sites. Claims for recovery have not been netted against the accrued environmental liabilities. While ongoing litigation may eventually result in recovery of costs expended at certain of the environmental sites, any gain is contingent upon a successful outcome and has not been accrued. Based on information presently available, the Company believes any amounts paid in excess of the accrued liabilities will not have a material adverse effect on its financial position or results of operations. OTHER MATTERS The Company operates globally, with manufacturing and distribution facilities in various countries throughout the world and as such is subject to certain opportunities and risks, including currency fluctuations and government actions. Mallinckrodt generates a significant portion of its operating earnings and cash flows outside the United States and is positioned to benefit from its use of approximately 26 functional currencies as currency fluctuations are often offsetting. Operations in each country are monitored to respond to changing economic and political environments quickly and take advantage of changing foreign currencies and interest rates. The Company uses certain derivative financial instruments, principally purchased options, forward contracts and currency swaps, to manage its exposure to fluctuations in foreign exchange and interest rate risk. Additionally, various operational initiatives are employed to help manage business risks. The net impact of foreign exchange activities was immaterial for 1996, 1995 and 1994, including the conversion of certain currencies into functional currencies and the costs of hedging certain transactions and balance sheet exposures. The Company does not consider the present rate of inflation to have a significant impact on the businesses in which it operates. While future economic events cannot be predicted, the Company believes its current operations and future expansion plans will not result in a significantly different risk profile. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . .29 Information by Business Segment . . . . . . . . . . . . . . . . . . . . . .31 Consolidated Statement of Operations. . . . . . . . . . . . . . . . . . . .32 Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . .33 Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . .34 Consolidated Statement of Changes in Shareholders' Equity . . . . . . . . .35 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . .36 Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . . . . . . . .50 Report of Independent Auditors To the Shareholders and Board of Directors of Mallinckrodt Group Inc. We have audited the accompanying consolidated balance sheet of Mallinckrodt Group Inc. as of June 30, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended June 30, 1996, appearing on pages XX through XX. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mallinckrodt Group Inc. at June 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP St. Louis, Missouri August 7, 1996 Responsibility for Financial Reporting The financial statements included in this report are the responsibility of management. The statements have been prepared in conformity with generally accepted accounting principles and include amounts based on our best estimates and judgments. Financial information appearing elsewhere in this report is consistent with that in the financial statements. Management is also responsible for maintaining systems of internal accounting control with the objectives of providing reasonable assurance at reasonable cost that the Company's assets are safeguarded against material loss from unauthorized use or disposition and that transactions are properly authorized and recorded to permit reliance on the Company's financial data and records. In addition, the Company maintains a program for communicating corporate policy throughout the organization and, as a further safeguard, an internal audit staff monitors compliance with policies and systems of internal accounting control. Mallinckrodt's financial statements have been audited by Ernst & Young LLP. To express their opinion as to the fairness of the statements in conformity with generally accepted accounting principles, they review and evaluate Mallinckrodt's accounting controls and conduct such tests and other procedures as they deem necessary. The Audit Committee of the Board of Directors regularly meets with the independent auditors -- both jointly and separately -- to review financial reporting matters and audit and control functions. William B. Stone Vice President and Controller August 7, 1996 Michael A. Rocca Senior Vice President and Chief Financial Officer August 7, 1996 INFORMATION BY BUSINESS SEGMENT NET SALES (In millions)
1996 1995 1994 -------- -------- -------- Human healthcare................................. $1,422.7 $1,336.8 $1,193.2 Specialty chemicals.............................. 332.0 251.8 155.9 Animal health.................................... 455.8 454.9 429.5 Intersegment sales (.3) (.3) (.7) --------- --------- --------- Consolidated $2,210.2 $2,043.2 $1,777.9 ========= ========= =========
EARNINGS AND ASSETS (In millions)
Earnings from Continuing Operations Before Income Taxes Identifiabe Assets ------------------------ ------------------------------ 1996 1995 1994 1996 1995 1994 ------ ------ ------ -------- -------- -------- Human healthcare..................$309.0 $276.0 $178.1 $1,797.8 $1,591.1 $1,443.0 Specialty chemicals............... 27.9 20.6 12.5 339.3 299.8 177.6 Animal health..................... 34.9 28.7 1.0 773.0 735.5 697.1 Corporate......................... (41.4) (28.8) (30.2) 623.7 205.9 200.2 Eliminations...................... (.3) .2 .1 (127.9) (154.9) (116.9) ------- ------- ------- --------- --------- --------- Operating earnings.............. 330.1 296.7 161.5 Equity in pre-tax earnings of joint venture................... 31.9 25.3 18.5 Interest and other nonoperating expense, net.................... (.3) (4.3) (.4) Interest expense.................. (58.7) (55.5) (40.0) ------- ------- ------- --------- --------- --------- Consolidated....................$303.0 $262.2 $139.6 $3,405.9 $2,677.4 $2,401.0 ======= ======= ======= ========= ========= =========
PROPERTY, PLANT AND EQUIPMENT (In millions)
Capital Expenditures Depreciation and Amortization ------------------------ ------------------------------ 1996 1995 1994 1996 1995 1994 ------ ------ ------ -------- -------- -------- Human healthcare..................$100.2 $117.4 $135.0 $ 94.9 $ 82.0 $ 66.7 Specialty chemicals............... 24.6 9.6 6.0 18.2 13.5 7.5 Animal health..................... 40.2 30.0 27.0 31.8 25.9 26.3 Corporate......................... 4.2 2.6 3.2 4.2 1.6 2.5 ------ ------ ------ ------- ------- ------- Consolidated....................$169.2 $159.6 $171.2 $ 149.1 $ 123.0 $ 103.0 ====== ====== ====== ======= ======= ======= (See Note 18 of the Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF OPERATIONS (In millions, except per share amounts)
Years Ended June 30, --------------------------------- 1996 1995 1994 --------- --------- --------- Net sales............................................... $2,210.2 $2,043.2 $1,777.9 Operating costs and expenses: Cost of goods sold.................................... 1,192.8 1,102.8 931.9 Selling, administrative and general expenses.......... 584.9 552.8 496.7 Research and development expenses..................... 116.2 97.8 95.3 Restructuring charge.................................. 93.9 Other operating income, net........................... (13.8) (6.9) (1.4) --------- --------- --------- Total operating costs and expenses 1,880.1 1,746.5 1,616.4 --------- --------- --------- Operating earnings.................................... 330.1 296.7 161.5 Equity in pre-tax earnings of joint venture............. 31.9 25.3 18.5 Interest and other nonoperating expense, net............ (.3) (4.3) (.4) Interest expense........................................ (58.7) (55.5) (40.0) --------- --------- --------- Earnings from continuing operations before income taxes........................................ 303.0 262.2 139.6 Income tax provision.................................... 111.8 98.3 51.7 --------- --------- --------- Earnings from continuing operations................... 191.2 163.9 87.9 Discontinued operations................................. 20.7 16.4 15.9 --------- --------- --------- Net earnings.......................................... 211.9 180.3 103.8 Preferred stock dividends............................... (.4) (.4) (.4) --------- --------- --------- Available for common shareholders..................... $211.5 $179.9 $103.4 ========= ========= ========= EARNINGS PER COMMON SHARE Continuing operations................................... $2.50 $2.11 $1.13 Discontinued operations................................. .27 .21 .20 --------- --------- --------- Net earnings............................................ $2.77 $2.32 $1.33 ========= ========= ========= (The accompanying Notes are an integral part of the Consolidated Financial Statements.)
CONSOLIDATED BALANCE SHEET (In millions, except share and per share amounts)
At June 30, --------------------- ASSETS 1996 1995 --------- --------- Current assets: Cash and cash equivalents...................................... $ 546.2 $ 60.9 Trade receivables, less allowances of $12.8 in 1996 and 1995... 453.9 392.5 Inventories.................................................... 470.2 415.5 Deferred income taxes.......................................... 42.9 53.2 Other current assets........................................... 57.7 56.9 --------- --------- Total current assets............................................. 1,570.9 979.0 Investments and long-term receivables, less allowances of $8.1 in 1996 and $17.0 in 1995.............................. 150.0 165.5 Property, plant and equipment, net............................... 1,036.4 978.0 Intangible assets................................................ 647.5 527.6 Net noncurrent assets of discontinued operations................. 26.6 Deferred income taxes............................................ 1.1 .7 --------- --------- Total assets..................................................... $3,405.9 $2,677.4 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt................................................ $ 622.2 $ 107.5 Accounts payable............................................... 194.6 182.8 Accrued liabilities............................................ 314.8 332.1 Income taxes payable........................................... 38.5 7.7 Net current liabilities of discontinued operations............. 38.4 74.3 Deferred income taxes.......................................... 3.3 2.7 --------- --------- Total current liabilities........................................ 1,211.8 707.1 Long-term debt, less current maturities.......................... 575.8 501.5 Deferred income taxes............................................ 97.9 76.9 Postretirement benefits.......................................... 156.0 142.7 Other noncurrent liabilities and deferred credits................ 132.2 77.7 --------- --------- Total liabilities................................................ 2,173.7 1,505.9 Shareholders' equity: 4 Percent cumulative preferred stock........................... 11.0 11.0 Common stock, par value $1, authorized 300,000,000 shares; issued 87,116,289 shares in 1996 and 1995.................... 87.1 87.1 Capital in excess of par value................................. 283.5 274.1 Reinvested earnings............................................ 1,150.7 984.5 Foreign currency translation................................... (15.3) (9.3) Treasury stock, at cost.......................................... (284.8) (175.9) --------- --------- Total shareholders' equity....................................... 1,232.2 1,171.5 --------- --------- Total liabilities and shareholders' equity....................... $3,405.9 $2,677.4 ========= ========= (The accompanying Notes are an integral part of the Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)
Years Ended June 30, --------------------------------- 1996 1995 1994 --------- --------- --------- CASH FLOWS - OPERATING ACTIVITIES Net earnings............................................ $ 211.9 $ 180.3 $ 103.8 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization......................... 149.1 125.0 104.6 Restructuring charge.................................. 93.0 Postretirement benefits............................... 10.9 12.1 8.3 Increase in other noncurrent liabilities and deferred credits................................... 49.7 2.4 .7 Undistributed equity in earnings of joint venture..... (25.0) (19.1) (14.4) (Gains) losses on asset disposals..................... (55.1) .5 (.6) Deferred income taxes................................. 30.5 66.6 (5.2) Other, net............................................ (10.2) (7.7) (7.7) -------- -------- -------- 361.8 360.1 282.5 Changes in noncash operating working capital: Accounts receivable................................. (62.5) (44.1) (12.6) Inventories......................................... (49.5) (16.3) (11.4) Accounts payable, accrued liabilities and income taxes, net................................. (47.6) (12.8) (32.1) Other, net.......................................... (2.7) (3.2) .9 -------- -------- -------- Net cash provided by operating activities............... 199.5 283.7 227.3 ======== ======== ======== CASH FLOWS - INVESTING ACTIVITIES Capital expenditures.................................... (169.2) (160.8) (172.3) Acquisition spending.................................... (153.9) (111.5) (95.5) IFL dividend receivable................................. 51.9 Proceeds from asset disposals........................... 120.5 21.2 8.6 Other, net.............................................. 26.1 (22.8) 7.2 -------- -------- -------- Net cash used by investing activities................... (176.5) (273.9) (200.1) ======== ======== ======== CASH FLOWS - FINANCING ACTIVITIES Increase (decrease) in short-term debt.................. 511.7 19.9 (58.6) Proceeds from long-term debt............................ 199.5 3.2 196.4 Payments on long-term debt.............................. (103.7) (10.3) (101.6) Issuance of Mallinckrodt common stock................... 31.0 8.0 10.9 Acquisition of treasury stock........................... (130.5) (15.4) Dividends paid.......................................... (45.7) (42.2) (37.7) -------- -------- -------- Net cash provided (used) by financing activities........ 462.3 (36.8) 9.4 -------- -------- -------- Increase (decrease) in cash and cash equivalents........ 485.3 (27.0) 36.6 Cash and cash equivalents at beginning of period........ 60.9 87.9 51.3 -------- -------- -------- Cash and cash equivalents at end of period.............. $ 546.2 $ 60.9 $ 87.9 ======== ======== ======== (The accompanying Notes are an integral part of the Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In millions, except per share amounts)
Capital in Preferred Common Excess of Reinvested Treasury Stock Stock Par Value Earnings Other Stock --------- ------ ---------- ---------- ------- -------- BALANCE, JUNE 30, 1993.... $11.0 $87.1 $262.4 $ 780.3 $(58.6) $(171.7) Net earnings.............. 103.8 Dividends: 4 Percent cumulative preferred stock ($4.00 a share) (.4) Common stock ($.485 a share) (37.3) Stock option exercises.... 4.0 6.9 Translation adjustment.... 24.4 Other..................... 1.8 2.2 --------- ------ ---------- ---------- ------- -------- BALANCE, JUNE 30, 1994.... 11.0 87.1 268.2 846.4 (34.2) (162.6) Net earnings.............. 180.3 Dividends: 4 Percent cumulative preferred stock ($4.00 a share).............. (.4) Common stock ($.545 a share).............. (41.8) Stock option exercises.... 2.0 6.2 Acquisition of treasury stock................... (15.4) Translation adjustment.... 24.9 Other..................... 3.9 (4.1) --------- ------ ---------- ---------- ------- -------- BALANCE, JUNE 30, 1995.... 11.0 87.1 274.1 984.5 (9.3) (175.9) Net earnings.............. 211.9 Dividends: 4 Percent cumulative preferred stock ($4.00 a share).............. (.4) Common stock ($.605 a share).............. (45.3) Stock option exercises.... 8.1 21.6 Acquisition of treasury stock................... (130.5) Translation adjustment.... (6.0) Other..................... 1.3 --------- ------ ---------- ---------- ------- -------- BALANCE, JUNE 30, 1996.... $11.0 $87.1 $283.5 $1,150.7 $(15.3) $(284.8) ========= ====== ========== ========== ======= ======== (The accompanying Notes are an integral part of the Consolidated Financial Statements.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions except per share amounts) SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation Financial statements of all majority owned subsidiaries are consolidated. Investments in 20 to 50 percent owned affiliates are reported on the equity method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the revenues and expenses during the reporting period, as well as amounts included in the Notes. While the Company uses its best estimates and judgments, actual results could differ from these estimates. Foreign Currency Translation The financial statements of most of the Company's international affiliates are translated into U.S. dollars using current exchange rates for balance sheets and weighted average rates for income statements. Unrealized translation adjustments are included in shareholders' equity in the Consolidated Balance Sheet. The financial statements of international affiliates that operate in hyperinflationary economies in certain Latin American countries are translated at either current or historical exchange rates, as appropriate. Unrealized translation adjustments are included in operating results for these affiliates. Cash and Cash Equivalents Cash and cash equivalents consist primarily of certificates of deposit, time deposits and other short-term securities with maturities of three months or less from the date of purchase. Inventories Inventories are valued at the lower of cost or market. Cost for inventories is determined on either an average or first-in, first-out basis. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is based upon estimated useful lives of 15 to 45 years for buildings and 3 to 15 years for machinery and equipment, using principally the straight-line method. Derivative Financial Instruments The Company hedges a significant portion of its foreign exchange exposure using certain derivative financial instruments, primarily purchased options, forward contracts, and currency swaps. Premiums on purchased options are recorded as assets and amortized to match the anticipated cash flows being hedged. Forward contracts and currency swaps are carried off-balance-sheet with gains and losses included in the measurement and recording of the hedged transactions. See also Note 8. Stock-Based Compensation The Company currently accounts for its stock-based compensation plans using the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Advertising Costs All advertising costs are expensed as incurred and included in selling, administrative and general expenses. Advertising expense was $36.9 million, $ 41.0 million and $34.9 million in 1996, 1995 and 1994, respectively. Recent Accounting Pronouncements In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121), which is effective for fiscal years beginning after December 15, 1995. This standard requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the assets are determined to be impaired based upon their undiscounted future cash flows, such assets are to be reported at the lower of their carrying amount or fair value. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed. The Company has adopted the provisions of the statement effective July 1, 1996. The Company regularly assesses all of its long-lived assets for impairment and does not anticipate a material adverse effect on its results of operations or financial position upon adoption. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under the provisions of SFAS 123, companies can elect to account for stock-based compensation plans using a fair-value-based method or continue measuring compensation expense for those plans using the intrinsic value method prescribed in APB 25. SFAS 123 requires that companies electing to continue using the intrinsic value method make pro forma disclosures of net income and earnings per share as if the fair-value-based method of accounting had been applied. The adoption of the disclosure requirements of SFAS 123 will be reflected in the Company's fiscal 1997 consolidated financial statements. As the Company anticipates continuing to account for stock-based compensation using the intrinsic value method, SFAS 123 will not have an impact on the Company's results of operations or financial position. Reclassifications Certain amounts in prior years have been reclassified to conform to the current year presentation. NOTE 1 - CHANGES IN BUSINESS RESTRUCTURING PROGRAMS In the fourth quarter of 1994, the Company recorded a restructuring charge of $93.9 million, $58.8 million after taxes, or $.76 per share, relating to its human healthcare and animal health operations. Restructuring actions related to the program are substantially complete at June 30, 1996. The human healthcare pre-tax restructuring charge of $73.9 million included the reorganization of the medical specialty oriented U.S. sales structure into a unified organization divided into geographical districts; reorganization to reduce, centralize and standardize certain non-sales related functions and management processes; rationalization of manufacturing operations for substantial worldwide cost and sourcing improvements; and severance costs related to an associated workforce reduction. Pre-tax cash expenditures for this restructuring are expected to approximate the original estimate of $65 million, consisting of $28 million for severance costs for about 500 people at various locations around the world, $15 million for consulting, $13 million for manufacturing rationalization and $9 million for other items. The $9 million noncash pre-tax portion of the charge primarily related to manufacturing rationalization. Approximately $48 million of cash expenditures were incurred through June 30, 1996, the majority of which related to severance associated with the workforce reduction and consulting costs. The majority of the remaining cash expenditures of approximately $17 million will be paid in 1997 and relate to severance for terminated employees. Based on the expenditures to date and those anticipated by the original plan, no material adjustment to the reserve balance is expected at this time. Also included in the restructuring was a $20 million pre-tax charge to adjust a prior year provision associated with the animal health business' decision to discontinue development of porcine somatotropin (PST) in May 1993. With respect to the fourth quarter of 1993 pre-tax restructuring charge of $334.1 million, cash expenditures are expected to approximate the original estimate of $173 million primarily related to severance costs of $54 million, lease costs related to a closed facility of $55 million, consulting costs of $15 million, and manufacturing rationalization and other costs of $49 million. The $161 million noncash portion of the charge primarily related to the write-off of plant facilities. Restructuring actions related to the program are complete at June 30, 1996 and no material adjustments to the original reserve balance have been required. The Company has incurred cash expenditures through June 30, 1996 of approximately $125 million. The majority of the remaining cash expenditures associated with the 1993 restructuring together with the additional $20 million pre-tax charge taken as part of the 1994 restructuring represents the present value of long-term lease payments to be paid through 2010 related to the closed PST facility. ACQUISITIONS In January 1996, the Company acquired Liebel-Flarsheim Company, a manufacturer of contrast media power injector systems for diagnostic imaging procedures, X-ray components and specialized equipment for diagnostic urology procedures for $70.3 million and in December 1995, King Pharmaceuticals' product line of specialty analgesic pharmaceuticals was acquired for $32.4 million. In October 1995, Syntro Corporation, a manufacturer of recombinant vaccines for the animal health market was acquired for $38.2 million and in September 1995, CBM Laboratories, a manufacturer of poultry vaccines was acquired for $7.5 million. Alton Dean, Inc., a manufacturer of products that warm sterile intravenous and irrigation solutions used during and after surgery, was acquired in June 1995 for $8.5 million. In February 1995, the Company acquired J.T. Baker Inc., a manufacturer of laboratory, process and microelectronic chemicals for $95.0 million. Catalyst Resources, Inc., a manufacturer of polymerization and chemical catalysts, was acquired for $61.2 million in March 1994. DAR S.p.A., a manufacturer of anesthesiology and respiratory care products was acquired in September 1993 for $28.0 million. The above acquisitions were accounted for as purchases and results of operations were included in the consolidated financial statements from their respective acquisition dates. Results of operations for the periods prior to acquisition were not material to Mallinckrodt. DISCONTINUED OPERATIONS In October 1995, the Company sold its feed ingredients business to the IMC-Agrico joint venture of IMC Global Inc. and Freeport-McMoRan Resource Partners, Limited Partnership. Feed ingredients operations and the gain on the disposal of this business have been accounted for as discontinued operations and prior years' Consolidated Statement of Operations and Consolidated Balance Sheet have been reclassified to reflect this presentation. The gain on sale, net of taxes, was $35.4 million and earnings, net of taxes, from the divested business for 1996, 1995 and 1994 were $4.4 million, $20.2 million and $19.5 million, respectively. Discontinued operations for 1996, 1995, and 1994 also included other charges, primarily for environmental and litigation costs related to operations previously disposed, of $19.1 million, $3.8 million and $3.6 million, respectively. NOTE 2 - EARNINGS PER COMMON SHARE Earnings per common share amounts were computed on the basis of the weighted average number of common and common equivalent shares outstanding. Such weighted average shares used in the computations were 76,343,392 for 1996; 77,458,114 for 1995; and 77,607,416 for 1994. NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION 1996 1994 1994 ----- ----- ----- Interest paid................................ $48.6 $47.9 $33.0 Income taxes paid............................ 65.0 42.5 37.8 Noncash investing and financing activities: Assumption of liabilities related to acquisitions.......................... 21.5 42.4 27.9 Issuance of common stock for restricted stock awards.................. 4.0 NOTE 4 - INVENTORIES AT JUNE 30, 1996 1995 --------- --------- Raw materials and supplies........................ $ 159.9 $ 127.4 Work in process................................... 102.1 101.8 Finished goods.................................... 208.2 186.3 --------- --------- $ 470.2 $ 415.5 ========= ========= NOTE 5 - INVESTMENTS AND LONG-TERM RECEIVABLES AT JUNE 30, 1996 1995 --------- --------- Tastemaker joint venture.......................... $ 110.7 $ 92.3 Other investments, net............................ 35.6 21.6 Other long-term receivables, net.................. 3.7 51.6 --------- --------- $ 150.0 $ 165.5 ========= ========= NOTE 6 - PROPERTY, PLANT AND EQUIPMENT AT JUNE 30, 1996 1995 --------- --------- Land.............................................. $ 71.7 $ 71.8 Buildings and leasehold improvements.............. 405.3 381.3 Machinery and equipment........................... 983.4 942.1 Construction in progress.......................... 120.6 67.9 --------- --------- 1,581.0 1,463.1 Accumulated depreciation.......................... (544.6) (485.1) --------- --------- $1,036.4 $ 978.0 ========= ========= Capitalized interest costs were $3.2 million in 1996, $1.6 million in 1995 and $3.7 million in 1994. NOTE 7 - INTANGIBLE ASSETS At June 30, 1996 1995 --------- --------- Goodwill and other intangibles.................... $ 716.3 $ 573.9 Patents and technology............................ 70.3 67.0 --------- --------- 786.6 640.9 Accumulated amortization.......................... (164.4) (131.6) --------- --------- 622.2 509.3 Deferred charges, net............................. 25.3 18.3 --------- --------- $ 647.5 $ 527.6 ========= ========= Goodwill and other intangibles are amortized primarily on a straight-line basis over 10 to 40 years (weighted average life of 26 years). Patents and technology are amortized over estimated useful lives of 8 to 25 years (weighted average life of 11 years). The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. NOTE 8 - FINANCIAL INSTRUMENTS Derivative Financial Instruments - -------------------------------- In the ordinary course of business, Mallinckrodt purchases materials and sells finished products denominated in various currencies. The Company uses certain derivative financial instruments to manage its exposure to foreign currency exchange risk, principally purchased options, forward contracts and currency swaps. These contracts reduce the Company's overall exposure to exchange rate fluctuations by effectively fixing the transaction cost to the Company. Carrying and fair values for derivative financial instruments are summarized below. At June 30, 1996 At June 30, 1995 ---------------- ---------------- Carrying Fair Carrying Fair Value Value Value Value -------- ----- -------- ----- Forward foreign currency contracts and swaps hedging short-term intercompany and third-party financing by international operations, notional value $169.1 million and $151.6 million for 1996 and 1995, respectively........ $ -- $1.1 $ -- $(.4) Forward foreign currency contracts and swaps hedging anticipated cross currency sales and purchases, notional value $70.5 million for 1995................... -- -- -- .5 Forward foreign currency options hedging anticipated cross currency sales and purchases, notional value $67.4 million and $97.5 million for 1996 and 1995, respectively....................... -- (.6) -- (2.0) Interest rate swap related to the long-term lease obligation on a closed facility, pay fixed rate, receive floating rate, notional value $36.9 million and $38.2 million for 1996 and 1995, respectively....................... -- -- -- -- Anticipated transactions include purchases of raw materials or other inventory, collection of accounts receivable, settlement of accounts payable, and periodic debt service by international subsidiaries. Purchased options and forward foreign exchange contracts generally have initial terms of less than two years. Deferred gains and losses are recognized in income when the underlying transaction is settled. Fair Value of Financial Instruments - ----------------------------------- Non-derivative financial instruments included in the Consolidated Balance Sheet are cash, short-term investment vehicles, short-term debt including commercial paper and long-term debt. In the aggregate, these instruments were carried at amounts approximating fair value at June 30, 1996 and 1995. The fair value of long-term debt was estimated based on future cash flows discounted at current interest rates available to the Company for debt with similar maturities and characteristics. See Note 12 for the disclosure of fair value of long-term debt. Concentrations of Credit Risk - ----------------------------- Financial instruments which expose Mallinckrodt to credit risk are short-term investments (cash equivalents), trade receivables and derivatives. The Company mitigates the risk that counterparties to short-term investments and derivatives will fail to perform by contracting only with major financial institutions having high credit ratings, and considers the likelihood of counterparty failure to be remote. Trade receivables stem from the Company's worldwide operations and reflect Mallinckrodt's diverse customer base. The Company periodically assesses the financial strength of its customers and obtains proof of credit worthiness, as necessary, prior to extending credit. Consequently, Mallinckrodt does not have a material concentration of credit risk, either by transaction type, product line or geographic region. NOTE 9 - INCOME TAXES Income taxes included in the Consolidated Statement of Operations were: 1996 1995 1994 ------- ------- ------- Continuing operations............................. $111.8 $ 98.3 $ 51.7 Discontinued operations: Feed ingredients operations..................... 2.2 12.2 12.3 Sale of feed ingredients........................ 19.3 Other........................................... (10.3) (2.1) (2.0) ------- ------- ------- 11.2 10.1 10.3 ------- ------- ------- $123.0 $108.4 $ 62.0 ======= ======= ======= The geographical sources of earnings from continuing operations before income taxes were: 1996 1995 1994 ------- ------- ------- U.S............................................... $130.4 $125.0 $ 56.3 Outside U.S....................................... 172.6 137.2 83.3 ------- ------- ------- $303.0 $262.2 $139.6 ======= ======= ======= The components of the income tax provision charged (credited) to continuing operations follow: 1996 1995 1994 ------- ------- ------- Current: U.S. Federal.................................... $ 20.7 $ (6.9) $ 26.9 U.S. State and local............................ 5.6 3.6 6.5 Outside U.S..................................... 48.5 35.0 23.5 ------- ------- ------- 74.8 31.7 56.9 Deferred: U.S. Federal.................................... 26.2 42.5 (12.7) U.S. State and local............................ 3.0 5.2 .8 Outside U.S..................................... 7.8 18.9 6.7 ------- ------- ------- 37.0 66.6 (5.2) ------- ------- ------- $111.8 $ 98.3 $ 51.7 ====== ======= ====== The Company had the following deferred tax balances at June 30, 1996 and 1995: 1996 1995 --------- --------- Deferred tax assets: Restructuring accruals......................... $ 28.5 $ 51.3 Employee benefits.............................. 30.4 71.6 Net operating losses........................... 19.2 21.8 Alternative minimum tax credit................. 7.7 8.3 Environmental accruals......................... 16.1 9.7 Other, net..................................... 10.7 6.6 --------- --------- Gross deferred tax assets........................ 112.6 169.3 Valuation allowance............................ (21.7) (24.7) --------- --------- Total deferred tax assets........................ 90.9 144.6 Deferred tax liabilities: Property, plant and equipment.................. 86.6 85.5 Receivables.................................... 38.7 58.2 Intangible assets.............................. 22.8 26.6 --------- --------- Total deferred tax liabilities................... 148.1 170.3 --------- --------- Net deferred tax liabilities..................... $ 57.2 $ 25.7 ========= ========= The alternative minimum tax credit of $7.7 million is available to reduce future Federal taxes payable and has an unlimited carryforward period. The tax benefit of the Company's net operating loss carryforwards of $19.2 million relates primarily to its non-U.S. operations. Factors causing the effective tax rate for continuing operations to differ from the U.S. Federal statutory rate were: 1996 1995 1994 ------- ------- ------- Computed tax at the U.S. Federal statutory rate.... $106.1 $ 91.8 $ 48.9 Statutory rate changes............................. (3.0) State income taxes, net of Federal benefit......... 5.6 5.7 4.7 Other items........................................ .1 .8 1.1 ------- ------- -------- Income tax provision............................... $111.8 $ 98.3 $ 51.7 ======= ======= ======== Effective tax rate................................. 36.9% 37.5% 37.0% The effective rate for 1994 before the net tax benefit from the restructuring charge and statutory rate changes was 38.5 percent. Undistributed earnings of certain subsidiaries outside the U.S. are considered to be permanently invested. Accordingly, no provision for income taxes was made for undistributed earnings of such subsidiaries which aggregated $261.7 million at June 30, 1996. NOTE 10 - ACCRUED LIABILITIES AT JUNE 30, 1996 1995 --------- --------- Restructuring accruals............................ $113.4 $139.0 Other............................................. 201.4 193.1 --------- --------- $314.8 $332.1 ========= ========= NOTE 11 - LINES OF CREDIT The Company has a $600 million renewable credit agreement available until May 1997. Under the terms of this agreement, interest rates are determined at the time of borrowing. The borrowing cost would be based on London Interbank Offered Rates plus .24 percent, or other alternative rates. Borrowings under the credit agreement were $600 million at June 30, 1996. The Company has a $550 million private-placement commercial paper program. This program is backed by a $550 million credit agreement available until May 2001. Under the terms of this agreement, interest rates are determined at the time of borrowing and are dependent on the Company's senior debt ratings and usage level of the facility. At current usage level and senior debt ratings, the borrowing cost would be based on London Interbank Offered Rates plus .165 percent, or other alternative rates. There were no amounts outstanding under either the commercial paper program or the credit agreement at June 30, 1996. Non-U.S. lines of credit totaling $213.7 million were also available and borrowings under these lines were $16.9 million at June 30, 1996. These non-U.S. lines are cancelable at any time. NOTE 12 - DEBT The components of short-term debt were: AT JUNE 30, 1996 1995 --------- --------- Notes payable..................................... $616.9 $ 35.7 Commercial paper.................................. 53.3 Current maturities of long-term debt.............. 5.3 18.5 --------- --------- $622.2 $107.5 ========= ========= The components of long-term debt were (market value shown parenthetically): AT JUNE 30, 1996 1995 --------- --------- 9.875% debentures due in annual installments of $15.0 million, beginning in 2002, with final payment of $12.8 million in 2011 ($153.2)....... $134.9 $134.8 8.75% promissory note; paid January 1996.......... 10.8 7% debentures due 2013 ($89.9).................... 98.6 98.5 6.75% notes due 2005 ($95.7)...................... 99.4 6.5% notes due 2007 ($90.7)....................... 98.5 6% notes due 2003 ($93.1)......................... 99.4 99.3 Commercial paper.................................. 100.0 Other ($50.3)..................................... 50.3 76.6 --------- --------- 581.1 520.0 Less current maturities........................... 5.3 18.5 --------- --------- $575.8 $501.5 ========= ========= The 9.875% debentures are redeemable at the option of Mallinckrodt at 100 percent in 2001 and thereafter. At June 30, 1995, commercial paper totaling $100.0 million, was classified as long-term debt as it was backed by irrevocable long-term lines of credit. Maturities of long-term debt for the next five years are: 1997-$5.3 million; 1998-$2.5 million; 1999-$33.4 million; 2000-$1.3 million; and 2001-$.8 million. The weighted average interest rate on short-term borrowings at June 30, 1996 and 1995 was 5.8% and 6.3%, respectively. NOTE 13 - PENSION AND INVESTMENT PLANS The Company has pension plans covering substantially all of its employees that provide for retirement benefits based on years of service and the level of compensation for the highest three to five years occurring generally within a period of up to 10 years prior to retirement. Contributions to the U.S. plans meet ERISA minimum funding requirements. The components of net periodic pension costs are as follows: 1996 1995 1994 ------- ------- ------- Service cost...................................... $20.4 $18.9 $18.1 Interest cost on projected benefit obligation..... 35.3 31.7 30.8 Earnings on plan assets........................... (64.3) (24.0) (21.2) Net amortization of initial unrecognized asset and deferral of subsequent unrecognized net gains and losses................................ 37.6 (5.7) (7.5) ------ ------ ------ $29.0 $20.9 $20.2 ====== ====== ====== U.S. pension expense in 1996, 1995 and 1994 was $25.8 million, $17.9 million and $16.2 million, respectively. Assumptions used in determining the actuarial present value of benefit obligations follow: 1996 1995 1994 ------- ------- ------- Discount rate..................................... 7.75% 8.5% 8.0% Long-term rate of return on plan assets........... 9.0% 9.5% 10.0% Compensation increase rate........................ 5.0% 5.5% 5.5% The plans' assets mostly relate to U.S. plans and consist primarily of corporate equities, U.S. government debt securities and units of participation in a collective short-term investment fund. The Company also sponsors three defined contribution investment plans. Participation in these plans is voluntary, with substantially all employees eligible to participate. Expenses related to the plans consist primarily of Company contributions which are based on percentages of certain employee contributions, plus discretionary amounts determined on an annual basis. Defined contribution expense for 1996, 1995 and 1994 was $14.0 million, $12.4 million and $10.6 million, respectively. The funded status of U.S. and non-U.S. pension plans and amounts recognized in the balance sheet follow:
1996 1995 ------------------------- ------------------------- Plans With Plans With Plans With Plans With Assets In Accumulated Assets In Accumulated Excess of Benefits Excess of Benefits Accumulated In Excess Accumulated In Excess Benefits Of Assets Benefits Of Assets ----------- ----------- ----------- ----------- Assets at fair value............... $377.3 $ 30.4 $307.2 $ 48.8 Actuarial present value of benefit obligation: Vested benefits................ 303.3 59.7 254.6 61.0 Nonvested benefits............. 9.0 3.1 4.8 6.7 ------- ------- ------- ------- Accumulated benefit obligation... 312.3 62.8 259.4 67.7 Projected future salary increases...................... 88.1 17.1 69.8 19.4 ------- ------- ------- ------- Projected benefit obligation..... 400.4 79.9 329.2 87.1 ------- ------- ------- ------- Projected benefit obligation in excess of plan assets............ (23.1) (49.5) (22.0) (38.3) Items not yet recognized in earnings: Unrecognized net (gain) loss..... 13.0 2.8 23.1 (2.3) Unamortized transition (asset) liability...................... (1.4) 8.3 (2.6) 10.8 ------- ------- ------- ------- Accrued pension liability.......... $(11.5) $(38.4) $ (1.5) $(29.8) ======= ======= ======= =======
NOTE 14 - POSTRETIREMENT BENEFITS Mallinckrodt provides certain healthcare benefits for U.S. salaried and hourly retired employees. Employees may become eligible for healthcare benefits if they retire after attaining specified age and service requirements while they worked for the Company. Healthcare benefits are paid directly by Mallinckrodt. The components of periodic postretirement benefits costs are as follows: 1996 1995 1994 ------- ------- ------- Service cost for benefits earned during the year.. $ 4.8 $ 4.9 $ 3.6 Interest cost on benefit obligation............... 13.0 13.0 10.4 Amortization of unrecognized net loss............. .6 ------- ------- ------- $17.8 $18.5 $14.0 The following table presents the plan's funded status reconciled with amounts recognized in the Company's statement of financial position: 1996 1995 --------- --------- Accumulated postretirement benefit obligation (APBO): Retiree....................................... $ 88.1 $ 90.3 Active employees.............................. 66.0 62.8 --------- --------- Accumulated postretirement benefit obligation in excess of plan assets........................ 154.1 153.1 Unrecognized net gain (loss)...................... 7.7 (10.4) Unrecognized prior service cost................... (5.8) --------- --------- Accrued postretirement benefit cost............... $156.0 $142.7 ========= ========= The discount rate used in determining the APBO for 1996 and 1995 was 7.75 percent and 8.5 percent, respectively. The assumed medical plan cost trend rate used in measuring the APBO for 1996 was 9.0 percent, gradually declining to 4.75 percent in 2006 and thereafter. The rate for 1995 was 10.0 percent gradually declining to 5.0 percent in 2006 and thereafter. A one percentage point increase in the healthcare cost trend rate would increase the APBO for 1996, by $19.3 million and the aggregate service and interest cost by $2.7 million. NOTE 15 - STOCK PLANS Three non-qualified stock option plans provide for granting options to purchase shares of common stock at prices not less than 100 percent of market price (as defined) at the date of grant. Options under these plans are exercisable over nine years beginning one year after the date of grant and are limited to 50 percent during the first year of eligibility. Information on stock option activity follows: PRICE NUMBER OF OPTIONS RANGE 1996 1995 --------- ----------- ---------- Outstanding, beginning of year.......... $10-40 6,126,649 5,351,732 Granted................................. 35-39 1,449,622 1,419,656 Canceled................................ 14-40 (242,145) (272,826) Exercised............................... 10-39 (1,071,373) (371,913) ----------- ---------- Outstanding, end of year................ 10-40 6,262,753 6,126,649 =========== ========== At June 30, Exercisable........................... 4,300,204 4,214,583 Reserved for future option grants..... 2,642,164 3,833,618 The average exercise price of outstanding stock options at June 30, 1996, was $31.54 a share, based on an aggregate exercise price of about $198 million. Outstanding stock options will expire over a period ending no later than June 17, 2006. The 1973 non-qualified stock option and award plan also provides for the award of restricted shares of Mallinckrodt's common stock to executive officers. Under provisions of the plan, the grantee makes no cash payment for the award and the shares are held in escrow until vested, with the grantee being unable to dispose of the restricted shares until vested. Upon forfeiture of any share of restricted stock in accordance with the stock option and award plan, or the terms and conditions of the award, the shares would automatically be transferred to and reacquired by the Company at no cost. In 1995, the Company issued from its treasury stock 109 restricted shares. In 1996, the Company reacquired 1,873 shares of unrestricted stock in lieu of payment of withholding taxes on 5,000 shares of restricted stock which expired and vested on April 3, 1996. NOTE 16 - CAPITAL STOCK The Company has authorized and issued 100,000 shares, 98,330 outstanding at June 30, 1996, par value $100, 4 Percent cumulative preferred stock. This stock, with voting rights, is redeemable at the Company's option at $110 a share. During the three years ended June 30, 1996, the number of issued and outstanding shares did not change. At June 30, 1996, the Company has authorized 1,400,000 shares, par value $1, of series preferred stock, none of which is outstanding. Each outstanding common share includes a non-voting common stock purchase right. If a person or group acquires or has the right to acquire 20 percent or more of the common stock or commences a tender offer for 30 percent or more of the common stock, the rights become exercisable by the holder who may then purchase $320 worth of common stock for $160 unless, in lieu thereof, the Board of Directors causes the exchange of each outstanding right for one share of common stock (in either case exclusive of the rights held by the acquiring person or group which are voided). In the event of a merger or sale of 50 percent or more of the Company's assets, the rights may in certain circumstances entitle the holder to purchase $320 worth of stock in the surviving entity for $160. The rights may be redeemed by the Board at a price of $.05 per right at any time before they become exercisable, and unless they become exercisable, they will expire February 28, 2006. The Company has a three year incentive award program for executive officers which expires June 30, 1997. There are 1,000,000 common shares reserved for issuance under this plan. Common shares reserved at June 30, 1996, consisted of the following: Exercise of common stock purchase rights...................... 84,185,485 Exercise of stock options and granting of stock awards........ 9,904,917 ---------- 94,090,402 ========== Changes in the number of shares of common stock issued and in treasury were as follows: 1996 1995 1994 ------------ ------------ ------------ Common stock issued........... 87,116,289 87,116,289 87,116,289 Treasury common stock: Balance, beginning of year.. 10,365,203 10,110,056 10,671,514 Stock options exercised..... (1,071,373) (371,913) (429,645) Purchased................... 3,540,018 499,854 19 (Awards) cancellations of restricted shares......... 1,873 127,206 (131,832) ------------ ------------ ------------ Balance, end of year........ 12,835,721 10,365,203 10,110,056 ------------ ------------ ------------ Common stock outstanding, end of year................. 74,280,568 76,751,086 77,006,233 ============ ============ ============ NOTE 17 - INTERNATIONAL OPERATIONS Export sales to unaffiliated customers included in U.S. sales were: 1996 1995 1994 ------- ------- ------- Europe............................................ $ 57.5 $ 23.5 $ 14.0 Asia/Pacific...................................... 63.1 42.6 27.7 Latin America..................................... 29.4 22.1 14.7 Canada............................................ 6.3 6.3 5.1 ------- ------- ------- Total............................................. $ 156.3 $ 94.5 $ 61.5 ======= ======= ======= Net sales, earnings from continuing operations before income taxes, and identifiable assets by geographic areas follow: 1996 United Asia/ Latin - ---- States Europe Pacific America Canada Total -------- ------ ------- ------- ------ -------- Gross Sales $1,481.3 $637.8 $179.3 $115.8 $94.6 $2,508.8 Intercompany 100.3 129.6 8.9 3.5 56.3 298.6 -------- ------ ------- ------- ------ -------- Net Sales $1,381.0 $508.2 $170.4 $112.3 $38.3 $2,210.2 ======== ====== ======= ======= ====== ======== 1995 United Asia/ Latin - ---- States Europe Pacific America Canada Total -------- ------ ------- ------- ------ -------- Gross Sales $1,357.1 $588.1 $175.8 $117.3 $85.1 $2,323.4 Intercompany 113.4 111.6 5.2 4.0 46.0 280.2 -------- ------ ------- ------- ------ -------- Net Sales $1,243.7 $476.5 $170.6 $113.3 $39.1 $2,043.2 1994 United Asia/ Latin - ---- States Europe Pacific America Canada Total -------- ------ ------- ------- ------ -------- Gross Sales $1,196.8 $453.7 $153.2 $118.6 $68.4 $1,990.7 Intercompany 108.9 68.9 3.2 2.1 29.7 212.8 -------- ------ ------- ------- ------ -------- Net Sales $1,087.9 $384.8 $150.0 $116.5 $38.7 $1,777.9 EARNINGS 1996 1995 1994 --------- --------- --------- United States............................. $ 203.9 $ 180.0 $ 192.0 Europe.................................... 132.8 114.2 65.4 Asia/Pacific.............................. 13.5 11.4 13.7 Latin America............................. 19.5 22.9 17.5 Canada.................................... 6.5 4.4 3.6 Restructuring charge...................... (93.9) Corporate................................. (41.4) (28.8) (30.2) Eliminations.............................. (4.7) (7.4) (6.6) --------- --------- --------- Operating earnings........................ 330.1 296.7 161.5 Equity in pre-tax earnings of joint venture........................... 31.9 25.3 18.5 Interest and other nonoperating expense, net..................................... (.3) (4.3) (.4) Interest expense.......................... (58.7) (55.5) (40.0) --------- --------- --------- Consolidated.............................. $ 303.0 $ 262.2 $ 139.6 ========= ========= ========= ASSETS United States............................. $1,596.5 $1,474.3 $1,303.5 Europe.................................... 903.0 799.9 736.3 Asia/Pacific.............................. 250.0 225.4 168.1 Latin America............................. 103.6 82.4 80.5 Canada.................................... 57.0 44.4 29.3 Corporate................................. 623.7 205.9 200.2 Eliminations.............................. (127.9) (154.9) (116.9) --------- --------- --------- Consolidated.............................. $3,405.9 $2,677.4 $2,401.0 ========= ========= ========= Transfers of product between geographic areas are at prices approximating those charged to unaffiliated customers. All such transfers are fully eliminated. Net foreign exchange translation gains (losses) from businesses in hyperinflationary economies aggregated $(1.4) million, $.7 million, and $(4.2) million in 1996, 1995 and 1994, respectively, and have been included in "Other operating income expense, net" in the Consolidated Statement of Operations. These translation effects were primarily from animal health operations in Latin America. Translation effects for all of Mallinckrodt's businesses were not material. NOTE 18 - BUSINESS SEGMENTS In December 1995, the company announced a Strategic Change Initiative which included major organizational and operating changes designed to enhance growth and effectiveness. The management and administrative structures of the three operating companies were eliminated. In conjunction with these changes, operating company designations as segments were replaced with three segments that are more closely aligned with customers served and with our new management structure. Prior periods for segments have been reclassified to conform with the 1996 presentation. The three industry segments are as follows: HUMAN HEALTHCARE Production and sale of products used primarily in hospitals, including X-ray contrast media, interventional products, diagnostic and therapeutic radiopharmaceuticals, airway management products, temperature monitoring products, blood gas and vital sign monitoring systems, analgesics and medicinal narcotics. SPECIALTY CHEMICALS Production and sale of catalysts, specialty inorganics, stearates and laboratory and microelectronic chemicals used by industry and research organizations. ANIMAL HEALTH Production and sale of pharmaceuticals, biologicals, veterinary specialties and other health-related products for livestock and companion animals. NONRECURRING CHARGES Restructuring charges of $93.9 million recorded in the United States in 1994 are discussed in Note 1. NOTE 19 - COMMITMENTS The Company leases office space, data processing equipment, buildings, and machinery and equipment. Rent expense for continuing operations in 1996, 1995 and 1994 related to operating leases was $26.6 million, $27.3 million and $31.7 million, respectively. Minimum rent commitments for continuing operations at June 30, 1996, under operating leases with a remaining noncancellable period exceeding one year follow: YEARS ENDING JUNE 30, 1997............................................................... $ 31.3 1998............................................................... 24.2 1999............................................................... 18.8 2000............................................................... 15.4 2001............................................................... 14.0 Later years........................................................ 51.6 ------ $155.3 NOTE 20 - CONTINGENCIES The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In addition, in connection with laws and regulations pertaining to the protection of the environment, the Company is a party to several environmental remediation investigations and clean-ups and, along with other companies, has been named a "potentially responsible party" for certain waste disposal sites. Each of these matters is subject to various uncertainties, and it is possible that some of these matters will be decided unfavorably against the Company. The Company had accruals of $97.3 million and $27.1 million at June 30, 1996 and June 30, 1995, respectively, for costs associated with the study and remediation of Superfund sites and for the Company's current and former operating sites for matters that are in its view probable and reasonably estimable. The significant increase resulted from the assumption of certain costs to remediate various sites in the future for which the Company was compensated and the establishment of additional environmental reserves for discontinued operations. Based on information presently available, management believes any amounts paid in excess of the accrued liabilities will not have a material effect on its financial position or results of operations. QUARTERLY RESULTS (UNAUDITED) (In millions, except per share amounts) FISCAL 1996 Quarter -------------------------------------- First Second Third Fourth Year -------- ------- ------- ------- --------- Net sales................. $492.1 $528.2 $572.6 $617.3 $2,210.2 Gross margins............. 223.8 239.1 261.6 292.9 1,017.4 Earnings from continuing operations.............. 35.7 38.3 50.7 66.5 191.2 Discontinued operations... 3.5 19.0 (2.3) .5 20.7 ------- ------- ------- ------- --------- Net earnings.............. 39.2 57.3 48.4 67.0 211.9 Preferred stock dividends. (.1) (.1) (.1) (.1) (.4) ------- ------- ------- ------- --------- Available for common shareholders............ $ 39.1 $ 57.2 $ 48.3 $ 66.9 $ 211.5 ======= ======= ======= ======= ========= Earnings per common share: Continuing operations... $ .46 $ .50 $ .67 $ .88 $2.50 Discontinued operations. .04 .25 (.03) .01 .27 ======= ======= ====== ======= ========= Net earnings.............. $ .50 $ .75 $ .64 $ .89 $2.77 ======= ======= ====== ======= ========= Results for the second quarter included a noncash charge for write-off of purchased research and development of $3.7 million, $2.3 million after taxes, or $.03 per share, relating to the acquisition of Syntro Corporation. During the second quarter the animal feed ingredients business was sold. Results for the feed ingredients business have been accounted for as a discontinued operation, and accordingly, prior year results have been restated. Other principal factors affecting discontinued operations were an after tax gain of $35.4 million on the sale of the feed ingredients business and an after tax provision for additional environmental costs of $15.6 million. Earnings per share for the four quarters of 1996 are more than full year per share results by $.01 from a decrease in common shares outstanding. FISCAL 1995 Quarter -------------------------------------- First Second Third Fourth Year -------- ------- ------- ------- --------- Net sales................. $448.6 $471.5 $529.2 $593.9 $2,043.2 Gross margins............. 200.3 221.5 242.3 276.3 940.4 Earnings from continuing operations.............. 30.5 35.3 43.1 55.0 163.9 Discontinued operations... 3.4 4.5 3.9 4.6 16.4 ------- ------- ------- ------- --------- Net earnings.............. 33.9 39.8 47.0 59.6 180.3 Preferred stock dividends. (.1) (.1) (.1) (.1) (.4) ------- ------- ------- ------- --------- Available for common shareholders............ $ 33.8 $ 39.7 $ 46.9 $ 59.5 $179.9 ======= ======= ======= ======= ========= Earnings per common share: Continuing operations... $ .40 $ .45 $ .56 $ .70 $2.11 Discontinued operations. .04 .06 .05 .06 .21 ------- ------- ------- ------- --------- Net earnings.............. $ .44 $ .51 $ .61 $ .76 $2.32 ======= ======= ======= ======= ========= ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning directors of the Registrant, see pages 1 through 4, incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 16, 1996. For information concerning executive officers of the Registrant, see Part I of this report and pages 9 and 10, incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting of the Stockholders to be held on October 16, 1996. ITEM 11. EXECUTIVE COMPENSATION For information concerning executive compensation, see pages 9 and 10 and pages 12 through 19, incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 16, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information concerning security ownership of certain beneficial owners and management, see pages 7 and 8, incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 16, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning certain relationships and related transactions, see pages 7, 9 and 10, incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on October 16, 1996. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits (1)(2) See index on page 58 for a listing of financial statements and financial statement schedules filed with this report. (3) Exhibits filed with this report. Incorporated Filed With Exhibit Herein Electronic Number Description by Reference to Submission - -------- ------------------------------------- --------------- ---------- 3.1 Restated Certificate of Incorporation Exhibit 3.1 to of Mallinckrodt, dated June 22, 1994. 1994 Form 10-K. 3.2 By-Laws of Mallinckrodt as amended Exhibit 3.3 to April 18, 1990. 1990 Form 10-K, Commission File No. 1-483. 4.1 Rights of the holders of Exhibit 3.1 to Mallinckrodt's equity securities are 1994 Form 10-K. stated in the Company's Restated Certificate of Incorporation, dated June 22, 1994. 4.2 Form 8-A Registration Statement under Exhibit 4.6 to Section 12 of the Securities Exchange 1989 Form 10-K, Act of 1934, dated April 10, 1987 Commission File defining the rights of holders of No. 1-483. Mallinckrodt's 4% Cumulative Preferred Stock and Common Stock. 4.3 Amended and Restated Rights Agreement Exhibit 2 to dated as of February 19, 1996. Amendment to Registration Statement on Form 8-A/A dated February 26, 1996. 4.4 Indenture dated as of March 15, 1985, Exhibit 4.1 to as amended and restated as of Form S-3 February 15, 1995, between Registration Mallinckrodt and First Trust of New Statement York, National Association. No. 33-57821. 4.5 No class of long-term debt of Mallinckrodt exceeds 10% of the total assets of Mallinckrodt and its subsidiaries on a consolidated basis. Mallinckrodt agrees to furnish copies of agreements defining the rights of debt holders to the Securities and Exchange Commission upon request. 10.1 Agreement with Paul D. Cottone dated Exhibit 10.4 to October 1, 1994. (1) December 31, 1994 Form 10-Q. 10.2 Consulting Agreement with Herve M. Exhibit 10.1 to Pinet for the period December 1, December 31, 1995 to November 30, 1996. (1) 1995 Form 10-Q. 10.3 Mallinckrodt Executive Life Exhibit 10.2 to Insurance Program adopted 1989 Form 10-K, May 20, 1987. (1) Commission File No. 1-483. 10.4 Restated Mallinckrodt Executive Exhibit 10.3 to Long-Term Disability Plan 1989 Form 10-K, effective January 1, 1987. (1) Commission File No. 1-483. 10.5(a) Supplemental Benefit Plan for Exhibit 10.6(a) Participants in the Mallinckrodt to 1989 Form Retirement Plan as amended and 10-K, Commission restated effective January 1, File No. 1-483. 1980. (1) 10.5(b) Amendment No. 1 dated June 20, 1989 Exhibit 10.6(b) to Supplemental Benefit Plan for to 1989 Form Participants in the Retirement Plan 10-K, Commission for Salaried Employees of File No. 1-483. Mallinckrodt. (1) 10.5(c) Amendment No. 2 dated April 20, 1990 Exhibit 10.6(c) to Supplemental Benefit Plan for to 1990 Form Participants in the Mallinckrodt 10-K, Commission Retirement Plan. (1) File No. 1-483. 10.6(a) Mallinckrodt Supplemental Executive Exhibit 10.7(a) Retirement Plan restated effective to 1989 Form April 19, 1988. (1) 10-K, Commission File No. 1-483. 10.6(b) Amendment No. 1 effective December 6, Exhibit 10.7(c) 1989, to Supplemental Executive to 1990 Form 10-K, Retirement Plan. (1) Commission File No. 1-483. 10.6(c) Amendment No. 2 effective April 19, X 1996, to Supplemental Executive Retirement Plan. (1) 10.7(a) Mallinckrodt Management Incentive Exhibit 10.9(b) Compensation Program as amended and to 1991 Form restated effective July 1, 1991. (1) 10-K, Commission File No. 1-483. 10.7(b) Amendment No. 1 to the Management X Incentive Compensation Plan, effective April 16, 1996. (1) 10.8(a) Mallinckrodt 1973 Stock Option and Post-Effective Award Plan as amended effective Amendment No. 1 February 21, 1990. (1) to Form S-8 Registration Statement No. 33-32109. 10.8(b) Amendment No. 1 to the Mallinckrodt Form S-8 1973 Stock Option and Award Plan Registration dated June 19, 1991. (1) Statement No. 33-43925. 10.9 Mallinckrodt Directors Retirement Exhibit 10.10 to Services Plan as amended and 1993 Form 10-K. restated effective April 21, 1993. (1) 10.10(a) Mallinckrodt 1981 Stock Option Plan Post-Effective as amended through April 19, 1988. (1) Amendment No. 3 to Form S-8 Registration Statement No. 2-80553. 10.10(b) Amendment to the 1981 Stock Option Exhibit 10.12(b) Plan effective February 15, 1989. (1) to 1989 Form 10-K, Commission File No. 1-483. 10.10(c) Amendment to the 1981 Stock Option Exhibit 10.12(c) Plan effective June 19, 1991. (1) to 1991 Form 10-K, Commission File No. 1-483. 10.11(a) Intercorporate Agreement dated as Exhibit 10.1 to of July 1, 1987 by and between IMC Fertilizer Mallinckrodt and IMC Fertilizer Group, Inc.'s Group, Inc., subsequently called Form S-1 IMC Global, Inc., with Exhibits, Registration including the Restated Certificate Statement of Incorporation of IMC Fertilizer No. 33-17091. Group, Inc., as amended; By-Laws of IMC Fertilizer Group, Inc.; Preliminary Agreement for K-2 Advances; Registration Rights Agreement; Services Agreement; Management Services Agreement; Agreement regarding Pollution Control and Industrial Revenue Bonds; License Agreement; office lease and sublease; management agreements; supply agreements; and transportation service agreements. 10.12(a) Management Compensation and Benefit Exhibit 10.30 to Assurance Program. (1) 1988 Form 10-K, Commission File No. 1-483. 10.12(b) Amendments to Management X Compensation and Benefit Assurance Program.(1) 10.13 Agreement of Trust dated August 16, X 1996, between Mallinckrodt and Wachovia Bank of North Carolina, N.A., incident to the program in Exhibits 10.13(a) and 10.13(b).(1) 10.14(a) Corporate Staff Employee Severance Exhibit 10.33 to and Benefit Assurance Policy. (1) 1988 Form 10-K, Commission File No. 1-483. 10.14(b) Mallinckrodt Group Inc. Corporate X Staff Change in Control Severance Plan. (1) 10.15 Supplemental Life Plan of Exhibit 10.21 to Mallinckrodt, Inc. effective July 1989 Form 10-K, 15, 1984. (1) Commission File No. 1-483. 10.16 Mallinckrodt Directors' Stock Exhibit 4(a) to Option Plan effective October 17, Form S-8 1990. (1) Exhibit 4(a) to Registration Statement No. 33-40246. 10.17(a) Consulting Agreement with Ronald G. Exhibit 10.27 to Evens, M.D., for the period from Amendment No. 1 January 1, 1987, through December to 1992 31, 1989; extended for the calendar Form 10-K. years 1990, 1991 and 1992. (1) 10.17(b) Amendment dated December 17, 1992 Exhibit 10.26(b) to Consulting Agreement with Ronald to 1993 Form G. Evens, M.D., described in Exhibit 10-K. 10.25(a). (1) 10.17(c) Amendment dated January 7, 1994 to Exhibit 10.9 to Consulting Agreement with Ronald G. December 31, Evens, M.D., extending Agreement 1994 Form 10-Q. through December 31, 1994. (1) 10.17(d) Amendment dated February 1, 1995 to Exhibit 10.10 to Consulting Agreement with Ronald G. December 31, Evens, M.D., extending Agreement 1994 Form 10-Q. through December 31, 1995. (1) 10.17(e) Amendment dated January 10, 1996 to Exhibit 10.2 to Consulting Agreement with Ronald G. December 31, Evens, M.D., extending Agreement 1995 Form 10-Q. through December 31, 1996. (1) 10.18 Credit Agreement dated May 22, 1996, X among Mallinckrodt and Morgan Guaranty Trust Company of New York, as Administrative Agent and Citibank, N.A., as Documentation Agent ($550 million facility). 10.19 Credit Agreement dated May 22, 1996 X among Fries & Fries, Inc. with Mallinckrodt and Morgan Guaranty Trust Company of New York, as Administrative Agent and Co-Agent and Citibank, N.A., as Documentation Agent $600 million facility). 10.20 Offering Memorandum by J.P. Morgan Exhibit 10.29 to for sale of the commercial paper 1993 Form 10-K. (CP) notes of Mallinckrodt. The CP program is backed by credit agreement included at 10.18. 10.21(a) Deferral Election Plan for Non- Exhibit 10.29 to Employee Directors, effective 1994 Form 10-K. June 30, 1994. (1) 10.21(b) Amendment of Deferral Election Exhibit 10.22(b) Plan for Non-Employee Directors, to 1995 Form 10-K. effective February 15, 1995. (1) 10.22 Long-Term Incentive Compensation Exhibit 10.30 to Plan, effective July 1, 1994. (1) 1994 Form 10-K. 10.23 Form of Severance Agreement X referenced in Exhibit 10.12(b), as entered into with the named executive officers in Mallinckrodt's 1996 proxy statement and with other executives and key employees. (1) 10.24 Form of Executive Life Insurance Plan X Participation Agreement, as entered into with the named executive officers in Mallinckrodt's 1996 proxy statement and with other executives and key employees. 11.1 Primary earnings per share computation for X the three years ended June 30, 1996. 11.2 Fully diluted earnings per share X computation for the three years ended June 30, 1996. 21 Subsidiaries of the Registrant. X 23.1 Consent of Ernst & Young LLP. X 27 Financial data schedule for the year X ended June 30, 1996. ___________ (1) Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K. (b) Reports on Form 8-K During the quarter and through the date of this report, the following reports on Form 8-K were filed. - Report dated April 1, 1996, under Item 5 regarding the completion of Phase 3 clinical trial on ultrasound contrast agent, FS069. - Report dated August 29, 1996, under Item 5 regarding seeking a buyer for the Tastemaker flavors business and exploring all strategic options for the animal health division. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page ------ Consolidated Balance Sheet at June 30, 1996 and 1995....... 33 For the years ended June 30, 1996, 1995 and 1994: Information by Business Segment.......................... 31 Consolidated Statement of Operations..................... 32 Consolidated Statement of Cash Flows..................... 34 Consolidated Statement of Changes in Shareholders' Equity................................... 35 Notes to Consolidated Financial Statements................. 36-49 Quarterly Results (Unaudited).............................. 50 ___________ All other schedules are omitted as the required information is not present in sufficient amounts or the required information is included in the consolidated financial statements or notes thereto. Financial statements and schedules and summarized financial information of 50 percent or less owned entities are omitted, as none of such entities are individually or in the aggregate significant under the tests specified in Regulation S-X under Article 3-09 of General Instructions as to Financial Statements. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mallinckrodt Group Inc. - ------------------------------- Registrant By: MICHAEL A. ROCCA BY: WILLIAM B. STONE ---------------------------- ----------------------------- Michael A. Rocca William B. Stone Senior Vice President and Vice President and Controller Chief Financial Officer Date: September 26, 1996 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 - --------- ----- ---- C. RAY HOLMAN Chief Executive Officer and Director September 26, 1996 - ------------------- C. Ray Holman MACK G. NICHOLS President, Chief Operating Officer September 26, 1996 - ------------------- and Director Mack G. Nichols MICHAEL A. ROCCA Senior Vice President and Chief September 26, 1996 - ------------------- Financial Officer Michael A. Rocca WILLIAM B. STONE Vice President and Controller September 26, 1996 - ------------------- (Chief Accounting Officer) William B. Stone RAYMOND F. BENTELE Director September 26, 1996 - ------------------- Raymond F. Bentele GARETH C. C. CHANG Director September 26, 1996 - ------------------- Gareth C. C. Chang WILLIAM L. DAVIS Director September 26, 1996 - ------------------- William L. Davis RONALD G. EVENS Director September 26, 1996 - ------------------- Ronald G. Evens ALEC FLAMM Director September 26, 1996 - ------------------- Alec Flamm ROBERTA S. KARMEL Director September 26, 1996 - ------------------- Roberta S. Karmel CLAUDINE B. MALONE Director September 26, 1996 - ------------------- Claudine B. Malone MORTON MOSKIN Director September 26, 1996 - ------------------- Morton Moskin HERVE M. PINET Director September 26, 1996 - ------------------- Herve M. Pinet BRIAN M. RUSHTON Director September 26, 1996 - ------------------- Brian M. Rushton DANIEL R. TOLL Director September 26, 1996 - ------------------- Daniel R. Toll ANTHONY VISCUSI Director September 26, 1996 - ------------------- Anthony Viscusi EX-10.6(C) 2 Exhibit 10.6(c) AMENDMENT NUMBER TWO to the SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN for MALLINCKRODT GROUP INC. The Supplemental Executive Retirement Plan of Mallinckrodt Group Inc. as restated April 19, 1988, and as amended effective December 6, 1989 (the "Plan"), is hereby amended, effective as of April 19, 1996, as set forth below: 1. Section 6.11(a) is amended in its entirety to read as follows: (a) For purposes of the Plan, the following terms are defined as follows: (i) CHANGE IN CONTROL means the occurrence of any one of the following events: (A) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board of Directors (the "Company Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (A) shall not be deemed to be a change in control by virtue of any of the following acquisitions: (1) by the Company or any subsidiary of the Company, (2) by any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company, (3) by any underwriter temporarily holding securities pursuant to an offering of such securities, (4) pursuant to a Non-Control Transaction (as defined in paragraph (C)), (5) with respect to any specific participant, pursuant to any acquisition by the participant or any group of persons including the participant; or (6) except as provided in (C) below, in which Company Voting Securities are acquired from the Company, if a majority of the Board approves a resolution providing expressly that such acquisition does not constitute a change in control under this paragraph (A); (B) individuals who, on April 19, 1996, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to April 19, 1996, whose election, or nomination for election, by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (B), considered as though such person were a member of the Incumbent Board; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be a member of the Incumbent Board; (C) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction requiring the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company (a "Business Combination"), unless immediately following such Business Combination: (1) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the Company's assets) eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (2) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Company Voting Securities (a "Company 20% Stockholder")) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 20% Stockholder increases its percentage of such total voting power, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the approval of the Board of Directors of the execution of the initial agreement providing for such Business Combination (a "Non-Control Transaction"); or (D) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a change in control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; PROVIDED, THAT if a change in control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a change in control of the Company shall occur. (ii) "Good Reason" with respect to a participant means, without such participant's express written consent, the occurrence of any of the following events after a change in control: (A) (1) the assignment to such participant of any duties or responsibilities (including reporting responsibilities) inconsistent in any material and adverse respect with the participant's duties and responsibilities with the Company immediately prior to such change in control (including any material and adverse diminution of such duties or responsibilities); PROVIDED, HOWEVER, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity, and does not involve any other event set forth in this paragraph (ii) or (2) a material and adverse change in such participant's titles or offices with the Company as in effect immediately prior to such change in control. (B) a reduction by the Company in such participant's rate of annual base salary or target annual bonus opportunity as in effect immediately prior to such change in control or as the same may be increased from time to time thereafter; (C) any requirement of the Company that such participant (1) notwithstanding his objection, be based anywhere more than fifty (50) miles from the location where the participant's employment is located at the time of the change in control or (2) travel on Company business to an extent substantially greater than the travel obligations of the participant immediately prior to such change in control; or (D) the failure of the Company to (1) continue in effect any employee benefit plan or compensation plan in which such participant is participating immediately prior to such change in control (including the taking of any action by the Company which would adversely affect the participant's participation in or materially reduce the participant benefits under any such plan), unless the participant is permitted to participate in other plans providing the participant with substantially comparable benefits, (2) provide such participant and the participant's dependents with welfare benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the participant immediately prior to such change in control or provide substantially comparable benefits at a substantially comparable cost to the participant, (3) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for such participant immediately prior to such change in control, or provide substantially comparable fringe benefits, or (4) provide such participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the participant immediately prior to such change in control (including crediting the participant with all service credited to him for such purpose prior to the change in control), unless the failure to provide such paid vacation is a result of a policy uniformly applied by the entity acquiring the Company to its employees; Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten days after receipt of notice thereof given by the participant shall not constitute Good Reason. The Participant must notify the Company of an event constituting Good Reason within ninety days following his knowledge of its existence or such event shall not constitute Good Reason under the Plan. (iii) "Cause" means with respect to a participant (A) the willful and continued failure of such participant substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Committee which specifically identifies the manner in which the Committee believes he has not substantially performed his duties or (B) willful misconduct materially and demonstrably injurious to the Company. No act or failure to act by a participant shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of a participant to accept any condition or event which would constitute Good Reason under paragraph (ii) of this Section 6.11(a) may not be considered by the Committee to be a failure to perform or misconduct by a participant. The Company must notify the participant of an event constituting Cause within ninety days following its knowledge of the event's existence or such event shall not constitute Cause under the Plan. 2. The first sentence of Section 6.11(c) is amended to read in its entirety as follows: (a) Notwithstanding any other provision of the Plan to the contrary, if, during the three-year period immediately following a change in control, a participant's employment with the Company and its subsidiaries is terminated (i) by the Company (other than for Cause, disability (within the meaning set forth in the Company's long-term disability plan) or mandatory retirement) or (ii) by the participant for Good Reason, such participant shall be fully and nonforfeitably vested in his benefits accrued to the date of termination and in any service and benefit accrued as a result of any employment agreement or severance pay policy, if applicable. 3. Section 11.2 is amended to add the following sentence to the end thereof: In the event of a change in control, the provisions of Section 6.11 are specifically applicable to the executives listed in Section 11.1. EX-10.7(B) 3 Exhibit 10.7(b) AMENDMENT NUMBER ONE to the MANAGEMENT INCENTIVE COMPENSATION PLAN for MALLINCKRODT GROUP INC. The Management Incentive Compensation Plan for Mallinckrodt Group Inc. (the "Plan") is hereby amended, effective as of April 19, 1996, by adding a new Section 11 as set forth below: 11. CHANGE IN CONTROL. (a) For purposes of the Plan, "Change in Control" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board of Directors (the "Company Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any subsidiary of the Company, (B) by any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (E) with respect to any specific participant, pursuant to any acquisition by the participant or any group of persons including the participant; or (6) except as provided in (iii) below, in which Company Voting Securities are acquired from the Company, if a majority of the Board approves a resolution providing expressly that such acquisition does not constitute a Change in Control under this paragraph (i); (ii) individuals who, on April 19, 1996, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to April 19, 1996, whose election, or nomination for election, by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be a member of the Incumbent Board; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction requiring the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the Company's assets) eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Company Voting Securities (a "Company 20% Stockholder")) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 20% Stockholder increases its percentage of such total voting power, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the approval of the Board of Directors of the execution of the initial agreement providing for such Business Combination (a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; PROVIDED, THAT if a Change in Control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a Change in Control of the Company shall occur. (b) For purposes of the Plan, "Good Reason" with respect to a participant means, without such participant's express written consent, the occurrence of any of the following events after a Change in Control: (1) (i) the assignment to such participant of any duties or responsibilities (including reporting responsibilities) inconsistent in any material and adverse respect with the participant's duties and responsibilities with the Company immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities); PROVIDED, HOWEVER, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity, and does not involve any other event set forth in this paragraph (b) or (ii) a material and adverse change in such participant's titles or offices with the Company as in effect immediately prior to such Change in Control. (2) a reduction by the Company in such participant's rate of annual base salary or target annual bonus opportunity as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that such participant (i) notwithstanding his objection, be based anywhere more than fifty (50) miles from the location where the participant's employment is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of the participant immediately prior to such Change in Control; or (4) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which such participant is participating immediately prior to such Change in Control (including the taking of any action by the Company which would adversely affect the participant's participation in or materially reduce the participant benefits under any such plan), unless the participant is permitted to participate in other plans providing the participant with substantially comparable benefits, (ii) provide such participant and the participant's dependents with welfare benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the participant immediately prior to such Change in Control or provide substantially comparable benefits at a substantially comparable cost to the participant, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for such participant immediately prior to such Change in Control, or provide substantially comparable fringe benefits, or (iv) provide such participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the participant immediately prior to such Change in Control (including crediting the participant with all service credited to him for such purpose prior to the Change in Control), unless the failure to provide such paid vacation is a result of a policy uniformly applied by the entity acquiring the Company to its employees; Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten days after receipt of notice thereof given by the participant shall not constitute Good Reason. The participant must notify the Company of an event constituting Good Reason within ninety days following his knowledge of its existence or such event shall not constitute Good Reason under the Plan. (c) For purposes of the Plan, "Cause" means with respect to a participant (i) the willful and continued failure of such participant substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Committee which specifically identifies the manner in which the Committee believes he has not substantially performed his duties or (ii) willful misconduct materially and demonstrably injurious to the Company. No act or failure to act by a participant shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of a participant to accept any condition or event which would constitute Good Reason under paragraph (b) of this Section 11 may not be considered by the Committee to be a failure to perform or misconduct by a participant. The Company must notify the participant of an event constituting Cause within ninety days following its knowledge of the event's existence or such event shall not constitute Cause under the Plan. (d) If, during the one-year period immediately following a Change in Control of the Company, a participant's employment with the Company and its subsidiaries is terminated (1) by the Company (other than for Cause, disability (within the meaning of the Company's long-term disability plan) or mandatory retirement) or (2) by the participant for Good Reason, such participant shall be paid, within ten days following such termination of employment, a lump sum cash amount equal to the product of (A) the greater of such participant's Target Award for the Fiscal Year in which his termination of employment occurs or the Fiscal Year in which the Change in Control occurs and (B) the quotient obtained by dividing (i) the number of months for which the participant performed services in the Fiscal Year of his termination (rounded up to the nearest whole number), divided by (ii) twelve. (e) In the event of a Change in Control of the Company, each participant who remains employed by a Business Group as of the end of the Fiscal Year in which such Change in Control occurs shall receive an annual incentive award with respect to such Fiscal Year at least equal to his Target Award for such Fiscal Year. (f) Notwithstanding anything in this Plan to the contrary, this Section 11 may not be amended, modified or terminated in a manner adverse to participants during the one-year period immediately following a Change in Control of the Company. (g) Notwithstanding anything in Section 6(c) to the contrary, during the remainder of the Fiscal Year in which a Change in Control of the Company occurs, the Committee may not adjust Performance Objectives or Target Awards in any manner adverse to participants. EX-10.12(B) 4 Exhibit 10.12(b) April 17, 1996 MALLINCKRODT GROUP INC. RESOLUTION Amendments to the Management Compensation and Benefit Assurance Program _______________________________________________________________________________ WHEREAS, the Company's management has proposed that the Management Compensation and Benefit Assurance Program, as approved by the Board of Directors on April 19, 1988, as previously amended (the "Program"), be amended to reflect certain changes in law, compensation practices and other circumstances since the date of its adoption; and WHEREAS, the Organization and Compensation Committee has reviewed the proposed amendments to the Program and has recommended approval of such amendments by the Board of Directors. NOW, THEREFORE BE IT RESOLVED that the form of Severance Agreement presented to and reviewed by the Organization and Compensation Committee be and the same hereby is approved, subject to such changes and modifications as may hereafter by approved by such Committee; and FURTHER RESOLVED, that the Company's Corporate Staff Severance Policy be amended to (i) exclude from participation officers with severance agreements and (ii) provide for severance of one month per year of service with a maximum of twelve-months severance and no minimum amount of severance; and FURTHER RESOLVED, that the Company's Management Incentive Compensation Plan (the "MICP") be amended to (i) provide for pro rata target benefits under the MICP if a participant's employment is terminated, during the one- year period following a Change in Control of the Company, by the Company (other than for cause, disability or retirement) or by the participant for "good reason," (ii) provide for minimum payment of target benefits with respect to the plan year in which a Change in Control of the Company occurs and (iii) permit the Organization and Compensation Committee, prior to the effectuation of a Change in Control of the Company, to make appropriate equitable adjustments to targets with respect to the plan year in which a Change in Control of the Company occurs; and FURTHER RESOLVED, that the use of rabbi trusts to fund benefits under the Program be modified to: (i) consolidate the rabbi trusts into a single trust using a modified form of the model rabbit trust promulgated by the Internal Revenue Service, (ii) limit rabbi trust funding to the Company's supplemental executive retirement plans and deferred incentive awards and (iii) provide for funding of the rabbi trusts immediately prior to a Change in Control of the Company, reserving discretion for the Board of Directors of the Company to determine that funding is unnecessary; and FURTHER RESOLVED, that the Company's Supplemental Executive Retirement Plans be amended to (i) provide for a definition of (a) "good reason" (for constructive termination) and (b) "cause" as set forth in proposed severance agreement and (ii) provide for a three-year trigger period following a Change in Control of the Company for vesting of benefits and additional credited service upon termination of employment by the Executive for "good reason" or termination of employment of the Executive by the Company for other than "cause"; and FURTHER RESOLVED, that pursuant to the terms of the Company's 1981 Incentive Stock Option Plan (the "1981 Plan") and 1973 Stock Option and Award Plan (the "1973 Plan"), the Organization and Compensation Committee hereby exercises its discretion, effective as of the occurrence of any of the "change in control" events set forth in the third paragraph of Section 3(b) of the 1981 Plan and first paragraph of Section 3(c) of the 1973 Plan, respectively, to provide for accelerated exercisability of all stock options and stock appreciation rights under such plans (except to the extent acceleration is prohibited pursuant to the terms of the 1981 and 1973 Plans, respectively), PROVIDED THAT, in the event of a tender offer as described in the 1981 and 1973 Plans, the Organization and Compensation Committee shall determine at the time of such tender offer the period of time during which such options and stock appreciation rights shall remain subject to accelerated exercisability; and FURTHER RESOLVED, that the Company's tax-qualified Retirement Plan for Salaried Employees be amended to provide that upon a Change in Control of the Company all employees shall be vested in their benefits under the Plan (notwithstanding whether employment is terminated), but no additional years of service will be credited to employees in the event of termination of employment; and FURTHER RESOLVED, that the definition of Change in Control of the Company in the various plans, agreements and arrangements constituting the Program be modified to conform to the definition set forth in Section 1(c) of the proposed Severance Agreement (other than to the extent such modification would require shareholder approval); and FURTHER RESOLVED, that the officers of the Company and any of them, with the advice of counsel, are authorized and directed to take any actions necessary or convenient to implement the amendments to the Program hereby approved, including without limitation and subject to the approval of the Organization and Compensation Committee, the execution and delivery on behalf of the Company of such amendments of any employee benefit plan of the Company or any of its subsidiaries, and the execution and delivery on behalf of the Company of such amendments of any employee benefit plan of the Company or any of its subsidiaries, and the execution and delivery on behalf of such other agreements and instruments, as may be necessary or advisable in connection therewith. EX-10.13 5 Exhibit 10.13 AGREEMENT OF TRUST This Agreement made as of August 16, 1996 (the "EFFECTIVE DATE"), by and between Mallinckrodt Group Inc. (the "COMPANY") and Wachovia Bank of North Carolina, N.A. (the "TRUSTEE"). WHEREAS, the Company has adopted the following nonqualified deferred compensation plans and arrangements: the Supplemental Executive Retirement Plan of Mallinckrodt Group Inc., the Supplemental Executive Retirement Plan for Officers of International Minerals & Chemical Corporation and the deferral arrangements under the Management Incentive Compensation Plan (the "PLANS"), copies of which are attached hereto as Appendix A; WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; WHEREAS, the parties have previously established trusts and entered into trust agreements (the "Prior Trust Agreements") with respect to the Plans and with respect to the following plans and arrangements of the Company: Long Term Performance Incentive Plan, Contingent Employment Agreements, Gross Up of Excess Compensation Agreements, 1973 Stock Option and Award Plan and the 1981 Incentive Stock Option Plan (the "Additional Plans"); WHEREAS, the Company desires to terminate the trust and Trust Agreements with respect to the Additional Plans; WHEREAS, the Company wishes to combine the Prior Trust Agreements and trust with respect to the Plans and to adopt this Agreement and establish a new trust (hereinafter called the "TRUST") and, in accordance with the terms of the Trust, to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event the Company becomes "Insolvent" (as defined in Section 3(a)), until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that the Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. ESTABLISHMENT OF TRUST (a) The Company hereby deposits with the Trustee in trust $100, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established is revocable by the Company. The Trust shall become irrevocable upon a "Change in Control" (as defined below in Section 1(g)) unless, pursuant to Section 1(f), the Trust is not funded. Following a "Potential Change in Control" (as defined below in Section 1(h)), the Trust may not be revoked unless a Change in Control has not occurred during the one (1) year period following such Potential Change in Control or the Trust is revoked pursuant to Section 1(f). (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of participants in the Plans and their beneficiaries (collectively, the "PARTICIPANTS"), for fees and reasonable expenses of the Trustee and for general creditors of the Company as herein set forth. Participants shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Participants against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event the Company becomes "Insolvent" (as defined in Section 3(a)). (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property (of the type specified in Section 5(a)) in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Except as provided herein, neither the Trustee nor any Participant shall have any right to compel additional deposits. (f) Immediately prior to or upon a Change in Control, the Company shall make an irrevocable contribution to the Trust in an amount in cash or other property (of the type specified in Section 5(a)) that is sufficient to pay each Participant (determined by allocations to separate accounts for each Participant) the accrued benefits (the "BENEFITS") to which such Participant and such Participant's spouse would be entitled under the Plans as of such date (the "REQUIRED FUNDING AMOUNT"), unless prior to such Change in Control, a majority of the remaining members of the "Incumbent Board" (as defined below) shall have approved a resolution (the "BOARD RESOLUTION") stating that, in light of the circumstances relating to the specific Change in Control in question (including any other contractual steps taken to protect benefits), the Board of Directors of the Company (the "BOARD) has determined that it is not necessary to fund the Trust to protect the Participants' benefits under the Plans. In the event that the Required Funding Amount is not contributed to the Trust, pursuant to a Board Resolution as set forth in the immediately preceding sentence, unless the Board Resolution provides otherwise the Trust shall terminate, and any assets in the Trust shall be distributed to the Company, unless otherwise required by applicable law. Upon making such distribution, the Trustee shall be relieved from all further liability to make payments from the Trust. In the event the Board Resolution permits the Trust to remain in effect following a Change in Control pursuant to which the Trust is not funded, the Trust may become irrevocable with respect to a subsequent Change in Control of the Company. Concurrently with the contribution of the Required Funding Amount, the Company shall also deposit $250,000 in cash to a separate account of the Trust (the "TRUSTEE EXPENSE ACCOUNT"), which account shall be used to reimburse the Trustee for its fees and reasonable expenses hereunder as provided in Section 9. (g) For purposes of this Agreement, "CHANGE IN CONTROL" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "COMPANY VOTING SECURITIES"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary of the Company, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary of the Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), or (E) except as provided in (iii) below, in which Company Voting Securities are acquired from the Company, if a majority of the Board approves a resolution providing expressly that such acquisition does not constitute a Change in Control under this paragraph (i); (ii) individuals who, on April 19, 1996, constitute the Board (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to April 19, 1996, whose election, or nomination for election, by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction requiring the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company (a "BUSINESS COMBINATION"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the Company's assets) eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Company Voting Securities (a "COMPANY 20% STOCKHOLDER") becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 20% Stockholder increases its percentage of such total voting power, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the approval of the Board of the execution of the initial agreement providing for such Business Combination (a "NON-CONTROL TRANSACTION"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; PROVIDED, THAT if a Change in Control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a Change in Control of the Company shall occur. (h) For purposes of this Agreement, a "POTENTIAL CHANGE in Control" means a potential Change in Control of the Company, which shall be deemed to have occurred if the conditions set forth in any one of the following three (3) paragraphs shall have been satisfied: (1) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company; (2) any person publicly announces an intention to take actions which, if consummated, would constitute a Change in Control of the Company; or (3) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. The Chief Executive Officer or the General Counsel of the Company (or any designee) shall notify the Trustee of the occurrence of a Change in Control or Potential Change in Control, and the Trustee may rely on such notice. The Trustee may in its sole discretion determine that a Change in Control or Potential Change in Control has occurred based on any other actual notice of such a Change in Control or Potential Change in Control which the Trustee may receive. (i) Within thirty (30) days following the end of each calendar year ending after the Trust has become irrevocable pursuant to Section 1(b) hereof, the Company shall be required to irrevocably deposit additional cash or other property (of the type specified in Section 5(a)) to the Trust in an amount so that each Participant's separate account is allocated an amount sufficient to pay such Participant's Benefits accrued as of the end of such calendar year pursuant to the terms of the Plans. In the event any fees or expenses are paid from the Trust (pursuant to Section 9(a)), the Company shall repay such amounts to the Trust within five (5) business days of such payment. Section 2. PAYMENT SCHEDULE; PAYMENTS TO PARTICIPANTS (a) Within thirty (30) days following the Effective Date, the Company shall deliver to the Trustee a schedule (the "PAYMENT SCHEDULE") that indicates the amounts payable in respect of each Participant (and provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable), the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Such Payment Schedule shall be updated on an annual basis prior to the delivery of the Required Funding Amount. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (b) The Company shall deliver to the Trustee, concurrently with its delivery of the Required Funding Amount pursuant to Section 1(f) hereof, a revised Payment Schedule indicating the amounts being transferred in respect of each Participant. The Payment Schedule (or the portion thereof relating to the respective Participant) also shall be delivered by the Company to each such Participant. A modified Payment Schedule shall be delivered by the Company (x) to the Trustee and to each Participant at each funding date specified by Section 1(i) for the determination of whether additional amounts must be contributed to the Trust, and (y) to the Trustee and to the affected Participant upon the occurrence of any event requiring a modification of the Payment Schedule (e.g., the termination of the employment of a Participant). Except as otherwise provided herein, the Trustee shall make payments of Benefits under the Plans to the Participants, in cash, in accordance with such Payment Schedule. (c) Subsequent to the delivery of modified Payment Schedules under Section 2(b), the Trustee shall have the responsibility of reviewing such Payment Schedules within forty-five (45) days following receipt and, if it determines that any such Payment Schedules are inaccurate, modifying such Payment Schedules accordingly. Additionally, if a Payment Schedule is modified, the Company shall be required to irrevocably deposit additional cash to the Trust in an amount sufficient to provide the Benefits set forth on such Payment Schedule, as modified by the Trustee. The Company shall assist the Trustee, and the Trustee may seek assistance from independent third parties, including but not limited to actuaries retained by the Trustee, as may be necessary in order to permit distributions from the Trust to be made in accordance with this Agreement or to determine the accuracy of any Payment Schedule. The Company shall keep accurate books and records with respect to the eligibility of employees to participate in the Plans and the Benefits due under the Plans which may be payable under the Trust, provide such information to the Trustee and any independent third party referred to in the immediately preceding sentence and provide access to such books and records at such time or times as the Trustee shall reasonably request. In addition to the review by the Trustee described above, in the event that a Participant reasonably believes that the Payment Schedule, as modified upon a Change in Control pursuant to Section 2(b), does not properly reflect the amount payable to such Participant or the time or form of payment from the Trust corpus in respect of the Plan, such Participant shall be entitled to deliver to the Trustee an affidavit (the "PARTICIPANT'S NOTICE") setting forth payment instructions for the amount the Participant believes will be or is due under the relevant terms of the Plan. The Participant shall also deliver a copy of the Participant's Notice to the Company within five (5) business days following the date the Participant's Notice is delivered to the Trustee. Unless the Trustee receives written objection from the Company within ten (10) business days after receipt by the Trustee of the Participant's Notice, or the Trustee determines in its sole and absolute discretion that the Participant's Notice is incorrect, the Trustee shall require the Company to deliver to the Trust amounts in addition to the Required Funding Amount (or make the distribution of Benefits) in accordance with the instructions set forth in the Participant's Notice. If the Company makes an objection during the ten (10) business days referred to in the preceding sentence, the Trustee shall not require additional contributions and/or shall retain any disputed amounts pending the determination of an arbitrator pursuant to Section 14 hereof. (d) The entitlement of a Participant to Benefits under the Plan shall initially be determined by the Company or such party as it shall designate under the Plan, and any claim for such Benefits by a Participant shall be considered and reviewed by the Trustee in connection with its duties hereunder; PROVIDED, HOWEVER, that subsequent to a Change in Control which results in the Trust becoming irrevocable, the Trustee shall have sole discretion in determining the entitlement of Participants to Benefits. (e) The Company may make payment of Benefits directly to Participants as Benefits become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of Benefits directly prior to the time amounts are payable to Participants. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of Benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company when principal and earnings are not sufficient. (f) Except as otherwise provided herein, in the event of any final determination by the Internal Revenue Service or a court of competent jurisdiction which determination is not appealable or the time for appeal or protest of which has expired, or the receipt by the Trustee of a substantially unqualified opinion of tax counsel selected by the Trustee, which determination determines, or which opinion opines, that any Participant is subject to Federal income taxation on amounts held in trust hereunder prior to the distribution to the Participant of such amounts, the Trustee shall, on receipt by the Trustee of such opinion or notice of such determination, pay to such Participant the portion of the Trust corpus includible in such Participant's Federal gross income and, to the extent of such payment, the Company's obligation to the Participant for Benefits under the Plan shall be cancelled. Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO PARTICIPANTS WHEN THE COMPANY IS INSOLVENT (a) The Trustee shall cease payment of Benefits to Participants if and when the Company becomes Insolvent. The Company shall be considered "INSOLVENT" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Company's Chief Executive Officer shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine by written inquiry to the Chief Executive Officer whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of Benefits to Participants. (2) Unless the Trustee has actual knowledge that the Company is Insolvent, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Participants and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Participants to pursue their rights as general creditors of the Company with respect to Benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of Benefits to Participants in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent or is no longer Insolvent. (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of Benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Participants by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. PAYMENTS TO THE COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before the payment of all Benefits have been made to Participants pursuant to the terms of the Plans; PROVIDED, THAT, upon the completion of payments to a Participant under the Plans, Trust assets attributable to such Participant shall be returned to the Company unless Trust assets attributable to any other Participant are insufficient to pay such Participant's accrued Benefits, in which case assets necessary to provide for such Benefits shall be allocated to such other Participants and the remainder shall be returned to the Company. Section 5. TRUSTEE INVESTMENT AND ADMINISTRATIVE AUTHORITY (a) The Trust corpus shall be held, invested and reinvested as determined by the Trustee in cash or marketable securities only in accordance with the parameters set forth in this Section 5. The Trustee shall use its good faith efforts to invest or reinvest from time to time all or such part of the Trust corpus as it believes prudent under the circumstances (taking into account, among other things, anticipated cash requirements for the payment of Benefits) in either one or a combination of the following investments: (1) direct obligations of the United States of America or agencies of the United States of America or obligations unconditionally and fully guaranteed as to principal and interest by the United States of America, in each case maturing within one year or less from the date of acquisition; (2) negotiable certificates of deposit (in each case maturing within one (1) year or less from the date of acquisition) issued by a commercial bank organized and existing under the laws of the United States of America or any state thereof having a combined capital and surplus of at least $1,000,000,000; and (3) mutual or commingled funds comprised of the investments set forth in paragraphs (1) and (2) or comprised of such investments, but for longer maturity periods; PROVIDED, HOWEVER, that the Trustee shall not be liable for any failure to maximize the income earned on that portion of the Trust corpus as is from time to time invested or reinvested as set forth above, nor for any loss of income due to liquidation of any investment which the Trustee, in its sole discretion, believes necessary to make payments or to reimburse expenses under the terms of this Trust. (b) Subject to paragraph (a) above, the Trustee shall have, with respect to the Trust, the power in its discretion: (1) To retain any property at any time received by it; (2) To extend the time of payment of any obligation held in the Trust; (3) To invest and reinvest all or any specified portion of the Trust through the medium of any common, collective or commingled trust fund which has been or may hereafter be established and maintained by the Trustee, provided that prior to investing any portion of the Trust for the first time in any such common, collective or commingled trust fund, the Trustee shall advise the Company of its intent to make such an investment and furnish to the Company any information it may reasonably request with respect to such common, collective or commingled trust fund; (4) To collect and receive any and all money and other property due to the Trust and to give full discharge therefor; (5) To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust; to commence or defend suits or legal proceedings to protect any interest of the Trust; and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; (6) To determine how all receipts and disbursements shall be credited, charged or apportioned as between income and principal, and the decision of the Trustee shall be final and not subject to question by the Company or any Participant; and (7) To the extent provided in Section 2, to keep the Payment Schedule accurate and current after a Change in Control, to review and determine the amount and time of payments of Benefits and to engage such independent third parties as the Trustee may deem necessary to assist in making payment determinations and/or maintaining the Payment Schedule. (c) The Trustee shall have the power and duty generally to do all acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable for the protection of the Trust or the functioning of the Trust pursuant to this Agreement. (d) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; PROVIDED, HOWEVER, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (e) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 6. TRUST INCOME During the term of the Trust prior to a Change in Control, all income received by the Trust for such year, net of expenses and taxes, shall be returned to the Company within sixty (60) days following the end of each calendar year. During the term of the Trust subsequent to a Change in Control, all income of the Trust shall remain in the Trust, subject to distribution to Participants. Section 7. ACCOUNTING BY THE TRUSTEE (a) The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty (60) days following the end of each calendar year and within sixty (60) days following the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year, or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. (b) The Trustee will at all times maintain a separate bookkeeping account for each Participant in which it will record each asset delivered by the Company to the Trustee with respect to such Participant and each amount paid by the Trustee to each such Participant in accordance with the Payment Schedule. Within three (3) months following the delivery of the Required Funding Amount and/or any additional amounts pursuant to Section 1(f) and/or Section 1(i) hereof, the Trustee shall deliver to each Participant and the Company a current written report setting forth (a) the present value of such Participant's unpaid Benefits; (b) the aggregate present value of all unpaid Benefits; (c) the aggregate fair market value of the Trust corpus; (d) the amount deemed allocable to such Participant's account for bookkeeping purposes, computed by multiplying item (c) by the quotient of item (a) divided by item (b); (e) a record of the contributions made by the Company with respect to such Participant; and (f) a record of any amounts paid by the Trustee to such Participant in accordance with a Payment Schedule or Participant's Notice. In preparing such report, the Trustee may hire experts to assist in its efforts and rely on their advice. Section 8. RESPONSIBILITY OF THE TRUSTEE (a) The Trustee shall act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or the Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to an arbitrator pursuant to Section 14 to resolve the dispute. (b) The Company shall indemnify and hold the Trustee harmless from and against any and all losses, damages, costs, expenses or liabilities, including reasonable attorneys' fees and other costs of litigation, to which the Trustee may become subject pursuant to, arising out of, occasioned by, incurred in connection with carrying out its responsibilities under this Agreement, except for any act or omission constituting gross negligence or willful misconduct of the Trustee. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder, and have the reasonable expenses of such consultation paid out of the Trust or by the Company. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder and have its reasonable expenses paid out of the Trust or by the Company. Section 9. COMPENSATION AND EXPENSES OF THE TRUSTEE (a) Prior to the Company's contribution to the Trustee Expense Account, the Company shall pay all reasonable administrative expenses and the Trustee's fees (in accordance with the Trustee's regular schedule of fees for services, as in effect from time to time, unless the Trustee and Company otherwise agree). If not so paid by the Company, such fees and expenses shall be paid from the Trust, and the Trustee shall demand reimbursement from the Company on behalf of the Trust. (b) Subsequent to the Company's contribution to the Trustee Expense Account, payment of reasonable administrative expenses and the Trustee's fees shall be made from the Trustee Expense Account; PROVIDED, HOWEVER, that if the amounts in the Trustee Expense Account are insufficient for such payments, payment shall be made by the Company (or from the Trust) in the manner set forth in paragraph (a) of this Section 9. Section 10. RESIGNATION AND REMOVAL OF THE TRUSTEE (a) The Trustee may resign upon ninety (90) days' prior written notice to the Company, except that any such resignation shall not be effective until the Company has appointed in writing a successor Trustee, and such successor has accepted the appointment in writing. The Company shall make a good faith effort, following receipt of notice of resignation from the Trustee, to find and appoint a successor Trustee who will adhere to the obligations imposed on such successor under the terms of this Trust Agreement. (b) Subject to the following paragraph, the Company may remove the Trustee upon ninety (90) days' prior written notice to the Trustee, except that any such removal shall not be effective until the close of such notice period and (i) delivery by the Company to the Trustee of an instrument in writing appointing a successor Trustee, and (ii) an acceptance of such appointment in writing executed by such successor. (c) Upon a Change in Control, the Trustee may not be removed by the Company for three (3) years, except for fraud or gross negligence, without the approval of 80% or more of the Participants (who were employees of the Company as of the Change in Control). Section 11. APPOINTMENT OF SUCCESSOR (a) If the Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, the Company may appoint, by the effective date of the Trustee's resignation or removal, any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law and has equity in excess of one hundred million dollars ($100,000,000), as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee. (b) Notwithstanding Section 11(a) above, if the Trustee resigns or is removed for fraud or gross negligence following a Change in Control, the Company may appoint such third party only with the approval of 80% or more of the Participants (who were employees of the Company as of the Change in Control). If the Company and such Participants are unable to agree on a successor trustee within forty-five (45) days following notice of the Trustee's resignation or removal, the Trustee shall be entitled to petition a court of competent jurisdiction to appoint its successor. All reasonable expenses of the Trustee in connection with the proceeding shall be allowed as administra- tive expenses of the Trust. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within ninety (90) days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. Section 12. AMENDMENT OR TERMINATION (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof. Following a Change in Control, this Trust Agreement, except for amendments necessary to meet legal or regulatory requirements which are necessary to maintain tax-deferred status for Participants, may be amended in a manner adverse to Participants only by an instrument in writing executed by the Trustee and the Company, together with the consent of 80% of the remaining Participants (who were employees of the Company as of the Change in Control). (b) The Trust shall not terminate until the date on which Participants are no longer entitled to Benefits pursuant to the terms of the Plan unless sooner terminated in accordance with Section 1(f) hereof. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of all Participants entitled to payment of Benefits pursuant to the terms of the Plans, the Company may terminate the Trust prior to the time all payment of Benefits under the Plan have been made. All assets in the Trust at termination shall be returned to the Company. Section 13. MISCELLANEOUS (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Participants under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of New York. Section 14. ARBITRATION Any dispute between the Participants and the Company or the Trustee as to the interpretation or application of the provisions of this Trust, and any questions concerning Benefits payable hereunder, shall be determined exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Such determination shall be final, conclusive and binding upon the parties. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration reasonably incurred (including, without limitation, those incurred by the Participants that are not determined by arbitration to be in connection with a claim by the Participant that is frivolous or not in good faith) shall be reimbursed by the Company. Section 15. PRIOR TRUST AGREEMENTS. Each of the Prior Trust Agreements shall be terminated as of the Effective Date and, to the extent applicable, shall be superseded by this Agreement. Section 16. EFFECTIVE DATE The Effective Date of this Trust Agreement shall be August 16, 1996. IN WITNESS WHEREOF, this Agreement has been entered into by the parties hereto as of the 16th day of August, 1996. MALLINCKRODT GROUP INC. Date:______________________ By:______________________ Name: Title: WACHOVIA BANK OF NORTH CAROLINA, N.A. Date:______________________ By:______________________ Name: Title: EX-10.14(B) 6 Exhibit 10.14(b) MALLINCKRODT GROUP INC. CORPORATE STAFF CHANGE IN CONTROL SEVERANCE PLAN The Board of Directors has determined that it is in the best interests of the Company and its stockholders to secure the continued services of its corporate staff personnel and to ensure the continued and undivided dedication and objectivity of such personnel in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1(b)) of the Company. To encourage the full attention and dedication to the Company by such employees, the Board of Directors has authorized the Company to adopt the Mallinckrodt Group Inc. Corporate Staff Change in Control Severance Plan (the "Plan"). 1. DEFINITIONS. As used in this Plan, the following terms shall have the respective meanings set forth below: (a) "Cause" with respect to a Participant means (i) the willful and continued failure of such Participant substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Company which specifically identifies the manner in which the Company believes he has not substantially performed his duties or (ii) willful misconduct materially and demonstrably injurious to the Company. No act or failure to act by a Participant shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. The unwillingness of a Participant to accept any condition or event which would constitute Good Reason under Section 1(g) may not be considered by the Company to be a failure to perform or misconduct by the Participant. The Company must notify a Participant of an event constituting Cause within ninety (90) days following the Company's knowledge of its existence or such event shall not constitute Cause under this Plan. (b) "Change in Control" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board of Directors (the "Company Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary of the Company, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary of the Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (E) with respect to a Participant, pursuant to any acquisition by the Participant or any group of persons including the Participant; or (F) except as provided in (iii) below, in which Company Voting Securities are acquired from the Company, if a majority of the Board of Directors approves a resolution providing expressly that such acquisition does not constitute a Change in Control under this paragraph (i); (ii) individuals who, on April 19, 1996, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to April 19, 1996, whose election, or nomination for election, by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be a member of the Incumbent Board; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction requiring the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the Company's assets) eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Company Voting Securities (a "Company 20% Stockholder")) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 20% Stockholder increases its percentage of such total voting power, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the approval of the Board of the execution of the initial agreement providing for such Business Combination (a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; PROVIDED, THAT if a Change in Control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a Change in Control of the Company shall occur. Notwithstanding anything in this Plan to the contrary, if a Participant's employment is terminated prior to a Change in Control, and the Participant reasonably demonstrates that such termination was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and who effectuates a Change in Control, then for all purposes of this Plan, the date of a Change in Control shall mean the date immediately prior to the date of such termination of employment. (c) "Company" means Mallinckrodt Group Inc., a New York corporation. (d) "Date of Termination" means the date on which a Participant's employment with the Company terminates. In the event a Participant's employment is terminated in connection with a request by a Third Party (as described in Sections 1(b) and 1(g)) and such Participant becomes entitled upon the effectuation of a Change in Control by the Third Party to severance payments and/or benefits under Sections 2(a) and/or 2(b), the date the Change in Control is effectuated by the Third Party shall be treated as the Participant's Date of Termination for purposes of determining the timing of payments and benefits under Sections 2(a) and 2(b). (e) "Disability" means physical or mental incapacity qualifying the Participant for long-term disability under the Company's long-term disability plan. (f) "Effective Date" shall mean April 19, 1996. (g) "Good Reason" means, without a Participant's express written consent, the occurrence of any of the following events after a Change in Control: (1) (i) the assignment to a Participant of any duties or responsibilities (including reporting responsibilities) inconsistent in any material and adverse respect with the Participant's duties and responsibilities with the Company immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities); PROVIDED, HOWEVER, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity, and does not involve any other event set forth in this paragraph (g) or (ii) a material and adverse change in the Participant's titles or offices with the Company as in effect immediately prior to such Change in Control. (2) a reduction by the Company in the Participant's rate of annual base salary or target annual bonus opportunity as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) notwithstanding the Participant's objection, be based anywhere more than fifty (50) miles from the location where the Participant's employment is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control (including the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan), unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, (ii) provide the Participant and the Participant's dependents with welfare benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control or provide substantially comparable benefits at a substantially comparable cost to the Participant, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or provide substantially comparable fringe benefits, or (iv) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control (including crediting the Participant with all service credited to the Participant for such purpose prior to the Change in Control), unless the failure to provide such paid vacation is a result of a policy uniformly applied by the entity acquiring the Company to its employees; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 6(b). Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by a Participant shall not constitute Good Reason for such Participant. Any event or condition described in this Section 1(g)(1) through (4) which occurs prior to a Change in Control, but was at the request of a Third Party who effectuates a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control. A Participant must notify the Company of an event constituting Good Reason within ninety (90) days following such Participant's knowledge of its existence or such event shall not constitute Good Reason under this Agreement. (h) "Nonqualifying Termination" means a termination of a Participant's employment (1) by the Company for Cause, (2) by the Participant for any reason other than Good Reason, (3) as a result of the Participant's death, (4) by the Company due to the Participant's Disability or (5) as a result of the Participant's Retirement. (i) "Participant" shall mean each full-time salaried employee of the Company (other than any such employee who has entered into a Change in Control Severance Agreement with the Company) who, as of immediately prior to a Change in Control, is assigned to the staff of any corporate officer serving on the "Corporate Staff Team" of the Company. If, following a Change in Control, a Participant remains employed by the Company, but ceases to be assigned to the staff of a member of the "Corporate Staff Team"(other than due to an event which constitutes Good Reason hereunder), such employee shall cease to be a Participant hereunder. (j) "Retirement" means termination of employment by either the Participant or the Company (other than for Cause) on or after the Participant's normal retirement date under the terms of the Retirement Plan (other than if any such Retirement also constitutes Good Reason). (k) "Retirement Plan" means The Mallinckrodt Retirement Plan or any successor or substitute plan or plans of the Company. (l) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. (m) "Termination Period" means the period of time beginning with a Change in Control and ending three (3) years following such Change in Control. (n) "Year of Service" means a 12-month continuous period of employment with the Company or any Subsidiary (or any entity with respect to which service credit is given under this Plan). 2. PAYMENTS UPON TERMINATION OF EMPLOYMENT. If during the Termination Period the employment of a Participant shall terminate other than by reason of a Nonqualifying Termination, then the Company shall provide the following payments and benefits to such Participant: (a) Commencing with the first payroll period following the Participant's Date of Termination, the Company shall pay such Participant's base salary (at the highest annual rate of base salary earned by the Participant during the 12-month period immediately preceding such Participant's Date of Termination), for a period equal to one (1) month for each full Year of Service of the Participant (as of such Participant's Date of Termination), up to a maximum of twelve (12) months, pursuant to the Company's normal payroll practices. (b) During the Severance Period, the Company shall provide the Participant (and the Participant's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including cost of coverage) as existed immediately prior to the Participant's Date of Termination (or, if more favorable to the Participant, as such benefits and terms and conditions existed immediately prior to the Change in Control); PROVIDED, THAT, if the Participant cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, if the Participant becomes reemployed with another employer and is eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Participant's eligibility, but the Company shall reimburse the Participant for any increased cost and provide any additional benefits necessary to give the Participant the benefits promised hereunder. (c) Reasonable outplacement services will be provided to the Participant. 3. WITHHOLDING TAXES. The Company may withhold from all payments due to a Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 4. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all reasonable legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute regardless of the result thereof; provided, that the Participant signs a written agreement to the effect that in the event it is determined in an arbitration proceeding that such Participant's basis for a contest or dispute was frivolous and not advanced in good faith, the Participant shall be obligated to return to the Company any such reimbursed legal fees and expenses within sixty (60) days following the determination. 5. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle any Participant to continued employment with the Company or its Subsidiaries. 6. SUCCESSORS. (a) This Plan shall not be terminated by any Business Combination. In the event of any Business Combination, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any Business Combination, it will cause any successor or transferee unconditionally to assume all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any Business Combination that does not constitute a Non-Control Transaction shall constitute Good Reason hereunder and shall entitle each Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by any Participant. (c) If a Participant shall die following his Date of Termination while any amounts would be payable to the Participant hereunder had the Participant continued to live (i.e., the payments due for the balance of the Severance Period), all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 7. FULL SETTLEMENT. The Company's obligation to make any payments provided for under this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against a Participant or others. In no event shall the Participant be obligated to seek other employment or take other action by way of mitigation of the amounts payable to such Participant under any of the provisions of this Plan and, except as provided in Section 2(b), such amounts shall not be reduced whether or not such Participant obtains other employment. 8. TERMINATION OR AMENDMENT OF PLAN. (a) Subject to paragraph (b) below, this Plan shall be in effect as of the Effective Date and shall terminate upon the fifth anniversary of the Effective Date unless terminated at an earlier date by the Board of Directors; PROVIDED, HOWEVER, that the Plan shall be renewed automatically for subsequent annual periods unless the Board of Directors, by resolution adopted at least six (6) months prior to such fifth anniversary of the Effective Date (or any subsequent anniversary thereof), takes action not to renew the Plan. (b) The Board of Directors shall have the right prior to a Change in Control to approve the termination or amendment of this Plan, in its sole discretion; PROVIDED, HOWEVER, that no such action which would adversely affect the rights or potential rights of Participants (including any resolution not to renew the Plan) shall be taken by the Board of Directors during any period of time when the Board of Directors has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board of Directors, such person has abandoned or terminated its efforts to effect a Change in Control; PROVIDED, FURTHER, that notwithstanding anything in paragraph (a) of this Section 8 to the contrary, in no event shall this Plan be terminated or amended within the three-year period following a Change in Control in any manner which would adversely affect the rights or potential rights of Participants, and in no event shall this Plan be amended or terminated at any time subsequent to a Change in Control in any manner which would adversely affect the rights of Participants who have become entitled to benefits under this Plan. 9. GOVERNING LAW; VALIDITY. The validity, interpretation, and enforcement of this Plan shall be governed by the law of the State of New York. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 10. ARBITRATION. If elected or consented to by a Participant in writing, any dispute or controversy under this Plan shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 10. EX-11.2 7 Exhibit 11.2
EARNINGS PER SHARE FULLY DILUTED COMPUTATION Years Ended June 30, 1996, 1995 and 1994 ($ in millions except share and per share amounts) 1996 1995 1994 ------ ------ ------- Basis for computation of earnings per common and common equivalent shares: Earnings from continuing operations $191.2 $163.9 $ 87.9 Deduct dividends on 4 Percent cumulative preferred stock (.4) (.4) (.4) ------- ------- ------- Earnings from continuing operations available for common shareholders 190.8 163.5 87.5 Discontinued operations 20.7 16.4 15.9 ------- ------- ------- Available for common shareholders $211.5 $179.9 $103.4 ======= ======= ======= Number of common and common equivalent shares: Weighted average shares outstanding 75,183,729 76,687,154 76,809,532 Shares issuable upon exercise of stock options, net of shares assumed to be repurchased 1,309,994 1,089,504 882,368 ---------- ---------- ---------- 76,493,723 77,776,658 77,691,900 ========== ========== ========== Earnings per common and common equivalent share: Continuing operations $2.49 $2.10 $1.13 Discontinued operations .27 .21 .20 ------ ------ ------ Net earnings $2.76 $2.31 $1.33 ====== ====== ======
EX-21 8 Exhibit 21 Mallinckrodt Group Inc. Exhibit 21 1996 LEGAL ENTITY MASTER FILE LEGAL NAME JURISDICTION - -------------------------------------------- -------------------------- Alton Dean Medical, Inc. UTAH Ark Products Limited UNITED KINGDOM Beheersmaatschappij Fijneman B.V. (B.V. 1) NETHERLANDS Carnforth Limited BERMUDA Commerical Solvents de Mexico S.A. de C.V. MEXICO Coopers Animal Health Limited UNITED KINGDOM Coopers Animal Health (Holdings) Limited UNITED KINGDOM Coopers Uruguay S.A. URUGUAY Coromandel Fertilisers Ltd. INDIA Creative Solutions Industria e Comercio Ltda. BRAZIL Dittander Limited IRELAND Dritte CORSA Verwaltungsgesellshaft GmbH GERMANY Fries & Fries Holdings (U.K.) Ltd. UNITED KINGDOM Fries & Fries, Inc. DELAWARE HemoCue AB SWEDEN HemoCue, Inc. CALIFORNIA IMC Exploration Company MARYLAND IMCERA Ltd. UNITED KINGDOM Laboratoires Mallinckrodt Medical S.A. FRANCE LF International BARBADOS Liebel-Flarsheim DELAWARE Malinckrodt Baker B.V. NETHERLANDS Mallinckrodt Athlone Holdings, Inc. DELAWARE Mallinckrodt Baker Distribution BV NETHERLANDS Mallinckrodt Baker S.A. de C.V. MEXICO Mallinckrodt Baker, Inc. NEW JERSEY Mallinckrodt Chemical Australia Pty. Limited AUSTRALIA Mallinckrodt Chemical Belgium B.V.B.A. BELGIUM Mallinckrodt Chemical Canada Inc. CANADA Mallinckrodt Chemical GmbH GERMANY Mallinckrodt Chemical Holdings GmbH GERMANY Mallinckrodt Chemical Holdings (U.K.) Ltd. UNITED KINGDOM Mallinckrodt Chemical Limited UNITED KINGDOM Mallinckrodt Chemical, Inc. DELAWARE Mallinckrodt FSC Inc. BARBADOS Mallinckrodt Group Inc. DELAWARE Mallinckrodt Group Inc. NEW YORK Mallinckrodt Iberica S.A. SPAIN Mallinckrodt International Corporation MISSOURI Mallinckrodt Medical IRELAND Mallinckrodt Medical AG SWITZERLAND Mallinckrodt Medical Argentina Limited UNITED KINGDOM Mallinckrodt Medical Asia Pacific Pte. Ltd. SINGAPORE Mallinckrodt Medical B.V. HOLLAND Mallinckrodt Medical Caribe, Inc. DELAWARE Mallinckrodt Medical Co., Ltd. JAPAN Mallinckrodt Medical do Brasil, Ltda. BRAZIL Mallinckrodt Medical GmbH GERMANY Mallinckrodt Medical Holdings GmbH GERMANY Mallinckrodt Medical Holdings Ireland IRELAND Mallinckrodt Medical Holdings (U.K.) Limited UNITED KINGDOM Mallinckrodt Medical Holdings (U.K.) Ltd. UNITED KINGDOM Mallinckrodt Medical Imaging - Ireland IRELAND Mallinckrodt Medical International Holdings IRELAND Mallinckrodt Medical Isle of Man ISLE OF MAN Mallinckrodt Medical Lda. PORTUGAL Mallinckrodt Medical PMC NEVADA Mallinckrodt Medical Pty. Ltd. AUSTRALIA Mallinckrodt Medical S.A. FRANCE Mallinckrodt Medical S.A. SPAIN Mallinckrodt Medical S.A. de C.V. MEXICO Mallinckrodt Medical S.A./N.V. BELGIUM Mallinckrodt Medical S.p.A. ITALY Mallinckrodt Medical Vertriebs-GmbH AUSTRIA Mallinckrodt Medical (U.K.) Limited UNITED KINGDOM Mallinckrodt Medical, Inc. CANADA Mallinckrodt Medical, Inc. DELAWARE Mallinckrodt Radiopharma GmbH GERMANY Mallinckrodt Sensor Systems, Inc. DELAWARE Mallinckrodt TMH NEVADA Mallinckrodt Vet GmbH GERMANY Mallinckrodt Vet Limitada BRAZIL Mallinckrodt Vet S.A. PARAGUAY Mallinckrodt Veterinaire S.A. FRANCE Mallinckrodt Veterinaria Limitada PORTUGAL Mallinckrodt Veterinaria SpA ITALY Mallinckrodt Veterinaria S.A. SPAIN Mallinckrodt Veterinary Aps DENMARK Mallinckrodt Veterinary Asia, Inc. DELAWARE Mallinckrodt Veterinary BV NETHERLANDS Mallinckrodt Veterinary Colombia Holdings, Inc. PANAMA Mallinckrodt Veterinary Holdings Limited UNITED KINGDOM Mallinckrodt Veterinary International Colombia Holdings, Inc. PANAMA Mallinckrodt Veterinary International, Inc. DELAWARE Mallinckrodt Veterinary Limited AUSTRALIA Mallinckrodt Veterinary Limited HONG KONG Mallinckrodt Veterinary Limited IRELAND Mallinckrodt Veterinary Limited NEW ZEALAND Mallinckrodt Veterinary Limited THAILAND Mallinckrodt Veterinary Limited UNITED KINGDOM Mallinckrodt Veterinary NV BELGIUM Mallinckrodt Veterinary Operations SDN. BHD. MALAYSIA Mallinckrodt Veterinary Operations Ltd. IRELAND Mallinckrodt Veterinary Operations, Inc. DELAWARE Mallinckrodt Veterinary Pensions Limited IRELAND Mallinckrodt Veterinary Pensions Limited UNITED KINGDOM Mallinckrodt Veterinary PTE Ltd. SINGAPORE Mallinckrodt Veterinary SA GREECE Mallinckrodt Veterinary SDN. BHD. MALAYSIA Mallinckrodt Veterinary Superannuation PTY Limited AUSTRALIA Mallinckrodt Veterinary Superannuation PTY Limited NEW ZEALAND Mallinckrodt Veterinary (UK) Limited UNITED KINGDOM Mallinckrodt Veterinary, Inc. CANADA Mallinckrodt Veterinary, Inc. DELAWARE Mallinckrodt Veterinary, Inc. PHILIPPINES Mallinckrodt Veterinary, Inc. TAIWAN Mallinckrodt Vet, S. A. COLOMBIA Mallinckrodt Vet, S.A. ARGENTINA Mallinckrodt Vet, S.A. VENEZUELA Mallinckrodt Vet, S.A.de C.V. MEXICO MMHC, Inc. DELAWARE MMI, Inc. DELAWARE MMJ S.A. de C.V. MEXICO Molecular Biosystems, Inc. DELAWARE MSCH Company DELAWARE National Catheter Corporation NEW YORK Paracet Laboratories, Inc. DELAWARE Pitman-Moore Animal Health Limited NEW ZEALAND Pitman-Moore Argentina S.A. ARGENTINA Sterlington Land Co. DELAWARE Synbiotics Corporation CALIFORNIA Syntro Corporation DELAWARE Syntro Zeon, L.C. KANSAS SyntroVenture Corporation KANSAS SyntroVet Incorporated KANSAS Tastemaker DELAWARE Tastemaker Holdings Ltd. UNITED KINGDOM Tastemaker Limited UNITED KINGDOM Tastemaker, Inc. CANADA Tastemaker, S.A. MEXICO EX-23.1 9 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following registration statements and related prospectuses filed by Mallinckrodt Group Inc. under the Securities Act of 1933 of our report dated August 7, 1996 with respect to the consolidated financial statements of Mallinckrodt Group Inc. included in this Annual Report on Form 10-K for the year ended June 30, 1996: Commission File No. --------------------------- Form S-8, No. 2-65727 Form S-8, No. 2-72455 Form S-8, No. 2-70868 Form S-8, No. 2-80553 Form S-8, No. 2-90910 Form S-8, No. 2-94151 Form S-8, No. 33-10381 Form S-8, No. 33-32109 Form S-8, No. 33-40246 Form S-3, No. 33-43925 Form S-3, No. 33-47081 Form S-3, No. 33-57821 St. Louis, Missouri September 23, 1996 EX-27 10
5 This schedule contains summary financial information extracted from the balance sheet and income statement, and is qualified in its entirety by reference to such financial schedules. 1,000,000 YEAR JUN-30-1996 JUN-30-1996 546 0 467 13 470 1,571 1,581 545 3,406 1,212 576 0 11 87 1,134 3,406 2,210 2,210 1,193 1,880 0 0 59 303 112 191 21 0 0 212 2.77 2.76
EX-10.18 11 EXHIBIT 10.18 EXECUTION COPY $550,000,000 CREDIT AGREEMENT dated as of May 22, 1996 among Mallinckrodt Group Inc. The Banks Listed Herein Morgan Guaranty Trust Company of New York, as Administrative Agent Citibank, N.A. as Documentation Agent _________________________ Bank of America Illinois, The Chase Manhattan Bank, N.A. and The First National Bank of Chicago Co-Agents J.P. Morgan Securities Inc. and Citibank Securities, Inc. Co-Syndication Agents J.P. Morgan Securities Inc. Arranger TABLE OF CONTENTS* (*The Table of Contents is not a part of this Agreement.) Page ARTICLE 1 DEFINITIONS 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Accounting Terms and Determinations . . . . . . . . . . . . . . 15 1.3. Types of Borrowings . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE 2 THE CREDITS 2.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . 16 2.2. Notice of Committed Borrowing . . . . . . . . . . . . . . . . . 16 2.3. Money Market Borrowings . . . . . . . . . . . . . . . . . . . . 17 2.4. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . 21 2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.6. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . 23 2.7. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . 23 2.8. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.9. Optional Termination or Reduction of Commitments. . . . . . . . 27 2.10. Method of Electing Interest Rates . . . . . . . . . . . . . . . 27 2.11. Scheduled Termination of Commitments. . . . . . . . . . . . . . 29 2.12. Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . 29 2.13. General Provisions as to Payments . . . . . . . . . . . . . . . 29 2.14. Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . 30 2.15. Computation of Interest and Fees. . . . . . . . . . . . . . . . 31 2.16. Regulation D Compensation . . . . . . . . . . . . . . . . . . . 31 ARTICLE 3 CONDITIONS 3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.2. Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 33 4.2. Financial Condition . . . . . . . . . . . . . . . . . . . . . . 33 4.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.4. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.5. Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.6. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.7. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.9. Investment Company Act. . . . . . . . . . . . . . . . . . . . . 36 4.10. Public Utility Holding Company Act. . . . . . . . . . . . . . . 36 4.11. True and Complete Disclosure. . . . . . . . . . . . . . . . . . 36 4.12. Environmental Matters . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 5 COVENANTS 5.1. Financial Statements, Etc. . . . . . . . . . . . . . . . . . . 37 5.2. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3. Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 40 5.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.5. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . 41 5.6. Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.7. Change in Nature of Business. . . . . . . . . . . . . . . . . . 44 5.8. Total Debt to Total Capital Ratio . . . . . . . . . . . . . . . 44 5.9. Indebtedness of Subsidiaries. . . . . . . . . . . . . . . . . . 44 5.10. Transactions with Affiliates. . . . . . . . . . . . . . . . . . 44 5.11. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 45 5.12. Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . 45 5.13. Most Favored Lender . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 6 DEFAULTS 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . 46 6.2. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 7 THE AGENTS 7.1. Appointment and Authorization . . . . . . . . . . . . . . . . . 49 7.2. Agent and Affiliates. . . . . . . . . . . . . . . . . . . . . . 49 7.4. Consultation with Experts . . . . . . . . . . . . . . . . . . . 50 7.5. Liability of Agent. . . . . . . . . . . . . . . . . . . . . . . 50 7.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 50 7.7. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . 51 7.8. Successor Administrative Agent. . . . . . . . . . . . . . . . . 51 7.9. Agents' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.10. Documentation Agent and Co-Agents . . . . . . . . . . . . . . . 51 ARTICLE 8 CHANGE IN CIRCUMSTANCES 8.1. Basis for Determining Interest Rate Inadequate or Unfair. . . . 52 8.2. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . 53 8.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . . 57 8.6. Substitution of Bank. . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 9 MISCELLANEOUS 9.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.2. No Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 9.3. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . 59 9.4. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . 59 9.5. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 60 9.6. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 60 9.7. Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9.8. Governing Law; Submission to Jurisdiction . . . . . . . . . . . 62 9.9. Counterparts; Integration; Effectiveness. . . . . . . . . . . . 63 9.10. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . 63 9.11. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 63 9.12. Termination of Existing Credit Agreements . . . . . . . . . . . 63 PRICING SCHEDULE EXHIBIT A - Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT B - Money Market Quote Request . . . . . . . . . . . . . . . . 1 EXHIBIT C - Invitation for Money Market Quotes . . . . . . . . . . . . 1 EXHIBIT D - Money Market Quote . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT E - Opinion of Counsel for the Borrower. . . . . . . . . . . . 1 EXHIBIT F - Opinion of Special Counsel for the Agents. . . . . . . . . 1 EXHIBIT G - Assignment and Assumption Agreement. . . . . . . . . . . . 1 AGREEMENT dated as of May 22, 1996 among MALLINCKRODT GROUP INC., the BANKS party hereto from time to time, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and CITIBANK, N.A., as Documentation Agent. 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). "Administrative Agent" means Morgan Guaranty Trust Company of New York, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Borrower and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event, any Person that owns directly or indirectly securities having 15% or more of the voting power for the election of directors or other governing body of a corporation or 15% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Borrower or any of its Subsidiaries and (b) none of the Subsidiaries of the Borrower shall be Affiliates. "Agent" means each of the Administrative Agent and the Documentation Agent. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.7(b). "Assignee" has the meaning set forth in Section 9.6(c). "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors. "Bankruptcy Code" means the United States Bankruptcy Code of 1978, as amended from time to time. "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 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "Borrower" means Mallinckrodt Group Inc., a New York corporation, and its successors. "Borrowing" has the meaning set forth in Section 1.3. "Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "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" means a rate per annum determined in accordance with the Pricing Schedule. "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 The Chase Manhattan Bank N.A., Citibank, N.A., The First National Bank of Chicago and Morgan Guaranty Trust Company of New York. "Closing Date" means the date on or after the Effective Date on which the Administrative Agent shall have received the documents specified in or pursuant to Section 3.1. "Co-Agents" means Bank of America Illinois, The Chase Manhattan Bank, N.A., and The First National Bank of Chicago, in their capacity as co-agents hereunder. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages hereof, and with respect to any Bank which becomes a party to this Agreement pursuant to Section 9.6(c), the amount of the Commitment thereby assumed by such Bank, in each case as such amount may be reduced from time to time pursuant to Sections 2.9 and 9.6(c) or increased pursuant to Section 9.6(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. "Consolidated Net Worth" means, as at any date, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of capital stock, PLUS (b) the amount of capital in excess of par value, PLUS (c) the amount of reinvested earnings (or in the case of a reinvested earnings deficit, MINUS the amount of such deficit), MINUS (d) the cost of treasury stock. "Covenant" means, with respect to any agreement or instrument representing or governing Indebtedness, any covenant (whether expressed as a covenant or an event of default) contained therein. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Documentation Agent" means Citibank, N.A. in its capacity as documentation agent for the Banks hereunder. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the 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). "Effective Date" means the date this Agreement becomes effective in accordance with Section 9.9. "Environmental Claim" means, with respect to any Person, (a) any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" means any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Affiliate" means any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Borrower is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Borrower is a member. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "Euro-Dollar Loan" means (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" means a rate per annum determined in accordance with the Pricing Schedule. "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.7(c) on the basis of a London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of The Chase Manhattan Bank N.A., Citibank, N.A., The First National Bank of Chicago and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.1. "Existing Credit Agreement" has the meaning specified in Section 3.1(e). "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 Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "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 8.1) or any combination of the foregoing. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.2 hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "Group of Loans" means at any time a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar Loans having the same Interest Period at such time or (iii) all CD Loans having the same Interest Period at such time, provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.2 or 8.5, 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" means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise directly or indirectly to be or become contingently liable under or with respect to, the Indebtedness of any Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "Hazardous Material" means collectively, (a) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Indebtedness" means, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within one year of the date the respective goods are delivered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person under any contract for the purchase of materials, supplies or other Property or the rendering of services if such contract (or any related document) requires that payment for such materials, supplies or other Property or services shall be made regardless of whether or not delivery of such materials, supplies or other Property is ever made or tendered or such services are ever rendered; (e) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person (other than commercial documentary letters of credit); (f) Capital Lease Obligations of such Person; and (g) Indebtedness of others Guaranteed by such Person; PROVIDED, that Indebtedness of the Borrower and its Subsidiaries shall not include obligations of the Borrower and its Subsidiaries in respect of unfunded liabilities of the Borrower in respect of postretirement health and welfare benefits under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 106 ("Employers' Accounting for Postretirement Benefits Other Than Pensions") not in excess of $96,000,000 in the aggregate. "Indemnitee" has the meaning set forth in Section 9.3(b). "Interest Period" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the 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, the 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 Borrower may elect in the applicable notice; PROVIDED that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) 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 of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter (but not less than 1 month) as the 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 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; and (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 7 days) as the Borrower may elect in accordance with Section 2.3; 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 (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "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 Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any Property that 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 (other than an operating lease) relating to such Property. "Loan" means a Domestic Loan, a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans, Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Margin Stock" means "margin stock" within the meaning of Regulations U and X. "Material Adverse Effect" means a material adverse effect on (a) the financial condition, operations or business taken as a whole of the Borrower and its Subsidiaries, (b) the ability of the Borrower to perform its obligations hereunder and under the Notes, (c) the validity or enforceability of this Agreement or of the Notes or (d) the rights and remedies of the Banks and the Agents hereunder and under the Notes. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; PROVIDED that any Bank may from time to time by notice to the Borrower 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 to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.1). "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)(ii)(C). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.2) 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 2.10. "Operating Lease Amount" means, at any time, an amount equal to seven times the amount by which (i) the minimum rental commitments under non-cancelable operating leases of the Borrower and its Subsidiaries for the fiscal year of the Borrower and its Subsidiaries following the most recent fiscal year for which audited financial statements are available at such time, as reflected in the notes to such financial statements, exceed (ii) $50,000,000. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means an employee benefit or other plan established or maintained by the Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Date" means the last day of March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement; PROVIDED that if any such day is not a Euro-Dollar Business Day, then such Quarterly Date shall be the next succeeding Euro-Dollar Business Day (unless such Euro-Dollar Business Day falls in a subsequent calendar month, in which event such Quarterly Date shall be the next preceding Euro-Dollar Business Day). "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. "Regulations U and X" mean, respectively, Regulations U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 51% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to and excluding the Termination Date. "Subsidiary" means, as to any Person, any corporation, limited liability company partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. "Termination Date" means May 22, 2001 or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "Total Capital" means, at any time, Consolidated Net Worth plus Total Debt. "Total Debt" means, at any time, the aggregate outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries at such time (determined on a consolidated basis without duplication in accordance with GAAP). "Wholly-Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. 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 generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.3. TYPES OF BORROWINGS. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on the same date, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing, a CD Borrowing or a Money Market Borrowing (excluding any such Borrowing consisting of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1), and a "Euro-Dollar Borrowing" is a Borrowing 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). ARTICLE 2 THE CREDITS SECTION 2.1. COMMITMENTS TO LEND. During the Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.2(c)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.12 and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.2. NOTICE OF COMMITTED BORROWING. The Borrower shall give the Administrative Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, (A) specifying: (i) 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; (ii) the aggregate amount of such Borrowing; (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period; and (B) certifying that each of the conditions precedent to such Borrowing has been satisfied. SECTION 2.3. MONEY MARKET BORROWINGS. (a) THE MONEY MARKET OPTION. In addition to Committed Borrowings pursuant to Section 2.1, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received not later than 10:30 A.M. (New York City time) on (x) the 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request. (c) INVITATION FOR MONEY MARKET QUOTES. Promptly 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 substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.1 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); PROVIDED that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour 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 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested, (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, 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 D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) NOTICE TO BORROWER. The Administrative Agent shall promptly notify the 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 with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to 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 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 $10,000,000 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 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. (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 of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City 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 New York City, to the Administrative Agent at its address referred to in Section 9.1. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Bank 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 Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the 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 shall be evidenced by a single Note 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. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; PROVIDED that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.6. MATURITY OF LOANS. (a) Each Committed Loan shall mature, and the principal amount thereof shall be due and payable, on the Termination Date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount 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 until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan 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 rate otherwise applicable to Base Rate Loans 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 or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion 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 rate applicable to Base Rate Loans for such day, PROVIDED that until the end of the Interest Period applicable to such CD Loan, any such overdue principal shall bear interest at the higher of the foregoing rate and 2% plus the sum of the CD Margin plus the Adjusted CD Rate applicable to such Loan at the date such payment was due. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate 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. (New York City 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(e) (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. (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 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. 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. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day, provided that until the end of the Interest Period applicable to such Euro-Dollar Loan, any such overdue principal shall bear interest at the higher of the foregoing rate and the sum of 2% plus the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due. (e) Subject to Section 8.1, 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) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.1 shall apply. SECTION 2.8. FEES. (a) FACILITY FEE. The Borrower shall pay to the Administrative Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding the date of termination of the Commitments in their entirety, on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including such date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (b) PAYMENTS. Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Date until the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.9. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amounts of the Loans. SECTION 2.10. METHOD OF ELECTING INTEREST RATES. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the 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 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, subject to Section 2.14 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the 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, subject to Section 2.14 in the case of any such conversion or continuation effective on any day other than 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 not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted to Domestic Loans of the other type or are CD Rate Loans to be continued as CD Rate Loans for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the second Domestic Business Day 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 $10,000,000 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 the Loans being converted are to be Fixed Rate Loans, the duration of the next succeeding 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 the 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 the Borrower. If the 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. (d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section 2.10 shall not constitute a "Borrowing" subject to the provisions of Section 3.2. SECTION 2.11. SCHEDULED TERMINATION OF COMMITMENTS. The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.12. OPTIONAL PREPAYMENTS. (a) Subject in the case of any Fixed Rate Loans to Section 2.14, the Borrower may, upon at least one Domestic Business Day's notice to the Administrative Agent, prepay the Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.1), upon at least three Domestic Business Days' notice to the Administrative Agent, prepay any Group of CD Loans, or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 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 optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (b) Except as provided in subsection (a) above the Borrower may not 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 (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.1. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans or the Money Market LIBOR 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 Absolute Rate Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance 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 the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. FUNDING LOSSES. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.7(d), or if the 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) or 2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, PROVIDED that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.15. COMPUTATION OF INTEREST AND FEES. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.16. REGULATION D COMPENSATION. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Applicable Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one MINUS the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officer's certificate setting forth in reasonable detail the amount to which such Bank is then entitled under this Section 2.16 (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). ARTICLE 3 CONDITIONS SECTION 3.1. CLOSING. The closing hereunder shall occur upon receipt by the Administrative Agent of the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.5; (b) an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit E hereto; (c) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit F hereto; (d) all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; and (e) receipt by the Administrative Agent of evidence satisfactory to it that the principal and interest on all loans and accrued fees under the Existing Credit Agreement dated as of November 30, 1994 (the "Existing Credit Agreement") among the Borrower, the banks party thereto from time to time and Morgan Guaranty Trust of New York, as agent have been paid in full. The Administrative Agent shall promptly notify the Borrower and the Banks of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.2. BORROWINGS. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or prior to May 24, 1996; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.2 or 2.3, as the case may be; (c) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (d) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (e) the fact that the representations and warranties of the Borrower contained in this Agreement (except those contained in the last sentence of Section 4.2, in Section 4.3(i) and in the last sentence of Section 4.12 hereof) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.1. CORPORATE EXISTENCE. Each of the Borrower and its Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could have a Material Adverse Effect. SECTION 4.2. FINANCIAL CONDITION. (a) The Borrower has heretofore furnished to each of the Banks the consolidated balance sheet of the Borrower and its Subsidiaries as at June 30, 1995 and the related consolidated statements of earnings, cash flows and changes in shareholders' equity of the Borrower and its Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Ernst & Young LLP. All such financial statements fairly present, in all material aspects, the consolidated financial condition of the Borrower and its Subsidiaries, as at said date, and the consolidated results of their operations for the fiscal year ended on said date, all in accordance with GAAP. (b) The Borrower has heretofore furnished to each of the Banks the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1995 and the related unaudited consolidated statements of earnings, cash flows and changes in shareholders' equity of the Borrower and its Subsidiaries for the six month period ended on said date. All such financial statements fairly present, in all material aspects, the consolidated financial condition of the Borrower and its Subsidiaries, as at said date, and the consolidated results of their operations for the six month period ended on said date, all in accordance with GAAP. (c) Since December 31, 1995, there has been no material adverse change, and nothing has occurred that is reasonably likely to result in any material adverse change, in the consolidated financial condition, operations or business taken as a whole of the Borrower and its Subsidiaries from that set forth in the financial statements referred to in clause (b) above as at the date referred to therein. SECTION 4.3. LITIGATION. Except as may be disclosed in regular periodic reports filed with the Securities and Exchange Commission prior to the date of this Agreement (copies of which reports have heretofore been furnished to the Banks), there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Borrower) threatened against the Borrower or any of its Subsidiaries (i) which, if adversely determined, is reasonably likely to have a Material Adverse Effect or (ii) which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.4. NO BREACH. None of the execution and delivery of this Agreement and the Notes, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Borrower, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Borrower or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. SECTION 4.5. ACTION. The Borrower has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under this Agreement and the Notes; the execution, delivery and performance by the Borrower of this Agreement and the Notes have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by the Borrower and constitutes, and each of the Notes when executed and delivered for value will constitute, its legal, valid and binding obligation, enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 4.6. APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by the Borrower of this Agreement or the Notes or for the legality, validity or enforceability hereof. SECTION 4.7. ERISA. Each Plan, and, to the knowledge of the Borrower, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Borrower would be under an obligation to furnish a report to the Banks under Section 5.1(e) hereof. SECTION 4.8. TAXES. The Borrower and its Subsidiaries are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Borrower is the "common parent" (within the meaning of Section 1504 of the Code) of such group. The Borrower and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. The Borrower has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions, the payment of which is reasonably likely to have a Material Adverse Effect. SECTION 4.9. INVESTMENT COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11. TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Borrower to either Agent or any Bank in connection with the negotiation, preparation or delivery of this Agreement or included herein or delivered pursuant hereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Borrower and its Subsidiaries to the Administrative Agent or any Bank in connection with this Agreement and the transactions contemplated hereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Borrower that could have a Material Adverse Effect that has not been disclosed herein or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Banks for use in connection with the transactions contemplated hereby. SECTION 4.12. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in accordance with customary industry practice. On the basis of this review, the Borrower has reasonably concluded that the costs of compliance with Environmental Laws are unlikely to have a Material Adverse Effect. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.1. FINANCIAL STATEMENTS, ETC. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Borrower, consolidated statements of earnings, cash flows and changes in shareholders' equity of the Borrower and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Borrower, which certificate shall state that said consolidated financial statements fairly present, in all material respects, the consolidated financial condition and results of operations of the Borrower and its Subsidiaries, in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, consolidated statements of earnings, cash flows and changes in shareholders' equity of the Borrower and its Subsidiaries for such fiscal year and the related consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present, in all material respects, the consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Borrower shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Borrower knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Borrower setting forth details respecting such event or condition and the action, if any, that the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Borrower or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Borrower or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Borrower or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) promptly after the Borrower knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Borrower has taken or proposes to take with respect thereto; and (g) from time to time such other information regarding the financial condition, operations, business or prospects of the Borrower or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Agent may reasonably request. The Borrower will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Borrower (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Borrower has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Sections 5.8 and 5.9 hereof as of the end of the respective quarterly fiscal period or fiscal year. SECTION 5.2. LITIGATION. The Borrower will promptly give to each Bank notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Borrower or any of its Subsidiaries, except proceedings which, if adversely determined, would not have a Material Adverse Effect. Without limiting the generality of the foregoing, the Borrower will give to each Bank notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Borrower or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation which, if adversely determined, would not have a Material Adverse Effect. SECTION 5.3. EXISTENCE, ETC. The Borrower will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 5.3 shall prohibit any transaction expressly permitted under Sections 5.6 and 5.7 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP; and (f) subject to Section 9.11 hereof, permit representatives of any Bank, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Bank. SECTION 5.4. INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, keep insured by financially sound and reputable insurers all Property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. SECTION 5.5. LIMITATION ON LIENS. The Borrower will not, nor will it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens in existence on the date hereof securing Indebtedness outstanding on the date hereof in an aggregate principal amount not exceeding $50,000,000; (b) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Borrower or the affected Subsidiaries, as the case may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (d) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (g) Liens on Property of any corporation which becomes a Subsidiary of the Borrower after the date of this Agreement; PROVIDED that such Liens are in existence at the time such corporation becomes a Subsidiary of the Borrower, were not created in anticipation thereof and do not at any time secure any Indebtedness other than Indebtedness which was secured by such Liens at the time such corporation became a Subsidiary; (h) Liens upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by the Borrower or any of its Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; PROVIDED that no such Lien shall extend to or cover any Property of the Borrower or such Subsidiary other than the Property so acquired and improvements thereon; (i) Liens incidental to the conduct of its business or the ownership of its Property which were not incurred in connection with the borrowing of money, the obtaining of credit or Derivatives Obligations, and which do not in the aggregate materially detract from the value of its Property or materially impair the use thereof in the operation of its business; (j) Liens arising from judgments, decrees or attachments not in excess of $25,000,000 in the aggregate and in circumstances not constituting an Event of Default under Section 6.1(h) hereof; (k) leases or subleases granted to others otherwise permitted by this Agreement; (l) UCC financing statements and other similar filings regarding leases and other Liens otherwise permitted by this Agreement; (m) rights to receive income in connection with consignment arrangements or licensing agreements in the ordinary course of the Borrower's or such Subsidiary's business, as the case may be; (n) 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 $50,000,000; and (o) any extension, renewal or replacement of the foregoing, PROVIDED, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). Notwithstanding the foregoing, nothing in this Section 5.5 shall restrict the ability of the Borrower or any of its Subsidiaries to sell or assign its accounts receivable. SECTION 5.6. MERGERS, ETC. The Borrower will not, nor will it permit any of its Subsidiaries to, merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of the assets (whether now owned or hereafter acquired) of the Borrower and its Subsidiaries, taken as a whole, to, or acquire all or substantially all of the assets of, any Person, except that (i) any Subsidiary of the Borrower may merge or consolidate with or into, or transfer assets to, or acquire assets of, any other Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower may merge or consolidate with or into, or transfer assets to, the Borrower and (iii) the Borrower may merge with or consolidate into, or acquire assets of, and any Subsidiary of the Borrower may merge or consolidate with or into, or acquire assets of, any other Person, PROVIDED in each case that, immediately after giving effect to such proposed transaction, no Default would exist and in the case of any such proposed transaction to which the Borrower is a party, the Borrower is the surviving corporation. SECTION 5.7. CHANGE IN NATURE OF BUSINESS. The Borrower will not (i) make any material change in the nature of the business of the Borrower and its Subsidiaries taken as a whole as carried on as of the date hereof, or (ii) acquire, or permit any of its Subsidiaries to acquire, businesses which result in any material change in the nature of the business of the Borrower and its Subsidiaries taken as a whole as carried on as of the date hereof; PROVIDED, HOWEVER, that the Borrower or any of its Subsidiaries may engage in or acquire a business of a nature substantially related to the nature of its business as carried on as of the date hereof, and PROVIDED, FURTHER, in each case that, immediately after giving effect to such proposed transaction, no Default would exist. SECTION 5.8. TOTAL DEBT TO TOTAL CAPITAL RATIO. The Borrower will not permit the ratio of (a) the sum of (x) Total Debt plus (y) the Operating Lease Amount at any time to (b) the sum of (x) Total Capital at such time plus (y) the Operating Lease Amount at such time to exceed 0.60 to 1. SECTION 5.9. INDEBTEDNESS OF SUBSIDIARIES. The Borrower will not permit the aggregate Indebtedness of all of its Subsidiaries (exclusive of Indebtedness owing to the Borrower or a Wholly-Owned Subsidiary) to exceed at any time to and including the first anniversary of the date of this Agreement 35% of Total Capital. Thereafter, the Borrower will not permit the aggregate Indebtedness of all of its Subsidiaries (exclusive of Indebtedness owing to the Borrower or a Wholly-Owned Subsidiary) to exceed at any time (i) 25% of Total Capital, if the ratio of Total Debt to Total Capital is equal to or less than 0.50 to 1 at such time; and (ii) 20% of Total Capital, if the ratio of Total Debt to Total Capital is greater than 0.50 to 1 at such time. SECTION 5.10. TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, the Borrower will not, nor will it permit any of its Subsidiaries to, directly or indirectly enter into transactions with any Affiliates unless the monetary or business consideration arising therefrom would be substantially as advantageous to the Borrower and its Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate. SECTION 5.11. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans hereunder solely for general corporate purposes (in compliance with all applicable legal and regulatory requirements); PROVIDED that neither Agent nor any Bank shall have any responsibility as to the use of any of such proceeds. No part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. SECTION 5.12. ENVIRONMENTAL LAWS. The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with the requirements of all applicable Environmental Laws and all ordinances and regulatory and administrative authorities with respect thereto, and shall not permit or suffer any of its Subsidiaries to, generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials other than in the ordinary course of business and in compliance in all material respects with applicable Environmental Laws, and shall not, and shall not permit or suffer any of its Subsidiaries to, cause or permit, as a result of any intentional or unintentional act or omission on the part of the Borrower or any Subsidiary thereof, the installation or placement of Hazardous Materials in violation of or actionable under in any material respect applicable Environmental Laws onto any of its Property or suffer the presence of Hazardous Materials in violation of or actionable under in any material respect applicable Environmental Laws on any of its Property. The Borrower shall, and shall cause each of its Subsidiaries to, promptly undertake and diligently pursue to completion any remedial clean-up action required of the Borrower or any Subsidiary under applicable Environmental Laws in the event of any release of Hazardous Materials. SECTION 5.13. MOST FAVORED LENDER. The Borrower will not and will not permit any Subsidiary to (a) enter into any indenture, agreement or other instrument under which any Indebtedness for borrowed money in excess of $15,000,000 for any such indenture, agreement or instrument (or series of related agreements or instruments) of the Borrower or of any Subsidiary may be issued (a "Restricted Agreement"), or (b) agree to any amendment, waiver, consent, modification, refunding, refinancing or replacement of any Restricted Agreement, in either case, with terms the effect of which is to (i) include a Covenant which imposes a restriction, limitation or obligation in favor of another lender not imposed in favor of the Banks by this Agreement, or (ii) revise or alter any Covenant contained therein the effect of which is to impose a restriction, limitation or obligation in favor of another lender not imposed in favor of the Banks by this Agreement, unless the Borrower or such Subsidiary, as the case may be, concurrently (x) notifies the Banks and the Administrative Agent thereof and (y) incorporates herein such additional, altered or revised Covenant. If the Administrative Agent at the time so elects by notice to the Borrower and the Banks, the incorporation of each such additional Covenant shall be deemed to occur automatically without any further action or the execution of any additional document by any of the parties to this Agreement. If the Administrative Agent does not elect to effect such an automatic incorporation, the Administrative Agent shall promptly tender to the Borrower for execution by it an amendment (executed by the Administrative Agent) incorporating such additional Covenant and shall promptly deliver a copy of such amendment to the Banks. ARTICLE 6 DEFAULTS SECTION 6.1. EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) The Borrower shall: (i) default in the payment of any principal of any Loan when due (whether at stated maturity or at mandatory or optional prepayment); or (ii) default in the payment of any interest on any Loan, any fee or any other amount payable by it hereunder when due and such default shall have continued unremedied for five days; or (b) The Borrower or any of its Subsidiaries shall default beyond any applicable grace period, or, in the case of any Derivatives Obligations for which no grace period is otherwise provided, beyond five days, in the payment when due of any principal of or interest on any Indebtedness (other than the Indebtedness hereunder or under the Notes) aggregating $15,000,000 or more, or in the payment when due of amounts exceeding $15,000,000 in the aggregate for the payment or collateralization of Derivatives Obligations; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any instrument or agreement governing such Derivatives Obligations shall occur if the effect of such event is (or, with the giving of notice or the passage of time or both, would be) to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof or, in the case of an instrument or agreement governing such Derivatives Obligations, to permit the payments owing under such instrument or agreement to be liquidated; or (c) Any representation, warranty or certification made or deemed made herein (or in any modification or supplement hereto) by the Borrower, or any certificate furnished to any Bank or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Borrower shall default in the performance of any of its obligations under any of Sections 5.1(f), 5.5 through 5.9 (inclusive), or 5.13 hereof; or the Borrower shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of 30 days after notice thereof to the Borrower by the Administrative Agent at the request of any Bank; or (e) The Borrower or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Borrower or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Borrower or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Borrower or such Subsidiary or of all or any substantial part of its Property, or (iii) similar relief in respect of the Borrower or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Borrower or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $15,000,000 in the aggregate shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Borrower or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Borrower or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 5.1(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Borrower or any ERISA Affiliate shall incur or in the opinion of the Required Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would constitute, in the determination of the Required Banks, a Material Adverse Effect; or (j) Any Person or two or more Persons acting in concert shall have acquired, in one transaction or in a series of related transactions, beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 40% or more of the combined voting power of the Borrower's then outstanding securities entitled to vote in the election of directors (other than securities having such power only by reason of the happening of a contingency); THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 6.1 with respect to the Borrower, (A) the Administrative Agent, upon request of the Banks having at least 51% of the aggregate amount of the Commitments, shall, by notice to the Borrower, terminate the Commitments and they shall thereupon terminate, and (B) the Administrative Agent, upon request of Banks holding at least 51% of the aggregate unpaid principal amount of the Loans, shall, by notice to the Borrower, declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 6.1 with respect to the Borrower, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.2 NOTICE OF DEFAULT. The Administrative Agent shall give notice to the Borrower under Section 6.1(d) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.1. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.2. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York and Citibank, N.A. shall each have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent, and Morgan Guaranty Trust Company of New York and Citibank, N.A. and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not an Agent hereunder. SECTION 7.3. ACTION BY AGENT. The obligations of each Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, no Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6. SECTION 7.4. CONSULTATION WITH EXPERTS. Each Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5. LIABILITY OF AGENT. Neither Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees of the foregoing shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither Agent nor any of the affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except in the case of the Administrative Agent receipt of items required to be delivered to such Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. Neither Agent 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 7.6. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify each Agent, its affiliates and the respective directors, officers, agents and employees of the foregoing (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.7. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon either Agent or any other Bank, 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 Bank also acknowledges that it will, independently and without reliance upon either Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.8. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Administrative Agent reasonably acceptable to the Borrower. If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Administrative 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 Administrative Agent. SECTION 7.9. AGENT'S FEES. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Agent. SECTION 7.10. DOCUMENTATION AGENT AND CO-AGENTS. Nothing in this Agreement shall impose upon the Documentation Agent or any Co-Agent, in their respective capacities as such, any duty or obligation whatsoever. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.1. BASIS FOR DETERMINING 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 London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not 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 Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or convert outstanding Loans as or 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 Borrower 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 8.2. 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 and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (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 8.3. INCREASED COST AND REDUCED RETURN. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (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 with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.16), 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 Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or 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 Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section but in any event within 45 days, after such Bank obtains actual knowledge thereof; PROVIDED that (i) if any Bank fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Bank shall, with respect to compensation payable pursuant to this Section 8.3 in respect of any costs resulting from such event, only be entitled to payment under this Section 8.3 for costs incurred from and after the date 45 days prior to the date that such Bank does give such notice and (ii) each Bank will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth in reasonable detail 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 Bank shall use reasonable averaging and attribution methods. SECTION 8.4. TAXES. (a) For the purposes of this Section 8.4, 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 the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, EXCLUDING (i) in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or such Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; PROVIDED that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.4) such Bank or such Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.1, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and each Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.4) paid by such Bank or such Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.4(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 shall not be entitled to indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by the United States; PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.4, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.5. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If (i) the obligation of any Bank to make, or convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans 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, 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 Borrower 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. SECTION 8.6. SUBSTITUTION OF BANK. Provided that no Default shall have occurred and be continuing, if (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 the Borrower shall have the right to designate an Assignee which is not an Affiliate to purchase for cash, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit G hereto, the outstanding Loans and commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid facility fees in respect of any Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment, plus the compensation then due and payable pursuant to Sections 8.3 and 8.4. ARTICLE 9 MISCELLANEOUS SECTION 9.1. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (a) in the case of the Borrower or either Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (c) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is 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 8 shall not be effective until received. SECTION 9.2. NO WAIVERS. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.3. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all out-of-pocket expenses of each Agent, including fees and disbursements of special counsel for the Agents, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs and is continuing, all out-of-pocket expenses incurred by each Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel and settlement costs, 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 hereunder; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.4. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of either Agent are affected thereby, by such Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan, or any fees hereunder (iii) postpone the date fixed for any payment of principal of or interest on any Loan, or any fees hereunder or for termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement; and PROVIDED FURTHER that, at the option of the Administrative Agent, an additional, altered or revised Covenant shall be incorporated herein pursuant to Section 5.13 either (i) automatically or (ii) by an amendment signed solely by the Administrative Agent and the Borrower. SECTION 9.6. 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 the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.5 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 2.16 and Article 8 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 Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000, unless a lower amount is agreed to by the Borrower and the Administrative Agent) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower, which shall not be unreasonably withheld, and the Administrative Agent; PROVIDED that if an Assignee is an affiliate of such transferor Bank, no such consent shall be required; and PROVIDED FURTHER that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.7. COLLATERAL. Each of the Banks represents to each of the Agents and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.9. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. 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. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. CONFIDENTIALITY. The Agents and each Bank agree to keep any information delivered or made available by the Borrower pursuant to this Agreement confidential from anyone other than persons employed or retained by it who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; PROVIDED that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank or to an Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by an Agent or Bank prohibited by this Agreement, (f) in connection with any litigation to which an Agent or Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank's or the Agents' legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. SECTION 9.12. TERMINATION OF EXISTING CREDIT AGREEMENTS. On the Effective Date, the commitments of the banks under the Existing Credit Agreement shall automatically terminate. The Banks which are parties to the Existing Credit Agreement, comprising the "Majority Banks" as defined therein, hereby waive any requirement for notice of termination under the Existing Credit Agreement and agree that such termination shall be effective on the Effective Date without further action by any party to the Existing Credit Agreement. 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. MALLINCKRODT GROUP INC. By____________________________ Title: Address: 7733 Forsyth Boulevard Clayton, Missouri 63105 Facsimile: (314) 854-5380 Commitments - ----------- $45,500,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By____________________________ Name: Title: $45,500,000 CITIBANK, N.A. By____________________________ Name: Title: $33,000,000 BANK OF AMERICA ILLINOIS By____________________________ Name: Title: $33,000,000 THE CHASE MANHATTAN BANK, N.A. By____________________________ Name: Title: $33,000,000 THE FIRST NATIONAL BANK OF CHICAGO By____________________________ Name: Title: $24,000,000 ABN-AMRO BANK N.V., CHICAGO BRANCH By____________________________ Name: Title: By____________________________ Name: Title: $24,000,000 BANCA COMMERCIALE ITALIANA By____________________________ Name: Title: By____________________________ Name: Title: $24,000,000 BANK OF IRELAND By____________________________ Name: Title: $24,000,000 THE BANK OF NOVA SCOTIA By____________________________ Name: Title: $24,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By____________________________ Name: Title: $24,000,000 BANQUE PARIBAS By____________________________ Name: Title: $24,000,000 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By____________________________ Name: Title: $24,000,000 CIBC INC. By____________________________ Name: Title: $24,000,000 DEUTSCHE AG CHICAGO AND/OR CAYMAN ISLANDS BRANCHES By____________________________ Name: Title: By____________________________ Name: Title: $24,000,000 THE FUJI BANK, LIMITED By____________________________ Name: Title: $24,000,000 MELLON BANK, N.A. By____________________________ Name: Title: $24,000,000 SOCIETE GENERALE By____________________________ Name: Title: $24,000,000 THE SUMITOMO BANK, LTD. By____________________________ Name: Title: $24,000,000 UNION BANK OF SWITZERLAND By____________________________ Name: Title: By____________________________ Name: Title: $24,000,000 YASUDA TRUST & BANKING CO., LTD. CHICAGO BRANCH By____________________________ Name: Title: _________________ Total Commitments $550,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By____________________________ Title: Address: 60 Wall Street New York, New York 10260 Telex number: 177615 MGT UT Facsimile number: (212) 648-5336 CITIBANK, N.A., as Documentation Agent By____________________________ Title: Address: 399 Park Avenue New York, New York 10043 Telex number: Facsimile number: (212) 826-2371 PRICING SCHEDULE Each of "CD Margin", "Euro-Dollar Margin" and "Facility Fee Rate" means, for any day, the rates set forth below (in basis points per annum) in the row opposite such term and in the column corresponding to the "Pricing Level" that exists on such day: Level I Level II Level III Level IV - --------------------------------------------------------------------- CD Margin 24.50 29.00 37.50 40.00 - --------------------------------------------------------------------- Euro-Dollar Margin 12.00 16.50 25.00 27.50 - --------------------------------------------------------------------- Facility Fee Rate 8.00 8.50 10.00 12.50 - --------------------------------------------------------------------- Level V Level VI Level VII - --------------------------------------------------------------------- CD Margin 45.00 62.50 62.50 - --------------------------------------------------------------------- Euro-Dollar Margin 32.50 50.00 50.00 - --------------------------------------------------------------------- Facility Fee Rate 17.50 25.00 37.50 - --------------------------------------------------------------------- For purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Pricing" applies at any date if, at such date, the Borrower's long-term debt is rated A or higher by S&P OR A2 or higher by Moody's (subject to the paragraph on split ratings below). "Level II Pricing" applies at any date if, at such date, (i) the Borrower's long-term debt is rated A- or higher by S&P OR A3 or higher by Moody's (subject to the paragraph on split ratings below) and (ii) Level I Pricing does not apply. "Level III Pricing" applies at any date if, at such date, (i) the Borrower's long-term debt is rated BBB+ or higher by S&P OR Baa1 or higher by Moody's (subject to the paragraph on split ratings below) and (ii) neither Level I Pricing nor Level II Pricing applies. "Level IV Pricing" applies at any date if, at such date, (i) the Borrower's long-term debt is rated BBB or higher by S&P OR Baa2 or higher by Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing applies. "Level V Pricing" applies at any date if, at such date, (i) the Borrower's long-term debt is rated BBB- or higher by S&P AND Baa3 or higher by Moody's, and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing, and Level IV Pricing applies. "Level VI Pricing" applies at any date if, at such date, (i) the Borrower's long-term debt is rated BB+ or higher by S&P AND Ba1 or higher by Moody's, and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing, and Level V Pricing applies. "Level VII Pricing" applies at any date if, at such date, no other Pricing Level applies. "Moody's" means Moody's Investors Service, Inc. "Pricing Level" refers to the determination of which of Level I, Level II, Level III, Level IV, Level V, Level VI or Level VII applies at any date. "S&P" means Standard & Poor's Rating Services, a division of McGraw Hill, Inc. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third- party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. For purposes of determining eligibility for Level I Pricing, Level II Pricing, Level III Pricing or Level IV Pricing, so long as the Borrower qualifies for at least Level V Pricing, split ratings will be dealt with as follows: If the Borrower is split-rated and the ratings differential is one level, the higher rating will apply. If the Borrower is split-rated and the ratings differential is two levels or more, the rating at the midpoint will apply. If there is no midpoint rating, the higher of the two intermediate ratings will apply. EXHIBIT A - Note NOTE New York, New York ________ __, ____ For value received, Mallinckrodt Group Inc., a New York corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the $550,000,000 Credit Agreement dated as of May 22, 1996 among the Borrower, the banks party thereto from time to time, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Citibank, N.A., 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 the prepayment hereof and the acceleration of the maturity hereof. MALLINCKRODT GROUP INC. By____________________ Name: Title: LOANS AND PAYMENTS OF PRINCIPAL __________________________________________________________________________ Amount Type Amount of of of Maturity Principal Notation Date Loan Loan Date Repaid Made By __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ EXHIBIT B - Money Market Quote Request Form of Money Market Quote Request ---------------------------------- [Date] To: Morgan Guaranty Trust Company of New York From: Mallinckrodt Group Inc. Re: $550,000,000 Credit Agreement (the "Credit Agreement") dated as of May 22, 1996 among Mallinckrodt Group Inc., the Banks party thereto from time to time, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Citibank, N.A., 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(1) Interest Period(2) ------------------- ------------------ $ ___________________ (1) Amount must be $10,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. MALLINCKRODT GROUP INC. By________________________ Name: Title: EXHIBIT C - Invitation for Money Market Quotes Form of Invitation for Money Market Quotes ------------------------------------------ To: [Name of Bank] Re: Invitation for Money Market Quotes to Mallinckrodt Group Inc. (the "Borrower") Pursuant to Section 2.3 of the $550,000,000 Credit Agreement dated as of May 22, 1996 among Mallinckrodt Group Inc., the Banks party thereto from time to time, Citibank, N.A., as Documentation Agent and the undersigned, as Administrative Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By______________________ Authorized Officer EXHIBIT D - Money Market Quote Form of Money Market Quote -------------------------- To: Morgan Guaranty Trust Company of New York, as Administrative Agent Re: Money Market Quote to Mallinckrodt Group Inc. (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 (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the $550,000,000 Credit Agreement dated as of May 22, 1996 among Mallinckrodt Group Inc., the Banks party thereto from time to time, Citibank, N.A., as Documentation Agent and yourselves, as Administrative Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer __________ 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 one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT E - Opinion of Counsel for the Borrower [Closing Date] Each of the Banks and each of the Agents party to the Credit Agreement referred to below Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Ladies and Gentlemen: I am the General Counsel of Mallinckrodt Group Inc., a corporation organized under the laws of the State of New York (the "BORROWER") and I am furnishing this opinion in connection with the Credit Agreement dated as of May 22, 1996 (the "CREDIT AGREEMENT") among the Borrower, the banks party thereto from time to time, Citibank, N.A., as Documentation Agent and Morgan Guaranty Trust Company of New York, as Administrative Agent, providing for, among other things, the making of loans by the Banks in an aggregate principal amount not exceeding $550,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, I have examined: (i) the Credit Agreement; (ii) the Notes (collectively with the Credit Agreement, the "CREDIT DOCUMENTS"); and (iii) such corporate records, agreements and instruments of the Borrower and such other documents and records as I have deemed necessary as a basis for the opinions expressed below. In my examination, I have assumed the genuineness of all signatures (except those of officers of the Borrower), the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon representations made in or pursuant to the Credit Documents and certificates of appropriate representatives of the Borrower. In rendering the opinions expressed below, I have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to the Borrower): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. 2. The Borrower has all requisite corporate power to execute and deliver, and to perform its obligations under, each Credit Document and has all requisite corporate power to borrow under the Credit Agreement. 3. The execution, delivery and performance by the Borrower of the Credit Documents and the borrowings by the Borrower under the Credit Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. 4. Each Credit Document has been duly executed and delivered by the Borrower. 5. Under Missouri conflict of laws principles, the stated choice of New York Law to govern the Credit Documents will be honored by the courts of the State of Missouri and the Credit Documents will be construed in accordance with, and will be treated as being governed by, the law of the State of New York. However, if the Credit Documents were stated to be governed by and construed in accordance with the law of the State of Missouri, or if a court were to apply the law of the State of Missouri to the Credit Documents, each Credit Document (assuming, in the case of the Notes, execution and delivery thereof for value) would constitute the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Documents is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. 6. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency is required on the part of the Borrower for the execution, delivery or performance by the Borrower of, or for the legality, validity or enforceability of, the Credit Documents or for any borrowing by the Borrower under the Credit Agreement. 7. The execution, delivery and performance by the Borrower of the Credit Documents, and borrowings by the Borrower under the Credit Agreement, do not and will not (a) violate any provision of the charter or by-laws of the Borrower, (b) violate any applicable law, rule or regulation, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to the Borrower of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which I have knowledge (after due inquiry) to which the Borrower is a party or by which the Borrower is bound or to which the Borrower is subject. 8. Except as may be disclosed in regular periodic reports filed with the Securities and Exchange Commission prior to the date of the Credit Agreement (copies of which reports have heretofore been furnished to the Banks), I have no knowledge (after due inquiry) of any legal or arbitral proceeding by or before any governmental or regulatory authority or agency, now pending or threatened against the Borrower or any of its Subsidiaries or any of their respective Properties that, if adversely determined, is reasonably likely to have a Material Adverse Effect. 9. Neither the Borrower nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 10. Neither the Borrower nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. The foregoing opinions are subject to the following comments and qualifications: A. The enforceability of Section 9.3 of the Credit Agreement may be limited by laws rendering unenforceable indemnification contrary to Federal or State securities laws and the public policy underlying such laws. B. The enforceability of provisions in the Credit Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. C. I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than the State of Missouri) that limit the interest, fees, or other charges such Bank may impose, and (ii) the second sentence of Section 9.8 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Documents. The foregoing opinions are limited to matters involving the Federal law of the United States of America, the law of the State of Missouri and (with respect to my opinions in paragraphs 1 through 4 above) the Business Corporation Law of the State of New York, and I do not express any opinion as to any other laws. At the request of my client, this opinion letter is, pursuant to Section 3.1(b) of the Credit Agreement, provided to you by me in my capacity as General Counsel of the Borrower and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent. Very truly yours, EXHIBIT F - Opinion of Special Counsel for the Agents OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS - ---------------------------------------------------------------------- [Closing Date] To the Banks and the Agents Referred to Below c/o Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Dear Sirs: We have participated in the preparation of the $550,000,000 Credit Agreement (the "Credit Agreement") dated as of May 22, 1996 among Mallinckrodt Group Inc., a New York corporation (the "Borrower"), the banks party thereto from time to time (the "Banks"), Citibank, N.A., as Documentation Agent and Morgan Guaranty Trust Company of New York, as Administrative Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.1(c) 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: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT G - Assignment and Assumption Agreement ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), MALLINCKRODT GROUP INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Agent"). WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the $550,000,000 Credit Agreement dated as of May 22, 1996 among the Borrower, the Assignor and the other Banks party thereto from time to time, as Banks, Citibank, N.A., as Documentation Agent and Morgan Guaranty Trust Company of New York, as Administrative Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower and the Administrative Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds in the amount heretofore mutually agreed between them. It is understood that facility fees in respect of the Assigned Amount accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. CONSENT OF THE BORROWER AND THE ADMINISTRATIVE AGENT. This Agreement is conditioned upon the consent of the Borrower and the Administrative Agent pursuant to Section 9.6(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Administrative Agent is evidence of this consent. Pursuant to Section 9.6(c), the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, any other Bank or either Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 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: MALLINCKRODT GROUP INC. By__________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By__________________________ Name: Title: EX-10.19 12 Exhibit 10.19 EXECUTION COPY $600,000,000 CREDIT AGREEMENT dated as of May 22, 1996 among Fries & Fries, Inc., as Borrower Mallinckrodt Group Inc., as Guarantor The Banks Listed Herein Morgan Guaranty Trust Company of New York, as Administrative Agent Citibank, N.A., as Documentation Agent ___________________ Bank of America Illinois, The Chase Manhattan Bank, N.A. and The First National Bank of Chicago Co-Agents ___________________ Citibank Securities, Inc. and J.P. Morgan Securities Inc. Co-Syndication Agents Citibank Securities, Inc. Arranger TABLE OF CONTENTS* *(The Table of Contents is not a part of this Agreement.) Page ARTICLE 1 DEFINITIONS 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Accounting Terms and Determinations . . . . . . . . . . . . . 15 1.3. Types of Borrowings . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 2 THE CREDITS 2.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . 16 2.2. Notice of Committed Borrowing . . . . . . . . . . . . . . . . 16 2.3. Money Market Borrowings . . . . . . . . . . . . . . . . . . . 17 2.4. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . 21 2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.6. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . 23 2.7. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . 23 2.8. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.9. Optional Termination or Reduction of Commitments. . . . . . . 27 2.10. Method of Electing Interest Rates . . . . . . . . . . . . . . 27 2.11. Scheduled Termination of Commitments. . . . . . . . . . . . . 29 2.12. Optional Prepayments. . . . . . . . . . . . . . . . . . . . . 29 2.13. General Provisions as to Payments . . . . . . . . . . . . . . 29 2.14. Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . 30 2.15. Computation of Interest and Fees. . . . . . . . . . . . . . . 31 2.16. Regulation D Compensation . . . . . . . . . . . . . . . . . . 31 ARTICLE 3 CONDITIONS 3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.2. Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . 33 4.2. Financial Condition . . . . . . . . . . . . . . . . . . . . . 33 4.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.4. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.5. Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.6. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.7. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.9. Investment Company Act. . . . . . . . . . . . . . . . . . . . 36 4.10. Public Utility Holding Company Act. . . . . . . . . . . . . . 36 4.11. True and Complete Disclosure. . . . . . . . . . . . . . . . . 36 4.12. Environmental Matters . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 5 COVENANTS 5.1. Financial Statements, Etc. . . . . . . . . . . . . . . . . . 37 5.2. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3. Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . 40 5.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.5. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 41 5.6. Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 43 5.7. Change in Nature of Business. . . . . . . . . . . . . . . . . 44 5.8. Total Debt to Total Capital Ratio . . . . . . . . . . . . . . 44 5.9. Indebtedness of Subsidiaries. . . . . . . . . . . . . . . . . 44 5.10. Transactions with Affiliates. . . . . . . . . . . . . . . . . 44 5.11. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 45 5.12. Environmental Laws. . . . . . . . . . . . . . . . . . . . . . 45 5.13. Most Favored Lender . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 6 DEFAULTS 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . 46 6.2. Notice of Default . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 7 THE AGENTS 7.1. Appointment and Authorization . . . . . . . . . . . . . . . . 49 7.2. Agent and Affiliates. . . . . . . . . . . . . . . . . . . . . 50 7.4. Consultation with Experts . . . . . . . . . . . . . . . . . . 50 7.5. Liability of Agent. . . . . . . . . . . . . . . . . . . . . . 50 7.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 51 7.7. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . 51 7.8. Successor Administrative Agent. . . . . . . . . . . . . . . . 51 7.9. Agents' Fees. . . . . . . . . . . . . . . . . . . . . . . . . 52 7.10. Documentation Agent and Co-Agents . . . . . . . . . . . . . . 52 ARTICLE 8 CHANGE IN CIRCUMSTANCES 8.1. Basis for Determining Interest Rate Inadequate or Unfair. . . 52 8.2. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . 53 8.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . 57 8.6. Substitution of Bank. . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 9 GUARANTY 9.1. The Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . 58 9.2. Guaranty Unconditional. . . . . . . . . . . . . . . . . . . . 58 9.3. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances. . . . . . . . . . . . . . . . . . . 59 9.4. Waiver by the Guarantor . . . . . . . . . . . . . . . . . . . 60 9.5. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 60 9.6. Stay of Acceleration. . . . . . . . . . . . . . . . . . . . . 60 ARTICLE 10 MISCELLANEOUS 10.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 60 10.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 61 10.3. Expenses; Indemnification. . . . . . . . . . . . . . . . . . 61 10.4. Sharing of Set-Offs. . . . . . . . . . . . . . . . . . . . . 62 10.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . 62 10.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . 63 10.7. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 65 10.8. Governing Law; Submission to Jurisdiction. . . . . . . . . . 65 10.9. Counterparts; Integration; Effectiveness . . . . . . . . . . 65 10.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 65 10.11. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 65 EXHIBIT A - Note EXHIBIT B - Money Market Quote Request EXHIBIT C - Invitation for Money Market Quotes EXHIBIT D - Money Market Quote EXHIBIT E - Opinion of Counsel for the Borrower EXHIBIT F - Opinion of Special Counsel for the Agents EXHIBIT G - Assignment and Assumption Agreement CREDIT AGREEMENT AGREEMENT dated as of May 22, 1996 among FRIES & FRIES, INC., as Borrower, MALLINCKRODT GROUP INC., as Guarantor, the BANKS party hereto from time to time, CITIBANK, N.A., as Documentation Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the following meanings: "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). "Administrative Agent" means Morgan Guaranty Trust Company of New York, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Guarantor and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "CONTROL (including, with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event, any Person that owns directly or indirectly securities having 15% or more of the voting power for the election of directors or other governing body of a corporation or 15% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Guarantor or any of its Subsidiaries and (b) none of the Subsidiaries of the Guarantor shall be Affiliates. "Agent" means each of the Administrative Agent and the Documentation Agent. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.7(b). "Assignee" has the meaning set forth in Section 10.6(c). "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 10.6(c), and their respective successors. "Bankruptcy Code" means the United States Bankruptcy Code of 1978, as amended from time to time. "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 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "Borrower" means Fries & Fries, Inc., a Delaware corporation, and its successors. "Borrowing" has the meaning set forth in Section 1.3. "Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "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 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 The Chase Manhattan Bank N.A., The First National Bank of Chicago, Citibank N.A., and Morgan Guaranty Trust Company of New York. "Closing Date" means the date on or after the Effective Date on which the Administrative Agent shall have received the documents specified in or pursuant to Section 3.1. "Co-Agents" means Bank of America Illinois, The Chase Manhattan Bank, N.A., and The First National Bank of Chicago in their capacity as co-agents hereunder. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages hereof, and with respect to any Bank which becomes a party to this Agreement pursuant to Section 10.6, the amount of the Commitment thereby assumed by such Bank, in each case as such amount may be reduced from time to time pursuant to Sections 2.9 and 10.6 or increased pursuant to Section 10.6(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. "Consolidated Net Worth" means, as at any date, the sum, for the Guarantor and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of capital stock, PLUS (b) the amount of capital in excess of par value, PLUS (c) the amount of reinvested earnings (or in the case of a reinvested earnings deficit, MINUS the amount of such deficit), MINUS (d) the cost of treasury stock. "Covenant" means, with respect to any agreement or instrument representing or governing Indebtedness, any covenant (whether expressed as a covenant or an event of default) contained therein. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Documentation Agent" means Citibank, N.A. in its capacity as documentation agent for the Banks hereunder. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the 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). "Effective Date" means the date this Agreement becomes effective in accordance with Section 10.9. "Environmental Claim" means, with respect to any Person, (a) any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" means any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Affiliate" means any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Guarantor is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Guarantor is a member. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "Euro-Dollar Loan" means (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 Rate" means a rate of interest determined pursuant to Section 2.7(c) on the basis of a London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of The Chase Manhattan Bank N.A., The First National Bank of Chicago, Citibank, N.A., and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.1. "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 Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "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 8.1) or any combination of the foregoing. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.2 hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "Group of Loans" means at any time a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar Loans having the same Interest Period at such time or (iii) all CD Loans having the same interest period at such time, provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.2 or 8.5, 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" means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise directly or indirectly to be or become contingently liable under or with respect to, the Indebtedness of any Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "Guarantor" means Mallinckrodt Group Inc., a New York corporation, and its successors. "Hazardous Material" means collectively, (a) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Indebtedness" means, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within one year of the date the respective goods are delivered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person under any contract for the purchase of materials, supplies or other Property or the rendering of services if such contract (or any related document) requires that payment for such materials, supplies or other Property or services shall be made regardless of whether or not delivery of such materials, supplies or other Property is ever made or tendered or such services are ever rendered; (e) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person (other than commercial documentary letters of credit); (f) Capital Lease Obligations of such Person; and (g) Indebtedness of others Guaranteed by such Person; provided, that Indebtedness of the Guarantor and its Subsidiaries shall not include obligations of the Guarantor and its Subsidiaries in respect of unfunded liabilities of the Guarantor in respect of postretirement health and welfare benefits under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 106 ("Employers' Accounting for Postretirement Benefits Other Than Pensions") not in excess of $96,000,000 in the aggregate. "Indemnitee" has the meaning set forth in Section 10.3(b). "Interest Period" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the 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 Maturity Date shall end on the Maturity Date (determined, for purposes of Section 2.14, at the commencement of such Interest Period); (2) with respect to each CD Loan, the 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 Borrower may elect in the applicable notice; PROVIDED that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) 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 Maturity Date shall end on the Maturity Date (determined, for purposes of Section 2.14, at the commencement of such Interest Period); (3) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such whole number of months thereafter (but not less than 1 month) as the 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 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; and (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 7 days) as the Borrower may elect in accordance with Section 2.3; 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 (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "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 Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any Property that 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 (other than an operating lease) relating to such Property. "Loan" means a Domestic Loan, a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans, Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Margin Stock" means "margin stock" within the meaning of Regulations U and X. "Material Adverse Effect" means a material adverse effect on (a) the financial condition, operations or business taken as a whole of the Guarantor and its Subsidiaries, (b) the ability of the Borrower or the Guarantor to perform its respective obligations hereunder and under the Notes, (c) the validity or enforceability of this Agreement or of the Notes or (d) the rights and remedies of the Banks and the Agents hereunder and under the Notes. "Maturity Date" means the first anniversary of the Termination Date or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day PROVIDED that if, at any time before the Termination Date, the Borrower acquires, outside the ordinary course of business, assets from any Person for an aggregate purchase price in excess of $10,000,000, the Maturity Date shall mean the Termination Date, and PROVIDED FURTHER that, if the Borrower shall for any reason cease to constitute a Wholly-Owned Subsidiary of the Guarantor, the Maturity Date shall be one Domestic Business Day after the date of such occurrence. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; PROVIDED that any Bank may from time to time by notice to the Borrower 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 to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.1). "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)(ii)(C). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Guarantor or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.2) 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 2.10. "Operating Lease Amount" means, at any time, an amount equal to seven times the amount by which (i) the minimum rental commitments under non-cancelable operating leases of the Guarantor and its Subsidiaries for the fiscal year of the Guarantor and its Subsidiaries following the most recent fiscal year for which audited financial statements are available at such time, as reflected in the notes to such financial statements, exceed (ii) $50,000,000. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 10.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means an employee benefit or other plan established or maintained by the Guarantor or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Date" means the last day of March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement; PROVIDED that if any such day is not a Euro-Dollar Business Day, then such Quarterly Date shall be the next succeeding Euro-Dollar Business Day (unless such Euro-Dollar Business Day falls in a subsequent calendar month, in which event such Quarterly Date shall be the next preceding Euro-Dollar Business Day). "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. "Regulations U and X" mean, respectively, Regulations U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Required Banks" means at any time Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 51% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to and excluding the Termination Date. "Subsidiary" means, as to any Person, any corporation, limited liability company, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Guarantor. "Termination Date" means May 21, 1997, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day; PROVIDED that if the Borrower shall for any reason cease to constitute a Wholly-Owned Subsidiary of the Guarantor, the Termination Date shall be one Domestic Business Day after the date of such occurrence. "Total Capital" means, at any time, Consolidated Net Worth plus Total Debt. "Total Debt" means, at any time, the aggregate outstanding principal amount of all Indebtedness of the Guarantor and its Subsidiaries at such time (determined on a consolidated basis without duplication in accordance with GAAP). "Wholly-Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Guarantor. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. 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 generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Guarantor's independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if the Guarantor notifies the Administrative Agent that the Guarantor wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Guarantor that the Required Banks wish to amend Article 5 for such purpose), then the Guarantor's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Guarantor and the Required Banks. SECTION 1.3. TYPES OF BORROWINGS. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on the same date, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing, a CD Borrowing or a Money Market Borrowing (excluding any such Borrowing of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1), and a "Euro-Dollar Borrowing" is a Borrowing 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). ARTICLE 2 THE CREDITS SECTION 2.1. COMMITMENTS TO LEND. During the Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.2(c)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.12 and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.2. NOTICE OF COMMITTED BORROWING. The Borrower shall give the Administrative Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, (A) specifying: (i) 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; (ii) the aggregate amount of such Borrowing; (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period; and (B) certifying that each of the conditions precedent to such Borrowing has been satisfied. SECTION 2.3. MONEY MARKET BORROWINGS. (a) THE MONEY MARKET OPTION. In addition to Committed Borrowings pursuant to Section 2.1, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received not later than 10:30 A.M. (New York City time) on (x) the 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request. (c) INVITATION FOR MONEY MARKET QUOTES. Promptly 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 substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 10.1 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); PROVIDED that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour 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 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested, (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, 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 D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) NOTICE TO BORROWER. The Administrative Agent shall promptly notify the 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 with respect to the 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 correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day 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 Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to 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 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 $10,000,000 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 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. (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 of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City 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 New York City, to the Administrative Agent at its address referred to in Section 10.1. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Bank 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 Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the 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 shall be evidenced by a single Note 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. (b) Each Bank may, by notice to the Borrower and the administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; PROVIDED that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.6. MATURITY OF LOANS. (a) Each Committed Loan shall mature, and the principal amount thereof shall be due and payable on the Maturity Date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, 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 until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan 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 rate otherwise applicable to Base Rate Loans 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 0.365% plus the Adjusted CD Rate applicable to such Interest Period; PROVIDED that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion 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 rate applicable to Base Rate Loans for such day, PROVIDED that until the end of the Interest Period applicable to such CD Loan, any such overdue principal shall bear interest at the higher of the foregoing rate and the sum of 2.365% plus the Adjusted CD Rate applicable to such Loan at the date such payment was due. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate 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. (New York City 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(e) (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. (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 0.24% plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 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. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day, PROVIDED that until the end of the Interest Period applicable to such Euro-Dollar Loan, any such overdue principal shall bear interest at the higher of the foregoing rate and the sum of 2.24% plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due. (e) Subject to Section 8.1, 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) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.1 shall apply. SECTION 2.8 FEES. (a) FACILITY FEE. The Borrower shall pay to the Administrative Agent for the account of Banks ratably a facility fee at the rate of 0.06% per annum. Such facility fee shall accrue (i) from and including the Effective Date to but excluding the date of termination of the Commitments in their entirety, on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including such date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (b) PAYMENTS. Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Date until the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.9. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amounts of the Loans. SECTION 2.10. METHOD OF ELECTING INTEREST RATES. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans 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 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, subject to Section 2.14 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the 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, subject to Section 2.14 in the case of any such conversion or continuation effective on any day other than 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 not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted to Domestic Loans of the other type or are CD Rate Loans to be continued as CD Rate Loans for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the second Domestic Business Day 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 $10,000,000 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 the Loans being converted are to be Fixed Rate Loans, the duration of the next succeeding 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 the 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 the Borrower. If the 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. (d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section 2.10 shall not constitute a "Borrowing" subject to the provisions of Section 3.2. SECTION 2.11. SCHEDULED TERMINATION OF COMMITMENTS. The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on the Maturity Date. SECTION 2.12 OPTIONAL PREPAYMENTS. (a) Subject in the case of any Fixed Rate Loans to Section 2.14, the Borrower may, upon at least one Domestic Business Day's notice to the Administrative Agent, prepay the Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.1), upon at least three Domestic Business Days' notice to the Administrative Agent, prepay any Group of CD Loans, or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 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 optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (b) Except as provided in subsection (a) above the Borrower may not 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 (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.13. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to Section 10.1. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans or the Money Market LIBOR 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 Absolute Rate Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance 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 the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. FUNDING LOSSES. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.7(d), or if the 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) or 2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.15. COMPUTATION OF INTEREST AND FEES. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid or the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.16. REGULATION D COMPENSATION. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Applicable Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one MINUS the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officer's certificate setting forth in reasonable detail the amount to which such Bank is then entitled under this Section 2.16 (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). ARTICLE 3 CONDITIONS SECTION 3.1. CLOSING. The closing hereunder shall occur upon receipt by the Administrative Agent of the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.5; (b) an opinion of the General Counsel of the Guarantor, substantially in the form of Exhibit E hereto; (c) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit F hereto; and (d) all documents the Administrative Agent may reasonably request relating to the existence of the Borrower and the Guarantor, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall promptly notify the Borrower and the Banks of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.2. BORROWINGS. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or prior to May 24, 1996; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.2 or 2.3, as the case may be; (c) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (d) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (e) the fact that the representations and warranties of the Guarantor and the Borrower contained in this Agreement (except those contained in Section 4.2(c), in Section 4.3(i) and in the last sentence of Section 4.12 hereof) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower and the Guarantor on the date of such Borrowing as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Guarantor and the Borrower represent and warrant that: SECTION 4.1. CORPORATE EXISTENCE. Each of the Guarantor and its Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could have a Material Adverse Effect. The Borrower is a Wholly-Owned Subsidiary of the Guarantor. SECTION 4.2. FINANCIAL CONDITION. (a) The Guarantor has heretofore furnished to each of the Banks the consolidated balance sheet of the Guarantor and its Subsidiaries as at June 30, 1995 and the related consolidated statements of earnings, cash flows and changes in shareholders' equity of the Guarantor and its Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Ernst & Young LLP. All such financial statements fairly present, in all material aspects, the consolidated financial condition of the Guarantor and its Subsidiaries, as at said date, and the consolidated results of their operations for the fiscal year ended on said date, all in accordance with GAAP. (b) The Guarantor has heretofore furnished to each of the Banks the unaudited consolidated balance sheet of the Guarantor and its Subsidiaries as at December 31, 1995 and the related unaudited consolidated statements of earnings, cash flows and changes in shareholders' equity of the Guarantor and its Subsidiaries for the six month period ended on said date. All such financial statements fairly present, in all material aspects, the consolidated financial condition of the Guarantor and its Subsidiaries, as at said date, and the consolidated results of their operations for the six month period ended on said date, all in accordance with GAAP. (c) Since December 31, 1995, there has been no material adverse change, and nothing has occurred that is reasonably likely to result in any material adverse change, in the consolidated financial condition, operations or business taken as a whole of the Guarantor and its Subsidiaries from that set forth in the financial statements referred to in clause (b) above as at the date referred to therein. SECTION 4.3. LITIGATION. Except as may be disclosed in regular periodic reports filed with the Securities and Exchange Commission prior to the date of this Agreement (copies of which reports have heretofore been furnished to the Banks), there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Guarantor) threatened against the Guarantor or any of its Subsidiaries (i) which, if adversely determined, is reasonably likely to have a Material Adverse Effect or (ii) which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.4. NO BREACH. None of the execution and delivery of this Agreement and the Notes, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Borrower or the Guarantor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Guarantor or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. SECTION 4.5. ACTION. Each of the Guarantor and the Borrower has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under this Agreement and the Notes; the execution, delivery and performance by each of the Guarantor and the Borrower of this Agreement and the Notes have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by each of the Guarantor and the Borrower and constitutes, and each of the Notes (in the case of the Borrower) when executed and delivered for value will constitute, its legal, valid and binding obligation, enforceable against each of the Guarantor and the Borrower (as applicable) in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 4.6. APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by the Guarantor and the Borrower of this Agreement or (in the case of the Borrower) the Notes or for the legality, validity or enforceability hereof. SECTION 4.7. ERISA. Each Plan, and, to the knowledge of the Guarantor, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Guarantor would be under an obligation to furnish a report to the Banks under Section 5.1(e) hereof. SECTION 4.8. TAXES. The Guarantor and its Subsidiaries are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Guarantor is the "common parent" (within the meaning of Section 1504 of the Code) of such group. The Guarantor and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that 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 Guarantor or any of its Subsidiaries. The charges, accruals and reserves on the books of the Guarantor and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Guarantor, adequate. The Guarantor has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions, the payment of which is reasonably likely to have a Material Adverse Effect. SECTION 4.9. INVESTMENT COMPANY ACT. Neither the Guarantor nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Guarantor nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11. TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Guarantor or the Borrower to the Administrative Agent or any Bank in connection with the negotiation, preparation or delivery of this Agreement or included herein or delivered pursuant hereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Guarantor and its Subsidiaries to Administrative Agent or any Bank in connection with this Agreement and the transactions contemplated hereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Guarantor or the Borrower that could have a Material Adverse Effect that has not been disclosed herein or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Banks for use in connection with the transactions contemplated hereby. SECTION 4.12. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the Guarantor conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Guarantor and its Subsidiaries, in accordance with customary industry practice. On the basis of this review, the Guarantor has reasonably concluded that the costs of compliance with Environmental Laws are unlikely to have a Material Adverse Effect. ARTICLE 5 COVENANTS The Guarantor and the Borrower agree that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.1. FINANCIAL STATEMENTS, ETC. The Guarantor will deliver to each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Guarantor, consolidated statements of earnings, cash flows and changes in shareholders' equity of the Guarantor and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheet of the Guarantor and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Guarantor, which certificate shall state that said consolidated financial statements fairly present, in all material respects, the consolidated financial condition and results of operations of the Guarantor and its Subsidiaries, in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, consolidated statements of earnings, cash flows and changes in shareholders' equity of the Guarantor and its Subsidiaries for such fiscal year and the related consolidated balance sheet of the Guarantor and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present, in all material respects, the consolidated financial condition and results of operations of the Guarantor and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Guarantor shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Guarantor knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Guarantor setting forth details respecting such event or condition and the action, if any, that the Guarantor or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Guarantor or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Guarantor or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Guarantor or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Guarantor or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) promptly after the Guarantor or Borrower knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Guarantor or the Borrower has taken or proposes to take with respect thereto; and (g) from time to time such other information regarding the financial condition, operations, business or prospects of the Guarantor or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Agent may reasonably request. The Guarantor will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Guarantor (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Guarantor has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Guarantor is in compliance with Sections 5.8 and 5.9 hereof as of the end of the respective quarterly fiscal period or fiscal year. SECTION 5.2. LITIGATION. The Guarantor will promptly give to each Bank notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Guarantor or any of its Subsidiaries, except proceedings which, if adversely determined, would not have a Material Adverse Effect. Without limiting the generality of the foregoing, the Guarantor will give to each Bank notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Guarantor or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation which, if adversely determined, would not have a Material Adverse Effect. SECTION 5.3. EXISTENCE, ETC. The Guarantor will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 5.3 shall prohibit any transaction expressly permitted under Sections 5.6 and 5.7 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP; and (f) subject to Section 10.11 hereof, permit representatives of any Bank, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Bank. SECTION 5.4 INSURANCE. The Guarantor will, and will cause each of its Subsidiaries to, keep insured by financially sound and reputable insurers all Property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. SECTION 5.5 LIMITATION ON LIENS. The Guarantor will not, nor will it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens in existence on the date hereof securing Indebtedness outstanding on the date hereof in an aggregate principal amount not exceeding $50,000,000; (b) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Guarantor or the affected subsidiaries, as the case may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (d) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Guarantor or any of its Subsidiaries; (g) Liens on Property of any corporation which becomes a Subsidiary of the Guarantor after the date of this Agreement; PROVIDED that such Liens are in existence at the time such corporation becomes a Subsidiary of the Guarantor, were not created in anticipation thereof and do not at any time secure any Indebtedness other than Indebtedness which was secured by such Liens at the time such corporation became a Subsidiary; (h) Liens upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by the Guarantor or any of its Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; PROVIDED that no such Lien shall extend to or cover any Property of the Guarantor or such Subsidiary other than the Property so acquired and improvements thereon; (i) Liens incidental to the conduct of its business or the ownership of its Property which were not incurred in connection with the borrowing of money, the obtaining of credit or Derivatives Obligations, and which do not in the aggregate materially detract from the value of its Property or materially impair the use thereof in the operation of its business; (j) Liens arising from judgments, decrees or attachments not in excess of $25,000,000 in the aggregate and in circumstances not constituting an Event of Default under Section 6.1(h) hereof; (k) leases or subleases granted to others otherwise permitted by this Agreement; (l) UCC financing statements and other similar filings regarding leases and other Liens otherwise permitted by this Agreement; (m) rights to receive income in connection with consignment arrangements or licensing agreements in the ordinary course of the Guarantor's or such Subsidiary's business, as the case may be; (n) 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 $50,000,000; and (o) any extension, renewal or replacement of the foregoing, PROVIDED, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). Notwithstanding the foregoing, nothing in this Section 5.5 shall restrict the ability of the Guarantor or any of its Subsidiaries to sell or assign its accounts receivable. SECTION 5.6. MERGERS, ETC. Neither the Guarantor nor the Borrower will, nor will either permit any of their respective Subsidiaries to, (a) merge or consolidate with or into any Person, (b) convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of the assets (whether now owned or hereafter acquired) of the Guarantor and its Subsidiaries or of the Borrower and its Subsidiaries, in each case taken as a whole, to any Person, or (c) acquire all or substantially all of the assets of, any Person, except that (i) any Subsidiary of the Guarantor may merge or consolidate with or into, or transfer assets to, or acquire assets of, any other Subsidiary of the Guarantor, (ii) any Subsidiary of the Guarantor may merge or consolidate with or into, or transfer assets to, the Guarantor and (iii) the Guarantor may merge with or consolidate into, or acquire assets of, and any Subsidiary of the Guarantor may merge or consolidate with or into, or acquire assets of, any other Person, PROVIDED in each case that, immediately after giving effect to such proposed transaction, no Default would exist and in the case of any such proposed transaction to which either the Guarantor or the Borrower is a party, it is the surviving corporation. SECTION 5.7. CHANGE IN NATURE OF BUSINESS. The Guarantor will not (i) make any material change in the nature of the business of the Guarantor and its Subsidiaries taken as a whole as carried on as of the date hereof, or (ii) acquire, or permit any of its Subsidiaries to acquire, businesses which result in any material change in the nature of the business of the Guarantor and its Subsidiaries taken as a whole as carried on as of the date hereof; PROVIDED, HOWEVER, that the Guarantor or any of its Subsidiaries may engage in or acquire a business of a nature substantially related to the nature of its business as carried on as of the date hereof, and PROVIDED, FURTHER, in each case that, immediately after giving effect to such proposed transaction, no Default would exist. SECTION 5.8. TOTAL DEBT TO TOTAL CAPITAL RATIO. The Guarantor will not permit the ratio of (a) the sum of (x) Total Debt plus (y) the Operating Lease Amount at any time to (b) the sum of (x) Total Capital at such time plus (y) the Operating Lease Amount at such time to exceed 0.60 to 1. SECTION 5.9. INDEBTEDNESS OF SUBSIDIARIES. The Guarantor will not permit the aggregate Indebtedness of all of its Subsidiaries (exclusive of Indebtedness owing to the Guarantor or a Wholly-Owned Subsidiary) to exceed at any time to and including the first anniversary of the date of this Agreement 35% of Total Capital. Thereafter, the Guarantor will not permit the aggregate Indebtedness of all of its Subsidiaries (exclusive of Indebtedness owing to the Guarantor or a Wholly-Owned Subsidiary) to exceed at any time (i) 25% of Total Capital, if the ratio of Total Debt to Total Capital is equal to or less than 0.50 to 1 at such time; and (ii) 20% of Total Capital, if the ratio of Total Debt to Total Capital is greater than 0.50 to 1 at such time. SECTION 5.10 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, the Guarantor will not, nor will it permit any of its Subsidiaries to, directly or indirectly enter into transactions with any Affiliates unless the monetary or business consideration arising therefrom would be substantially as advantageous to the Guarantor and its Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate. SECTION 5.11. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans hereunder solely for general corporate purposes (in compliance with all applicable legal and regulatory requirements); provided that neither any Agent nor any Bank shall have any responsibility as to the use of any of such proceeds. No part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. SECTION 5.12. ENVIRONMENTAL LAWS. The Guarantor will, and will cause each of its Subsidiaries to, comply in all material respects with the requirements of all applicable Environmental Laws and all ordinances and regulatory and administrative authorities with respect thereto, and shall not permit or suffer any of its Subsidiaries to, generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials other than in the ordinary course of business and in compliance in all material respects with applicable Environmental Laws, and shall not, and shall not permit or suffer any of its Subsidiaries to, cause or permit, as a result of any intentional or unintentional act or omission on the part of the Guarantor or any Subsidiary thereof, the installation or placement of Hazardous Materials in violation of or actionable under in any material respect applicable Environmental Laws onto any of its Property or suffer the presence of Hazardous Materials in violation of or actionable under in any material respect applicable Environmental Laws on any of its Property. The Guarantor shall, and shall cause each of its Subsidiaries to, promptly undertake and diligently pursue to completion any remedial clean-up action required of the Guarantor or any Subsidiary under applicable Environmental Laws in the event of any release of Hazardous Materials. SECTION 5.13. MOST FAVORED LENDER. The Guarantor will not and will not permit any Subsidiary to (a) enter into any indenture, agreement or other instrument under which any Indebtedness for borrowed money in excess of $15,000,000 for any such indenture, agreement or instrument (or series of related agreements or instruments) of the Guarantor or of any Subsidiary may be issued (a "Restricted Agreement"), or (b) agree to any amendment, waiver, consent, modification, refunding, refinancing or replacement of any Restricted Agreement, in either case, with terms the effect of which is to (i) include a Covenant which imposes a restriction, limitation or obligation in favor of another lender not imposed in favor of the Banks by this Agreement, or (ii) revise or alter any Covenant contained therein the effect of which is to impose a restriction, limitation or obligation in favor of another lender not imposed in favor of the Banks by this Agreement, unless the Guarantor or such Subsidiary, as the case may be, concurrently (x) notifies the Banks and the Administrative Agent thereof and (y) incorporates herein such additional, altered or revised Covenant. If the Administrative Agent at the time so elects by notice to the Guarantor and the Banks, the incorporation of each such additional Covenant shall be deemed to occur automatically without any further action or the execution of any additional document by any of the parties to this Agreement. If the Administrative Agent does not elect to effect such an automatic incorporation, the Administrative Agent shall promptly tender to the Guarantor and the Borrower for execution by them an amendment (executed by the Administrative Agent) incorporating such additional Covenant, and shall promptly deliver a copy of such amendment to the Banks. ARTICLE 6 DEFAULTS SECTION 6.1. EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) The Borrower and the Guarantor shall: default in the payment of any principal of any Loan when due (whether at stated maturity or at mandatory or optional prepayment); or default in the payment of any interest on any Loan, any fee or any other amount payable by it hereunder when due and such default shall have continued unremedied for five days; or (b) The Guarantor shall default beyond any applicable grace period, or, in the case of any Derivatives Obligations for which no grace period is otherwise provided, beyond five days, in the payment when due of any principal of or interest on any Indebtedness (other than the Indebtedness hereunder or under the Notes) aggregating $15,000,000 or more, or in the payment when due of amounts exceeding $15,000,000 in the aggregate for the payment or collateralization of Derivatives Obligations; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any instrument or agreement governing such Derivatives Obligations shall occur if the effect of such event is (or, with the giving of notice or the passage of time or both, would be) to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof or, in the case of an instrument or agreement governing such Derivatives Obligations, to permit the payments owing under such instrument or agreement to be liquidated; or (c) Any representation, warranty or certification made or deemed made herein (or in any modification or supplement hereto) by the Guarantor or the Borrower, or any certificate furnished to any Bank or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Guarantor shall default in the performance of its obligations under Sections 5.1(f), 5.5 through 5.9 (inclusive), or 5.13 hereof; or either of the Borrower or the Guarantor shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of 30 days after notice thereof to the Borrower by the Administrative Agent at the request of any Bank; or (e) The Guarantor or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Guarantor or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Guarantor or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Guarantor or such Subsidiary or of all or any substantial part of its Property, or (iii) similar relief in respect of the Guarantor or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Guarantor or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $15,000,000 in the aggregate shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Guarantor or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Guarantor or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 5.1(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Guarantor or any ERISA Affiliate shall incur or in the opinion of the Required Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would constitute, in the determination of the Required Banks, a Material Adverse Effect; or (j) Any Person or two or more Persons acting in concert shall have acquired, in one transaction or in a series of related transactions, beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Guarantor (or other securities convertible into such securities) representing 40% or more of the combined voting power of the Guarantor then outstanding securities entitled to vote in the election of directors (other than securities having such power only by reason of the happening of a contingency); or (k) at any time any obligation of the Guarantor under Article 9 shall for any reason cease to be in full force and effect, or the Guarantor shall so assert in writing; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 6.1 with respect to the Guarantor or the Borrower, (A) the Administrative Agent, upon request of the Banks having at least 51% of the aggregate amount of the Commitments, shall, by notice to the Borrower, terminate the Commitments and they shall thereupon terminate, and (B) the Administrative Agent, upon request of Banks holding at least 51% of the aggregate unpaid principal amount of the Loans, shall, by notice to the Borrower, declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 6.1 with respect to the Guarantor or the Borrower, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. 6.2. NOTICE OF DEFAULT. The Administrative Agent shall give notice to the Borrower under Section 6.1(d) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.1. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.2. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York and Citibank, N.A. shall each have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent, and Morgan Guaranty Trust Company of New York and Citibank, N.A. and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Guarantor or any Subsidiary or affiliate of the Guarantor as if it were not an Agent hereunder. SECTION 7.3. ACTION BY AGENT. The obligations of each Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default, except as expressly provided in Article 6. SECTION 7.4. CONSULTATION WITH EXPERTS. Each Agent may consult with legal counsel (who may be counsel for the Guarantor or the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5 LIABILITY OF AGENT. Neither Agent nor any of its affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither Agent nor any of its affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Guarantor or the Borrower; (iii) the satisfaction of any condition specified in Article 3, except in the case of the Administrative Agent receipt of items required to be delivered to such Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. Neither Agent 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 7.6. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify each Agent, its affiliates and the respective directors, officers, agents and employees of the foregoing (to the extent not reimbursed by the Borrower or the Guarantor) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.7. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon either Agent or any other Bank, 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 Bank also acknowledges that it will, independently and without reliance upon the either Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.8. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Administrative Agent reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Required Banks, 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 Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Administrative Agent, as, hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative 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 Administrative Agent. SECTION 7.9. AGENTS FEES. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Agent. SECTION 7.10. DOCUMENTATION AGENT AND CO-AGENTS. Nothing in this Agreement shall impose upon the Documentation Agent or any Co-Agent, in their respective capacities as such, any duty or obligation whatsoever. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.1. BASIS FOR DETERMINING 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 London Interbank Offered Rate, as the case may be, as determined by the Administrative Agent will not 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 Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or convert outstanding Loans as or 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 Borrower 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 8.2. 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 and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (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 8.3. INCREASED COST AND REDUCED RETURN. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (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 with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.16), 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 Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or 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 Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section but in any event within 45 days, after such Bank obtains actual knowledge thereof; PROVIDED that (i) if any Bank fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Bank shall, with respect to compensation payable pursuant to this Section 8.3 in respect of any costs resulting from such event, only be entitled to payment under this Section 8.3 for costs incurred from and after the date 45 days prior to the date that such Bank does give such notice and (ii) each Bank will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank shall use reasonable averaging and attribution methods. SECTION 8.4. TAXES. (a) For the purposes of this Section 8.4, 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 the Borrower or the Guarantor pursuant to this Agreement or under any Note, and all liabilities with respect thereto, EXCLUDING (i) in the case of each Bank and Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or such Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower and the Guarantor to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower or the Guarantor (as the case may be) shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.4) such Bank or such Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or Guarantor (as applicable) shall make such deductions, (iii) the Borrower or Guarantor (as applicable) shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower or Guarantor (as applicable) shall furnish to the Administrative Agent, at its address referred to in Section 10.1, the original or a certified copy of a receipt evidencing payment thereof. (c) Each of the Borrower and the Guarantor agrees to indemnify each Bank and each Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.4) paid by such Bank or such Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or such Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.4(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 shall not be entitled to indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.4, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.5. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If (i) the obligation of any Bank to make, or convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans 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, 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 Borrower 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. SECTION 8.6. SUBSTITUTION OF BANK. Provided that no Default shall have occurred and be continuing, if (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 the Borrower shall have the right to designate an Assignee which is not the Guarantor or an Affiliate to purchase for cash, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit G hereto, the outstanding Loans and Commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid facility fees in respect of such Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment, plus the compensation then due and payable pursuant to Sections 8.3 and 8.4. ARTICLE 9 GUARANTY SECTION 9.1. THE GUARANTY. The Guarantor hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by the Borrower pursuant to this Agreement, and the full and punctual payment of all other amounts payable by the Borrower under this Agreement. Upon failure by the Borrower to pay punctually any such amount, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. SECTION 9.2. GUARANTY UNCONDITIONAL. The obligations of the Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Borrower under this Agreement or any Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement or any Note; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of the Borrower under this Agreement or any Note; (iv) any change in the corporate existence, structure or ownership of the Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its assets or any resulting release or discharge of any obligation of the Borrower contained in this Agreement or any Note; (v) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Borrower, either Agent, any Bank 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; (vi) any invalidity or unenforceability relating to or against the Borrower for any reason of this Agreement or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower of the principal of or interest on any Note or any other amount payable by the Borrower under this Agreement; or (vii) any other act or omission to act or delay of any kind by the Borrower, either Agent, any Bank 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 Guarantor's obligations or the Borrower's obligations, as the case may be, hereunder. SECTION 9.3. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN CIRCUMSTANCES. The Guarantor's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Borrower under this Agreement shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Borrower under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 9.4. WAIVER BY THE GUARANTOR. The Guarantor 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 the Borrower or any other Person. SECTION 9.5. SUBROGATION. Upon making any payment with respect to the Borrower hereunder, the Guarantor shall be subrogated to the rights of the payee against the Borrower with respect to such payment; PROVIDED that the Guarantor shall not enforce any payment by way of subrogation until all amounts of principal of and interest on the Notes and all other amounts payable by the Borrower under this Agreement have been paid in full. SECTION 9.6. STAY OF ACCELERATION. If acceleration of the time for payment of any amount payable by the Borrower under this Agreement or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Guarantor hereunder forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Banks specified in Article 6 of this Agreement. ARTICLE 10 MISCELLANEOUS SECTION 10.1 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: (a) in the case of the Borrower, the Guarantor, or either Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (c) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent, the Guarantor and the Borrower. 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 8 shall not be effective until received. SECTION 10.2. NO WAIVERS. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 10.3 EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all out-of-pocket expenses of each Agent, including fees and disbursements of special counsel for the Agents, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs and is continuing, all out-of-pocket expenses incurred by each Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower and the Guarantor jointly and severally agree to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel and settlement costs, 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 hereunder; 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 10.4. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participation in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower or the Guarantor other than its indebtedness hereunder. Each of the Borrower and the Guarantor agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower or the Guarantor (as the case may be) in the amount of such participation. SECTION 10.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Guarantor and the Required Banks (and, if the rights or duties of either Agent are affected thereby, by such Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan, or any fees hereunder (iii) postpone the date fixed for any payment of principal of or interest on any Loan, or any fees hereunder or for termination of any Commitment (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or (v) release the Guarantor from any of its obligations under, or modify in any material respect the provisions of, Article 9; and PROVIDED FURTHER that, at the option of the Administrative Agent, an additional, altered or revised Covenant shall be incorporated herein pursuant to Section 5.13 either (i) automatically or (ii) by an amendment signed solely by the Administrative Agent, the Guarantor and the Borrower. SECTION 10.6. 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 the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 10.5 without the consent of the Participant. Each of the Borrower and the Guarantor agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 2.16 and Article 8 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 Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000, unless a lower amount is agreed to by the Borrower and the Administrative Agent) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower, which shall not be unreasonably withheld, and the Administrative Agent; PROVIDED that if an Assignee is an affiliate of such transferor Bank, no such consent shall be required; and PROVIDED FURTHER that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 10.7. COLLATERAL. Each of the Banks represents to each of the Agents and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 10.8. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower and the Guarantor hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower and the Guarantor irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 10.9. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. 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. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 10.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTOR, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 10.11 CONFIDENTIALITY. The Agents and each Bank agree to keep any information delivered or made available by the Borrower or the Guarantor pursuant to this Agreement confidential from anyone other than persons employed or retained by it who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; PROVIDED that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank or to an Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c)upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by an Agent or Bank prohibited by this Agreement, (f) in connection with any litigation to which an Agent or Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank's or the Agents' legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. 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. FRIES & FRIES, INC., as Borrower By__________________________ Name: Title: Address: Facsimile: (708) 949-3756 MALLINCKRODT GROUP INC., as Guarantor By__________________________ Name: Title: Address: Facsimile: Commitments $49,500,000 CITIBANK, N.A. By__________________________ Name: Title: $49,500,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By__________________________ Name: Title: $37,000,000 BANK OF AMERICA ILLINOIS By__________________________ Name: Title: $37,000,000 THE CHASE MANHATTAN BANK, N.A. By__________________________ Name: Title: $37,000,000 THE FIRST NATIONAL BANK OF CHICAGO By__________________________ Name: Title: $26,000,000 ABN-AMRO BANK N.V., CHICAGO BRANCH By__________________________ Name: Title: By__________________________ Name: Title: $26,000,000 BANCA COMMERCIALE ITALIANA By__________________________ Name: Title: By__________________________ Name: Title: $26,000,000 BANK OF IRELAND By__________________________ Name: Title: $26,000,000 THE BANK OF NOVA SCOTIA By__________________________ Name: Title: $26,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD. CHICAGO BRANCH By__________________________ Name: Title: $26,000,000 BANQUE PARIBAS By__________________________ Name: Title: $26,000,000 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By__________________________ Name: Title: $26,000,000 CIBC INC. By__________________________ Name: Title: $26,000,000 DEUTSCHE AG CHICAGO AND/OR CAYMAN ISLANDS BRANCHES By__________________________ Name: Title: By__________________________ Name: Title: $26,000,000 THE FUJI BANK, LIMITED By__________________________ Name: Title: $26,000,000 MELLON BANK, N.A. By__________________________ Name: Title: $26,000,000 SOCIETE GENERALE By__________________________ Name: Title: $26,000,000 THE SUMITOMO BANK, LTD. By__________________________ Name: Title: $26,000,000 UNION BANK OF SWITZERLAND By__________________________ Name: Title: By__________________________ Name: Title: $26,000,000 YASUDA TRUST & BANKING CO., LTD. CHICAGO BRANCH By__________________________ Name: Title: _________________ Total Commitments $600,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By__________________________ Name: Title: 60 Wall Street New York, New York 10260 Telex number: 177615 MGT UT Facsimile number:(212) 648-5336 CITIBANK, N.A., as Documentation Agent By__________________________ Name: Title: 399 Park Avenue New York, New York 10043 Facsimile number: (212) 826-2371 EXHIBIT A - Note NOTE New York, New York ____________,_____ For value received, Fries & Fries, Inc. (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the $600,000,000 Credit Agreement dated as of May 22, 1996 among the Borrower, Mallinckrodt Group Inc., as Guarantor, the banks party thereto from time to time, Morgan Guaranty Trust Company of New York, as Administrative Agent and Citibank, N.A., 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 the prepayment hereof and the acceleration of the maturity hereof. FRIES & FRIES, INC. By____________________ Name: Title: LOANS AND PAYMENTS OF PRINCIPAL __________________________________________________________________________ Amount Type Amount of of of Maturity Principal Notation Date Loan Loan Date Repaid Made By ---- ------ ---- -------- --------- -------- __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ EXHIBIT B - Money Market Quote Request Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York From: Fries & Fries, Inc. Re: $600,000,000 Credit Agreement (the "Credit Agreement") dated as of May 22, 1996 among Fries & Fries, Inc., as Borrower, Mallinckrodt Group Inc., as Guarantor, the Banks party thereto from time to time, Morgan Guaranty Trust Company of New York, as Administrative Agent and Citibank, N.A., 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(1) Interest Period (2) - ------------------- ------------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. FRIES & FRIES, INC. By________________________ Name: Title: (1) Amount must be $10,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. EXHIBIT C - Invitation for Money Market Quotes Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to Fries & Fries, Inc. (the "Borrower") Pursuant to Section 2.3 of the $600,000,000 Credit Agreement dated as of May 22, 1996 among Fries & Fries, Inc., as Borrower, Mallinckrodt Group Inc., as Guarantor, the Banks party thereto from time to time, Citibank, N.A., as Documentation Agent and the undersigned, as Administrative Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period - ---------------- --------------- $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By______________________ Authorized Officer EXHIBIT D - Money Market Quote Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Administrative Agent Re: Money Market Quote to Fries & Fries, Inc. (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 (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the $600,000,000 Credit Agreement dated as of May 22, 1996 among Fries & Fries, Inc., Mallinckrodt Group Inc., as Guarantor, the Banks party thereto from time to time, Citibank, N.A., as Documentation Agent, and yourselves, as Administrative Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:___________ By:__________________________ Authorized Officer __________ 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 one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT E - Opinion of Counsel for the Borrower [Closing Date] Each of the Banks and each of the Agents party to the Credit Agreement referred to below Morgan Guaranty Trust Company of New York as Administrative Agent for said Banks 60 Wall Street New York, NY 10260 Ladies and Gentlemen: I am the General Counsel of Mallinckrodt Group Inc., a corporation organized under the laws of the State of New York (the "GUARANTOR") and am furnishing this opinion in connection with the Credit Agreement dated as of May 22, 1996 (the "CREDIT AGREEMENT") among Fries & Fries, Inc., the Borrower, the Guarantor, the banks party thereto from time to time, Citibank, N.A. as Documentation Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent, providing for, among other things, the making of loans by the Banks in an aggregate principal amount not exceeding $600,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, I have examined: (i) the Credit Agreement; (ii) the Notes (collectively with the Credit Agreement, the "CREDIT DOCUMENTS"); and (iii) such corporate records, agreements and instruments of the Borrower and the Guarantor and such other documents and records as I have deemed necessary as a basis for the opinions expressed below. In my examination, I have assumed the genuineness of all signatures (except those of officers of the Borrower and the Guarantor), the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon representations made in or pursuant to the Credit Documents and certificates of appropriate representatives of the Borrower and the Guarantor. In rendering the opinions expressed below, I have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to the Borrower and the Guarantor): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that: 1. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, and the Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. The Borrower has all requisite corporate power to execute and deliver, and to perform its obligations under, each Credit Document and has all requisite corporate power to borrow under the Credit Agreement. The Guarantor has all requisite corporate power to execute and deliver, and to perform its obligations under, the Credit Agreement. 3. The execution, delivery and performance by the Borrower of the Credit Documents and the borrowings by the Borrower under the Credit Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. The execution, delivery and performance by the Guarantor of the Credit Agreement have been duly authorized by all necessary corporate action on the part of the Guarantor. 4. Each Credit Document has been duly executed and delivered by the Borrower. The Credit Agreement has been duly executed and delivered by the Guarantor. 5. Under Missouri conflict of laws principles, the stated choice of New York Law to govern the Credit Documents will be honored by the courts of the State of Missouri and the Credit Documents will be construed in accordance with, and will be treated as being governed by, the law of the State of New York. However, if the Credit Documents were stated to be governed by and construed in accordance with the law of the State of Missouri, or if a court were to apply the law of the State of Missouri to the Credit Documents, (i) each Credit Document (assuming, in the case of the Notes, execution and delivery thereof for value) would constitute the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, and (ii) the Credit Agreement would constitute the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except, in each case, as the foregoing may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Documents is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. 6. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency is required on the part of either the Borrower or the Guarantor for (i) the execution, delivery or performance by the Borrower of, or for the legality, validity or enforceability of, the Credit Documents or for any borrowing by the Borrower under the Credit Agreement or (ii) the execution, delivery or performance by the Guarantor of, or for the legality, validity or enforceability of, the Credit Agreement. 7. The execution, delivery and performance by each of the Borrower and the Guarantor of the Credit Agreement and, in the case of the Borrower, the Notes, and borrowings by the Borrower under the Credit Agreement, do not and will not (a) violate any provision of the charter or by-laws of the Borrower or Guarantor, (b) violate any applicable law, rule or regulation, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to the Borrower or the Guarantor of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which I have knowledge (after due inquiry) to which the Borrower or Guarantor is a party or by which the Borrower or Guarantor is bound or to which the Borrower or Guarantor is subject. 8. Except as may be disclosed in regular periodic reports filed with the Securities and Exchange Commission prior to the date of the Credit Agreement (copies of which reports have heretofore been furnished to the Banks), I have no knowledge (after due inquiry) of any legal or arbitral proceeding by or before any governmental or regulatory authority or agency, now pending or threatened against the Guarantor or any of its Subsidiaries or any of their respective Properties that, if adversely determined, is reasonably likely to have a Material Adverse Effect. 9. Neither the Guarantor, the Borrower nor any of the Guarantor's other Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 10. Neither the Guarantor, the Borrower nor any of the Guarantor's other Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. The foregoing opinions are subject to the following comments and qualifications: A. The enforceability of Section 10.3 of the Credit Agreement may be limited by laws rendering unenforceable indemnification contrary to Federal or State securities laws and the public policy underlying such laws. B. The enforceability of provisions in the Credit Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. C. I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than the State of Missouri) that limit the interest, fees, or other charges such Bank may impose, and (ii) the second sentence of Section 10.8 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Documents. The foregoing opinions are limited to matters involving the Federal law of the United States of America, the law of the State of Missouri and (with respect to my opinions in paragraphs 1 through 4 above) the Business Corporation Law of the State of New York and the General Corporation Law of the State of Delaware, and I do not express any opinion as to any other laws. At the request of my client, this opinion letter is, pursuant to Section 3.1(b) of the Credit Agreement, provided to you by me in my capacity as General Counsel of the Guarantor and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent. Very truly yours, EXHIBIT F - Opinion of Special Counsel for the Agents OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS -------------------------------------- [Closing Date] To the Banks and the Agents Referred to Below c/o Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Ladies and Gentlemen: We have participated in the preparation of the $600,000,000 Credit Agreement (the "Credit Agreement") dated as of May 22, 1996 among Fries & Fries, Inc., as Borrower, (the Borrower"), Mallinckrodt Group Inc., as Guarantor (the "Guarantor"), the banks party thereto from time to time (the "Banks"), Citibank, N.A., as Documentation Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.1(c) 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: 1. The execution, delivery and performance by the Borrower and the Guarantor of the Credit Agreement and by the Borrower of the Notes are within the Guarantor's or the Borrower's, as applicable, corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of each of the Borrower and the Guarantor and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 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, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT G - Assignment and Assumption Agreement ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), Fries & Fries, Inc. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Agent"). WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the $600,000,000 Credit Agreement dated as of May 22, 1996 among the Borrower, Mallinckrodt Group Inc., as Guarantor, the Assignor and the other Banks party thereto from time to time, as Banks, Citibank, N.A., as Documentation Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower and the Administrative Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds in the amount heretofore mutually agreed between them. It is understood that facility fees in respect of the Assigned Amount accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. CONSENT OF THE BORROWER AND THE ADMINISTRATIVE AGENT. This Agreement is conditioned upon the consent of the Borrower and the Administrative Agent pursuant to Section 10.6(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 10.6(c), the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, any other Bank or either Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 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: FRIES & FRIES, INC. By__________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By__________________________ Name: Title: EX-10.23 13 Exhibit 10.23 SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the ___ day of _________, 1996 (the "Effective Date") by and between Mallinckrodt Group Inc., a New York corporation (the "Company"), and _____________ ("Executive"). W I T N E S S E T H WHEREAS, Executive currently serves as a key employee of the Company and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, departments or subsidiaries; and WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and WHEREAS, the Board as of the date hereof has determined that it is in the best interests of the Company and its stockholders to secure its executives' continued services and to ensure its executives' continued and undivided dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1(b)) of the Company, the Board has authorized the Company to enter into this Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Cause" means (i) the willful and continued failure of Executive substantially to perform his duties with the Company (other than any failure due to physical or mental incapacity) after a demand for substantial performance is delivered to him by the Board which specifically identifies the manner in which the Board believes he has not substantially performed his duties or (ii) willful misconduct materially and demonstrably injurious to the Company. No act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The unwillingness of Executive to accept any condition or event which would constitute Good Reason under Section 1(f) may not be considered by the Board to be a failure to perform or misconduct by Executive. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-quarters (3/4) of the entire Board at a meeting of the Board called and held (after reasonable notice to Executive and an opportunity for Executive and his counsel to be heard before the Board) for the purpose of considering whether Executive has been guilty of such a willful failure to perform or such willful misconduct as justifies termination for cause hereunder, finding that in the good faith opinion of the Board Executive has been guilty thereof and specifying the particulars thereof. The Company must notify Executive of an event constituting Cause within ninety (90) days following the Board's knowledge of its existence or such event shall not constitute Cause under this Agreement. (b) "Change in Control" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary of the Company, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary of the Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition by Executive or any group of persons including Executive; or (F) except as provided in (iii) below, in which Company Voting Securities are acquired from the Company, if a majority of the Board approves a resolution providing expressly that the acquisition pursuant to this clause (F) does not constitute a Change in Control under this paragraph (i); (ii) individuals who, on April 19, 1996, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to April 19, 1996, whose election, or nomination for election, by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this paragraph (ii), considered as though such person were a member of the Incumbent Board; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a member of the Incumbent Board; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction requiring the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities or all or substantially all of the Company's assets) eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination), or any person which beneficially owned, immediately prior to such Business Combination, directly or indirectly, 20% or more of the Company Voting Securities (a "Company 20% Stockholder")) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination and no Company 20% Stockholder increases its percentage of such total voting power, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the approval of the Board of the execution of the initial agreement providing for such Business Combination (a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which, by reducing the number of Company Voting Securities outstanding, increases the percentage of shares beneficially owned by such person; PROVIDED, THAT if a Change in Control of the Company would occur as a result of such an acquisition by the Company (if not for the operation of this sentence), and after the Company's acquisition such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, then a Change in Control of the Company shall occur. Notwithstanding anything in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control, and Executive reasonably demonstrates that such termination was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and who effectuates a Change in Control, then for all purposes of this Agreement, the date of a Change in Control shall mean the date immediately prior to the date of such termination of employment. (c) "Company" means Mallinckrodt Group Inc., a New York corporation. (d) "Date of Termination" means (1) the effective date on which Executive's employment by the Company terminates as specified in a Notice of Termination by the Company or Executive, as the case may be, or (2) if Executive's employment by the Company terminates by reason of death, the date of death of Executive. Notwithstanding the previous sentence, (i) if the Executive's employment is terminated for Disability (as defined in Section 1(e)), then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Executive's employment is terminated by the Company other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received. In the event Executive's employment is terminated in connection with a request by a Third Party (as described in Sections 1(b) and 1(f)) and Executive becomes entitled upon the effectuation of a Change in Control by the Third Party to severance payments and/or benefits under Sections 4(a) and/or 4(b), the date the Change in Control is effectuated by the Third Party shall be treated as Executive's Date of Termination for purposes of determining the timing of payments and benefits under Sections 4(a) and 4(b). (e) "Disability" means physical or mental incapacity qualifying Executive for long-term disability under the Company's long-term disability plan. (f) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control: (1) (i) the assignment to Executive of any duties or responsibilities (including reporting responsibilities) inconsistent in any material and adverse respect with Executive's duties and responsibilities with the Company immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities); PROVIDED, HOWEVER, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity, and does not involve any other event set forth in this paragraph (f), (ii) a material and adverse change in Executive's titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any attempted removal or involuntary termination of Executive by the Company otherwise than as expressly permitted by this Agreement pursuant to a Nonqualifying Termination (or any purported termination of employment which is not effected by a Notice of Termination, which termination shall not be effective); (2) a reduction by the Company in Executive's rate of annual base salary or target annual bonus opportunity as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that Executive (i) notwithstanding Executive's objection, be based anywhere more than fifty (50) miles from the location where Executive's employment is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control; (4) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control (including the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan), unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits, (ii) provide Executive and Executive's dependents with welfare benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control or provide substantially comparable benefits at a substantially comparable cost to Executive, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control, or provide substantially comparable fringe benefits, or (iv) provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for Executive immediately prior to such Change in Control (including crediting Executive with all service credited to Executive for such purpose prior to the Change in Control), unless the failure to provide such paid vacation is a result of a policy uniformly applied by the entity acquiring the Company to its employees; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 9(b). Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Any event or condition described in this Section 1(f)(1) through (4) which occurs prior to a Change in Control, but which Executive reasonably demonstrates was at the request of a Third Party who effectuates a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control. Executive must notify the Company of an event constituting Good Reason within ninety (90) days following his knowledge of its existence or such event shall not constitute Good Reason under this Agreement. (g) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than Good Reason, (3) as a result of Executive's death, (4) by the Company due to Executive's Disability, unless within thirty (30) days after Notice of Termination is provided to Executive pursuant to Section 10 following such absence Executive shall have returned to performance of Executive's duties on a full-time basis, or (5) as a result of Executive's Retirement. (h) "Notice of Termination" means notice of the Date of Termination as described in Section 10(b). (i) "Retirement" means termination of employment by either Executive or the Company (other than for Cause) on or after Executive's normal retirement date under the terms of the Retirement Plan (other than if any such Retirement also constitutes Good Reason). (j) "Retirement Plan" means The Mallinckrodt Retirement Plan or any successor or substitute plan or plans of the Company. (k) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) Executive's death and (2) three (3) years following such Change in Control. 2. TERM OF AGREEMENT. This Agreement shall commence on the Effective Date and shall continue in effect until the first to occur of (i) Executive's termination of employment prior to a Change in Control (except as otherwise provided herein), (ii) a Nonqualifying Termination during the Termination Period or (iii) the completion of the Termination Period; PROVIDED, HOWEVER, that benefits and payments otherwise owed to Executive under this Agreement following a termination of employment during the Termination Period may continue beyond the completion of the Termination Period. 3. OBLIGATIONS OF EXECUTIVE. Executive agrees that if a Change in Control shall occur, he will not voluntarily leave the employ of the Company (other than as a result of Disability or upon Retirement) without Good Reason until ninety (90) days following such Change in Control. 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executive's beneficiary or estate) within five (5) days following the Date of Termination, as compensation for services rendered to the Company: (1) a lump-sum cash amount equal to the sum of Executive's unpaid base salary from the Company and its affiliated companies through the Date of Termination (without taking into account any reduction of base salary constituting Good Reason) plus any bonus payments which have become payable, to the extent not theretofore paid; (2) to the extent not paid under the terms of such annual incentive compensation plan, a lump-sum cash amount equal to the target award for Executive under the Company's annual incentive compensation plan for the fiscal year in which his Date of Termination occurs, reduced pro rata for that portion of the fiscal year not completed as of the end of the month in which such Date of Termination occurs; and (3) a lump-sum cash amount equal to [two and one-half (2 1/2)] [two (2)] times the sum of (A) Executive's annual rate of base salary from the Company and its affiliated companies in effect immediately prior to the Date of Termination (not taking into account any reductions which would constitute Good Reason) plus (B) Executive's target bonus for the fiscal year of the Company in which the Change in Control occurs; PROVIDED, that any amount paid pursuant to this Section 4(a)(3) shall offset any other amount of severance relating to salary or bonus continuation to be received by Executive upon termination of employment of Executive under any other severance plan, policy, employment agreement or arrangement of the Company. (b) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then for a period of [thirty (30)] [twenty-four (24)] months following the Date of Termination, the Company shall provide Executive (and Executive's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including cost of coverage) as existed immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); PROVIDED, THAT, if Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, if Executive becomes reemployed with another employer and is eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of Executive's eligibility, but only to the extent that the Company reimburses Executive for any increased cost and provides any additional benefits necessary to give Executive the benefits promised hereunder. (c) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, Executive shall be credited with [two and one-half (2 1/2)] [two (2)] additional years of credited service for purposes of calculating benefits under the Company's Supplemental Executive Retirement Plan. (d) If during the Termination Period the employment of Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to Executive within five (5) days following the Date of Termination a lump sum cash amount equal to the sum of Executive's unpaid base salary from the Company through the Date of Termination plus any bonus payments which have become payable, to the extent not theretofore paid. 5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-up Payment is to be made and applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (b) Subject to the provisions of Section 5(c), all determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-up Payment under this Section 5 should be made within thirty (30) days of any Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-up Payments will be made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Executive to or for the benefit of the Company. Executive shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 6. WITHHOLDING TAXES. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 7. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all reasonable legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute regardless of the result thereof. Executive agrees that in the event it is determined in an arbitration proceeding that Executive's basis for a contest or dispute was frivolous and not advanced in good faith, Executive shall be obligated to return to the Company any such reimbursed legal fees and expenses within sixty (60) days following the determination. 8. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its Subsidiaries. 9. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement shall not be terminated by any Business Combination. In the event of any Business Combination, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any Business Combination, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any Business Combination that does not constitute a Non-Control Transaction shall be a breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. 10. NOTICE. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: If to Executive: If to the Company: Mallinckrodt Group Inc. 7733 Forsyth Boulevard St. Louis, MO 63105 Attention: Corporate Secretary or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice (a "Notice of Termination") of Executive's Date of Termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the Date of Termination. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. 11. FULL SETTLEMENT. The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, except as provided in Section 4(b), such amounts shall not be reduced whether or not Executive obtains other employment. 12. EMPLOYMENT. Employment for purposes of this Agreement means employment with the Company or any Subsidiary. 13. GOVERNING LAW; VALIDITY. The validity, interpretation, and enforcement of this Agreement shall be governed by the law of the State of New York. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 14. ARBITRATION. Any dispute or controversy under this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 14. 15. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire agreement of the parties in respect of the subject matter hereof and specifically supersedes and overrides the Employment Agreement, dated _______________, and the letter agreement with respect to Gross-up Payments, dated _______________. No provision of this Agreement may be amended, waived or discharged except by the mutual written agreement of the parties. 16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. MALLINCKRODT GROUP INC. Date: __________ By:____________________ Name: Title: [EXECUTIVE] DATE: __________ _______________________ EX-10.24 14 Exhibit 10.24 MALLINCKRODT GROUP INC. EXECUTIVE LIFE INSURANCE PLAN PARTICIPATION AGREEMENT THIS AGREEMENT is made this __________ day of ____________________, 1996 between Mallinckrodt Group Inc., a Missouri corporation, (hereinafter the "Company"), and __________________________ a key employee of the Company (hereinafter the "Participant"). WHEREAS the Board of Directors of the Company has approved the Executive Life Insurance Plan for selected key management employees for the purpose of attracting and retaining outstanding individuals as management employees of the Company; and WHEREAS such Executive Life Insurance Plan provides that the Participant becomes eligible to participate upon designation by the Company; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the Company and the Participant agree as follows: 1. PARTICIPATION - This agreement is made to evidence the Participant's participation in the Executive Life Insurance Plan for selected key management employees (hereinafter the "Plan"), and to establish the amount of the Participant's Survivor Benefit under the Plan. 2. SURVIVOR BENEFIT - The Participant's Survivor Benefit, as defined in the Plan, is four times final base salary. Because the benefit is subject to income tax when paid to the beneficiary, the benefit amount will be increased to include all income taxes payable as a result of this Plan. 3. NON-QUALIFIED PLAN - The Participant's right to a benefit from the Plan is "non-qualified" and the Plan is unfunded in a technical and legal sense. The Participant's sole claim to payments is as a general creditor of the Company. Any informal funding the Company chooses to utilize in meeting its obligations, including life insurance policies insuring the Participant's life, is and will continue to be general, unrestricted assets of the Company. 4. ADOPTION OF THE PLAN - The Plan (and all its provisions), as it now exists and as it may be amended hereafter, is incorporated herein and made a part of this Agreement. 5. DEFINITIONS - When used herein, the terms which are defined in the Plan shall have the meanings given them in the Plan, unless a different meaning is clearly required by the context. 6. ENTIRE AGREEMENT - This agreement contains the entire agreement and understanding by and between the Company and the Participant, and no representations, premises, agreements, or understandings, written or oral, not contained herein shall be of any force or effect. 7. GOVERNING LAW - This Agreement will be effective when accepted by the Company at its office in Missouri, and will constitute a Missouri contract. IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate originals as of the day and year first above written. ___________________________ Participant Approved and accepted by Mallinckrodt Group Inc. in Missouri on ____________, 1996. By: ___________________________ EX-11.1 15 Exhibit 11.1
EARNINGS PER SHARE PRIMARY COMPUTATION Years Ended June 30, 1996, 1995 and 1994 ($ in millions except share and per share amounts) 1996 1995 1994 ------ ------ ------- Basis for computation of earnings per common and common equivalent shares: Earnings from continuing operations $191.2 $163.9 $ 87.9 Deduct dividends on 4 Percent cumulative preferred stock (.4) (.4) (.4) ------- ------- ------- Earnings from continuing operations available for common shareholders 190.8 163.5 87.5 Discontinued operations 20.7 16.4 15.9 ------- ------- ------- Available for common shareholders $211.5 $179.9 $103.4 ======= ======= ======= Number of common and common equivalent shares: Weighted average shares outstanding 75,183,729 76,687,154 76,809,532 Shares issuable upon exercise of stock options, net of shares assumed to be repurchased 1,159,663 770,960 797,884 ---------- ---------- ---------- 76,343,392 77,458,114 77,607,416 ========== ========== ========== Earnings per common and common equivalent share: Continuing operations $2.50 $2.11 $1.13 Discontinued operations .27 .21 .20 ------ ------ ------ Net earnings $2.77 $2.32 $1.33 ====== ====== ======
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